Deane promises Telecom will do better

By Phil Boeyen, ShareChat Business News Editor

Thursday 15th February 2001

New Zealand bellwether stock Telecom (NZSE: TEL) has reported an interim profit of $300 million to the end of December, falling $106 million or 26% on the previous year.

The result is about the middle range of analysts' expectations.

Chairman Rod Deane says, as expected, the result was down from the corresponding period in 1999, principally due to costs arising from Telecom's Australian growth initiatives including the takeover of AAPT.

However he is promising things should improve.

"The Board and management are committed to lifting the performance of Telecom in the short term, as well as to improvement in earnings over the long term through transformation into an Australasian online and communications group."

New Zealand revenue for the period gave nothing for the company to shout about, up just 2.3%, but things were better in Australia where revenue increased more than 50% to A$659 million. Total revenue was $2.673 billion from $1.880 billion the previous year.

Nearly all its divisions across the Tasman increased earnings, including national call revenue up 50% to A$181 million and mobile up 16% to A$123 million. Only international revenue fell, down 4.8% to A$80 million.

However expenses in Australia also grew, by 54% to A$642 million.

In New Zealand the best performers were data and internet revenue, both up around 15%.

In the much-watched mobile phone market Telecom gained 120,000 connections in New Zealand during the second quarter to take its total connections to around 1.15 million, but there was little growth in the number of more lucrative post-paid customers.

Financially, total mobile revenue eased, down 1.1% compared with the previous year. The number of minutes on the company's mobile network increased 13% but the average revenue per unit fell during the half year by 28% to $39.60, a reflection of the competitive market.

CEO Theresa Gattung must be hoping for a strong boost when the company introduces its CDMA network in the middle of the year, because even the best comment she could muster on the mobile business was that it had managed to achieve "stability in our market share and a marked slow down in growth of cost of sales".

As far as the telco's interest in acquiring the mobile business of Australian operator Cable & Wireless Optus goes the company has said nothing new, although Mr Deane noted that it is committed to enhancing its financial flexibility to support the ability to pursue growth opportunities.

Telecom also says it is still reviewing the options for the rollout of AAPT's CDMA network, which was suspended in December.

The company has also signalled it will continue to tackle TelstraSaturn head-on as its rival rolls out a combined phone-internet-pay TV service throughout New Zealand.

Telecom has already cut local phone access in TelstraSaturn's Wellington and Christchurch markets, and now plans to introduce phone, internet and home entertainment packages nationally in combination with pay-TV operator Sky Television (NZSE: SKY).

The packages have been in trial since June last year.

Telecom has again announced a 5 cents per share dividend, matching its first quarter payout. Combined the two dividends represent a distribution of approximately 59% of net earnings for the half-year.

This is above the targeted dividend payout ratio of 50%, suggesting that unless the second half of the year improves, shareholders are likely to see a drop in the fourth quarter payout.

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