Telecom posts Q2 result at higher end of expectations

By NZPA

Tuesday 4th February 2003

New Zealand's largest listed company, Telecom, has posted a second quarter and half year result at the higher end of expectations.

The company's quarterly net profit was a rise of less than one percent before one-off items at $155 million, beating the average forecast of $149 million.

Telecom's half year surplus was $301 million to December 31, a 3.5 percent drop on the previous corresponding half year. Expectations, however, were for a figure around $296 million.

The interim dividend of 5cps brought no surprises.

The market appeared to approve of the result, with Telecom shares lifting 7c to $4.52 by 9.15am.

Telecom's results are down on the previous corresponding periods but analysts point out that 2001's second quarter was boosted by a number of positive abnormal gains.

It made a net profit of $161 million in the second quarter of 2001 and its half year earnings were $312 million.

The company said that, on an adjusted basis, net earnings for the half year to December 2002 increased by 4.2 percent.

It said that after stripping out gains from cross-border leases, the sale of international network capacity and a lower amortisation charge, first half net earnings in 2001 were $289 million.

Faced with a toughening environment towards telcos overseas and at home, Telecom has focused on reducing capital expenditure (capex) and paying back debt.

While its overall operating revenues for the half year fell by 8.4 percent to $2.6 billion, Telecom's cost cutting programme saw operating expenses reduced by 13 percent.

Capex for the first half was $205 million, half that of a year before. The company has revised its full year goal of capex to $650 million from its previous goal of $730 million .

Group earnings before interest, tax, depreciation and amortisation (ebitda) were $1.088 billion, down 1.2 percent on the previous year.

Telecom chairman Roderick Deane said the group continued to produce a solid operating performance in what was a testing environment for telecommunications companies globally.

"Enormous change is happening across the sector making the environment challenging for all companies," he said.

"Within that context, Telecom is maintaining its focus on business fundamentals, lifting the performance of its business units."

Dr Deane noted Telecom had repaid about $600 million in debt during the 2002 calendar year.

Telecom chief executive Theresa Gattung described Telecom's mainstay, the New Zealand operations, as "resilient".

Main growth was in mobile and Internet business, with the New Zealand Wireline division seeing a lift in ebitda for the half year by 2.5 percent to $814 million.

Wireline's operating revenue decreased by 1.5 percent, due to reduced interconnection and calling revenues, but operating expenses were down 6.7 percent.

An increase in mobile data traffic such as text messaging also boosted the New Zealand mobile division. Ebitda there increased 25 percent, reflecting a 9.7 percent drop in operating expenses as a result of lower customer acquisition costs and 1 percent higher revenue.

Analysts, however, were watching for signs of improvement in Telecom's Australian operations, which have shifted to high-value customers.

As expected, the Australian arm's revenues were down 26.3 percent as it shifted focus, but operating expenses fell 26.1 percent, Ms Gattung noted.

"Across the Tasman, we are seeing strong cashflow performance, particularly when compared to 12 months ago. Cashflow in Australia is now $42 million while a year ago that figure was negative $50 million."

Ebitda for the Australian consumer arm, which comprised AAPT's residential and small business calling and resale business and the AAPT mobile business, fell 28.9 percent to $27 million for the half year.

Ms Gattung said this was largely due to gains from a mobile services agreement with Vodafone in the previous year.

Stephen Wright of ASB Securities said Telecom's result was slightly better than hoped.

"But revenue is down slightly. Cashflow positive in Australia, it's still tough over there, and the main emphasis is on cutting costs -- which is all fine, but obviously the market prefers revenue growth."

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