Telecom defends accounts

By Phil Boeyen, ShareChat Business News Editor

Wednesday 20th February 2002

Speculation over Telecom NZ's (NZSE: TEL) accounting practices have spurred the company to issue a release defending itself.

A report in the Australian Financial Review on Wednesday claimed the New Zealand telco had been "criticised for aggressive practices to enhance profits."

The paper claimed that the company's half-year results released on Tuesday used a series of methods that allowed it to exceed expectations for net earnings.

Analysts have reportedly pointed the finger at Telecom for upfront recognition of revenues from long-term contracts, including swapping space on cables and other telcos. They say the revenues should be spread out over the life of a contract rather than increasing short-term earnings.

However Telecom's chief financial officer, Marko Bogoievski, says the company has always been committed to sound accounting practice and to comprehensive disclosure on its financial performance.

He says revenue gained from the sale of international cable capacity was fully explained in the company's half-year announcement yesterday.

"Our accounting treatment of capacity sales is entirely consistent with accounting standards in NZ and Australia.

"Telecom prides itself on its financial disclosure and we have gone to some lengths to explain this issue fully. We are confident that the company's half year announcement upheld our high standards of transparency in reporting to the market."

The AFR reported that the Australian Securities and Investments Commission is reviewing the accounting practices and New Zealand's Securities Commission has confirmed it will also be taking a look.

Although the market initially reacted favourably to Telecom's half-year result the stock has since been sold off amid the negative reports.

Meanwhile ratings agency Moody's Investors Service has placed Telecom on notice for a possible ratings downgrade due to concerns over its Australian businesses.

Moody's says the review for a possible downgrade applies to Telecom Corp and its supported subsidiaries but not to the commercial paper ratings, which have been confirmed.

"While the agency recognizes the company's strong performance in New Zealand, it is concerned that TCNZ's ability to reduce debt, and/or re-invest for future growth, at a level consistent with the existing rating, is hampered by the underperformance of the Australian operations.

"The review will focus on prospects for both the Australian and New Zealand businesses, and options available to TCNZ to ameliorate financial risk."

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