Mobiles, broadband star for Telecom

Telecom executives (from left) Marko Bogoievski, Theresa Gattung and Simon Moutter announce the result yesterday. Picture / Fotopress

Telecom has enjoyed vigorous growth in its mobile phone and broadband internet businesses but is spending more to gain market share and that may reduce prospects of a special dividend this year.

The company, the largest on the New Zealand sharemarket, yesterday reported a second-quarter profit of $198 million - slightly higher than analysts' forecasts but a bit lower than in the same period last financial year.

Analysts approved of the result and Telecom shares closed 12c higher at $6.28 yesterday, propelling the sharemarket up nearly 1 per cent and the top 50 index to a record.

Chief executive Theresa Gattung said the quarter featured strong revenue growth in domestic mobile, broadband and IT services.

The company had enjoyed "a fantastic quarter" in broadband, with the number of residential customers rising 65 per cent to 123,000.

While the local mobile phone business had lost ground to Vodafone in recent years, chief operating officer Simon Moutter said mobile had been the company's "star performer" over the quarter, with a net 96,000 new connections taking total connections to 1.46 million.

A week ago, Vodafone said it had gained 74,000 customers in the December quarter, taking its total customer base to 1.83 million.

In the past two years, Telecom has switched focus from cutting costs and debt to investment in its transition from voice services to the newer technologies.

Telecom's higher New Zealand mobile, data, internet and interconnection revenues were partly offset by declines in calling and local service revenue and higher expenses associated with growing its businesses.

Moutter said the company was spending far more on expanding its mobile and broadband businesses than they were returning. They were expected to become cashflow-positive within two years.

Gattung said the company remained comfortable with consensus forecasts of a full-year profit of just under $820 million.

Goldman Sachs JB Were institutional adviser Joe Gallagher said the result was a "benign" one although Telecom's positive performance in subscriber additions came at a cost, with operating expenditure "above what we were looking for".

Telecom chief financial officer Marko Bogoievski said the company had increased its full-year capital expenditure outlook to $700 million from the $650 million it had previously estimated.

Gallagher said many analysts expected Telecom to make a capital repayment of up to $450 million via a special dividend or a share buyback this year, a prospect that had to some extent driven the company's share price in recent months.

He said the increased capital expenditure could weigh on market expectations of the size of such a capital return.

Bogoievski said the telecommunications company would provide an update to its capital management plans, including dividends, when it reported its full-year result.

Excluding abnormal items, overall group revenue for the quarter at $1.4 billion was up 5.7 per cent on the previous corresponding period but expenses rose faster - 11.4 per cent to $850 million.

The company's New Zealand operating revenue for the quarter increased 9.7 per cent to $1.06 billion. But expenses were up 23.3 per cent to $534 million.

Moutter said much of this was "direct investments of cost in driving the broadband and mobile outcomes we've been seeking".

Telecom said its Australian businesses' revenue was stable over the period.

It will pay a 9.5c-a-share fully imputed dividend for the quarter on March 11.

- NZPA