Parent undaunted by losses at TelstraClear

By PETER GRIFFIN

TelstraClear has racked up a loss of A$114 million since the merger last December that brought it into being, but majority owner Telstra says the telco is performing better than ever.

As Telstra disappointed the market with its A$3.66 billion ($4.3 billion) profit yesterday, executives were giving at least some thought to the New Zealand operation, of which Telstra owns 58.4 per cent.

Telstra chief executive Ziggy Switkowski had a dozen words at most to say about TelstraClear in his speech delivered with the profit announcement.

Telstra's director of finance, John Stanhope, said that after seven months of operation - a period during which TelstraClear had brought together the networks of TelstraSaturn and Clear Communications and shed around 490 employees - the company had generated revenue of A$296 million.

Despite the net loss of A$114 million in the seven months to June 30, Stanhope said, TelstraClear's finances were improving, taking advantage of cost savings and improved management that had resulted from the merger. "As far as we were concerned, the predecessor of TelstraClear, TelstraSaturn, was not performing very well and since the merger we're very happy with the performance," he said.

At an operating level, the company was looking reasonably healthy with earnings before interest, tax, depreciation and amortisation (ebitda) of A$15 million.

TelstraSaturn had previously reported a $288 million loss for last year, which included some hefty writedowns.

In the period since the merger capital expenditure was a conservative A$102 million. The capex figure for the current financial year would be about A$175 million to A$200 million, said Stanhope.

"It's an on-plan performance and we're hoping to see another improvement in financial performance in the next period," he said.

TelstraClear was expected to break even in 2004.

Telstra recently refinanced $600 million in debt for TelstraClear out of its own coffers.

While Telstra is upbeat about its prospects in New Zealand, a report from outspoken telecoms analyst Paul Budde was sceptical of Telstra's overseas operations in general. Budde said TelstraClear, CSL and Reach, Telstra's three key overseas investments, were unlikely to recoup their cost of investment for years to come.

"There is little or no synergy between the three key investments and none of them are operating in particularly vigorous markets," wrote Budde in a report.

Telstra's overseas activities were more of a "default position than the result of a well-planned strategy", added Budde, who pointed out that buying into new markets was relatively easy for cash-rich Telstra.