Telecom lifts net profit to $709m, signals higher dividends

12.00pm - By SIMON LOUISSON


New Zealand's largest listed company, Telecom today reported a better-than-expected June year net profit of $709 million and signalled higher dividend payouts in 2003/04.

The net profit compared with last year's $188 million loss which was affected by the $850 million write-down of Australian unit AAPT.

On a normalised basis, the June year net profit came to $704 million, up 5.4 per cent on $668 million a year ago.

An adjusted last quarter net profit of $206 million compared with $01 million a year ago.

Analysts on average had forecast a net profit of $190 million in the fourth quarter and $688 million for the year.

An unchanged, fully imputed quarterly dividend of five cents was declared and chief executive Theresa Gattung signalled the long-awaited hike in dividend payout for 2003/04.

She said the company was focused on maintaining a long-term 'A' credit rating and expected to meet company credit targets during the 2003-2004 financial year.

Telecom intended to increase the current ratio of paying out half of net profits "over time", she said.

However, analysts doubt the company will return to the payout ratio's of 100 per cent of profit when it was controlled by American Baby Bells, Ameritech and Bell Atlantic (now Verizon), in the 1990s.

"This is dependent on the company being comfortable it can maintain its 'A' credit rating and meet its credit targets," Ms Gattung said.

"The timing and quantum of any increase in dividend pay-out ratio will, however, be subject to a number of other factors including the industry outlook, capital and operating plans."

The quarterly dividend will be paid on September 12 in New Zealand.

In what has become a theme, since the dot.com bubble burst, much of the increased profit was the result of cost containment.

Total operating revenue fell 6.25 per cent to $5.19 billion.

On an adjusted basis, annual earnings before interest, tax, depreciation and amortisation (ebitda) were $2.31 billion, up 4.9 per cent on the corresponding year ago period.

Overall expenses across New Zealand and Australia fell 12.1 per cent in the year ended June 30.

But Ms Gattung said the company had "cemented a solid performance" and was focused on building capacity for future growth.

"We have been successful in driving revenues in the growth parts of our business, while at the same time maintaining tight discipline on cost assisted by structural changes to our operating model."

Ms Gattung said the company's troublesome Australian operations were performing in line with expectations "and the building blocks are in place for continued improvement. "We've made considerable progress with margins rising throughout the year. Australia is now established as a positive cashflow contributor to the group, year on year."

Cashflow there for the year improved to $92 million compared with negative $28 million the year before.

In New Zealand, the group's fourth quarter operations recorded their second consecutive quarter of revenue growth.

Ms Gattung said this, coupled with continued control on costs and accrual for the Telecom Service Obligation (TSO) revenue, led to double digit ebitda growth of 12.1 per cent.

Group operating cash flow rose 16 per cent to $1.57 billion and the balance sheet was strengthened by a $606 million cut in debt.

Revenue decline in the consumer division moderated and the fixed line customer base grew in the fourth quarter, probably in response to New Zealand's strong immigration.

"The performance of our Business and internet division is showing good momentum, with ebitda and margins continuing to show healthy increases," Ms Gattung said.

The New Zealand Wireline division, which comprises fixed line to homes and businesses saw annual revenue rise by 0.6 per cent and 4.5 per cent in the last quarter which benefited from a $22 million accrual of TSO revenue.

Operating expenses fell 7.4 per cent for the year and 9.4 per cent for the quarter.

Sign-ups to Telecom's fast internet service rose 85 per cent to 72,000 connections. Overall data revenues grew 4.6 per cent.

Retail data revenues grew by 10.5 per cent while wholesale data revenues fell 7.1 per cent, largely as a result of "consolidation" in the industry and lower wholesale data prices due to regulatory changes.

Mobile division ebitda rose 11.2 per cent with a 2.2 per cent increase in revenue and a 2.9 per cent fall in costs.

Fourth quarter expenses increased 4.9 per cent on "reflecting the investment needed to grow revenues in New Zealand's highly competitive mobile market".

Just over a quarter of Telecom's 1.25 million mobile customers were on its more sophisticated 027 network. Average revenue per customer rose 12 per cent for the year.

International division revenue dived by 25.8 per cent and ebitda fell 34 per cent to $96 million, largely due to re-negotiated rates with other carries and due to the strengthening New Zealand dollar. In addition, the prior year included controversial one-off gains from the sale of network capacity.

Ebitda in the internet and directories division rose 28.2 per cent to $159 million with revenue up 12.0 percen. Revenue for internet service, Xtra, soared 27.4 per cent to $135 million and it now has 430,000 customers, up 13.2 per cent on a year ago.

Australian ebitda ebitda increased 3.3 per cent to A$156 million ($176 million) while ebitda margin rose to 12 per cent from 10.3 per cent in 2002. AAPT consumer revenues fell 18.4 per cent, while operating expenses were reduced by 14.8 per cent. Ebitda was A$42 million, down 48.1 per cent partly due to a A$25 million one-off impact of a Vodafone deal in 2001.

Ebitda for the Australian business and internet division including TCNZA increased by 62.9 per cent to A$114 million reflecting the shift in revenue mix towards higher margin services and operational savings.

Group capital expenditure in the year was down 23 per cent at $600 million and is forecast to rise to $650 million in 2003/4.

- NZPA