Big loss a blow to Telecom

Theresa Gattung with chairman Wayne Boyd at yesterday's meeting in Wellington. Picture / Mark Mitchell

Another nasty writedown on its AAPT Australian subsidiary has resulted in Telecom's full-year result plunging to a net loss of close to $500 million.

After what has been a shock year for New Zealand's largest listed company, it reported an after-tax loss of $435 million to June 30 compared with last year's profit of $967 million.

Quarterly dividends were cut to 7c a share and dividend payout ratio cut to 75 per cent of net profit - from 85 per cent.

The loss was a result of $394 million being lopped off the value of Australian operations, including AAPT, on top of $897 million writedown on the business reported at the half-year. AAPT, for which Telecom originally paid more than $2 billion, and invested millions more, was yesterday valued at just A$270 million ($343 million).

Ironically, the latest writedown was largely caused by hefty increases in the unregulated wholesale prices AAPT pays for services it buys from Telstra to sell to its customers.

An unfavourable new regulatory regime for Telecom, including regulation of the same market here, has precipitated a sharemarket slide that has wiped more than $3 billion from the company's sharemarket value since it was announced three months ago.

Chief executive Theresa Gattung and her management team used yesterday's results briefing in Wellington to outline their strategy to address the new regulatory environment and underlying pressure on earnings, as consumers increasingly abandon the more lucrative voice-calling services in favour of internet-based telephony.

Meanwhile, excluding abnormal items, including the $1.3 billion Australian assets writedown, Telecom's net earnings were $820 million compared with $867 million last year.

The company is forecasting a net profit of between $820 million and $860 million next year.

Telecom's New Zealand operations performed "solidly", operating earnings rising 4.1 per cent for the quarter and 2.7 per cent for the year. Operating earnings for Telecom's Australian businesses fell by more than half to A$75 million for the year.

In New Zealand, the company's mobile, broadband, directories and IT divisions performed strongly, said Gattung.

Mobile revenue was up 9.6 per cent to $774 million for the year. The introduction of faster broadband plans, seen by some commentators as a bid to head off harsher regulation, had brought "strong customer growth".

The company gained a net 51,000 new connections, including 39,000 directly and 12,000 wholesale customers via other net service providers. Telecom now has 435,000 DSL (digital subscriber line) connections, equal to about a quarter of all phone lines.

Calling revenue of $976 million for the year was down 1.8 per cent, with a 6.2 per cent increase in international calling more than offset by a decrease in national calling revenue.

The company plans to lift capital expenditure by $50 million to $800 million next year with significant increases in spending on investment in new wired network capability in New Zealand, and on customer operations at AAPT.

Telecom's net debt rose by 3.2 per cent, or $132 million, to $3.65 billion largely because of the payment of $200 million in special dividends of 5cps at the second and fourth quarters.

Shareholders funds declined to $1.06 billion from $2.46 billion last year as a result of the AAPT writedown.

As well as the final dividend of 7cps, Telecom shareholders will also receive a 5cps special dividend.

Telecom's shares fell 13c to $4.10 yesterday.