Investors uninspired by Telecom's strong third quarter result

10.50am - By SIMON LOUISSON

UPDATE - Lower debt costs and growth in mobile and internet revenues helped Telecom lift its third quarter net profit by 12 per cent to $220 million before one-offs.

Analysts had forecast a net profit of $216 million excluding one-offs. The better-than-expected result failed to enthuse investors who sold Telecom's shares down 8 cents, 1.4 per cent, to $5.56 when the market opened today.

The quarterly net profit, including a $12 million gain from the sale of Telecom's share of an AOL business in Australia, rose to $232 million, up from $197 million a year earlier.

As earlier signalled, the company lifted its fully imputed dividend to 7.5 cents from 5 cents, something the company's many pensioner investors will welcome. It will be paid on June 11.

The rise in mobile and data and internet revenues offset haemorrhaging returns in Telecom's traditional tolls business.

There was little sign of improvement at its intransigent Australian operation, AAPT. Revenue and returns there were largely static although it was "cashflow positive".

For the nine months to March 31, the company netted a profit of $597 million, up 20 per cent on the $498 million a year earlier. That included net abnormal items of $40 million including a $28 million gain on the sale of Telecom's stake in Sky Network Television, booked in the second quarter, and the AOL sale.

Total operating revenue for the nine months rose 2.7 per cent to $4.03 billion and the surplus before unusual items and tax rose 9.4 per cent to $863 million. Revenue growth in the third quarter gathered pace with a 5.2 per cent rise.

Earnings before interest, tax, depreciation and amortisation (ebitda) for the nine months rose 2.5 per cent to $1.74 billion.

Earnings per share rose to 31.1 cents from 26.5 cents.

Telecom slashed its debt over the nine months by $1 billion, or 19 per cent, to $3.97 billion.

Chief executive Theresa Gattung said the overall performance was pleasing.

"Revenue growth and lower interest payments have improved the group's bottom line performance," she said.

The company announced that fast internet, or broadband, would be its next big push, with $100 million earmarked to boost customers.

Ms Gattung noted a strong increase in the uptake of broadband services in the third quarter and this trend was accelerating.

Telecom's data and solutions business in New Zealand achieved double digit growth while mobile data (texting) was driving stronger mobile revenue.

Total cellular and other mobile revenues grew 9.1 per cent for the quarter.

Ms Gattung said increased operating expenditure reflected targeted investment in wireless, broadband and data solutions.

She said the new regulatory regime was making its presence felt with the number of wholesale access lines continuing to increase."

AAPT was still being "reshaped" and "we expect to see this reflected in our operating performance in future quarters".

Operating revenue in the New Zealand business rose 3.3 per cent over the nine months to $2.94 billion. Expenses rose 3.7 per cent to $1.26 billion, and ebidta rose 3.1 per cent to $1.68 billion.

National calling revenue fell 4.4 per cent to $496 million due to competition and people using email and inter national revenue was hit even harder, with a 21.6 per cent fall to $207 million. This was largely due to re-negotiated bilateral agreements with other carriers resulting in lower average prices.

Total mobile revenues rose by $26 million to $455 million with mobile data, mostly text messaging, up sharply to $36 million. Cost of sales rose $29 million to $116 million as a result of a strong marketing push.

Data and internet Solutions revenue rose 14.5 per cent to $514 million with broadband revenue up sharply.

Directory services revenue rose $12 million to $182 million.

Australian revenue was A$981 million ($1.14 billion) against A$974 million and ebitda was stable at A$109 million.

Telecom warned that it will take a writedown charge of $90-$110 million on its old TDMA network in the fourth quarter.

- NZPA