Telecom announces enormous loss

Telecom today announced a $435 million June year net loss, thanks mainly to further haemorrhaging from its Australian unit AAPT.

Telecom was turned upside down by the Government's May 3 decision to force it open its network to broadband customers.

That sent its shares diving from $5.75 to a 13-year low of $3.97 last month. They have since recovered to $4.23 at yesterday's close.

"There are some big challenges to navigate that's clear," chief executive Theresa Gattung said.

"But we have laid out a strategy to deliver for customers in the new environment."

Today, in a move to ready it for a more regulated market, it cut its quarterly dividend to 7 cents per share and said it would cut its payout ratio to 75 per cent of net profit from 85 per cent previously.

Having already written AAPT down by $897m in the second quarter, a further $404m writedown was taken to bring the full year writedown to $1.29 billion.

The troubles with the Australian unit overshadowed a good performance at home where earnings before interest, tax, depreciation and amortisation (ebitda) rose 4.1 per cent.

Telecom posted a fourth quarter loss of $191m compared with a net profit of $281m a year earlier.

It said its adjusted full year profit excluding unusual items (mainly the AAPT writedown) was $820m, down 4.3 per cent on a year ago.

The company forecast 2007 net profit of around $820-860m with NZ earnings before ebitda down 1.5 to 3 per cent and Australian earnings static.

Telecom paid more than $2 billion for AAPT during the late 1990s dotcom boom and looked at selling it last year. The second AAPT writedown was unexpected.

Telecom said it would increase capital expenditure by 6.7 per cent to $800m in 2007 as it reorganised.

Chairman Wayne Boyd said the extra investment of $50m would accelerate Telecom's transformation "as we realign the company to meet fast-changing customer and market needs".

On shareholder distributions, Mr Boyd said new dividend policy was post the AAPT writedown.

Telecom will reintroduce a 3 per cent incentive for shareholders who choose to reinvest their dividends in Telecom.

Mr Boyd said Telecom remained committed to its "A" credit rating and associated long run target gearing ratios.

Ms Gattung reiterated comments that Telecom was transforming to meet the new regulatory environment.

"We have separated our retail and wholesale business and made a commitment to sharing technical information, performance statistics and investment plans with the industry."

In the consumer business, Telecom would focus on driving broadband penetration, developing fixed line to mobile convergence capability and simplifying the product mix while improving customer service.

"In business, we are bringing together the New Zealand business market with our Australian managed customers into a single business entity."

The carrying value of AAPT reflected "the challenging operating conditions in the Australian market with retail prices declining and wholesale prices rising".

Locally, mobile, broadband, directories and IT services all performed strongly, "while it was pleasing to see stability in access lines and local service revenue and a moderation in expense growth", Ms Gattung said.

In broadband there were 51,000 new connections in the quarter including 39,000 from retail and 12,000 from wholesale bringing broadband customers to 450,000 -- a quarter of all customers..

Mobile had another good quarter with double digit voice and data revenue growth and this was largely driven by data revenue growth, Ms Gattung said.

The company said its converged fixed-mobile offering had attracted 50,000 sign-ups since its launch in April.

- NZPA