Telecom posts $146m first-quarter profit

9.30am

Telecom Corp today posted a first quarter net profit of $146 million, down 3.3 per cent on the $151 million recorded for the same period a year earlier.

The result, for the three months to September 30, was 15 per cent lower than earlier market expectations of about $170 million.

Telecom last week took the unusual step of warning the market of the weak result, saying it was aware of a wide range of estimates for the quarter.

The profit warning sent Telecom's share price spiralling 9 per cent downwards.

Last year's result was buoyed by a $14 million gain on prepayment of a cross-border lease and an $11 million gain on the sale of international network capacity.

On an adjusted basis, taking into account those one-off gains, net earnings for the three-month period increased 8.1 per cent on the previous corresponding quarter.

Telecom recorded total group revenues of $1.3 billion during the period, down slightly on the $1.4 billion clocked up a year earlier.

After taking into account operating expenses, total group revenue for the quarter was flat at $340 million, from $339 million in September 2001.

Earnings before interest, taxation, depreciation and amortisation (ebitda) came in at $541 million, against $537 million previously.

Telecom will pay an interim dividend of 5 cents per share, unchanged on last year.

Telecom chief executive Theresa Gattung said the group was maintaining a good operating performance in the current demanding environment.

"In New Zealand, we continue to generate strong operating cash flows and reap the benefits of an ongoing focus on cost reduction," she said.

Net earnings for the New Zealand division were up 3.2 per cent on the year ago quarter to $390 million.

Ebitda from Telecom's Australian operations -- seen as the Achilles heel of the group -- matched capital expenses at $391 million, giving a net result of zero, compared with a $12 million loss a year earlier.

"Across the Tasman, our positive cash flow position (ebitda less capital expenditure) has been reinforced, during a period of structural change," Ms Gattung said.

"We continue to focus on higher value customers and on negotiating better prices with suppliers."

Ebitda from Telecom's Australian consumer segment, which includes AAPT's residential, small business and wireless customers, grew by 200 per cent during the period as a result of improved revenue mix and reduced cost of sales.

However, calling, cellular and other mobile and resale revenues all decreased.

In other results, Telecom's New Zealand mobile business recorded a 4.1 per cent revenue increase during the first quarter compared with September 2001, although total connections fell by 4.7 per cent due to a shift in focus from connection growth to targeting higher value customers.

As at September 30, 2002, Telecom had 1.25 million mobile customers compared with 1.3 million a year earlier.

Of those customers, about 194,000, or 15.5 per cent, were connected to the co-division multiple access (CDMA) network.

Total operating revenue at Telecom's New Zealand international division decreased by 30.9 per cent as a result of lower calling rates and a strengthening of the New Zealand dollar.

Data revenue fell by 25 per cent as a result of lower pricing for data services and the expiry of a leased circuit contract.

Total capital expenditure for the first quarter was $76 million, down 45.7 per cent on the previous corresponding period.

Shares in Telecom closed down a cent at $4.81 yesterday, compared with $5.22 before last week's profit guidance, but up from a 2002 low of $4.58 in August.

Telecom fell 11 cents, 2.2 per cent, to $4.70 in immediate response to the result.

The stock, which has a market capitalisation of $8.9 billion and makes up 23 per cent of the NZSE-40 capital index, has had a rocky ride in the past week as investors were spooked by both the profit warning and rulings on Telecom's interconnect agreement with rival telecommunications companies.

Competition watchdog the Commerce Commission last week set a price of 1.13 cents a minute on the rate Telecom and TelstraClear can charge for carrying each others' toll calls on their networks, less than half what Telecom had previously charged.

No further details were given in today's result about Telecom's full-year expectations.

Telecom said last week it was confident of meeting market forecasts of $676 million-$760 million, adding that the seasonal factors that affected today's result would be ironed out by the end of the year.

- NZPA