Telecom shares jump as third quarter result beats forecasts

12.00pm

Telecom shares rose 11 cents, 2.3 per cent, to $4.84 this morning after the company announced a March third quarter net profit that bettered forecasts.

The quarterly net profit of $197 million was up 10.7 per cent on adjusted earnings for the year ago quarter and beat the $182-196 million range forecast by analysts.

"It looks like a very good result and the market's rewarding it," said Nigel Scott, equities adviser with ABN Amro Craigs. "Revenue growth, capex down, and the headline number was better than the market was expecting, which is good for the market."

Telecom's shares have bounded 17 per cent ahead since early March and are at their highest since before Christmas.

Mr Scott said his firm had a target price for the stock of $5.53 before today's result.

He said the $400 million reduction in debt augured well for the signalled higher dividend. The company announced a steady, imputed third quarter dividend of 5cps which will be paid on June 13.

The third quarter result bought the profit for the nine months to March 31 to $498 milllion, up 3.8 per cent on the year ago figure of $480 million.

Despite the higher profit, total operating revenue for the nine months fell to $3.90 billion from $4.21 billion.

The company said third quarter profits rose due to cost cuts and reined in capital spending.

Ebitda (earnings before interest, tax depreciation, and amortisation) for the nine months was $1.70 billion, up 1.4 per cent on the corresponding period in the previous year and for the quarter was up 6.5 per cent at $610 million.

Chief executive Theresa Gattung said the group continued to deliver a solid performance.

"Telecom has continued to focus on driving revenues in our core markets, maintaining tight control on costs, expanding margins and improving cash flow growth."

She said the performance of New Zealand operations had been pleasing. In the March quarter, operating revenues increased by 1.4 per cent to $970 million while expenses fell 5.4 per cent.

There was a turnaround in cashflow from Australian operations from negative $51 million a year ago to positive $68 million. Telecom owns Australia's No 3 telco AAPT.

"We have now delivered our fourth consecutive quarter of positive cash flow. At the same time, we have seen significant margin expansion in our Australian businesses," she said.

The decline in customer numbers in Australia as a result of focusing on higher value customers moderated in the third quarter.

"We are now starting the next phase of our Australian strategy with the launch last month of new offerings for the residential consumer market," Ms Gattung said.

Overall operating expenses across New Zealand and Australia continued to decrease -- down by 13.3 per cent in the nine months.

Ms Gattung said group operating cash flow was strong at $1.21 billion, up 38.1 per cent of the year ago period.

In the New Zealand Wireline division, revenue fell 0.7 per cent for the nine months but increased 0.9 per cent in the March quarter. Expenses fell 6.7 per cent over the nine months and ebitda increased 3.8 per cent to $1.24 billion.

Interconnection revenue fell 19.8 per cent in the nine months alhough it stabilised in the third quarter. The fall was mainly due to the Telecommunications Commissioner's interconnection determination, which lowered fees received by Telecom.

Telecom's fast internet service, Jetstream doubled customers to 62,000 and 3000 a month are signing up.

Overall data revenues grew by 2.1 per cent in the nine months while retail data revenues grew 9.7 per cent and wholesale data revenues fell 11.9 per cent. Revenue from ADSL (asymmetrical digital subscriber line) was up by 77.3 per cent.

Ebitda for the New Zealand mobile business increased 16.1 per cent for the nine months with a 2.1 per cent increase in revenue and a 5.0 per cent decrease in expenses.

Total CDMA (code division multiple access) connections reached 289,000, nearly a quarter of all Telcom's mobile customers and total spending per mobile customer rose 12.2 per cent to $48.60 per month.

Revenue in the international division fell 25.7 per cent in the nine months mainly due to re-negotiated bilateral agreements with other carriers, the sale of network capacity in the prior year and the impact of the strengthening New Zealand dollar.

Ebitda in the internet and directories division grew 22 per cent to $122 million for the nine months.

The Xtra internet service revenue rose 30.3 per cent on the previous corresponding nine months. At March 31, Xtra had 420,000 active customers, up 16.7 per cent on a year ago. Customers spent an average of 32.8 hours a month online, up 8.6 per cent on a year ago.

Total capital expenditure for the nine months fell by a third to $374 million and the company lowered by $50 million to $600 million its forecast for capital expenditure for the 2002-2003 year.

- NZPA