Telecom shares leap on increased dividend

11.00am

UPDATE - Telecom shares pushed to a fresh three- year high today as the company announced an increased final dividend of 9.5c per share today and a $754 million net profit for the year June 30.

Shares in Telecom, New Zealand's largest listed company, rose 9c on opening this morning to $6.25 their highest level since May 2001 as investors welcomed news of the increased dividend.

Telecom, which carries a 28 per cent weighting in the top 50 index had earlier signalled a final dividend of 7.5 cents per share.

"The reaction has been to the payout ratio," said Campbell Stuart of UBS Warburg. "It was slightly better than our expectation."

Chairman Roderick Deane said the company would pay out 85 per cent of net profit in the 2004/2005 year as part of a new policy would distribute at least 75 per cent of earnings in future.

Dr Deane said the group's full year performance was "solid" and he was pleased to announce the revised dividend policy.

"For the 2004-2005 year we are targeting an approximate dividend payout of 85 per cent of net profit after tax (adjusted for amortisation and relevant non-cash items).

"Interim dividends for the first three quarters of 2004-2005 will be 9.5 cents per share. The fourth quarter dividend will be set to reflect the targeted 85 per cent pay-out ratio."

He said the actual amount distributed in any year, "will depend on the performance of the business and macro-economic factors".

Telecom's net profit was at the higher end of analysts forecasts and was up 6.3 per cent on last year's $709 million.

Dr Deane said Telecom's strong cash flows enabled the group to strengthen its balance sheet by reducing net debt by $938 million over the year.

Chief executive Theresa Gattung said operating revenue growth for the year, particularly the fourth quarter was solid "and when combined with lower interest payments led to an improvement in the group's bottom line".

Telecom's operating revenue of $5.35 billion was up 3.1 per cent on 5.19 billion last year and operating expenses at $3.01 billion were up 4.6 per cent on last year.

Earnings before interest tax and depreciation and amortisation (ebitda) were down 2.8 per cent to $2.25 billion.

Earnings per share for the period were 39.2 cents per share from 37.6 cps last year.

The company's net earnings included a number of abnormal and and special items including a $28 million gain on the sale of Sky Network Television shares booked in the second quarter of 2004.

It also recovered $12 million from the sale of AOL7 -- an Australian internet provider -- and gained a tax credit of $29 million after settlement of issues with the Inland Revenue Department relating to 1993-1999 tax assessments.

The company booked a $74 million write-down after tax on its aging TDMA 025 mobile phone network in the fourth quarter, and a $16 million write-down after tax on its LMDS (local multi-point distribution services) telephone data and video service asset.

Ms Gattung said the company's ebitda performance reflected targeted investment in broadband and mobile services.

"We are seeing a continuing trend as our business moves away from traditional areas such as voice calling towards data and IT. Our commitment to this trend is reflected in our increased investment in key areas of the business including broadband and mobile."

Capital expenditure for the year was $608 million up 1.3 per cent on last year. The company said it expects to spend about $650 million next year.

Telecom's New Zealand operating revenue was up 3.4 per cent at $3.93 billion while operating expenses were up 6.8 per cent to $1.70 billion. New Zealand ebitda was up one per cent to $2.24 billion.

Revenue growth was achieved in most areas with increases in data, internet, and advanced solutions continuing to offset a decline in calling.

Telecom's Jetstream high speed consumer internet service revenue grew 67.9 per cent to $94 million for the year and by 64.7 per cent to $28 million over the fourth quarter.

At June 30 Telecom had 119,000 Jetstream customers from 72,000 at the same time last year.

Total calling revenue decreased 8.8 per cent to $966 million reflecting price reductions and increased use of email, internet and text messaging.

Total mobile revenue rose 7.4 per cent to $612 million for year driven by text messaging and other data services.

Telecom's Australian businesses, revenue was up 2 per cent for the year at A$1.32 billion ($1.45 billion), with ebitda up 8.3 per cent to A$39 million for the 2004 year.

Ms Gattung said Telecom had seen momentum pick up in its Australian subsidiary AAPT's consumer business, " and we expect to see growth in our business division with the launch of new IP (Internet-based phone) services this quarter".

- NZPA