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Friday 5 November 1:33 PM
UPDATE 2-NZ's Telecom Q1 profit up on cost cuts(Adds detail, analyst comment) By Melanie Carroll WELLINGTON, Nov 5 (Reuters) - New Zealand's largest listed company, Telecom Corp. (NZSE: TEL), said quarterly profit rose 19 percent as it cut debt payments by almost a fifth, and forecast it would meet an 8-percent increase in annual earnings. Telecom, which faces tough competition from TelstraClear (ASX: TLS) and mobile giant Vodafone VOD.L, said it would meet analyst forecasts of a net profit of NZ$816 million ($563 million) for the year to June 2005, up 8.2 percent from last year's NZ$754 million. "There is probably nothing that is going to change people's views on the stock, but it is generating good cash," said UBS NZ head of research sales Richard Leggat. "There is not a lot of growth, and there is probably a reasonable chance of special dividends or an increased payout ratio over the next 12 months." But Telecom Chief Financial Officer Marko Bogoievski told a briefing that the dividend payout was unlikely to change in the next quarter, given the little-changed annual outlook. Shares in Telecom were down eight cents, or 1.35 percent, at NZ$5.83. Including a one-off gain of NZ$10 million from the sale of a mobile retail business, net profit rose to NZ$193 million in the first quarter ended Sept. 30, from NZ$162 million a year earlier. A Reuters survey of seven analysts had expected a net profit of NZ$185 million, with two including the NZ$10 million gain. Total revenue rose 5.3 percent to NZ$1.39 billion, largely due to the purchase of the Gen-i and Computerland businesses, while capital expenditure was 43-percent higher than a year earlier, at NZ$130 million. CLAWING BACK GROUND Telecom shed mobile market share over the past four years as it tried to compete with Vodafone with inferior handsets and service, but revenue and subscriber growth have improved over the last seven quarters. "In mobile, we had the strongest revenue growth in several quarters, up 13 percent -- with mobile data again being a highlight," Telecom Chief Executive Theresa Gattung said. Total average revenue per user rose 5.2 percent to NZ$36.40, excluding interconnection, due to the growth in mobile data services. Fifty-five percent of customers had moved to Telecom's newer CDMA mobile network, and now accounted for 85 percent of total cellular revenue, Gattung said. Telecom had 98,000 residential broadband Internet customers at Sept. 30, and said it was on track to meet its target of 250,000 by the end of 2005. Telecom has an estimated 44-percent share of the mobile market, with Vodafone accounting for the remainder, and dominates the fixed-line market. DEBT DOWN Telecom, valued at around $7.8 billion and owner of Australia's number three telco AAPT, has trimmed debt in recent years and boosted its dividend payout ratio to 85 percent of net profit, adjusted for amortisation and non-cash items. Net debt fell to NZ$3.72 billion from NZ$3.76 billion at the end of June. First-quarter interest costs fell by 19 percent to NZ$74 million, while depreciation fell 9 percent to NZ$174 million. The company would direct its cash and short-term investments -- NZ$500 million at balance date -- toward repayment of NZ$759 million worth of term debt maturities in April 2005. Telecom also benefited from a 9-percent fall in depreciation costs, to NZ$174 million, on its older TDMA mobile phone technology, which it wrote down by NZ$74 million after tax in the previous quarter. Annual capital expenditure was still forecast at NZ$650 million, although that number was "under pressure", Bogoievski said. Telecom stock has risen nearly 9 percent since January, underperforming a 17-percent gain in the NZSX-50 Index .NZ50, but beating the DJ Eurostoxx Telecom Index's .SXKP 6 percent rise. Telstra's shares fell 3 percent during the period, while Singtel STEL.SI rose 21 percent. ($1=NZ$1.45)
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