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Telecom Q1 profit falls 23%

By Phil Boeyen, ShareChat Business News Editor

Tuesday 14th November 2000

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Increased mobile marketing costs and the funding of its AAPT acquisition have eaten in Telecom's first quarter profit, which has dropped 23% to $161 million from $209 million last year.

The result is in line with market expectations. Sales for the quarter increased to $1.291 billion from $887 million, including the contribution from AAPT. Excluding the AAPT investment, Telecom's profit would have been $200 million for the quarter.

Chief executive, Theresa Gattung, says the quarterly result reflects Telecom's ongoing transformation into an Australasian online and communications group, and cannot be directly compared with last year's first quarter profit.

"Net earnings of $161m included funding costs arising from Telecom's investment in AAPT and amortisation of goodwill on that investment, along with consolidation of AAPT's operating results for the quarter."

Ms Gattung says Telecom is pleased with the latest quarter's performance of AAPT, which raised earnings before interest and tax by 328% to A$5.3m. Despite this, AAPT was impacted at the bottom line by start-up costs in its Internet joint venture with America Online.

AAPT's ebit lift was on the back of a 42% revenue increase compared with last year. By comparison Telecom revenue, excluding AAPT, grew by 4.8%.

That growth includes a 6.9% increase in national and international calling revenues and an 18.4% increase in data revenues, but local service and mobile revenues were marginally down from the same quarter last year.

The drop in mobile business comes despite a creditable increase in customer numbers, with connections jumping 35% on the same time last year to more than one million. However the impact of price reductions more than offset growth in customers and call volumes.

Cost of sales, driven largely by mobile marketing initiatives and by international out-payments to other carriers, were a major contributor to an 11.9% increase in total costs in Telecom's businesses, excluding AAPT.

The company's decision to lead the internet connection market with sharp pricing and bundling the service with phone offers also appears to be paying dividends with registered customers of its ISP Xtra up 26,000 during the quarter.

Telecom will also benefit in the current financial year from its investment in the Southern Cross Cable, which goes live tomorrow.

Theresa Gattung told a media conference after the results announcement that the company is expecting a substantial dividend from the cable business in the current financial year of around US$100 million.

However Telecom has not made any decision with respect to exactly what it will do with its 50% share of the cable business, and is still looking at all the options, including keeping it as a revenue stream, leveraging it or selling off all or part of it.

Ms Gattung would also not comment on market speculation that the company is looking at buying the Australian mobile business of its cable partner, Aussie telco C&W Optus.

Telecom announced a quarterly dividend of 5 cents per share, which compares with an 11 cents per share dividend last year, and is in line with the company's new dividend policy of paying out 50% of net earnings.

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