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Forecasters pick Telecom profit slump on the back of expensive AAPT takeover

By Rob Hosking

Friday 11th August 2000

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The country's biggest company, Telecom, is expected to show a drop in profit of up to $100 million when it announces its annual result on Tuesday.

The fall in profit is a result of digesting its transtasman acquisition, AAPT.

Analysts are picking an after-tax profit of from $780 million-$797 million for the year to June 30. The company has changed its balance date but the last result, for the year to March 31, showed a profit of $877 million. The analysts said the important factors to watch would be revenue trends in mobile and internet.

Also expected is a downward adjustment of dividends. Telecom has long had a policy of paying out at least 70% of its profit but this has crept much higher.

"They will probably bring that back down toward the 70% mark for the coming year," Forsyth Barr analyst Neil Paviour-Smith said.

"But if they're running true to form, they'll announce what they're going to do with the retained capital."

That is not expected to be used for any big new announcements; it is likely to be directed into already signalled initiatives in new technologies such as code division multiple access, Wap, or other wireless options.

Profit is expected to continue to fall, as the company digests its acquisition of 82% of Australian carrier AAPT, plus its other capital-intensive long-term investments in mobile, the internet and the Southern Cross cable.

Hints the company may list some of these businesses died away in recent months as telecommunications stocks fell in popularity round the world, and no IPOs are expected for this year at least.

But it is those ventures, crucial as they are to growth for Telecom, that are affecting the bottom line. The company was last week swept up in Australia-based speculation about a possible deal with Japanese carrier NTT DoCoMo and Australia's Cable & Wireless Optus. Although suggestions of a link with Optus are a hardy perennial, the Japanese link was a new feature.

"I wouldn't expect any announcements on that next week, although they might make the odd sarky comment about the speculation," another analyst said. " At this stage it looks unlikely anything is going to happen."

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