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Telecom targets less dividends, more growth in annual result

By Phil Boeyen, ShareChat Business News Editor

Tuesday 15th August 2000

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Telecom has confirmed market expectations with its latest annual result by signalling to investors that it is as concerned with growth as it is with paying dividends.

The company's annual profit of $783 million is a 6.1% drop over last year's $843 million result, however the company is quick to point out that, excluding the investment in Aussie telco AAPT, net earnings actually increased slightly to $846 million.

Chairman, Rod Deane, says the company's goal now is to be the best performing online and communications company in Australasia.

"Telecom is investing for growth with a special focus on mobile, data,
Internet and broadband services...The Board and management are pleased with progress in the transition beyond our core role as provider of telephony services in New Zealand."

But the price of that growth may not sit well with yield investors who will have to swallow a change in Telecom's generous dividend repayment policy if they plan to stick with the company.

"Given our growth outlook, a change in our dividend policy is now appropriate," says Mr Deane.

"Going forward, Telecom intends to make an annual dividend pay out of around 50% of net earnings. This target will, as in the past, depend on the level of Telecom earnings and cash flows, and on any particular investment opportunities which might arise."

The 50% rate compares with Telecom's previously stated dividend policy to distribute at least 70% of net earnings, although the rate was often higher, and in 1999 the dividend distribution represented almost 95% of net earnings before abnormals.

However analysts often noted that the rate was high compared with overseas telcos, whose payout policies were more often along the 50 to 60% rate.

Mr Deane says Telecom's intention is to pay a dividend at the same cents per share rate in each of the first three quarters of the financial year, and then set the fourth quarter dividend at a level which accommodates the target ratio for the full year.

Telecom says drivers for revenue growth include rising demand for internet services, cellular calls, international inward calls, and interconnection revenues, however it is undoubtedly banking on AAPT to provide the biggest star turn.

"We're delighted with our investment in AAPT which is a major growth initiative in
Australia," says Mr Deane.

The company, which already owns around 80% of AAPT, showed just how delighted by moving yesterday to take 100% ownership.

It is offering A$7.25 in cash for each AAPT share, a 23.5% premium to the volume weighted average trading price of the shares over the three months ending 14 August 2000.

Telecom boss, Theresa Gattung, says moving to full ownership will "close the loop" and enable Telecom to take advantage of synergies between the two companies.

"Following our recent success securing the provision of integrated telecommunications services to the Commonwealth Bank, it has become clear to Telecom that our ability to further grow and develop the business in Australia will be enhanced by having full ownership of AAPT."

"We will also have greater flexibility to develop our businesses on a regional basis and to make the best strategic plays open to us going forward.".

The cost to Telecom of acquiring all of the shares held by minority shareholders in AAPT will be approximately A$444 million (excluding executive share options), and will be funded by additional borrowing which the company says can be accommodated on its group balance sheet.

Despite the growth message investors screwed up their faces at the initiatives yesterday, marking Telecom down 35 cents to close at $7.20.

The company has announced a final quarter dividend of 11.5 cents per share, in line with previous quarters and making a total of 46 cents for the year.



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