TELSTRA SAYS IT MAY HAVE TO WRITE DOWN VALUE OF ASIAN JVS
2001-07-14
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Australian telecommunications giant Telstra Corp (ASX:TLS) warned today that it would have to write down the value of its Asian joint ventures.
Chief executive Ziggy Switkowski said that the ventures were performing to plan, however lower valuations would impact Telstra's results for 2000/01.
Telstra's key Asian joint ventures are with Hong Kong based Pacific Century Cyberworks Ltd (PCCW). Telstra has a 50 per cent interest in internet infrastructure joint venture Reach, and a 60 per cent interest in Regional Wireless, which holds the mobile business CSL.
"Given current capital market and economic conditions around the telecommunications sector and for that matter the global market generally, lower valuations of the joint venture are likely to impact Telstra's accounts," Dr Switkowski said.
However the combination of a book profit on the sale of Telstra's Global Wholesale business into Reach and other positive unusual items more than offset any write down of Telstra's investment in CSL and will positively impact Telstra's 2001 reported result, Dr Switkowski added.
Telstra also today confirmed that it expected to meet its reduced results forecasts for 2000/01.
"We confirm our preliminary operating results are in line with the recent full year profit guidance," Dr Switkowski said.
"That is, our full year results for core operations are expected to produce revenue growth of 3.4 per cent, expense growth of two per cent and EBIT (earnings before interest and tax) growth of around 5.5 per cent," he said.
"The second half of fiscal 2000/01 saw revenue growth of just under two per cent and EBIT up one per cent," Dr Switkowski added.
Last month, Telstra said that its EBIT growth would not be as strong as the double digit growth originally expected.
Shares in Telstra suffered major falls after that announcement, reaching three year lows last week.
Dr Switkowski said that the Reach joint venture was achieving its target for earnings before interest and tax.
"CSL is also performing to its plan.." he added.
For calendar year 2001, the EBITDA from Reach was expected S400- 500 million ( S251.75 million) S150-170 million.
An enterprise value for both CSL and Reach had yet to be determined.
Dr Switkowski also said that Telstra expected capital 4.1 billion (S2.06 billion) in 2000/01, excluding investments and third-generation spectrum.
Dr Switkowski also said that the next six months for the telco would not be demonstrably different to last year.
"No more forward looking forecasts, no more guarantees," Dr Switkowski told a media briefing.
"What I've said is that if you want to get a sense of what we are planning for, we don't have any reason to believe that the next six months results are going to be demonstrably different to the last six months."
Dr Switkowski noted that Telstra being a political issue during the federal election campaign was "largely unhelpful" to sentiment.
He said the election period also tended to lead to a certain degree of uncertainty at the consumer level which flowed through to some of Telstra's businesses.
Other impacts would be the introduction of mobile number portability and reweighting from changes to the Morgan Stanley Capital International index.
"From my perspective, there's no reason to suggest a departure from the current trend for the remainder of this calendar year," Dr Switkowski said.
"Next year if you believe the forecasts around economic uplift and you believe that we have not become a cyclical business, then you could perhaps form a more optimistic view.
"But I have no basis to give you any numbers and I will not give you any numbers and I will not make reference to double digit EBIT."
Dr Switkowski added that Telstra's costs would be managed below the level of revenue growth going forward.
"Our costs will be managed below the revenue growth," he said.
"That means that margins will continue to expand according to our plan and you can build on that base and make some judgements about what EBIT may or may not grow by," he told the briefing.
On mobiles, Dr Switkowski said that Telstra was mildly optimistic about its outlook for the division going forward.
"We've formed some views on next year that are mildly optimistic," he said.
Telstra had picked up somewhere between 70,000 and 100,000 customers from collapsed telco One.Tel Ltd, he added. 5.26 S2.65).
This followed news earlier today that Telstra had withdrawn its Network Design and Construction unit NDC from sale.
Analysts were concerned that the move would delay Telstra's cost cutting measures.
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