20/01/2006 09:00
Telecom Corporation of New Zealand Limited (“Telecom”) today announced that, following a review of the recent performance of its Australian operations and a reassessment of the prospects for the Australian communications industry, it will be reducing the carrying value of this business when it reports its second quarter and half year results on 2 February 2006.

The review has identified a number of significant challenges to the short and long term earnings outlook for its Australian operations, in particular:

• A significant tightening of wholesale prices and terms with Telstra;
• Continued downward pressure on retail prices;
• The deferral of major project expenditure by key enterprise customers of gen-i Australia.

The effect of the above items is a revision in the 2005/06 full year EBITDA outlook for the Australian business to approximately A$85-A$95M, versus current analyst estimates of around A$110M-$150M. Telecom remains positive about the investments being made in major change initiatives in its Australian business, and still expects realisation of material benefits from these programmes in future periods.

Telecom considers that the fundamental changes in the industry, and revised expectations for execution within the Australian business, are likely to result in a permanent impairment to the carrying value of the Australian business. The Board is in the final stages of considering a revised valuation; a preliminary assessment suggests a revised standalone valuation of A$600- $A700M, compared with a current carrying value of approximately A$1.4Bn. The revised valuation range would essentially result in the substantial elimination of goodwill. Final details will be disclosed at the second quarter earnings announcement on February 2, 2006.  

The strategic review of options for the Australian business, announced on December 15, 2005, is on track and scheduled to start in late January/early February as previously indicated. A number of parties have already confirmed their interest in participating in the process.

The operating outlook for all other parts of the Telecom group for 2005/06 is likely to be confirmed at the second quarter earnings announcement. The second quarter result should demonstrate the continued positive momentum in Telecom’s New Zealand operations, driven again by strong growth in mobile and broadband connections. Telecom is confident that, as previously indicated, its NZ operations will deliver positive EBITDA growth for the full year (FY06), compared to last year (FY05).

Telecom's second quarter result will also include a one-off gain of approximately $60 million arising from the acquisition of a subsidiary of Southern Cross Cables Ltd.

Telecom stated that its previously announced dividend payment profile will not be impacted by this announcement.

For more information please contact:
Philip King

General Manager Corporate Affairs

+ 64 (0) 4 498 5666

+ 64 (0) 27 444 0203

philip.king@telecom.co.nz