KEY POINTS:
Telecom's 15.5 per cent drop in net profit is ugly any way you look at it. In fact if you look at just the latest numbers for the fourth quarter it is even worse - a slump of 31 per cent.
But the result was largely in line with analyst expectations. So why has the share price plummeted?
The shares dropped as much as 30c - almost 9 per cent - this morning to $3.38
The answer is in the forecasts.
Net profit is forecast to fall to between $500 million and $540 million in the 2009 year, chief executive Paul Reynolds said.
That profit was expected to be about $590 million, according to the median estimate of 14 analysts compiled by Bloomberg.
The company also said its dividend payments will fall to 6 cents a share in the first three quarters of fiscal 2009 from 7 cents a year earlier. So not a good start.
The market also takes a lot of guidance from the tone of the forecast. And it wasn't particularly upbeat.
Reynolds warned that earnings may continue to fall for the next three years as competition keeps prices low. And he reminded the market that costs will rise as the company invests in new broadband and mobile networks.
The outlook doesn't present any particularly compelling reason for short term investors to hang around. On the back of a mild market rally _ driven as much by global sentiment as Telecom itself _ it is clear that a number of investors have decided to cut their losses.
This is the first annual result that the new Scottish chief Paul Reynolds has had to deliver. Its a doozy.
But one suspects Reynolds is following a pretty sensible plan of getting the worst case scenario stuff out to the market in real time.
The head in the sand approach that Telecom took for many years clearly hasn't done them any favours. It would be foolish for Reynolds to pretend the next few years are anything but a big challenge for Telecom.
