KEY POINTS:
Any honeymoon investors were having with new Telecom chief executive Paul Reynolds jolted to an end today when he delivered a poor quarterly result that sent the company's shares to a 14-1/2 year low.
Dr Reynolds took over from Theresa Gattung for the second quarter and it was that result that investors took exception to, selling the shares 19 cents down to $3.91 at one stage.
Second quarter net profit fell 33 per cent to $172 million and even allowing for the sale of the Yellow Pages division it was off 26.5 per cent.
The company got a $19m boost from a dividend from its half owned cable company Southern Cross.
The half year net fell 12.6 per cent to $397m, or adjusted for the Yellow Pages sales, 2.7 per cent, with revenue up 1.1 per cent to $2.83 billion.
Dr Reynolds said while some areas such as wholesale and ICT services, performed well, other such as mobile performed poorly.
Australia, Telecom's perennial problem child, was unreformed despite the acquisition of Powertel for A$357m ($409m) in April. Merger efficiencies were occurring but migration of customers had turned into what one commentator called a disaster zone because customers were unable to get through to inadequately staffed call centres.
Telecom downgraded ebitda guidance for the Australian business by A$10m ($11.5m) to between A$80m and A$90m.
James Lindsay of Tyndall Investment Management said the quarterly profit was about 3 per cent below consensus and if the Southern Cross dividend was excluded, worse.
Costs were higher than expected, mobile revenues were down and broadband returns were not as good.
"Australia was clearly worse than expected," said Mr Lindsay.
Asked if this was a typical clearing of the decks companies indulge in when a new chief executive takes over, Mr Lindsay said: "No. There was a trend even before he came on board that was pretty poor. This is pretty bad and he is forecasting next quarter will be worse."
"I think the business trend is just looking weak."
Telecom reaffirmed the full year profit guidance of $700-730m.
"Clearly I'm disappointed with this set of results," Dr Reynolds said.
"There's been a weak financial picture, in particular in New Zealand operations. The results are within the guidance that we've issued, but towards the bottom end and shows some weakness in a couple of key areas."
"That outlook requires intervention. We are already under way on some significant transformational activities."
Priority in last quarter was on achieving "regularity clarity" and achieving fundamental transformation, where Dr Reynolds said the finishing line was in sight.
Chief operating officer Simon Moutter said staff had been distracted by the Government enforced separation of the company into three. They had never been so stretched in his eight years with the company, he said.
Market share in mobile and broadband had been surrendered.
Good progress was being made but "unfortunately it has caused us to drop the ball on some of our retail products and we've taken our eye off the market."
Dr Reynolds said there had not been enough focus on customers.
Telecom had made decisions about leadership, structure and focus that would help secure future momentum, based on a focus on customers.
An announcement on a new chief financial officer was not far away, Dr Reynolds said.
Telecom will pay a fully imputed ordinary dividend for the quarter to December 31 of 7 cents per share and had no plan to further cut the dividend payout.
- NZPA
