KEY POINTS:
Telecom shareholders have reacted to this morning's lacklustre profit announcement by slicing over 7 per cent off the company's share price.
Telecom's shares dropped 30 cents to $3.40 on opening today.
New Zealand's largest listed company is reeling after a massive drop in annual profit announced this morning.
Trading in what CEO Paul Reynolds describes as a "highly competitive marketplace" for the past year has seen $131 million shaved off Telecom's bottom line.
Telecom this morning reported an annual profit of $713 million, down 15.5 per cent from $844 million in the 2006-7 year.
The telecommunications giant is currently battling increasing competition and rising costs as it implements a Government-enforced three way operational separation.
The result for the year to the end of June was achieved on revenue up 2 per cent on the previous year to $5.67 billion, the company said today.
Earnings before interest, tax, depreciation and amortisation (ebitda) was $1.89b in line with guidance.
Chief executive Paul Reynolds said the year's result highlighted the increasingly competitive nature of the New Zealand telecommunications landscape.
"In this new environment customers have more choice and opportunities than ever before," he said.
Dr Reynolds defended the company's performance, saying it had delivered a good result during a period of profound change, in line with guidance.
The company's plans to invest for growth and long term health and focus on new wave broadband, mobile and IT services as its path back to profit growth was now well under way, he said.
Under the fibre-to-the-node rollout, 33 cabinets had been in place by June 30, and ADSL2+ technology was now available from cabinets or exchanges to 50 per cent of all broadband end users throughout New Zealand.
That investment would allow more New Zealanders to enjoy faster broadband than ever before, Dr Reynolds said.
Sydney-based telecoms analyst Paul Budde wouldn't be drawn into negative sentiment about the kiwi telco.
He told nzherald.co.nz Telecom's down-turn is a hiccup, and going on evidence from overseas, the company is in the box seat as the telecommunications industry develops.
"If you've had a monopoly for such a long time and then you have to change that and become more competitive, that is a shock. Suddenly you cannot get those monopolistic rentals and your margins are dropping," Mr Budde said.
He said Telecom is the incumbent and can drive the future growth in the industry.
"We are building the digital economy and they are one of the big building companies for it," Mr Budde said.
He said Telecom can direct which way the market goes and he has full confidence in chief executive Paul Reynolds.
"We can look at other countries, in Europe it takes one and-a-half to two years for companies to go through it. We saw Deutsche Telekom had a 50 per cent drop in profits, followed by a 40 per cent drop in profits before it got better again. So in that respect, 15 per cent is very mild," Mr Budde said.
He said it was hard to say whether a further 30 per cent could be shaved off Telecom's profit.
Mr Budde said although there are more competitors in the market, none of them come close to Telecom's hold on infrastructure.
"What you see is a re-alignment in the industry. Again, we can look overseas at British Telecom. Only a quarter of their revenue comes from line rentals," Mr Budde said.
He said "value added" infrastructure such as IT and online products is the way forward for Telecom.
FINANCIALS
For the fourth quarter revenue rose 3.6 per cent from the corresponding period a year earlier to $1.46b, while expenses were up 7.3 per cent to $972m.
Ebitda for the quarter slipped 1.2 per cent to $487m, while a 19.3 per cent rise in depreciation and amortisation to $210m saw earnings before interest and tax down 12.6 per cent to $277m. Net earnings from continuing operations for the quarter were down 29.6 per cent to $176m.
Telecom said its IT Services operation continued to show strong growth with revenues up 19.8 per cent in the fourth quarter to $139m.
Mobile revenue continued to decline, mainly due to lower pricing in the competitive mobile market. Mobile revenues were down 8.7 per cent in the fourth quarter to $200m, the company said.
Broadband revenue had continued to increase, with a 25.5 per cent increase in overall connections. Wholesale revenues continued to grow strongly.
Operating revenues and other gains on Telecom's Australian operations rose 7.9 per cent for the year to A$1.24b ($1.59b), while ebitda was up 86.4 per cent to A$82m. Comparison of the results was affected by the inclusion of PowerTel operations from May 2007.
Group ebitda was expected to decline by 4 per cent to 6 per cent in the year to June 2009, in line with guidance given in April. Capital spending over the same period was forecast to be up to $1.1b.
Telecom declared an ordinary dividend of 8 cents per share for the fourth quarter, compared with 7c last year, bringing cumulative dividends for the year to 29 cps.
Telecom's 2007 result was boosted by one-off gains, including around $2b for the sale of its directories arm.
- NZPA
