8 Aug 2008

Telecom shares plunge 8% on profit result

8:16 pm on 8 August 2008

Shares in Telecom fell 8% on Friday after greater competition and higher costs cut Telecom's full-year profit and it warned that this year's profit could fall by as much as 30% because of stiffer competition.

The country's biggest listed company made $713 million in the year to June, down 26% on the previous year.

Telecom chief executive Paul Reynolds says its guidance is unlikely to change because the economic downturn has not yet hit its margins enough for it to change its outlook for the year.

Investors reacted badly to the news, pushing down Telecom's shares 28 cents to $3.40 at the close on Friday. The fall wiped $500 million off the value of the company.

Mr Reynolds says some of the higher costs were the result of restructuring, under which the company has been split into wholesale, retail, and networks businesses.

In the final quarter of the year, Telecom picked up more than half of all new broadband internet connections, with internet revenue for the three months 6% higher than a year ago. However, mobile phone revenue fell due to tougher competition and the cutting of prices.

Telecommunications analyst Rosalie Nelson from the research house IDC says two tough years of regulatory changes are starting to bite for Telecom.

Ms Nelson says the changes mean real competitive pressures are becoming apparent in the telecommunications sector, and she sees continued pain for Telecom. However, she says Telecom's size will ensure it remains the market leader.

Telecom will pay an 8c dividend for the quarter, taking its payout for the year to 29c a share.