UPDATE 3-NZ Telecom Q3 profit drops, outlook tough
(Adds further detail, comment, updates shares)
WELLINGTON, May 2 (Reuters) - Telecom Corp Ltd (TEL.NZ) of New Zealand posted a bigger-than-expected 41 percent drop in quarterly profit, hit by a bigger tax bill and having to open its network to competitors TelstraClear and Vodafone.
The former state monopoly, which has been forced by government to split into three units to improve competition, said earnings were declining in line with its expectations, but that slide had eased slightly in the quarter, as Telecom grabbed more of the broadband and information technology markets.
Telecom maintained its previous forecast for net profit of NZ$700-730 million for the year to end-June, and said it still expected earnings before interest, tax, depreciation and amortisation (EBITDA) to dip 4-6 percent in 2009.
Despite a hint of improvement in operating performance, rising costs and falling revenues pointed to further risks in the quarters ahead, said BBY analyst Mark McDonnell.
"The near-term outlook is difficult and that'll keep the share price under pressure, the only thing that will sustain it is the dividend," McDonnell said.
Shares in Telecom initially dipped 1 percent but last traded up 2.3 percent at a 3-week high of NZ$3.94 in a broader market .NZ50 up 0.9 percent. The stock, which accounts for 18 percent of the main index, is down 10 percent this year, in line with the index.
"The stock gained on relief that the performance was not worse, and the company maintaining its full-year guidance," said Grant Williamson, partner at brokerage Hamilton Hindin Greene.
January-March net profit fell to NZ$140 million ($108 million) from NZ$239 million a year earlier, missing an average forecast of NZ$162 million from six analysts polled by Reuters.
Telecom said it had a cost of NZ$20 million due to the loss of tax benefits from its AAPT Australian subsidiary.
The company, which competes at home with TelstraClear, part of Australia's Telstra Corp (TLS.AX), and a local unit of Britain's Vodafone (VOD.L), declared an unchanged dividend of 7 cents a share for the quarter.
SLIGHT IMPROVEMENT
Telecom's EBITDA decline in New Zealand was 7.4 percent, slightly better than the previous quarter's 8 percent, with strong revenue growth from its Gen-i IT business and as it gained a greater share of the expanding broadband market.
"The competition in the market place is certainly affecting us, particularly in mobile," Chief Executive Paul Reynolds told a media briefing, noting fierce competition against Vodafone was affecting margins, and Telecom was in something of a holding pattern while waiting for the launch of a new 3G mobile network later this year.
Telecom continued the decline of previous quarters in its traditional fixed-line calling and tolls business, as smaller phone and Internet companies compete aggressively for customers, and more people switch to mobile. Continued...
