(Adds analyst comment)
MILAN, May 9 (Reuters) - Telecom Italia TLIT.MI, Europe's fifth-largest telecoms group by market capitalisation, reported a worse than expected 35.4 percent drop in first-quarter net profit on lower sales and falling profit margins.
Net profit fell to 501 million euros ($774.5 million), the company said on Friday, compared with the average forecast of 512 million from 16 analysts polled by Reuters.
The main drag on results was falling fixed-line sales and margins due to stiffening competition in Italy as broadband companies such as Fastweb FWB.MI, taken over by Swisscom SCMN.VX last year, win a greater share of business.
The company -- 10 percent indirectly owned by Spain's Telefonica TEF.MC -- also cut its sales growth guidance for its Brazilian mobile phone unit and its German broadband unit.
However, Chief Executive Franco Bernabe said Telecom Italia would meet its group targets for this year thanks to cost cuts.
“Globally we are experiencing some problems,” Bernabe told analysts during a conference call. “I’m confident we will meet our 2008 targets.”
On March 7 Telecom Italia said it was targeting 1-2 percent a year revenue growth between 2008-2010 and earnings before interest, tax, depreciation and amortisation (EBITDA) of 39 percent of revenues. The company sees 2008 sales of 31 billion euros and an EBITDA margin of 38.5 percent.
“Meeting management’s 12 billion euro clean EBITDA target for 2008 is beginning to look challenging, and guidance for TIM Brasil and European Broadband has already been reduced, only two months after it was given,” Morgan Stanley analyst Nick Delfas said in a note on Friday.
He rates the company “underweight.”
First-quarter EBITDA fell 6.7 percent to 2.97 billion euros. The EBITDA margin, a key measure of profit, fell to 40.8 percent of sales from 42 percent a year ago. Sales fell 2.4 percent to 7.3 billion euros.
Bernabe said Telecom Italia had received three firm offers for its French unit Alice. French broadband communications provider Free ILD.PA, telecoms group Neuf Cegetel NEUF.PA and the privately held cable group Numericable have said they have bid.
Contradicting several press reports, Bernabe said Telecom Italia has not made an offer for Italian broadband operator Tiscali TIS.MI. Tiscali is for sale and will discuss the bids it has received on May 12.
Telecom Italia expects a “fairly limited impact on our balance sheet” from Bolivia’s nationalisation of the Italian company’s unit in the Latin American country, Bernabe said.
Bolivia’s government has taken over operations of leading phone company Entel, but still faces a legal challenge from Telecom Italia over compensation.
Entel has a book value of 40 million euros on Telecom Italia’s books.
Shares were trading up 1.3 percent to 1.328 euros by 1504 GMT as the DJ Stoxx index of European telecoms .SXKP lost 0.5 percent. Telecom shares had been trading up around 2 percent before the results statement.
This was the first set of figures for a period fully under the new management, which was named in December.
While Telecom Italia failed to stem its decline, other large European former monopolies have been able to hold the line.
France Telecom FTE.PA on Wednesday reported a 2.8 percent rise in underlying first-quarter profit helped by improved results in its mature markets in western Europe.
Deutsche Telekom DTEGn.DE on Thursday posted stable first-quarter core earnings as it chopped costs to offset the strong euro and price wars in its major businesses. (Reporting by Mathias Wildt; Editing by David Cowell and Sue Thomas)
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