Significant writedowns of more than $100 million have hurt Telecom's second-half after-tax profit to December, which has plummeted almost 60% from $397 million last year to $163 million.
However, Telecom is adamant it can deliver an earlier forecast profit after tax guidance of $460 million-$500 million for the full year, which brokerages ABN Amro Craigs and Forsyth Barr believe is achievable, albeit at the lower end of the range.
Telecom yesterday released its half-year report outlining that one-off impairment charges totalling $101 million had been booked, having written off $33 million from its GSM mobile network development and a further $68 million goodwill writedown of its Australian company PowerTel.
In response, Telecom's share price initially rose to a day high of $2.68 before falling off to trade around the low $2.60s.
Telecom cut its dividend from last year's 7c per share to 6c for the half year.
ABN Amro Craigs broker Peter McIntyre said Telecom's earnings before interest, tax, depreciation and amortisation (ebitda) were 5% down at $884 million and its 59% fall in after-tax profit to $163 million accounted for the $101 million in writedowns.
ABN had taken into account the $33 million GSM writedown, forecasting a $98 million profit.
However, the PowerTel writedown was a surprise, he said.
"Other than the $33 million, we weren't expecting that extent of impairment charges "After-tax profit is sharply lower than expected because of the [total] writedowns. It was a poor foray into the Australian market," Mr McIntyre said yesterday.
A Dow Jones newswires poll of seven analysts had forecast a median after-tax profit before write-offs of $81 million, the news agency reported yesterday.
Revenue increased 0.4% to $2.84 billion while operating earnings were down 5.5% at $884 million.
Mr McIntyre said Telecom was staying with last year's financial guidance statement that it expected an after-tax profit of $460 million-$500 million.
Forsyth Barr broker Peter Young said the result was "as expected", apart from the $68 million PowerTel write down.
"It looks like Telecom is on track to meet its guidance as expected, around $470 million for the full year."
Mr Young said the Australian operations were weighing heavily on Telecom and he expected the contribution from Australia in the second half to be at the lower end of forecasts made in April of a $150 million contribution.
"Poor earnings going forward reflect the writedown of PowerTel," Mr Young said.
There was an ebitda decline of 5%-8% but Telecom was tracking towards its full-year guidance as expected, with $1.3 billion capital expenditure expected to be in place by the end of the year, he said.
As for the slowing economy affecting Telecom's second-half operations, Mr Young said the business was proving resilient and he expected no greater impact than had happened during the first half of the year.
Telecom chief executive Paul Reynolds said: "The impact on Telecom of the economic slowdown does not appear to have accelerated this quarter, and revenues have remained relatively resilient with strong management focus."
Meanwhile, Telecom executives have decided to forgo a pay rise this year as the company cuts costs and weathers a slowing economy.
