WRAP: Telstra Issues Rev Growth Warning; Shrs Dive 9.4%
June 12, 2001
Dow Jones Newswires
By GRAHAM MORGAN
Of DOW JONES NEWSWIRES
SYDNEY -- Australia's largest telecommunications company, Telstra Corp. (TLS), issued a revenue growth warning Tuesday, blaming the nation's slowing economy for all but wiping out revenue growth in the second half of the current fiscal year ending June 30.
In two separate telephone conference calls with analysts and journalists, Chief Executive Ziggy Switkowski confirmed analysts' suspicions that major players in the telecommunications industry haven't escaped the economic downturn that has ravaged smaller players, forcing some to stop network roll-outs and others, notably One.Tel Ltd. (A.OTL), to shut up shop.
Rather than growing in line with analysts' forecasts of between 5% and 6%, Telstra's revenues in May indicate that the 50.1% government-controlled company will report revenue growth closer to 1% in the fiscal second half, which effectively blows a A$400 million hole in revenue for the full year.
Although the market has grown used to profit warnings from minor telecommunications companies, brokers said the surprise announcement by Telstra, which is the most widely held stock in Australia and represents 6% of the index, had the phones ringing off the hook with sell orders.
Investors savaged the stock, which closed down 63 cents or 9.4% at an eight-month low of A$6.08. Telstra was the heaviest traded stock on the market, with 81 million shares changing hands, well above its 10-day trading average of 18.4 million shares.
Telstra alone stripped around eight points off the benchmark S&P/ASX 200 index, which closed down 32.6 points at 3401.8, one Sydney-based broker noted.
Switkowski said growth in the Australian telecommunications industry is slowing along with the nation's economy, which affects Telstra more than most other telecommunications companies because it is the dominant domestic player.
He pinned most of the blame on the slowing economy for causing lower activity among small to medium-size companies, a key customer base for Telstra, but also said Telstra had been hit by lower prices, market share shifts and reduced yields in some products.
"The first half revenue growth was about 5%, the second half revenue growth appears to be closer to 1%, and given that Telstra is three quarters of the industry, this suggests the growth trajectory of the industry as a whole is going through a phase," Switkowski said.
"I think it is only a pause of trajectory prior to resuming its traditionally high levels of growth and increasing share of gross domestic product as we move toward the end of this year," he added.
Telstra has experienced little revenue growth in the second half of its fiscal year. Switkowski noted that revenue growth softened in January, February and March, spiked spike in April, and then softened further in May.
Telstra Hit With Bad Debt After One.Tel Collapse
Bruce Smith, vice president of Australian equities at Zurich Scudder Investments, said Telstra had hinted that business has slowed in the second half from the first, but said, "It's a bit of a surprise that it is so slow."
Another senior institutional dealer, who asked not to be identified, said there will be "pretty diverse views" about Telstra's fair value in the wake of its revised forecasts.
"From here, I would expect to continue to see still good turnover and (its share price to) possibly track closer to A$6 before it heads higher," he said.
Telstra is experiencing lower activity across most of its product ranges but it is still on track with its cost-cutting program, Switkowski assured journalists on the conference call.
He had previously forecast the company would produce savings of A$550 million by the end of the current fiscal year, and noted it will make "substantially more" than the A$100 million in cost reductions already earmarked for fiscal 2001-2002.
Analysts have already begun paring back their earnings estimates for Telstra closer to last year's reported net profit of A$4.04 billion. For most, that will mean wiping A$300 million to A$400 million off previous forecasts.
A senior telecommunications analyst, who asked not to be identified, said the alarm bells started ringing when Telstra hinted about two months ago that capital expenditure would stay at A$4 billion.
Telstra's latest revenue growth projections are for core operations and exclude the impact of consolidation and other accounting effects from Telstra's three Asian joint ventures with Hong Kong's Pacific Century CyberWorks Ltd. (H.PCW) and other equity investments.
Elsewhere in Asia, Telstra is in the running for Singapore's second-largest telecommunications company, MobileOne Pte. Ltd., but Switkowski didn't shed much light on the subject when questioned.
"Let me not give you any confirmation about what is happening in Singapore but let me absolutely reassure you that the results in the (second) half don't change our priorities in general as a company and, in particular, the Asian marketplace," he said.
The fiscal second half also will be marred by a A$36 million bad debt related to the financial difficulties of One.Tel Ltd. (A.OTL), a small telecommunications concern that went into voluntary administration two weeks ago.
Telstra has attracted One.Tel customers onto its mobile phone network, but the former One.Tel customer numbers are small when compared with Telstra's existing 5 million-plus mobile customers, Switkowski said.
One.Tel has around 220,000 mobile phone customers, who are expected to migrate to other networks, including that of Telstra.
-By Graham Morgan, Dow Jones Newswires;
61-2-8235-2962; graham.morgan@dowjones.com
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