Telstra Fiscal Year Profit Up 13.5%, Keeps Long-Term Target

SYDNEY -(Dow Jones)- Telstra Corp., Australia's biggest telecommunications company, said Wednesday net profit for the year ended June 30 rose 13.5% from the previous year, boosted by increased mobile and broadband revenues, but slightly below market expectations.

The firm maintained its long-term guidance and said its five-year transformation remains on track.

Melbourne-based Telstra said net profit rose to A$3.69 billion from A$3.25 billion a year earlier and it declared a final dividend of 14 cents a share, representing a total payment of A$1.7 billion.

Analysts had forecast a net profit of A$3.78 billion, with a dividend of 14 cents-15 cents, according to a survey of six analysts by Dow Jones Newswires.

The company's share price fell after the earnings report with investors selling on the below-consensus result and broader negative market sentiment. Telstra closed 4% lower at A$4.32 compared with a 2% drop in the overall market.

Analysts said Telstra's result was healthy but showed vulnerabilities for the group as it headed into tougher economic headwinds.

Telstra "will need every penny of revenue growth" to hit its 2010 profitability targets, David Kennedy from Ovum Research said. "Hitting such ambitious profitability targets requires this process to run smoothly, on budget and on time."

"This is especially the case because there is a question mark over continued revenue growth in a tough macroeconomic environment," he said. "The biggest challenge is yet to come."

Macquarie Research analysts maintained their share price target for the stock at A$4.90.

"Our caution at first look is on the cost and capex story, which makes the earnings story increasingly dependent on Telstra continuing to achieve aggressive top line targets to keep in line with market expectations from here," they said.

Telstra said revenue rose 4.7% from a year earlier to A$24.8 billion, beating the company's forecast for a 3%-4% improvement but below market expectations of 4.8%.

Chief Executive Officer Sol Trujillo said the company's earnings growth had been achieved in competitive and unregulated areas of the business such as mobile voice and data, internet telephony access, advertising and directories businesses and broadband.

"We have redefined our business by investing to create competitive advantages and this value differentiation strategy, underpinned by our customer-centric transformation, sets us apart," Trujillo said.

Telstra said earnings before interest and tax rose 7.7%, in line with the group's forecast of 6%-8% growth but below market forecasts of 10%. The company held to its target of 6%-8% earnings growth for 2008-09.

The firm said that its capital position remained strong and that it is on track to meet its free cash flow objective for 2009-10 of A$6 billion to A$7 billion.

Telstra Chief Financial Officer John Stanhope said the group could issue debt either through the domestic or offshore markets to fund its dividend payment on Sep. 26.

Stanhope said the conditions in the credit markets had improved "only very slightly" in recent weeks. "We do have a dividend payment coming up shortly and we will have to raise some money - whether it's domestic will depend on the conditions," Stanhope told Dow Jones Newswires in an interview.

Retail broadband revenue grew 49% to A$1.8 billion and average revenue per user increased 2.9%, while mobile services revenue grew 12.3% to A$5.5 billion, boosted by the Next G network's increased coverage.

Detracting from growth was a 3.2% fall in public switch telephone network revenue to A$6.7 billion, with the company reporting wholesale line losses to low-cost unconditioned local loop, or ULL, services.

Accrued capital expenditure for 2008-09 is expected to be A$4.3 billion to A$4.6 billion.

Telstra revised up its guidance for accrued capital expenditure for 2008-09 to A$4.6 billion from A$4.3 billion.

Trujillo said the group's focus on providing essential services meant it remained less exposed to the downturn in economic conditions than other companies

"It's all part of how you would fight recession, how you would fight inflation and how you would fight budget crunch," Trujillo said in a media briefing. "So we are less susceptible than others but I won't say that we aren't susceptible in terms of an economic slowdown."

Trujillo wouldn't identify the parts of the business most exposed to a downturn in economic demand.

"We will always have risk but again I'm not going to highlight anything because we're not seeing those signals at this stage," he said.

-By Sam Holmes, Dow Jones Newswires;

61-2-8235-2964; samuel.holmes@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 13th August 2008