Restructuring Costs Hit First-Half Profits of Australia's Telstra

Australia's largest telco, Telstra, reported a smaller-than-expected 20% decline in first-half net profit on Thursday, weighed by restructuring costs, but upgraded its full-year outlook.

The telco has said the first half would see the largest restructuring and redundancy costs of its five-year "transformation" plan, which began in November 2005. The overhaul aims to rationalize IT systems and ramp up future growth drivers including broadband and directories.

Telstra said net profit fell to A$1.7 billion (US$1.34 billion) in the six months to December from A$2.14 billion. This was higher than the consensus forecast of A$1.622 billion, according to
the average of nine analysts surveyed by Reuters.

Telstra revised up its forecast for full-year earnings before interest and tax to growth of 3% to 5%, up from its previous estimate of 2% to 4% and said for the full year, revenue growth will be about 2.5% to 3.0%. It reiterated it expects a big turnaround in earnings before interest and tax in the second half.

The company has benefited from a slowdown in the rate of decline on high-margin fixed-line revenues, helped by bundling broadband services. Telstra has been spending aggressively to win fixed-line and mobile customers in a cut-throat competitive market.

Mobiles revenue grew 11.8% and broadband revenue grew by 43.7% in the half, while fixed-line revenue was down 5.6%.

Telstra has been expanding market share in broadband at the expense of main rival, Optus, which is owned by SingTel. Optus reported slower than expected broadband subscriber growth last week.

In November, a sale of part of the Australian government's stake in the company raised A$15.5 billion. Among several one-off items depressing the first-half result was a deferral of revenues caused by the delayed release of the Melbourne Yellow Pages directory in January instead of December.

Telstra shares have risen 5.8% this year after some analysts upgraded the stock, while the broad market has added 5.2%.