Australia's Telstra's Second Half Profit Rises

Telstra, Australia's biggest phone company, missed expectations with a 14 percent rise in second-half profit on Wednesday, and forecast growth in the year ahead that was also below
analysts' expectations.


Telstra, three years into a five-year plan to cut costs and transform its networks, raised its forecasts for 2010 to 3.0-4.0 percent annual growth in revenue and 3.0-3.5 percent growth in earnings before interest, tax, depreciation and amortization, up from an earlier target of 2.5-3.0 percent growth for both.

"At present we are seeing minimal impact from the prevailing macroeconomic environment on our domestic business," Telstra said.

It said it would consider using its strong free cash flow to increase returns to shareholders, make acquisitions or cut debt.

For the year ahead Telstra said it expected 3-4 percent growth in sales and 6-8 percent growth in earnings before interest and tax, compared with analysts' forecasts for a 2.7 percent rise in sales and an 8.5 percent rise in EBIT.

JP Morgan analysts warned ahead of the result that broker forecasts for the 2009 financial year were bullish at a time when Telstra faced a slowing economic growth in Australia, which was likely to curb demand from corporate customers.

Net profit for the six months to June rose to A$1.766 billion ($1.536 billion), up from A$1.549 billion a year earlier, in line below analysts' forecasts of A$1.808 billion given by Reuters Estimates.

The main drivers were strong growth in sales of high-speed Internet services to homes and advanced services on mobile phones, as it lured customers from its main rivals Optus, owned by Singapore Telecommunications and AAPT, owned by Telecom Corp of New Zealand.

Telstra, a former government monopoly which also competes against the local arms of Vodafone and Hutchison, still has the lion's share of fixed-line connections with about 70 percent, and about a 48 percent share of broadband.

Telstra shares have fallen 3.4 percent so far this year, last trading at A$4.50 valuing the group at A$47 billion, strongly outperforming the broader market's 21 percent decline.

The biggest risk facing Telstra is that the Australian government might force it to split off its networks business from its retail and wholesale arm to encourage competition in Internet services on a new A$9.4 billion fibre broadband network, which the government has put up for bid.