Telstra delivers strong growth for shareholders

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Telstra delivers strong growth for shareholders

Excludes potential impact of NBN and regulatory review.

Telstra has delivered strong revenue and profit growth over the 2008/09 fiscal year, with broadband, mobile data and enterprise business the main drivers.

The country's incumbent telco reported 2.7 percent revenue growth to $25.5 billion and EBIT profits of $6.5 billion, up 5.3 percent - slightly above guidance given to the market in February.

Gains were made across the board by business segment, with the only exception Telstra Wholesale, which came in 5.1 percent lower.

Fixed retail broadband grew at 15.9 percent to $1.53 billion.

But the carrier did have concerns the market was slowing. Telstra signed up less new ADSL services than last year, and executives at the earnings call canvassed concerns over customer churn and disconnections.

During 08/09, these difficulties were more than offset by existing Telstra customers having a higher appetite for broadband - with Telstra executives claiming that an additional 820,000 customers have upgraded to plans offering speeds of  20 Mbps.

Mobile services revenue also grew 10 percent to $6.1 billion. Wireless broadband revenue (from data card products) grew 69.2 percent to $587 million.

Telstra Enterprise and Business also reported strong growth, particularly in the area of IP access revenue (up 24.9 percent).

Revenues in Telstra's advertising business, Sensis, grew 5.8 percent to $2.25 billion.

Free cash flow grew 13.2 percent to $4.3 billion - closer to the $6 billion target set by Telstra management.

The company continued to see its traditional PSTN telephony business, which makes up a quarter of its revenues, slowly erode - declining 4.9 percent to $6.3 billion.

Telstra said there was lower usage across all calling categories - but the number of local calls in particular fell 14 percent and long distance fell by 9.2 percent.

Guidance

Looking ahead, Telstra expected low single digit revenue growth in the 2010 fiscal year, with EBITDA margins steady at 43 percent.

Telstra chief financial officer John Stanhope stressed that such projections excluded the potential impacts of changes to the telecommunications regulatory environment, both in terms of the review announced as part of the National Broadband Network and a separate competition watchdog review of Telstra's declared services pricing.

"This guidance excludes the impact of ACCC wholesale pricing determinations," Stanhope said. "While we have in our guidance made some allowance - we could get an unexpected outcome."

"As for the NBN, we've not factored anything in," said Telstra CEO David Thodey. "It is so hard to know what the parameters are."

Thodey said Telstra's involvement in the NBN "is an option - but the only way we'd do that if we could drive an improved shareholder outcome."

Thodey concluded that Telstra "is not immune to the economic slowdown."

"We continue to experience reduced usage of both fixed-line and mobile voice usage, while there is evidence of slowing customer growth in fixed broadband take up," he said.

"We don't see significant change in the economy in the year ahead," he said. "As unemployment flows through, we see that in calling patterns."

But Thodey stressed the carrier would not cut costs any deeper, nor would it lower its prices.

"We are about profitable revenue growth," he said. "We are not going after top line growth at any expense."

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