Telstra full year profit up 5.4%, mobile customers grow

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Australian incumbent benefits from rival Vodafone Hutchison’s subscriber exodus.

Telstra Corp., Australia’s largest telecoms company by market value, Thursday reported a 5.4% rise in annual profit as spending on its mobile network paid off by boosting cellphone customer numbers.
The addition of 1.6 million mobile customers in the year to June 30 brings the total number to 13.8 million and comes as Telstra adapts to the mass migration of customers away from its traditional fixed-line network.
Telstra’s gains came largely at the expense of Australia’s third largest telco, Vodafone Hutchison, a joint venture between Vodafone Group PLC and a subsidiary of Hutchison Whampoa Ltd. The venture has experienced an exodus of hundreds of thousands of customers over the past two years because of network reliability problems.
Macquarie Group analysts said Telstra appeared to have increased its market share in the mobile space to 46% in the second half of fiscal 2012.
Chief Executive David Thodey told analysts during a conference call that while mobile growth had slowed in the second half of fiscal 2012, the company was preparing for the release of Apple Inc.’s iPhone 5 which “will be a jab in the arm for the industry.”
Mr. Thodey also said that in terms of potential mergers and acquisitions,”we scan the markets pretty aggressively…but there’s nothing on the horizon at this time.”
Telstra reported net profit of A$3.41 billion compared to A$3.23 billion a year earlier and missed the A$3.48 billion average of five analysts’ forecasts compiled by Dow Jones Newswires. Telstra shares closed down 2.3% at A$3.88, while the benchmark S&P/ASX 200 index ended down 0.1%.
“It could be that investors were expecting capital management or something special,” said Rhett Kessler, a portfolio manager in Sydney with Pengana Capital, which holds Telstra stock.
“Investors are also shifting away from safe havens generally. At a cursory look, this is a solid result which has delivered on operational expectations,” Mr. Kessler said.
Telstra has agreed to progressively shut down its fixed-line infrastructure and transfer its customers to the Australian-government owned NBN Co., which is rolling out the country’s new high speed internet network, in exchange for A$11 billion. A six-month delay and 4% increase in the cost of the new network to A$37.4 billion announced by the government Wednesday stoked fears of slower payments to Telstra because they are staggered based on the rollout’s progress.
Telstra Chief Financial Officer Andy Penn said in an interview that “at first glance” the delay didn’t appear to have a significant impact on Telstra.
Investors are holding out for Telstra to eventually start returning some of the A$11 billion broadband windfall in dividend payouts or a share buyback. The company said Thursday it’s “not contemplating capital management initiatives at this time”, flagged an additional A$500 million of spending on its mobile network and pledged to keep its dividend steady at 28 cents per share for the current financial year.
Investments including A$3.6 billion spent last year on upgrades including an expansion of its 4G mobile network are bearing fruit, Mr. Thodey said in a statement.
“We have achieved top and bottom line growth and expect to do so again in the 2013 financial year,” Mr. Thodey said.
Analysts at telecoms researcher Ovum said Telstra’s rivals will find it difficult to challenge the company’s superior mobile network, and will have to pursue strategies as “alternative” providers to Telstra.
Telstra forecast low single-digit growth in revenue and earnings before interest, tax, depreciation and amortization for the current financial year. Revenue last year edged up 1% to A$25.37 billion, while EBITDA increased by 0.8% to A$10.23 billion. Both metrics were at the lower end of the company’s guidance of low single-digit growth.
Telstra’s mobile business, which includes cellphones and mobile broadband internet, now account for about a third of company revenue. Telstra said the decline in fixed-line revenue was “steady” at 6.1%.
One negative for the company was its Sensis directories business, which is adjusting from print advertising to offering internet advertising, where revenue fell 16% to A$1.51 billion.