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Telstra's Net Rises 14%
By Sam Holmes
The Wall Street Journal
August 13, 2008

SYDNEY-- Telstra Corp., Australia's biggest telecommunications company, said Wednesday annual net profit rose 14% 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 for the fiscal year ended June 30 rose to 3.69 billion Australian dollars (US$3.21 billion) from A$3.25 billion a year earlier, in a result analysts said 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."

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 had forecast a net profit of A$3.78 billion.

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%.

Telstra Chief Executive 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.

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.

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.

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