Telstra has future profit down to a T

TELSTRA chief David Thodey is betting billions of dollars on high-tech mobile and broadband infrastructure to fast-track earnings and cement Telstra’s dominance in the telco sector.
Nanjing Night Net

Mr Thodey has earmarked $1.2 billion to build more high-speed and high-capacity 4G technology around Australia, and is speeding construction of an inter-city fibre-optic network that will be leased to NBN Co.

And that new profit stream appeared in yesterday’s full-year results: Telstra received $67 million in leasing payments from NBN Co during 2011-12. The payments will increase to hundreds of millions of dollars as soon as Telstra finishes building the inter-city network. It will spend an extra $100 million to get the transit network built within two years rather than three. Stage one is completed.

Yesterday Mr Thodey revealed that another gamble was already paying off – a decision made in 2010 to spend $1 billion increasing productivity, improving Telstra’s woeful customer service, and to steal market share from other telcos, particularly in mobile.

Telstra has since added 3 million mobile services to its network, and gained productivity benefits of $1.1 billion. It own metrics showed customer satisfaction was improving, Mr Thodey said.

Post-tax profit increased by 5.4 per cent to $3.4 billion in 2011-12, from $3.2 billion the previous year, despite a modest 1.1 per cent increase in revenue to $25.4 billion.

Management expects low single-digit growth in revenue and earnings in 2012-13. Shareholders will receive a final dividend of 14¢, fully franked, on September 21 for a total of 28¢. Next year’s dividend will also be 28¢ fully franked.

There are no plans for a share buyback or special dividends. Mr Thodey said it was prudent to keep dividends stable because global economic conditions were uncertain and money was needed for infrastructure investment.

Telstra’s results met analysts’ expectations, but the share price tumbled 11¢ during trading before closing at a two-week low of $3.88, down 9¢ from Wednesday’s close.

Morningstar’s head of research, Peter Warnes, said foreign investors probably sold a lot of shares to lock in currency gains, with the Australian dollar trading close to $US1.06. About 30 per cent of Telstra’s shares are held by foreign investors.

”Look at the currency. These guys were probably buying at $3.50, substantially lower than where it is now at a 52-week high of $4.09. That is a 14 per cent gain on the share, and add in the currency – they probably have a 20 to 25 per cent gain,” he said, adding that overseas investors got no benefit from franking credits.

The results also revealed that the number of active telephone lines had dropped below 7 million for the first time, to 6.8 million, and average monthly revenue from each account dropped below $50 for the first time, to $48.88.

But somehow Telstra managed to increase the profit margin on its fixed telephone network to 60 per cent. Mr Thodey put this down to ”running a more efficient business”.

Households without a telephone line increased from 12 to 14 per cent, but this figure does not include households with a fixed broadband connection.

Deutsche Bank analyst Andrew Anagnostellis said: ”The earnings divergence between ‘good Telstra’ (mobiles were up 8.5 per cent and network applications and services were up 10.5 per cent) and ‘bad Telstra’ (copper network was down 10 per cent and Sensis and advertising down 16.1 per cent) was more extreme this year.”

This story Administrator ready to work first appeared on Nanjing Night Net.