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Telstra mobile phone - Source: ONE News -
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Telstra Corporation Ltd has flagged weaker earnings growth this year, due to concerns about the impact of rising unemployment on its call volumes as it faces a subdued economic environment.
Australia's largest telco posted a net profit of $AU4.073 billion for the year to June 30, up 10.3% on the previous year and above consensus forecasts of $AU3.82 billion.
However, revenue growth of 2.7% to $AU25.507 billion was under the company's guidance of 3-5%.
Revenues were hurt by the slowdown in Australia, with mobile voice usage and fixed broadband take-up falling on top of a continued decline in fixed-line phone usage.
"We have seen the number of calls made on our mobile network, and on our fixed line network decline over the last six months," chief executive David Thodey told journalists on Thursday.
"This is not unexpected as the economy has slowed down - and as unemployment has increased that is what we would expect."
Some small business customers have also cancelled their fixed-lines to cut costs during the downturn.
However, mobile services revenue grew by 10% to $6.1 billion in 2008/09, wireless broadband revenue grew by 69.2% to $587 million and fixed retail broadband revenue was up 15.9% to $1.5 billion.
Traditional fixed line PSTN revenue dropped 4.9% to $6.3 billion over the year.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) rose 5.1% to $AU10.948 billion, which was within Telstra's guidance range.
Earnings before interest and tax (EBIT) increased 5.3% to $AU6.558 billion, above projected growth of 3-4%.
In 2010/09, growth in sales revenue, EBITDA and EBIT are all projected to slow to "low single digit" levels.
Thodey expects an "extended" period of slow gross domestic product (GDP) growth in Australia, as intense competition in the telecoms market continues.
"Our plan says that we will see modest growth in the second half of this fiscal year," he said of the economic outlook.
"However, it is one thing to talk about GDP growth, unemployment may take longer to recover.
"That's what has driven our considered forecast for the guidance."
Unemployment is currently at 5.8%, but the government has forecast it to rise before peaking at 8.5% in 2010/11.
Lag in transformation
Thodey also said Telstra's five-year transformation plan, implemented by former chief executive Sol Trujillo in 2005, would not deliver the expected benefits for fiscal 2010.
"We think that we are behind, we won't see as much as we had expected in 2010," he said.
Ovum analyst Nathan Burley said the transformation programme targets would remain a challenge for the telco on top of strong competition and a weaker economy.
"I think the reality of transformation has hit, and Telstra's transformation will now remain an ongoing tough challenge," Burley said.
Telstra had targeted annual revenue compound growth of 3-4% between fiscal 2005 and 2010, and annual EBITA compound growth of three to 3.5%.
Telstra's 2009/10 guidance excludes unforeseen impacts from the federal government's regulatory review of the telecoms sector and the latter's national broadband network (NBN) plans.
Thodey, who has been at the helm since May 19, said Telstra was engaging in "constructive" dialogue with the government on the NBN.
"We have a firm belief that if you're not at the table then you can't talk about the issues," he said.
Chief financial officer John Stanhope warned that a functional separation of Telstra - a possible outcome of the regulatory review - could cost shareholders up to $AU1 billion.
Telstra maintained its target to generate free cash flow of $Au6 billion in 2009/10 after free cash flow growth of 13% to $4.4 billion in 2008/09.
Asked if Telstra would consider further acquisitions, Thodey said: "It's a matter for the board how we distribute any excess cash."
Telstra cut 2,881 jobs in 2008/09, bringing the number of job losses to 11,665 over four years.
Telstra maintained its final dividend at 14 cents, bringing the full year payout to 28 cents.
Telstra shares closed down five cents, or 1.39%, to $AU3.56.
