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Telstra Makes Cautious Call On 2008

Telstra, Australia??s largest phone company, said its 2007 net profit rose 2.9 per cent, helped by strong mobile and broadband sales, but it offered a cautious outlook for 2008, sending its shares down 3.8 per cent.

Telstra, a former government-owned monopoly, is in the midst of a costly five-year overhaul plan to reduce dependence on shrinking fixed-line revenues. It is also battling the government over funding awarded to rival Optus, owned by Singapore Telecom.Telstra said it was being ?°prudent?± in its guidance because of uncertainty about the regulatory outlook and government policy, and expected 2008 earnings before interest and tax (ebit) growth of 3-5 per cent on revenue growth of 2-3 per cent.

That was well below some analysts?? expectations, with UBS looking for a company estimate of 12-14 per cent ebit growth, and at the low end of consensus estimates of a 5.1 per cent rise. ?°Probably the biggest disappointment is the outlook for ??08,?± said Theo Maasm, ABN Amro asset management analyst.

?°There is a wide range of estimates out there so it??s not a surprise they could not reach the top of those expectations, but they seem to have been either very conservative ¨C or very realistic and then it??s a big disappointment.?± Investors seemed to agree, pushing Telstra shares down as much as 3.8 per cent to A$4.53 in a broader market up 0.4 per cent.

Telstra said it earned a net profit of A$3.28bn ($2.83bn) in 2007, up from A$3.18bn in 2006, as revenues rose 4.2 per cent.
Including a one-off charge, the profit was broadly in line with analysts?? forecasts of a 5.7 per cent rise to A$3.36bn. Estimates were for a 3.6 per cent rise in revenues. Costs associated with the overhaul plan would result in a ?°slight decline?± in earnings before interest, tax, depreciation and amortisation in the first half of 2008.

Telstra said ebit for 2007, and excluding a one-off A$110m write-off related to its Trading Post classifieds business, rose 7.1 per cent, above its own guidance. Analysts suspect Trading Post is losing customers to auction house eBay. For its second half, Telstra said ebit rose 42 per cent, ahead of its guidance of 37-40 per cent. Telstra said 2007 was the heaviest year for costs associated with its five-year overhaul, begun in November 2005, and said on Thursday the restructuring was ?°on time and on track?±.

It cut its workforce by 1,887 during the year and by 5,746 during the past two years. ?°We remain on course to achieve all of our 2010 overhaul objectives,?± Sol Trujillo, chief executive, said.Telstra has said fixed-line revenue, which now makes up 30 per cent of sales, will fall to about 20 per cent by 2010 as the new drivers of the business expand. In the year to June 30, Telstra slowed the fall in fixed-line revenues to 4.1 per cent, while mobile revenue was boosted by a big increase in data and broadband subscriber growth was strong.

Mobiles revenue rose 13.9 per cent, which included a jump of 30 per cent in SMS messaging and 92 per cent in non-SMS data as Telstra moved more customers onto its 3G network. Retail broadband revenues rose 66.2 per cent as market share grew 2 percentage points in the second half to 47 per cent. It added 516,000 customers in the half for a total of 2.4m. Telstra declared a final fully franked dividend of 14 cents, as expected. Telstra last week renewed its legal and anti-regulation campaign, mounting a court challenge to the Australian government??s decision to award main rival Optus A$958m in funding for broadband in remote areas.
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