Telstra EBIT falls, but less than forecast

Stuart Corner
Thursday, 15 February 2007 09:50

IT Industry - Deals

Telstra has announced a decline of 15.7% or $546 million in its EBIT for the half year ended 31 December 2006. However this was better than 17% to 20% fall forecast in the T3 prospectus and previous guidance.

Profit after tax was $1.7 billion, down $430 million or 20.1% on the prior corresponding half year. Telstra said that, as expected, these results were affected by transformation costs and other one-off factors. It said these would be "more than made up in the second half."

The most surprising news was that Telstra has signed up 415,000 to its Next G network, launched only last October. 280,000 were added in less than three months from launch on 6 October to 31 December.

Total income grew by 2.2% or $253 million to $11.8 billion mainly due to increases in mobiles and retail broadband. Total expenses increased by 9.9% or $799 million to $8.9 billion. Telstra said the increase had been driven by transformation related costs and higher cost of goods sold and handset subsidies due to increased market campaign activity in the 3G and broadband markets.

Total mobile revenue grew 11.8% or $296 million to $2.8 billion. Telstra claims to have added 12 and 13 times as many postpaid SIOs in the second quarter as Vodafone and Optus respectively. Total mobile services in operation now stand at 8.89 million, up 363,000 in the half. Telstra added 707,000 3G in the half year.

Retail broadband revenue grew $166 million to $497 million, growth of 50.2%. The number of retail broadband customers grew to 1.84 million, with 331,000 added in the half. "Our broadband market share has increased again, up one percentage point to 45%, and we have continued to add retail customers at three times the rate of our nearest competitor," CEO Sol Trujillo claimed.

PSTN products revenue fell $216 million to $3.6 billion, a decline of 5.6% for the half compared with a 7.6% drop in the first half of fiscal 2006. Telstra said it had held residential fixed line numbers steady since June 2006, and total fixed line services fell just 80,000 or 0.8% in the half to 9.86 million.

"There has been a change in momentum in the fixed line business. We have contained line losses and continued to slow the decline of PSTN revenues using market based management initiatives such as subscription pricing and integrated offerings tailored for customer segments. Telstra's PSTN decline is lower than for many of our global peers," Trujillo said.

Total offshore controlled entities revenue increased by 17.4% or $145 million to $978 million for the half. In local currency terms, CSL New World income increased 40.9% assisted by the merger between Hong Kong CSL and New World PCS in March 2006, while in New Zealand TelstraClear income fell 4% due to declining call revenues. Revenue from other offshore controlled entities grew by 24.5%.