-- Telstra FY profit rises 12% to A$3.81 Billion
-- Company poaches smartphone customers from Vodafone
Australia
-- Holds dividend steady, focused on growing profit
near-term
SYDNEY--Telstra Corp. (TLS.AU), Australia's biggest
telecommunications company by market value, booked a
better-than-expected 12% rise in annual profit Thursday after it
poached smartphone customers from a glitch-plagued rival.
Sydney-based Telstra, once hampered by the mass exodus of
customers away from its traditional fixed-line network, has been
one of the strongest performers on the Australian share market in
recent years as profits improve and it attracts cautious investors
with steady dividend payouts.
The company's profit for the year through June of 3.81 billion
Australian dollars (US$3.43 billion) beat the A$3.69 billion
average of nine analysts' forecasts compiled by The Wall Street
Journal. It continues a gradual turnaround in performance from
2011, when earnings tumbled 17%, and follows a deep cost-cutting
drive that involved shifting back-office jobs to India and heavy
investments in the company's wireless network.
"Our strategy around improving customer service, as well as
focusing on our growth businesses is working," Chief Executive
David Thodey said in a statement.
An improvement in the reach and quality of Telstra's mobile
offering, including the establishment of a 4G network, has
coincided with a rapid deterioration in service quality at Vodafone
Australia, an equal joint venture between Vodafone Group PLC
(VOD.LN) and Hong Kong's Hutchison Whampoa Ltd. (0013.HK).
Vodafone Australia last month confirmed it lost 551,000
customers in the six months to June 30 alone after its network
infrastructure became overstretched. The company is currently in
the early stages of a turnaround strategy it says is designed to
"resolve the impact of network and customer service issues' that
have damaged its brand reputation and performance in the past few
years.
Telstra said Thursday it added 1.3 million mobile customers in
the year through June.
The company, which is worth A$62 billion, has piles of money to
invest.
Last year, it agreed to shut its fixed-line infrastructure
progressively and transfer its customers to the
Australian-government owned NBN Co.--which is rolling out the
country's new high-speed broadband network--in exchange for A$11
billion. The deal, however, strips Telstra of its wholesale
infrastructure monopoly, forcing it to compete harder for retail
customers.
Investors are holding out for Telstra to eventually start
returning some of the A$11 billion broadband windfall in higher
dividend payouts or a share buyback. The company held its annual
dividend steady at 28 cents per share, without providing guidance
for the current financial year.
Shares in the company jumped 1.5% early in Sydney, outperforming
a 0.4% rise in the broader market.
"I think it's a great result, delivering on the top line and on
expense control," said Rhett Kessler, portfolio manager at Pengana
Capital in Sydney, which holds a small amount of Telstra stock.
"If they've got spare capital they'll release it. But if they
don't they've got places to invest it. They've done a good job
managing capital so far."
Telstra Chief Financial Officer Andy Penn said the company wants
to increase dividends over the longer-term.
"But to do so we need to continue to focus on growing our
profitability and that's what we're going to focus on in the near
term," Mr. Penn said in an interview.
Although Vodafone Australia's woes can't last forever, Mr. Penn
said he's optimistic Telstra can keep growing its wireless business
through continued investment, and as people keep upgrading to newer
and better handsets.
Looking ahead to the current fiscal year, Telstra forecast "low
single-digit" percentage growth in revenue and operating earnings.
Revenue last year grew by 1.9% and operating earnings, which
exclude interest and tax payments, rose 3.9%.
Write to Ross Kelly at ross.kelly@wsj.com
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