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Telstra meets guidance with strong result in tough economic conditions and maintains dividend


Telstra today announced strong results for fiscal 2009 despite the challenging macro-economic conditions. Results were in line with guidance and analysts’ consensus estimates and Telstra has maintained both its dividend and $6 billion free cash flow target for fiscal 2010.

Telstra’s Chief Executive Officer, David Thodey, said that in the past fiscal year Telstra’s attributable net profit grew 10.3 percent to $4.1 billion and the company generated free cash flow of $4.4 billion, a 13 percent increase on the prior year.

“At a time when many companies have had to ask for money from their shareholders, we are pleased that Telstra shareholders will continue to benefit from our fully-franked dividend of 28 cents per share for the year,” Mr Thodey said. "Over the past three months, I have seen first hand the commitment of all of our employees to offer world-class products and services and I am delighted that their efforts are reflected in the company’s continued strong performance.

"As we highlighted at our half year results in February, our business is not immune to the economic slowdown. We continue to experience reduced usage of both fixed-line and mobile voice usage, while there is evidence of slowing customer growth in fixed broadband take up.

“Against this backdrop, I am delighted that our results are in line with our previous guidance, with the 5.3 percent EBIT growth slightly above the expectations we outlined in February.”

Telstra continues to see strong growth in key product areas, with 10 percent mobile services growth among more than one million wireless broadband customers and 25 percent growth in IP access revenue more than offsetting declines in traditional fixed-line voice revenues.

Key financial outcomes include:

* Total revenue grew 2.7 percent to $25,507 million. Excluding the impact of the sale of KAZ in April 2009, total revenue grew by 3.0 percent.
* Total operating expenses grew by only 0.6 percent to $14,669 million - the slowest rate of expense growth in six years.
* EBITDA increased 5.1 percent to $10,948 million, within our guidance range of 5 percent to 6 percent growth. EBITDA margins grew 1 percentage point in the year to 43.2 percent
* EBIT increased 5.3 percent to $6,558 million.
* Capital expenditure of $4,598 million was within our guidance range and continues to decline as the capital intensive phase of the transformation passes.

Operationally, the business performed well across all segments and products. Key operational highlights for fiscal 2009 included:

* Wireless broadband revenue grew 69.2 percent to $587 million, with customer numbers almost doubling to more than one million.
* Fixed-line retail broadband revenue grew 15.9 percent to $1,533 million
* Sensis revenue grew 5.8 percent to $2,250 million, which included positive revenue growth in the Yellow Pages print business.
* Total workforce reduced by nearly 3,000. Excluding acquisitions and divestments, Telstra has reduced headcount since 2005 by 11,665, against our 2010 target of 10-12,000.

Telstra’s retail business again had a strong year, achieving 3.4 percent revenue growth, in contrast to a 5.1 percent decline in wholesale revenue.

Of particular note in Telstra’s Enterprise and Government segment was the growth in IP access revenue. This is an important and growing part of the segment, with a 23.3 percent revenue increase in fiscal 2009 more than offsetting the decline in traditional legacy data products.

In Telstra’s Consumer segment, which has been affected by the economic slowdown, mobile services revenue grew a solid 8.7 percent. Mobile services revenue was also strong in the Telstra Business segment, which recorded double-digit growth of 11.1 percent.

The company has now opened 97 T[life]™ stores and 22 Telstra Business centres. Telstra’s NextG™ network offers wireless broadband reach and speeds unsurpassed in Australia and we remain on track to launch super high-speed cable broadband in Melbourne by the end of the year.

“Telstra’s transformation has been a long, complex and necessary journey and while there is more work to be done on IT and some network exits, we regard this work as business as usual .We must now drive the benefits of the new systems and processes,” Mr Thodey said. “We acknowledge not all customer experiences have met expectations but our team is focused on quickly improving the customer experience so it becomes an unequivocal point of differentiation for Telstra. That can only be good news for our shareholders as well.”


Commenting on the year ahead, Mr Thodey noted: "Telstra faces significant challenges in the coming year, but we are well positioned to face those challenges. On the issue of the national broadband network (NBN), we are now engaging constructively with the Federal Government, as well as the new NBN Company. We are working to find the right way to deliver the objective of a world-class communications infrastructure for Australia, while protecting Telstra shareholders.

“On the economic front, we expect an extended period of slow growth, but we have an excellent pipeline of innovative products to excite customers and stimulate usage and improve productivity for businesses large and small. Competition remains intense, but we will continue to invest in networks and services that will differentiate our offerings and deliver value to our customers.”

The company is committed to the target of generating $6 billion of free cash flow in the 2010 financial year. In 2010, the company also expects low single-digit sales revenue growth and low single-digit EBITDA and EBIT growth, with EBITDA margins to be maintained. All guidance excludes the impacts of any Government regulatory review or NBN outcomes or any unexpected outcome from ACCC wholesale pricing determinations.


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