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Telstra plans buyback, profit dips
CNN's Geoff Hiscock, Asia Business Editor
SYDNEY, Australia (CNN) -- Australian telephone giant Telstra plans a share buyback after posting a 6.3 percent fall in net profit to Aust. $3.4 billion ($2.2 billion) on a A$965 million writedown of its investment in Hong Kong-based Reach earlier this year. Telstra's full year result to June 30 compares with a profit of A$3.66 billion the previous year. The company, which is 50.1 percent owned by the Australian government, said Thursday it also planned a share buyback of up to A$1 billion ($650 million) that would improve earnings per share and increase shareholder returns. But it said this return of capital would not hurt its ability to take advantage of profitable opportunities. Telstra, which remains one of the biggest and most profitable carriers in Asia despite two years of declines, said its full year sales for the year to June 30 rose 0.5 percent to A$19.9 billion. Underlying earnings before interest and tax rose 7.9 percent in the second half, producing a full year result of A$6.9 billion. That was up 1.9 percent on the previous year. Telstra CEO Ziggy Switkowski said he did not anticipate any further writedowns on Reach, given its carrying value was now zero. Telstra and Hong Kong telco PCCW set up their Reach joint venture in 2000 as part of a broader partnership, but it has been hard hit by massive overcapacity among undersea cable carriers. In April, Telstra and PCCW agreed to buy more capacity under renegotiated terms with the bankers to Reach. Switkowski said Reach was tracking to plan, and while it was the strongest company of its type in the world, it operated in a "dreadful" end of the telcommunications business. Switkowski said he expected Telstra's revenue to grow slightly in 2003-04, but it probably would be below aggregate industry growth levels of 4 percent. He said cost growth would be below revenue growth and pre-tax profit margins were expected to be higher. Switkowski said he remained bullish about wireless in Australia, with the number of mobile phones likely to reach 15 million next year for 75 percent penetration. He said this rate would go beyond 100 percent as people adopted mobile email and PC-type devices to supplement their mobile phones. Switkowski said the company's operations had been optimized. "On balance, we will see continued growth at every level". He said the potential cost saving offered by Internet telephony was being embraced by some companies but the systems were still "far from robust enough" to give confidence yet. He said when the time was right for IP telephony, Telstra would be there with its customers. Switkowski told media Thursday he expected Telstra would be fully privatized within five years. The final $20 billion sell-off of the Australian government's share in Telstra is seen as inevitable but not imminent. The necessary legislation is in Parliament, but there is no time-frame attached. It has passed through the lower house but may struggle to win approval from the Senate upper house. The government has made it clear it will not sell until the timing is right and the share price is higher. Shares in Telstra are up 1.88 percent to A$4.89 in afternoon trade, well below the A$7.40 price the government got in October 1999 when it sold a 16.9 percent stake. The government began the privatization process in November 1997, selling 33 percent at A$3.30 a share. Telstra shares hit a high of A$9.20 in February 1999 but have tumbled since then, touching a record low of A$3.92 on March 17 this year.
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