Telstra shares gained $2 billion in value as the telco reported strong customer growth and forecast improved revenue and earnings in the year ahead.
Despite a 17 per cent drop in net profit, Telstra beat market expectations and said earnings and revenue would be higher in the current financial year, boosting investor sentiment.
Telstra shares gained 16 cents, or 5.7 per cent, to close at $2.99.
The company’s net profit of $3.231 billion was higher than an expected result of around $3.13 billion, with the drop from the previous year reflecting its near $1 billion spend on new products and efforts to improve its market share.
The strategy has shown early signs of success, with market share increasing three basis points to 43 per cent in mobile products, Telstra said.
Fixed retail broadband market share gained one basis point to 45 per cent.
Annual revenue increased 0.7 per cent to $25.09 billion and earnings were down 6.4 per cent to $10.15 billion.
In the second half of the year, however, revenue was up 1.8 per cent, and earnings grew 0.7 per cent.
“We have always acknowledged the need to translate our 2011 initiatives into tangible financial benefits, so we are pleased with the results in the second half of this year and expect that momentum to continue in 2012,” chief executive David Thodey said.
Low single digit revenue and earnings growth is forecast for the 2011/12 financial year.
“Today’s result slightly exceeded market estimates and is perhaps a sign that the telco’s fortunes are starting to turn positive,” City Index market analyst Peter Esho said.
Customer growth numbers and margins were impressive, and the commitment of stable dividends in the current financial year is also a boost for investors, he said.
There was also the $11 billion deal with the government on the national broadband network awaiting approval but that wouldn’t have any significant impact on Telstra’s 2011/12 financial year results, the company said.
Mr Thodey said his guidance was intentionally prudent, with weak consumer confidence and market turmoil a concern.
But consumers no longer see mobile phones and broadband as discretionary products, he said.
“When you look at the behaviour of consumers and businesses around communication, the reality is that many people see it as an essential service,” he said.
“(But) I won’t say that we’ve got a hedge against the economy, because obviously we are impacted by the economy.”
Bad debts, when customers fail to pay their bills, are the most obvious impact of economic hardship for Telstra, and they fell in the year to June, Mr Thodey said.
The popularity of packages and cap plans had also made revenue more predictable, he said.
“I think that’s some of the reason that gives us a bit more confidence going into next year.”
Telstra’s fixed line phone services continue to post falling revenue, down 7.9 per cent in the year to June, as local call numbers dropped 13.6 per cent.
Competitor’s use of Telstra’s copper wire network continued to rise, with over one million services in use for the first time, which added to the loss.
A fully-franked final dividend of 14 cents was declared, taking the full year payout to 28 cents, in line with the previous year.
