Telstra gains extra customers but loses on profits

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Telstra is tipped to report a double-digit decline in net profit today, as its year-long bid to capture more customers eats into the bottom line.

The Australian telco earmarked A$1 billion ($1.2 billion) over 2010/11 to expand market share and develop new products and its efforts appeared to pay off big time in February, when it reported more than one million additional customers.

But those new customers helped push net profit down in the first half, as Telstra incurred the cost of new handsets and other mobile devices through subsidies and lower prices.

The nation's largest telco is expected to report net profit for the 12 months to June 30 around A$3.13 billion, according to the median of four analysts' estimates gathered by AAP.

If the result prints in line with market forecasts, it would represent a 19.3 per cent drop from A$3.88 billion reported in 2009/10.

CBA Institutional Equities analysts Alice Bennett, Nathan Burley and Dominique d'Avrincourt said in a research note that Telstra had delivered "strong subscriber growth" during the first three months of 2010/11.

They said that growth was expected to have continued in the fourth quarter, albeit at a slower pace.

The company's full year guidance was for a high single-digit decline in earnings before interest, tax, depreciation and amortisation (ebitda), flat sales revenue and a 28 cents per share fully franked dividend.

Telstra said in February that adjusted ebitda - its preferred measure - fell 12.5 per cent to A$4.654 billion in the first half.

UBS analysts Richard Eary, Lauren Moran and Eric Choi said 2010/11 earnings were expected to be affected by higher cost of goods sold, as well as marketing and subsidies costs associated with record customer growth.

They said the lower cost of goods sold, lower redundancy costs, and the benefits from Telstra's cost-cutting exercise, Project New, would support improved earnings in 2011/12.

- AAP