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Telstra's full-year results show how far the carrier has come, but also the magnitude of the challenge before it.
A strong revenue result was even better than it appeared. Overall sales growth of 4.7% masked retail sales growth of 6%, because wholesale fell 5% due to the rollout of competitor ULL-based networks.
We expect wholesale to stabilize in the next 18 months as ULL expansion is stopped by FTTN, and this will push up revenue growth, provided the current retail growth can be sustained.
Expense growth was contained at 3.5%, so EBITDA grew 5.6% and EBITDA margin grew from 41.7% to 42.2%
Telstra will need every penny of revenue growth to hit their profitability target for 2010. Telstra's target requires it to raise EBITDA margin from this year's 42.2% to at least 46% by then, which will take both faster revenue growth and significant cuts to expenses.
Having rolled out its new Next G mobile network and Next IP data network, Telstra is currently focused on moving its customer base to its new CRM and billing systems by the end of calendar 2008. The old CDMA mobile network has already gone, and we should see further big operating cost savings in 2009 as old IT systems are decommissioned.
Hitting such ambitious profitability targets requires this process to run smoothly, on budget and on time. This is especially the case because there is a question mark over continued revenue growth in a tough macroeconomic environment. The biggest challenge is yet to come.
David Kennedy/Ovum