Telstra yesterday again surprised with an upgrade in earnings and performance, but will that be enough to save the company and its mostly American management from being criticised at the forthcoming annual meeting?
But the shares failed to ignite, ending up just 3c at $4.71 after hitting a high for the day of $4.78.
The muted reaction was seemingly at odds with the 2008 profit forecast and better than its long-term growth estimates thanks to the boost from cost cutting and increased revenue from 3G mobile phone use.
A timely $100 million distribution from the 50% held Foxtel Pay TV business helped.
Big investors in particular seem more concerned about what will happen at next Wednesday's annual meeting of Telstra when there's likely to be a very public and very bitter argument over CEO Sol Trujillo's pay package and the company's remuneration policies.
Some big funds, including the Future Fund, which controls 16.5% of TLS, the AMP, Queensland Investment Corp and Colonial first State are reported to be opposed to the company's remuneration report and could vote to reject it next week. That would be a non-binding vote but could it prompt the CEO to quit after being rejected by shareholders?
Telstra is now two years into a five-year overhaul to slash costs, boost margins and reduce dependence on its fixed-line copper wire networks and fixed home phones.
The company told a briefing yesterday that it had lifted its long-term objectives for both revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) growth to a range of 2.5%-3.0% a year, from a previous forecast of 2.0%-2.5%.
It also lifted its forecast for full-year earnings before interest and tax (EBIT) to a rise of 5%-7% in the current 2008 financial year, from 3%-5% forecast when the 2007 profit was announced.
It said then it was being conservative because of regulatory uncertainty.
Chief Executive, Sol Trujillo, told the day long investor briefing:"We are ahead of plan on all fronts.
"We expect to continue to exceed market pessimism in the coming months," he added
Telstra said that 5%-7% profit growth forecast included the $100m from Foxtel and excluding it, underlying EBIT is forecast to grow 4%-6%.
The Foxtel distribution has come about because the three shareholders, TLS, PBL and News Corp, have agreed to gear up the Pay TV group's balance sheet to make distributions to shareholders. Foxtel earned an EBITDA of $237 million in the 2007 financial year and that is expected to grow sharply past $300 million this financial year, giving the company more financial strength to meet the higher interest bill.
Telstra warned there may not be another distribution from Foxtel this year.
Analysts said that as a result of the briefing they expect TLS's EBIT to rise 6.7% to $6.2 billion this year, give or take a few million.
Trujillo also surprised the briefing by saying that the company had arrested its long-running decline in fixed-line phone revenues in the first quarter of its fiscal year.
He said high-margin, retail fixed-line revenue showed a small positive in the three months to September. That compares with a decline of 2.5% in the six months to June and a 5.6% fall in the first half of the 2007 financial year.
Telstra was very bullish for 3G mobiles saying it expected revenues to grow because 3G phone subscribers would increase to 50%-70% of total mobile subscribers by 2010.
Trujillo said Telstra was two months ahead of schedule on a simplified IT and billing system, which was switched on last weekend.
"We are earning new revenues as Next G mobile broadband changes the way customers use their mobiles, we are winning market share and revenue-per-user in broadband; and we are bucking the worldwide decline in traditional products,'' Trujillo said.
All well and good, but will that be enough to calm to tension and silence the critics who will be out in force at the AGM next week?
Telstra still has the ongoing brawl with the Federal Government over the switch off of the CDMA network early next year.
The telecommunications regulator, ACMA, said in its annual report released this week that it was expected to happen next week. The company also has an ongoing argument over broadband networks in the bush and in cities.
And it has to consider the possible change of Government on November 24.
