Telstra to cut more costs, jobs
By Kevin Morrison
Telstra is considering another round of cost cuts which could lead to more job losses, after reporting a bumper $2.6 billion net profit in the December half.
After stripping out one-off effects, bottom line profit was $2.11 billion, up from $1.91 billion a year ago. The result was in line with market expectations.
One reason for the increase was that operating expenses grew at a smaller rate than the 5 per cent rise in sales, which reached $9.7 billion.
Cost cutting launched a year ago by Telstra chief executive Dr Ziggy Switkowski checked expenses. It was then that he committed to cutting 10,000 jobs within two years to save $650 million a year.
Telstra wants savings of $550 million this financial year, a figure Dr Switkowski said it would meet, with 4,592 jobs cut in the past year. Telstra staff totalled 47,075 at December 31.
He said more savings would be needed if Telstra were to maintain its profit-growth rates while core businesses faced lower prices and more competition.
"We will certainly get a running rate of $650 million out next year and go beyond that. We have to when we see what is happening in the industry in terms of prices and market share shifts and regulatory interconnect numbers," Dr Switkowski said.
"We have a new generation of improvement efforts across the company. I think that will give us more certainty about improved productivity in the organisation.
Telstra held the interim dividend steady at 8c a share fully franked, which equals a dividend pay-out of $1 billion, of which half goes to the Federal Government. The dividend will be paid April 27.
Last year, Dr Switkowski also indicated Telstra would cut another 6,000 jobs by selling its network construction arm, NDC. While he conceded the sale had taken longer than expected, it was still on the agenda.
The results also showed a drop in operating profit from the mobile and retail divisions as the average spending by mobile customers fell 14 per cent to less than $50 per month, while the average spending by residential customers also fell.
However, Telstra was able to offset lower residential spending by increasing line rents.
Telstra's newly appointed group managing director of finance, Mr David Moffat, said mobile margins and average revenue per user would remain under pressure.
Mobile number portability, due in September, was expected to have an adverse effect, he said.
The headline result was boosted by unusual items such as a $123 million gain on the selldown of Telstra's stake in Computershare and a $478 million gain from its holiday on payments to staff superannuation funds until 2003.
These gains were offset by the writedown and equity accounted losses from investments in software groups Solution 6 Holdings and Sausage Software, and Station 12, Telstra's satellite joint venture with Dutch telecom carrier KPN.
The results did not include any contributions from its Asian joint venture with Pacific Century CyberWorks, because the venture only officially started last month. But neither did Telstra provide any update on ventures such as its 60 per cent ownership of Hong Kong Telecom's mobile operations and a 50-50 owned undersea cable network.
But Dr Switkowski said Telstra had many choices for expanding mobile operations in Asia.
Telstra has already outlaid $US2.5 billion ($4.9 billion) in cash to form the alliance with PCCW, which is expected to dilute earnings until at least 2005.
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