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telstra plans $1bn buyback

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    Post from Courier Mail

    Telstra plans $1bn buyback
    By Mathew Charles

    TELSTRA has surprised on two fronts, unveiling a better than expected profit and revealing plans to return up to $1 billion to long-suffering shareholders.

    A relieved sharemarket welcomed Telstra's $3.4 billion net profit – better than the $3.1 billion expected.
    The news sent Telstra's share price up 12¢, or 2.5 per cent, to $4.92.

    Telstra's has added almost 25 per cent since plunging as low as $3.96 in early March.

    Observers tipped the news would give the momentum needed for Telstra to continue its climb for at least the short term.

    Analysts said the $800 million to $1 billion off-market share buyback was superior to the special dividend for which many had been crossing their fingers.

    Their hopes for an extraordinary payout were buoyed when Telstra unveiled a 3¢ special dividend at the half-year result on top of a normal 12¢ dividend.

    "In theory, a buyback is preferable," Macquarie Bank said. "Our empirical research also shows that buybacks have a much greater share price impact than special dividends, especially over longer holding periods."

    For the second half, Telstra will pay another 12¢ dividend for shareholders registered on September 12, payable on October 31, bringing the year's total payout to 27¢, compared with 22¢ last year.

    Exactly what the off-market share buyback means for the Federal Government's 50.1 per cent share is unclear.

    However, by law the Government's stake cannot fall beneath its present level until the Senate gives approval for Telstra's full privatisation.

    An upbeat chief executive Dr Ziggy Switkowski said the buyback's details were yet to be worked out but would be complete by Christmas.

    He expected a formal response regarding the Government's intentions "in the near future" and to soon have the necessary approvals in place to proceed.

    However, it prompted key ratings agencies Standard & Poors and Fitch's to downgrade their outlook for the telco while Moody's upgraded its outlook to stable from negative.

    Dr Switkowski painted a confident picture for Telstra's future when asked where the company would be in five-years time.

    "I do think we will be fully privatised," he said. "I have no doubt we will be growing more quickly domestically than we are growing at the moment."

    That will include its advertising division, Sensis, which publishes phone directories like the Yellow Pages, while half-owned pay-TV outfit Foxtel will be a "formatively significant media company" with digital pay-TV as its base.

    While Telstra's outlook has improved with an especially strong fourth quarter for its key mobile phone division, Dr Switkowski predicted this year's revenue would grow about half the industry's pace.

    For the year, earnings before interest and tax slipped about 8 per cent to $4.7 billion, while underlying sales revenue inched 0.5 per cent higher to almost $20 billion.

    Dr Switkowski said costs would continue to fall, with capital expenditure, which fell 8 per cent to $3.3 billion, falling to about $2.9 billion this year.

    Importantly, free cash flow – the amount of spare cash left after all needs are met – grew almost 19 per cent to $4.6 billion.


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