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Telstra Sets $5B Free Cash Target

Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) says it can deliver AU$6 billion (US$5.06 billion) in free cashflow for its 2010 fiscal year, a rise of AU$1.6 billion ($1.35 billion) over its 2009 figure revealed in the company's annual results. And wireless broadband is helping power that growth. (See Telstra Closes Fiscal Year.)

The operator says its wireless broadband revenue rose 69.2 percent year on year to AU$587 million ($495 million), as customer numbers almost doubled to more than 1 million.

It's important to note, however, that Telstra's cash-flow target does not take into account any changes in the telco's business as a result of new regulations or Australia's National Broadband Network. (See Telstra Puts AU$1B Price on Separation.)

The telco is cautiously positive for the year ahead after reporting a 10.3 percent increase in net profit to reach AU$4.1 billion ($3.46 billion) in 2009. Fixed-line retail broadband revenues also grew 15.9 percent to AU$1.533 billion ($1.292 billion), and a tipping point was reached with mobile revenues exceeding those from the PSTN for the first time.

Telstra is also realistic, having seen revenues impacted by the global recession and delays in reaping the benefits of the telco's IT transformation. The company's CFO, John Stanhope, therefore says guidance for EBITDA will stay constant at 43.2 percent.

"EBITDA growth would have been greater had there not been that delay in the IT transformation cost realization," says Stanhope.

The IT transformation, which was introduced to streamline Telstra's 1,500-plus IT systems, is now around 50 percent complete, and 70 percent of customers have been migrated onto the new Siebel Systems Inc. (Nasdaq: SEBL) CRM system. This system, billing from Kenan, and order processing from Amdocs Ltd. (NYSE: DOX) make up the central platforms.

Despite this, it is behind schedule and around AU$200 million ($169 million) over budget, but Thodey is delighted with progress.

"I do not know a better IT transformation," he says, but admits, "It is tough work. Anyone who tells you any different, isn't telling you truth."

Stanhope explains the overspend, pointing both to unforeseen complexity and the inclusion of major new items into the program, such as BigPond, Telstra's ISP.

According to Thodey, the majority of work remaining is all about realizing the benefits and getting those to the bottom line as 2009 and 2010 figures have been negatively impacted.

Stanhope says that the delay in getting cost savings from the transformation means that there is probably about AU$100 million ($84 million) the company won't see at all and AU$150 million ($126 million) that has been deferred.

— Catherine Haslam, Asia Editor, Light Reading

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