Telstra Corp Ltd increased full-year profit 13.3 per cent, missing analysts estimates, after broadband and mobile revenue lifted and declines slowed in its traditional fixed line revenue.
Shares in Telstra fell four per cent to a three-week low after Australia's biggest telecommunications company forecast earnings before interest and tax this financial year to grow six per cent to eight per cent, the same guidance as for 2007/8.
Telstra is three years through a five-year transformation program that involves transferring customers to new computer systems and updating internal networks.
Australia's biggest telecommunications company has also invested in its Next G mobile network, which has boosted revenue.
"I think there was a little bit of a short term disappointment for the 2009 outlook," fund manager Ausbil Dexia chief executive Paul Xiradis said.
"Telstra is spending a little extra now to set itself up for longer term growth. The market is underestimating the 2010 outlook."
Telstra would reward long term holders of the stock, according to Mr Xiradis. Ausbil holds Telstra shares and intends to keep them for the longer term, he said.
Telstra's bottom line net profit for the 12 months to June grew to $3.71 billion, from $3.28 billion the previous year.
Profit attributable to shareholders increased 13.5 per cent to $3.69 billion, which was below analysts' forecasts for $3.8 billion.
Underlying profit, or EBIT, rose 7.7 per cent to $6.23 billion. The consensus forecast of analysts was for around 10 per cent growth.
Shares in Telstra fell 18 cents, or four per cent on Wednesday, to close at a three-week low $4.32.
Revenue increased by 4.7 per cent to $24.83 billion, bettering guidance of three to four per cent growth.
Telstra's expenses increased 3.3 per cent to $18.8 billion as the costs related to the IT component of the transformation peaked during 2007/08.
"Our growth rates have been much higher than what we had in the plan," chief executive Sol Trujillo said at the results presentation in Sydney on Wednesday.
"The service delivered to customers and the reliability has gone up."
Telstra forecast revenue growth of three to four per cent in 2008/09, and said it was on track to achieve its target of $6 billion to $7 billion in free cash flow in 2010, subject to regulatory outcomes.
The cash will support a potential five-year national broadband network roll-out and also give the company flexibility to consider greater returns to shareholders and acquisitions.
"The commentary coming from Telstra was very solid," Ausbil's Mr Xiradis said.
"They achieved all their stated financial aims."
Mr Trujillo said Telstra had halved churn in its retail PSTN, or fixed line, business since the end of 2005 and had more than doubled revenue growth rates in IP and data access since the launch of its Next G network.
During the year, retail broadband revenue grew by 49 per cent to $1.8 billion, as market share and average revenue per user (ARPU) increased.
Mobile services revenue rose 12.3 per cent to $5.5 billion.
"We're going to focus on winning the 3G game and we're going to focus on postpaid customers," Mr Trujillo said.
"We outgrew everybody in terms of postpaid customers."
Fixed line, or PSTN, revenue was $6.7 billion, down 3.2 per cent, as Telstra lost wholesale revenue to competitors through unconditioned local loop (ULL) services.
But that was better than the 4.4 per cent fall in 2006/07.
"Their Next G offering is excellent (and) they have picked up market share from Optus," Mr Xiradis said.
"Their slowing of migration from their fixed line to other services is also a positive."
Telstra said it had moved 3.3 million customers and 4.3 million services to its new IT platform.
But it missed its objective of moving five million customers to the new platform by June.
"We set an aggressive milestone and we missed it. It doesn't change the outcome," Mr Trujillo said,
All seven million customers would be moved across to the new system by the end of December.
The company declared a final dividend of 14 cents a share, taking the full year payout to 28 cents, in line with the previous year and said that would remain the same in 2008/9.
Mr Xiradis said 28 cents in a year with uncertain economic and earnings outlook from a company that was growing its earnings would be a good outcome.