Telstra Capex Already Up 8%
0Overall Score

Telstra has only just begun its planned re-invigoration in the last three months, but the telco’s Capital Expenditure figures for the final 6 months of 2005 already show evidence of the big splurge to come.

Telstra Chief Executive Sol Trujillo has already forewarned the country that the major telco’s planned spending pattern wouldcause a Capital Expenditure bubble over the next four years before returning to normal in 2010 fiscal year. But this was only in November last year and the company’s last half fiscal results are already showing signs of the cash going out the door.

The company’s guidance is that a $2.5 – $3.5 bubble over fiscal years 2006 – 2008 will ultimately even out with future Capex expected to be around 12% of revenue by 2010.

Operating capital expenditure for the half year ended 31 December 2005 increased by 8.4% or $154 million, with domesti

c core operating expenditure of $1.8 billion increasing by 4.8% or $82 million.

The company says the higher capital expenditure was driven primarily by growth in mobiles and broadband assets and includes the whopping $312 million it paid to access competitor Hutchison’s 3G network.

To try to limit the spending spree, Trujillo has had the axe out cutting 15 building leases, abandoning over 400 projects that weren’t making the grade and will push some $300 million it is saving from Capex into the transformational project he is putting the company through.

The fiscal ramifications of the increased expenditure on new infrastructure will mean that depreciation and amortisation expenses will also grow over the next few years as assets that are phased out over the 2006 and 2007 fiscal years, explained CFO John Stanhope.

Cash flow will be impacted by our investments in capital expenditure over the next two to three years and free cash flow is expected to reflect this

Also the second half of the 2006 fiscal year will be impacted by redundancies and other costs associated with our transformational initiatives announced in November 2005.

The company warned that EBIT decline for the fiscal 2006 full year to be in the range of 15% to 20%, before restructuring and redundancy provisions, and 21% to 26% including restructuring and redundancy provisions.