“2020 is proving to be an enormously challenging year for everyone – for governments, businesses, communities, and for all of us as individuals. The emotional, mental and economic stresses as a result of the COVID-19 pandemic and necessary restrictions are profound.

“Through this extraordinary disruption – both the COVID-19 and bushfire crises – Telstra was challenged to adapt, to find new ways of supporting our customers, our people and the country in a time of need. I am very proud of the way our team responded, while dealing with the implications on themselves personally.

“The COVID-19 period has also highlighted that connectivity has never been more critical. We have witnessed a huge acceleration in the digital economy, an area now critical to fast economic recovery where Telstra has a key role to play. The reasons we introduced T22 two years ago – a need to rapidly simplify and digitise, to remove customer pain points, to remove legacy systems and processes – have never been more relevant and necessary.

“Importantly, it says a lot about the strength of our business and strategy that through all this we were able to meet guidance, maintain the dividend and provide guidance for the year ahead. We have also retained our strong balance sheet and A-band credit ratings.”

– Andrew Penn, CEO

Here’s what you need to know about Telstra’s financial results for FY20.

Meeting our financial guidance and market expectations, and maintaining our dividend

On a reported basis Total Income(1) for the year decreased 5.9 per cent to $26.2 billion and NPAT decreased 14.4 per cent to 1.8 billion. Reported EBITDA was $8.9 billion. After adjusting for lease accounting on a like-for-like-basis(2), EBITDA decreased 0.3 per cent to $8.4 billion.

On a guidance basis(3), underlying EBITDA declined 9.7 per cent to $7.4 billion. Excluding the in-year nbn headwind(4) – which gives the clearest view of the long-term business – underlying EBITDA grew by approximately $40 million, with growth in the first half of the year offset by a second half decline.

The Board resolved to pay a fully-franked final dividend of 8 cents per share, comprising a final ordinary dividend of 5 cents per share and a final special dividend of 3 cents per share – bringing the total dividend for FY20 to 16 cents a share. This will see $1.9 billion returned to Telstra shareholders for the year.

Good progress at the midway point of our T22 strategy

“T22 remains our biggest focus and the things we set out to achieve when we launched the strategy – radically simplify and digitise, remove customer pain points, remove legacy systems and processes – remain just as relevant as the day they were announced. We are now past the halfway point in delivering T22, and while we expect to see challenging conditions continue in FY21, our strategy means we’re well-positioned to respond to whatever lies ahead.”

– Andrew Penn, CEO

Nearly three-quarters of the measures we use to measure progress against our T22 strategy are either now completed or on track for delivery. Highlights from the most recent year of our transformation journey include the early success of Telstra Plus and the My Telstra app and rapid movement on digitising our business to meet future demands.

Telstra Plus, our rewards program for customers, has passed one year in operation and 4.3 billion points have already been redeemed for discounts on devices, accessories and more. More than two million customers have already joined Telstra Plus – a milestone that was achieved ahead of schedule. We also launched Telstra Plus for small and medium businesses to reward our business customers who continue to choose us for their needs.

The My Telstra app, which replaced our 24×7 app and has already been downloaded 3.7 million times, gives our customers a new two-way in-app messaging service for customer service enquiries. It also tracks orders, shows outages and faults in your area, and provides easy access to billing and payment options. The success of the app contributed to a growth in digital engagement, accelerated by the impacts of the COVID-19 pandemic – over 71 per cent of our service transactions happened via digital channels, up from 53 per cent at the end of FY19.

“This acceleration to digital channels and the workforce capacity challenges we have faced offshore have also provoked our thinking on our customer service model for the future. As a consequence, we will be investing even more in digital including messaging.

“Under our T22 strategy, our aspiration had been to reduce the number of calls to our call centres by two thirds by FY22, and we are very close to that run rate now. This means that over time we will need a smaller call centre workforce for our consumer and small business customers, and our aspiration is that by the end of our T22 program all in-bound calls from these customers will be answered in Australia. Today we are already at more than 60 per cent.”

– Andrew Penn, CEO

Continuing to lead and progress on 5G, and strong growth in numbers of mobile services

We know that 5G will shape the 2020s. More than 10 million people now live, work or pass through the 53 cities and towns in our 5G footprint every day, and approximately a third of Australia’s population is covered with 5G. We’ve exceeded our FY20 target of deploying 5G in 35 cities, and we are the clear leader in 5G in Australia as well as being at the forefront globally.

In FY20 we also invested in extending our network to provide more coverage in regional and remote areas, including deploying a world-first technology that effectively doubled the range of a 4G mobile base station increasing it to up to 200km, as well as deploying a technology that extended the range of our NB-IOT coverage to nearly four million square kilometres across the country. In the five years to end of June this year, we have invested $7.5 billion in our network, with $3 billion of that invested in regional areas alone.

“Earlier this year we decided to bring forward $500 million of capital expenditure planned for the second half of FY21 into calendar year 2020. This is enabling us to accelerate our 5G rollout further while injecting much-needed investment into the economy. As a result, late last month I announced that we have increased our ambition and plan to cover 75 per cent of the population with our 5G network by June next year.”

– Andrew Penn, CEO

We continued to grow our customer base in FY20. At the end of June, we announced refreshed plans for mobile customers that included increased data allowances and saw 5G included on most plans. Our multi-brand strategy delivered subscriber growth, adding 240,000 retail postpaid handheld mobile services including 154,000 from Belong. We also added 171,000 retail prepaid handheld unique users, 347,000 wholesale services, and 652,000 IoT services. Overall mobile revenue declined $461 million in FY20. Reported postpaid handheld ARPU declined 8.2 per cent, or 6.8 per cent excluding the impact of COVID-19 on international roaming.

In our fixed business, revenue continued to be impacted by nbn migration alongside the continued decline of voice and legacy services and operational issues. We continued our market-leading share with 46 per cent of the estimated nbn market excluding satellite through a focus on differentiated customer experiences like our award-winning Telstra Smart Modem.

“nbn wholesale pricing remains the largest negative impact on our fixed business. Without some sort of long-term change leading to improvement in RSP economics, the risk of retail price increases, reduced customer experience or customers moving onto other networks such as 5G will increase. In Telstra’s case the profitability of reselling the nbn is negligible at best – that is not sustainable.

“Notwithstanding these comments I do want to acknowledge and applaud nbn’s response to COVID. nbn acted swiftly to increase capacity to RSPs during this time at no charge enabling RSPs to support their customers as they moved quickly to work and study from home.”

– Andrew Penn, CEO

Reducing underlying fixed costs in our business

During the year we reduced underlying fixed costs(5) by $615 million or 9.2 per cent, bringing underlying fixed cost reductions achieved since FY16 to $1.8 billion. This puts us on track to achieve our $2.5 billion net cost reduction target in FY22.

Since we launched T22 in June 2018, we have announced 12,000 indirect role reductions and 7,300 direct workforce role reductions. At the end of June 2020, the direct workforce was around 5,700 lower than two years ago – this figure includes 1,600 new roles recruited in areas like software engineering and cyber security and some roles brought on board in response to COVID-19.

“In March we put all job reductions on hold for six months to give our people certainty during this difficult time. As we approach the end of that pause, it is clear that the impacts of COVID-19 will be with us for some time.

“We have therefore made the decision to keep our T22 productivity role reductions on hold for permanent Telstra employees in Australia and internationally until February next year. We know many are doing it tough at the moment, and we hope this decision will give some certainty to our people in what is a very challenging time for Australia – and many of the countries in which we operate.”

– Andrew Penn, CEO

Taking decisive action on COVID-19

In March, we provided employees with pandemic leave, shifted our office-based workers to working from home, and put further job reduction announcements on hold. We also put assistance measures in place for customers, helped small businesses shift online or go into hibernation, recruited temporary employees for customer service roles in Australia, and extended all sponsorship agreements that would have expired during 2020. We estimate the financial impact of COVID-19 during FY20 was approximately $200 million in underlying EBITDA.

“The enormous, ongoing disruption and pain caused by the COVID-19 pandemic has made the past few months extraordinarily challenging for everyone. However, we have been thoughtful about the best ways we can make a difference and have taken strong and decisive action to support our employees, our customers, and the community.”

– Andrew Penn, CEO

Leading the way as a responsible business

Through 2020 we have battled devastating bushfires and the COVID-19 pandemic as a country, and we have stepped up to support the community in many ways. During the bushfires, we provided critical infrastructure for emergency services and community evacuation centres, answered more than 55,000 calls from customers making enquiries and seeking support, and paid the mobile phone bills of around 10,000 firefighters and SES volunteers over December and January. Telstra also provided free access to our nationwide payphone network and Telstra Air Wi-Fi hotspots. These investments in supporting customers and restoring bushfire damage to infrastructure will amount to $44 million across FY20 and FY21.

During the year, we became carbon neutral in our operations and Belong became carbon neutral in its products and services, while we also made progress on our commitment to sourcing 100 per cent renewable energy by 2025 and reducing absolute emissions by 50 per cent by 2030. To be a responsible business means taking meaningful action, and climate change is a perfect example of where we can think deeply about the role business should play in society.

This period of COVID-19 has provided a chance to experience our world as a quieter environment and under clearer skies. If ever there was encouragement for bolder and more significant action on climate it is now.

Telstra is currently cooperating with the Australian Competition and Consumer Commission (ACCC) as they conduct an investigation into Telstra’s sales, complaint handling and debt collection practices, to determine whether there has been misleading or deceptive conduct, unconscionable conduct, or false or misleading representations. Having considered all the information available, Telstra has made a provision of $50 million in its FY20 accounts for any penalties.

“I strongly believe that being a responsible business – supporting our people, customers and the economy – creates long-term value for shareholders. Central to this is how we live up to our organisational purpose and values, not just what is in our contracts. Despite our aspirations and hard work, we know we don’t always get things right. Our practices have also let down some of our customers in Indigenous communities. The lessons we are learning from this are helping us re-define our understanding of what responsible business looks like and we must hold ourselves accountable to these standards.”

– Andrew Penn, CEO

Looking ahead to FY21

Telstra provided financial guidance for FY21 on a range of metrics(6). For FY21 Total Income is expected to be in the range of $23.2 to $25.1 billion, underlying EBITDA in the range of $6.5 to $7.0 billion, net one-off nbn DA receipts (less nbn net cost to connect (C2C)) in the range of $0.7 to $1.0 billion, capital expenditure of $2.8 to $3.2 billion, and free cashflow after operating lease payments of $2.8 to $3.3 billion. The in-year nbn headwind for FY21 is expected to have a negative impact on underlying EBITDA of approximately $700 million. To achieve growth excluding the in-year nbn headwind in FY21, underlying EBITDA will need to be around the mid-point of the guidance range. Guidance for FY21 underlying EBITA assumes an estimated negative impact from the COVID-19 pandemic in FY21 of approximately $400 million.

Telstra also adjusted its T22 target for Return on Invested Capital (ROIC) to be greater than 7 per cent by FY23. Several things have changed since we set our ROIC ambition as part of the launch of our T22 strategy. We have experienced deeper competition across products and slower return to growth, especially in mobile. In addition, AASB16 was implemented resulting in a 1 percentage point reduction in ROIC, which previously caused us to push out our target by a year. In this same period our Weighted Average Cost of Capital (WACC) has also reduced by approximately 1.5 percentage points. We have invested, and will continue to invest, for long-term returns and opportunities, especially in mobile and our T22 strategy, the benefits of which will be realised over time. Our long-term ambition is to grow ROIC.

More information on our financial results is available on our Investor Relations website.

Things you need to know

(1) Excluding finance income.

(2) Reported lease adjusted EBITDA includes all mobile handset leases as operating expenses, and all rent/other leases below EBITDA.

(3) FY20 guidance assumed wholesale product price stability and no impairments in and to investments or property, plant and equipment and intangible assets, and excluded any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance also assumed the nbn rollout and migration in FY20 was broadly in accordance with the nbn Corporate Plan 2020. Guidance was provided on the basis of AASB16 Leases and assumed impacts consistent with management estimates. Capex was measured on an accrued basis and excluded expenditure on spectrum and externally funded capex and capitalised leases under AASB16 Leases. Underlying EBITDA excludes net one-off nbn DA receipts less nbn net C2C, one-off restructuring costs and guidance adjustments but includes depreciation of mobile lease right-of-use assets. In-year nbn headwind is defined as the net negative recurring EBITDA impact on our business based on management best estimates including key input of the nbn Corporate Plan 2020.

(4) See note 3. As at 30 June 2020, the in-year nbn headwind was ~$830 million.

(5) Underlying fixed costs excludes one-off nbn DA and nbn net C2C, one-off restructuring costs and guidance adjustments.

(6) FY21 guidance assumes no impairments in and to investments or non-current tangible and intangible assets, and excludes any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance is based on management best estimates of nbn impacts including input from the nbn Corporate Plan currently published at time of issue of this guidance. Total income excludes finance income. Underlying EBITDA excludes net one-off nbn DA receipts less nbn net C2C, one-off restructuring costs and guidance adjustments but includes depreciation of mobile lease right-of-use assets. Guidance for FY21 underlying EBITDA assumes an estimated negative impact from the COVID-19 pandemic in FY21 of approximately $400 million. This estimate is approximately $200 million greater than the estimated negative impact from the COVID-19 pandemic for FY20 underlying EBITDA. In-year nbn headwind is defined as the net negative recurring EBITDA impact on our business. Capex is measured on an accrued basis and excludes spectrum and guidance adjustments, externally funded capex, and capitalised leases. Free cashflow is defined as ‘operating cash flows’ less ‘investing cash flows’ less ‘payments for operating lease liabilities’ and excludes spectrum and guidance adjustments.