Telstra’s financial results for the first half of FY2021 show us building momentum towards growth in our underlying business.
Here’s what you need to know about our financial results for HY21.
Building momentum and maintaining our dividend
On a reported basis Total Income(1) for the half decreased 10.4 per cent versus the prior corresponding period to $12.0 billion, while NPAT decreased 2.2 per cent to $1.1 billion.
Reported EBITDA decreased 14.7 per cent to $4.1 billion. After adjusting for lease accounting on a like-for-like basis(2), EBITDA decreased 11.7 per cent to $4.0 billion.
Underlying EBITDA decreased 14.2 per cent to $3.3 billion. The largest two contributors to this decline were the estimated impact from the in-year nbn headwind of $370 million and estimated $170 million impact from COVID-19. Excluding these impacts, underlying EBITDA was broadly flat compared to the first half of FY20.
These results show our financial performance at a turning point ahead of an anticipated return to growth in underlying EBITDA. “After a decade of disruption following the creation of the nbn, and with its rollout now declared complete, we can clearly see the path to underlying growth ahead of us,” said CEO Andrew Penn.
“To ensure our future success, we must recognise this moment for what it is – the time to be bold and seize the opportunities we have been patiently building towards. There is a lot of work ahead of us, but I remain confident we can achieve our financial ambitions including for underlying EBITDA of between $7.5 and $8.5 billion and ROIC of around 8 per cent by FY23,” said Mr Penn.
The Board resolved to pay a fully-franked interim dividend of 8 cents per share, returning approximately $950 million to Telstra’s shareholders. The Board also said it expected to pay a fully-franked final dividend of 8 cents per share, bringing the total dividend for FY21 to 16 cents per share(3).
Our mobile strategy is continuing to deliver growth
During the half, we added more than 80,000 postpaid handheld mobile services, with a healthy performance across all segments and brands. We also added more than 46,000 unique prepaid handheld users, and more than 163,000 wholesale mobile services across prepaid, postpaid and IoT services.
“The financial performance of our mobile business has reached an exciting turning point with EBITDA growing sequentially in 1H21. Our investment in world-leading 5G means we are able to offer our customers a combination of speed, capacity and coverage that is far superior to our competitors. We remain confident that mobile EBITDA will continue growing sequentially in 2H21 and return to full-year growth this financial year,” said Mr Penn.
We have continued to extend our leadership in 5G, with our network expanding to cover more than 50 per cent of the Australian population and with coverage in more than 100 cities and towns across the country. There are now around one million 5G mobile devices connected to our network, and we also recently achieved a world-first with a download speed of greater than 5Gbps on a commercial network using mmWave spectrum.
We’re on track with our T22 transformation strategy
We’re now less than 18 months from completing our T22 transformation, and more than 80 per cent of milestones on that strategy are now delivered or are on track to be delivered.
“Our discipline in delivering T22 has brought enormous change for Telstra which is supporting the turnaround of the company. Having said that, the hardest part of any transformation is often seeing it through to the end, and we have more to do in customer experience in particular,” said Mr Penn.
“I am confident that the many initiatives we have taken under our T22 program, particularly in simplifying the business and the digitisation program, will further improve customer experience. But I know not all aspects of our customer experience are where we need them to be and we have more work to do.“
“To get the real benefits from all the effort we’ve already made, we need to be bold. I’ve set an aspiration(4) for mid to high single-digit growth in underlying EBITDA in FY22 and $7.5 to $8.5 billion of underlying EBITDA in FY23. I am confident we can deliver this if we remain focused,” said Mr Penn.
During the half, Consumer & Small Business digital sales increased to account for 40 per cent of our transactions, while over 70 per cent of service interactions happened digitally. Telstra Enterprise reduced its number of active products by 45 per cent compared to FY18, and launched Adaptive Mobility to give customers more flexibility.
We’ve also continued to make progress on our productivity target, reducing underlying fixed costs by a further $201 million and increasing productivity targets to $450 million in FY21 and from $2.5 billion to $2.7 billion by the end of FY22. Around $2 billion has already been delivered under this program.
Progressing our legal restructure
The proposed legal restructure of the Telstra group of companies into three separate entities – InfraCo Fixed, InfraCo Towers and ServeCo – is well underway since we updated the market in November 2020. The restructure will drive greater transparency, increase focus across our
operating businesses, create a platform for growth and innovation, and enable long term valuation realisation from our infrastructure businesses.
We expect to complete the Group restructure by the end of calendar year 2021, subject to any requisite approvals. We’ll share a further update on our progress in March 2021.
Updating our approach to retail
We’ve announced our intention today to transition to full ownership for all of our branded retail stores across Australia, to enable us to keep pace with the growing digital economy and to provide greater flexibility to respond consistently to customer needs.
Currently, we own and operate over 60 Telstra stores, with another 166 branded stores run by individual licensees and a further 104 stores operated by Vita Group Limited. Vita Group and individual licensees are being notified of the plan with discussions and transition arrangements expected to progress over the coming months.
Looking forward to the year ahead
We have also today issued revised financial guidance for several aspects of FY21 that were first announced at our FY20 results briefing on 13 August 2020.
The range for Total Income was adjusted from $23.2 billion – $25.1 billion to $22.6 billion – $23.2 billion, a $1.2 billion reduction at the mid-point from prior guidance. The large majority of the change was due to low-margin hardware and other equipment sales.
We also provided guidance for second half Underlying EBITDA in the range of $3.3 billion – $3.6 billion, compared to $3.3 billion in the first half. Flowing this to the full year means the range for Underlying EBITDA was narrowed from $6.5 billion – $7 billion to be $6.6 billion – $6.9 billion.
The Underlying EBITDA guidance assumes an in-year nbn headwind of approximately $700 million. The estimated COVID-19 impact in FY21 was unchanged at approximately $400 million.
The guidance range for Free cashflow after operating lease payments was increased from $2.8 billion – $3.3 billion to $3.3 billion – $3.7 billion, up $450 million at the mid-point, due to working capital management and the impact of lower hardware revenue.
We expect to be at the low-end of the net nbn one-offs range due to factors including NBN Co’s decision to pause HFC-based connections of new customers.
Guidance for Capex remains unchanged from the disclosures made at our FY20 results briefing on 13 August 2020.
Things you need to know
(1) Total income excluding finance income.
(2) Reported lease adjusted EBITDA includes all mobile handset leases as operating expenses, and all rent/other leases below EBITDA.
(3) Any return is subject to no unexpected material events, Board discretion having regard to financial and market conditions and maintenance of financial strength and flexibility consistent with Telstra’s capital management framework.
(4) While we do not provide financial guidance beyond the current financial year, our Board and management team understands the importance of achieving EBITDA in this range and the actions required to deliver it. Telstra’s ambition for its Underlying EBITDA in FY22 and FY23 is not guidance and there are greater risks and uncertainties in connection with this ambition.