Telstra Corporation (TLS)

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13 February 2020

Results 

Half Year 2020

Half Year 2019

Change

Total Income ($m)

13,413

13,798

-2.8%

Mobile Segment Revenue ($m)

5,308

5,291

+0.3%

Operating Expenses ($m)

8,638

9.541

-9.5%

Nbn payments ($m)

824

620

+32.9%

Earnings (EBITDA) ($m)

4,773

4,258

+12.1%

Net Profit ($m)

1,139

1,233

-7.6%

Interim Dividend ($)

0.08

0.08

n/a

Telstra (TLS) keeps costs in check as profit falls on nbn rollout 

What happened?

  • Australia’s largest telco has released a first half profit result in-line with its own company guidance. Compared to the same time last year, net profit fell 7.6% to $1.14 billion with total income slipping by 2.8% to $13.4 billion but reported EBITDA increased 12.1% to $4.8 billion.
  • Telstra has kept its dividend intact with an interim payment of $0.08 per share (split into a $0.05 ordinary dividend and $0.03 special dividend) with an ex-dividend date, the cut-off date to be eligible to receive the dividend, of 26 February 2020. 

Why did it happen?

  • The ongoing rollout of the National Broadband Network (nbn) has been the main hindrance in terms of TLS’s bottom line as sales costs from access payments made to nbn jumped by $204 million or 32.9% while nbn migration also impacted its fixed-line revenue, which fell 10.9% to $2.4 billion. TLS is also facing greater competitive pressures and declines in its legacy products and services. The increased competition saw average revenue per user (ARPU) fall 7.4% over the half, as expected. Telstra has also taken a hit from its media business (TLS owns 35% of Foxtel) with 52,000 subscribers of Foxtel through Telstra leaving over the half. The recent bushfire events are also estimated to cost Telstra $50 million with already $10 million in costs over the first half.
  • Offsetting some of those declines has been gains from its biggest revenue maker, the mobile business, with revenue lifting slightly to $5.3 billion, a gain of 0.3% helped mostly in hardware (mobile device) sales. Revenue from hardware sales increased by 13% to $1.7 billion as devices were sold at higher margins.
  • The T22 strategy, which is designed to reduce costs by streamlining and creating a more efficient business, helped drive down its operating costs which fell by 9.5% to $8.6 billion. Savings of $552 million were made due to lower labour costs. This represents a 20% decline to $2.17 billion on reduced head count of 3,149 full time staff.

Where to now?

  • Telstra has re-confirmed its guidance for FY20 with total income expected to be in the range of $25.3 billion to $27.3 billion. The nbn rollout is also expected to remain a headwind of between $600 and $800 million for the full financial year. Underlying EBITDA is expected to grow up to $500 million.
  • While Telstra shares originally rallied on the result release, the share price has eased on news that the Federal Court of Australia has approved the proposed merger between TPG Telecom and Vodafone Australia.

 


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