Announcements
The information on this screen is no longer current and is provided for educative and historical purposes only. Please refer to the disclaimer.
Telstra's earnings decline in line with guidance
Telstra today announced a profit after tax of $2.14 billion for the half year ended 31 December 2005, a decrease of $245 million or 10.3 per cent on the prior half year. Earnings before interest and tax (EBIT) declined by 7.0 per cent or $262 million to $3.5 billion.Telstra Chief Executive Officer, Mr Sol Trujillo, said: "The trends of decelerating revenue growth, PSTN erosion and accelerating costs so evident in the second half of fiscal 2005 have continued, producing an earnings decline in line with our negative guidance. We are hard at work rebuilding the company and we are making progress on the strategic plan announced on 15 November 2005, but it will take time to have a significant impact on our figures."
Total income (excluding finance income) grew by 1.9 per cent or $218 million to $11.6 billion due to increases in broadband, mobiles, IP solutions, advertising and directories and pay TV bundling, offset by a decline in revenues from PSTN calling products, specialised data and ISDN products. Total expenses (before finance costs and income tax) increased by 6.3 per cent or $480 million to $8.1 billion, due mainly to increased labour costs, goods and services purchased, depreciation and amortisation and other expenses supporting revenue growth both domestically and overseas.
Mr Trujillo said the PSTN decline had accelerated slightly faster than expected, with PSTN products revenue falling by 7.6 per cent or $313 million for the half year, compared with a decline of 3.4 per cent for fiscal 2005. Further migration to mobiles and the internet saw volume reductions across most call types and reduced yields. Since June 2005, Telstra has lost 180,000 retail lines, of which 80,000 churned to wholesale.
"PSTN revenue is declining at such a rate that the revenue growth engines of broadband, Sensis and wireless are barely compensating yet, given their relatively smaller bases. Further, the continued shift of Telstra's revenue mix to lower margin products has resulted in margin contraction," Mr Trujillo said.
"Earnings declined at both the EBIT and EBITDA lines compared with the prior corresponding period. EBIT margin declined 2.8 percentage points to 30.5 per cent and EBITDA margin decreased 2.3 percentage points to 46.3 per cent."
Internet and IP services revenue grew $264 million or 42.3 per cent to $888 million, driven by broadband revenue growth of $225 million. Total broadband subscribers continued strong growth to 2.3 million. Telstra added 317,000 retail subscribers in the half.
"We have again increased our broadband market share. It now stands at about 43 per cent, up from 37 per cent in December 2003, a pleasing result in a market we consider a key to the future," Mr Trujillo said.
Total mobile goods and services revenue, including wholesale mobiles, achieved growth of 4.6 per cent or $109 million to $2.5 billion, with data revenues strong. Mr Trujillo said that Telstra added 345,000 mobile SIOs in the half for a total of 8.6 million, but continued intense competition and migration to capped plans slowed mobiles growth.
Advertising and directories revenue grew by 6.3 per cent or $56 million to $944 million, due to the continued growth in metro print and resulting from improved sales force effectiveness and better "go to market" strategies.
Other key financial outcomes included:
- Domestic core operating capital expenditure increased 4.8 per cent or $82 million to $1.8 billion, driven primarily by growth in mobile, broadband and international capacity assets to meet internet demand;
- Our cash flow before financing activities (free cash flow) position remains robust despite declining to $1,956 million in the half year from $2,038 million in the prior corresponding period. This position will continue to support our ongoing operating and investing activities combined with our borrowings program within our financial objectives.
"We are working to reconnect with our customers through Market-Based Management. We are redirecting our people, capital and technology into broadband, wireless and integrated services to differentiate Telstra from competitors. We are reshaping the business for competition in the 21st century by investing to remove complexity and cost," Mr Trujillo said.
"We are investing for growth which will allow us to address a changing revenue mix. Our focus will be on broadband, the rollout of the 850 Mhz 3G network, deploying IP technology to meet the evolving needs of business customers and driving our information services, search and transactions business."
He said encouraging progress was being made on many of the transformation initiatives identified:
- IP core and IP DSLAM rollouts on schedule, with key vendor contracts finalised;
- National 3G GSM network on track;
- Cost reduction programs commenced;
- Operating capex savings of $300 million identified and redirected to transformation;
- Over 400 projects that failed to meet strategic and value creation criteria identified and stopped;
- Almost 200 platform exits identified;
- Unsatisfied ADSL orders reduced by 48 per cent since August; and
- Brightstar contract for handset acquisition signed and delivering savings.
Mr Trujillo said he expected the tough trading conditions of the first half to continue and reiterated previous guidance that the full year EBIT decline for fiscal 2006 would be in the range of 15 to 20 per cent without a year end restructuring and redundancy provision, and 21 to 26 percent with such a provision.
"The recent deterioration in operating trends and our investment in transforming the business will see earnings fall in the near term. Consistent with our plan, we are taking some tough medicine now to bring the company to financial health and deliver sustainable growth in shareholder value over time."
The Telstra Board of Directors declared an interim dividend of 14 cents per share, and a special dividend of 6 cents per share. Both dividends will be fully franked at a tax rate of 30 per cent, and bring total dividend payments to shareholders for the half to 20 cents per share or $2.485 billion.
The record date for the dividends will be 24 February, 2006 with payment to be made on 24 March, 2006. Telstra shares will commence trading excluding entitlement to the dividends on 20 February 2006.
Reference Number: 021/2006
