Telstra delivers revenue, profit and customer growth; increases dividend; announces share buy-back and positions for future growth
- Total income increased 6.1 per cent to $26.3 billion
- Earnings per share increased by 14.3 per cent to 34.4 cents per share
- EBITDA increased 9.5 per cent or $967 million to $11.1 billion
- 937,000 new domestic retail mobile customer services added in FY14 now totalling 16 million
- Mobile revenue grew 5.1 per cent to $9.7 billion
- Final dividend increased 7.1 per cent to 15 cents per share taking total dividend for FY14 to 29.5 cents
- Off-market buy-back of up to $1 billion
In announcing Telstra’s Full Year Results today, Chief Executive Officer David Thodey said Telstra continued to perform strongly, with growth in total income, earnings per share, EBITDA and customer numbers.
“We have a clear strategy that we are focussed on implementing – we have delivered strong financial performance, we continue to take a disciplined approach to portfolio and capital management and we are carefully investing to provide sustainable long term growth,” Mr Thodey said.
Telstra also announced an increased final dividend of 15 cents fully franked and an off-market share buy-back of up to approximately $1 billion of Telstra shares.
Mr Thodey said the increase in shareholder returns, through two FY14 dividend increases and the share buy-back, was made possible by ongoing strong operating performance, three consecutive years of earnings growth and increased cash flows from recent divestments.
During the year Telstra’s disciplined portfolio management included the completion of the sale of its stake in the Hong Kong mobile business CSL and its sale of 70 per cent of directories business, Sensis. Autohome Inc was listed on the New York Stock Exchange, with Telstra’s resultant 63.2% share valued at $2.9 billion at 13 August. Telstra also further strengthened its balance sheet by diversifying funding and reducing interest costs.
Mr Thodey said investing in new businesses and growing in new geographic markets was essential for Telstra’s growth ambitions, and good progress had been made through investments in the areas of eHealth, Global Enterprise and Services (GES) and Global Applications and Platforms (GAP).
“We continued to grow our capabilities in eHealth, acquiring DCA eHealth Solutions and 50 per cent of Fred IT. We also signed licensing agreements with Dr Foster, iScheduler and InstantPHR, building on our objective to deliver eHealth solutions via connectivity of health services, electronic health records and electronic prescriptions.
“In GES, our proposed joint venture with Telkom Indonesia aims to open opportunities in Indonesia and the Asian Network Applications and Services (NAS) market, and we acquired NSC Group and 02 Networks to further boost our NAS capabilities. We launched our start up incubator muru-D® to foster local technology innovation and in GAP this week announced the purchase of leading global video streaming company, Ooyala.”
Mr Thodey said over the year Telstra had again stepped up its efforts to improve customer service. Building customer advocacy, as measured by NPS, continues to be Telstra’s number one priority.
“Our NPS score improved across all customer segments with an aggregate improvement of three points over the 2014 financial year – building on the improvements we saw last year – but we still have a lot of work to do to consistently deliver our customers a great service experience,” he said.
Mr Thodey said Telstra’s network advantage was significant and its investment in spectrum, network infrastructure, greater network intelligence and machine to machine technologies would help maintain this leadership position.
“As more and more devices are connected to our networks – not just smart phones and tablets, but also cars, trucks, machines and smart meters – the more our customers tell us how important the size and reliability of our networks is.
“Our mobile network already offers four times the 4G geographical coverage area of any other 4G mobile network, providing coverage to 87 per cent of the Australian population.
“To help improve speed and capacity for our customers on the 4G network, in September we will invest $1.3 billion to secure the largest available holding of the 700MHz and 2500 MHz spectrum. Our commercial trials are proving this spectrum will greatly improve speed and capacity for customers from 1 January 2015.
“We also expect to again invest around $1 billion in the mobile network in FY15,” he said.
During FY14 Telstra also announced it would build Australia’s largest national public Wi-Fi access network, which aims to offer Australians access to two million Wi-Fi hotspots across the nation and more than 13 million international hotspots within five years. By the end of 2014 Telstra expects to have switched on around 1,000 hotspots in metro, urban and holiday centres.
Telstra’s ongoing commitment to customer advocacy and investing in the network has led to another year of customer growth, with 937,000 new domestic retail mobile customer services and 183,000 new fixed retail data services added.
Revenue from Telstra’s fixed business decreased by 0.8 per cent overall. Fixed data revenue grew by 6.3 per cent and more customers moving onto bundled plans led to the lowest rate of decline in our fixed voice business for five years, with a revenue decrease of 7.5 per cent.
Telstra continued its productivity drive, delivering cost control, improved revenues and capital expenditure efficiency. Further opportunities for savings are expected as efficiencies are realised in growth areas of the business including the ongoing integration of acquisitions.
Mr Thodey said the share buy-back was expected to improve the efficiency of Telstra’s capital structure and was considered the most effective way to deploy some of the surplus capital from ongoing performance and key divestitures.
The buy-back will be managed through a tender process with final tenders closing 3 October. Detailed process information is expected to be released to shareholders on 27 August 2014.
The reported results for the twelve months ending June 2014 are:
- Total income (excluding finance income) increased 6.1 per cent or $1,520 million to $26.3 billion
- EBITDA increased 9.5 per cent or $967 million to $11.1 billion
- Net profit after tax increased 14.6 per cent or $554 million to $4.3 billion
- Earnings per share increased 14.3 per cent to 34.4 cents
- Capital expenditure decreased 0.8 per cent to $3.7 billion,
- Free cashflow increased 48.9 per cent or $2,459 million to $7.5 billion. On a guidance basis adjusted for the sale proceeds of CSL and 70 per cent of the Sensis directories business and other M&A, free cashflow was $5.1 billion.
Mr Thodey said Telstra continued to renegotiate potential changes to the NBN Definitive Agreements with the Government and NBN Co to help deliver the Government’s multi-technology NBN policy commitments.
“We share the Government’s objective to finalise the agreements as soon as possible but no date has been set for completion. The current agreements are complex, therefore the shift to a multi-technology model requires careful consideration as to how these agreements need to be modified.
“The teams are working to get the material commercial issues resolved. To that end, we have agreed the non-binding commercial framework around which revised agreements would be built and are now working out the detail.
“The renegotiations are progressing well and the parties are working constructively towards a common goal. This is important as we will be NBN Co’s largest customer and one of their biggest suppliers. It is in our mutual interest to achieve clarity on exactly how the transition to a multi-technology model will occur.
“We are committed to acting in the best interests of our shareholders, and are focused on maintaining the value of the current agreements, achieving certainty of outcome as soon as reasonably possible, and minimising any additional regulatory risk.”
In 2015 Telstra expects continued low single-digit income and EBITDA growth to offset the absence of CSL 2014 operating revenue and EBITDA. As a result, and after excluding the $561 million profit on the sale of CSL in 2014, Telstra’s income and EBITDA guidance for 2015 is broadly flat. Telstra expects 2015 free cashflow of between $4.6 billion and $5.1 billion and capital expenditure to be around 14 per cent of sales.
This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, the cost of acquisitions and spectrum purchases.
Telstra has confirmed a fully franked final dividend of 15 cents per share. Shares will trade excluding entitlement to the dividend on 27 August 2014 with payment on 26 September 2014.
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