Telstra FY20 Results (ASX: TLS)

Telstra FY20 Results (ASX: TLS)

Telstra (ASX: TLS) has reported its full-year results for FY20. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day

 

Headline result

Telstra has delivered underlying EBITDA of $7.4 billion, which is a drop of 9.7% compared with last year, albeit that includes an approximate $830 million NBN headwind, otherwise the result would have been fractionally ahead on a like-for-like basis.

Total income for the year decreased by 5.9% to $26.2 billion, while NPAT also dropped, by 14.4%, to $1.8 billion.

A final dividend of $0.08 fully-franked has been declared by the Board, which consists of an ordinary dividend of $0.05 and a special dividend of $0.03. The stock will trade ex-dividend on August 26, 2020.

Telstra shares were sold down sharply in response to the result, sinking 8.3% to $3.11 and wiping out all the stock’s gains since EOFY.

 

Key commentary

COVID-19 impacted underlying EBITDA by an estimated $200 million, however, the underlying EBITDA result has come in line with the company’s previous guidance.

Underpinning total income was the company’s mobile customer network. Telstra managed to add 240,000 retail postpaid handheld mobile services to its network. The telco also added a further 171,000 customers for prepaid services, 347,000 wholesale services and 652,000 IoT services. Across the mobile network, Telstra’s revenue declined $461 million in FY20, weighed down by the postpaid customer network.

As far as its fixed business, TLS maintains a market-leading share of 46% of the estimated nbn market. The largest impact to this division has been nbn wholesale pricing.

Underlying fixed costs have been cut by 9.2% ($615 million) across the financial year. Since FY16 the company has achieved cost reductions of $1.8 billion, with management confirming that the business is on track for $2.5 billion in net cost reductions by FY22.

In light of COVID-19, and the associated impact on the employment landscape, TLS has opted to defer its “T22 productivity role reductions”. The company will also be investing further funds in its digital messaging in light of increases in customer engagement and My Telstra app downloads it has recorded since the beginning of the pandemic, which over the mid-to-long-term, are flagged to drive a smaller call centre workforce.

With approximately one third of Australia’s population now covered with 5G, and 53 cities covered within the 5G footprint, the business has beaten its FY20 target of deploying 5G into 35 cities across the nation. This has been driven by $500 million in capital expenditure being brought forward from FY21 into calendar 2020.

Finally, the company has also taken action to shore up its balance sheet in recent months, including having now monetised $1.5 billion worth of assets.

 

Guidance outlook

For FY21, management expect total income to be in the range of $23.2 to $25.1 billion. Underlying EBITDA is expected to be in the range of $6.5 to $7 billion, capital expenditure is forecast for between $2.8 to $3.2 billion, and guidance for free cashflow after operating lease payments has been set at between $2.8 to $3.3 billion.

The in-year nbn headwind for FY21 is expected to impact underlying EBITDA by $700 million. As part of its forecasts, Telstra has set aside a $400 million provision for COVID-19 related losses that will hit underlying EBITDA.

Last but not least, the telco has set a goal to extend 5G coverage to 75% of Australia’s population by June 2021.

 

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