The Telstra Corporation Ltd (ASX: TLS) share price is down over 6% after Australia’s largest telco reported its FY20 result to the market.
Telstra announced that its total income decreased by 5.9% to $26.2 billion.
Reported EBITDA (click here to learn what EBITDA means) was $8.9 billion. After adjusting for lease accounting changes to make the comparison on an apples to apples basis, EBITDA decreased by 0.3% to $8.4 billion.
However, on a guidance basis, underlying EBITDA (which assumes wholesale product price stability, no impairments or investments, excludes proceeds of asset sales and the purchase of spectrum) dropped 9.7% to $7.4 billion.
This underlying EBITDA is being affected by the shift to the NBN. Excluding the NBN headwind, underlying EBITDA – which Telstra believes this measure gives the best view of the long term business – grew by approximately $40 million.
Telstra said that its underlying EBITDA was hurt by COVID-19 by approximately $200 million.
Telstra’s net profit dropped by 14.4% to $1.8 billion.
There were also positives from the report. Around one third of the population is now covered by Telstra’s 5G network. For customers it announced increased data allowances and saw 5G included on most plans.
The mobile division saw continued strength. It added 240,000 retail postpaid mobile services, including 154,000 from Belong. It also added 171,000 retail prepaid handheld unique users, 347,000 wholesale services and 652,000 to ‘Internet of Things’ services.
Despite the increased customer numbers, however, overall mobile revenue declined $461 million. Postpaid handheld average revenue per user (ARPU) declined 8.2%, or 6.8% excluding the impact of COVID-19 on international roaming revenue.
A big part of Telstra’s T22 strategy is reducing costs. Telstra has announced 12,000 indirect role reductions and 7,300 direct workforce role reductions since it launched T22 in June 2018. At the end of June 2020, the direct workforce is around 5,700 lower than two years ago, which includes 1,600 new roles like software engineering and cyber security.
During FY20, Telstra reduced underlying fixed costs by $615 million, or 9.2% in percentage terms.
However, due to COVID-19, Telstra has decided to keep the T22 productivity role reductions on hold for permanent Telstra employees in Australia and internationally until February next year.
Telstra also said it has provisioned $50 million in FY20 for any penalties arising from an ACCC investigation into Telstra’s sales, complaint handling and debt collection practices, to determine if there has been any bad conduct.
Telstra’s board decided to declare a final dividend of 8 cents per share, bringing the total dividend for FY20 to 16 cents per share. That’s the same as last year.
I’m sure shareholders will be pleased with that considering there have been dividend cuts from other ASX blue chips in recent months.
In FY21 Telstra is expecting total income to be between $23.2 billion to $25.1 billion. Underlying EBITDA is expected to be in the range of $6.5 billion to $7 billion. The NBN headwind is expected to be around $700 million in FY21. FY21 guidance assumes COVID-19 impacts amounting to around $400 million.
Therefore, what that means is Telstra is expecting underlying EBITDA to drop by 5.5% to 12.2%. Excluding COVID-19, it seems Telstra is hoping (at best) for underlying EBITDA to be flat. Hopefully asset sales, like the one recently announced, can boost the balance sheet.
Telstra said that it’s experiencing deeper competition and a slower return to growth, especially in mobile.
To me it seems the telco is struggling at the moment and its profit is going nowhere. At this stage it’s hard to see where decent growth will come from because there doesn’t seem to be a short term path to growth from 5G.
I wouldn’t want to buy Telstra shares for growth or dividends. The Rask Media team regularly write about ASX dividend shares (note: bookmark our page and regularly visit for daily dividend ideas).