Telstra Invests For Future Growth, Generates $6.2b Cash, Maintains Dividend

Telstra Invests for Future Growth, Generates $6.2b Cash, Maintains Dividend

Telstra today announced that free cash flow had increased by $1.9 billion to $6.2 billion, exceeding the company's long-held target of $6 billion for 2009/10. Shareholders will receive a fully-franked dividend of 28 cents per share for the full year.

Releasing its full year results today, the company also announced that it had met the guidance it issued in February for 2009/10 business performance and had experienced a stronger operating result for the second half of the year.

"2010 has been a challenging year, yet in the second half we started to see improving momentum in key products, and positive growth with business, government and enterprise customers as well as profit growth at Sensis," Telstra CEO David Thodey said today.

"In the past year, we have begun simplifying the business, improving the value of broadband plans, launching new innovative products like the Telstra T-Hub and Telstra TBox , and driving improvements in customer service and satisfaction.

"In the coming year, we must prepare Telstra for the future, invest to take advantage of new revenue streams, and utilise our upgraded IT systems and networks to further improve customer service and satisfaction. These investments will be selective, carefully targeted, and rigorously monitored to ensure they serve the long-term interests of customers and shareholders."

For the full year the company reported
* Sales revenue declined 2.2% or $558 million to $24,813 million
* EBITDA declined by 0.9% or $101 million to $10,847 million
* EBIT declined by 0.9% or $57 million to $6,501 million
* Net Profit After Tax declined by 4.7% to $3,883 million
* A capex to sales ratio of 14%, with $3.5 billion invested in the year
* Net Debt declined $1.7 billion to $13.9 billion taking our net debt gearing to 52%
* Compared to guidance (excluding a $168 million impairment in CSL New World),
EBITDA grew by 0.6% to $11,015 million and EBIT grew by 1.7% to $6,669 million.

If we adjust for the sale of KAZ, currency movements and the CSL New World impairment that was announced on 30 July, to reflect the underlying performance of the business, sales revenue declined by 0.2% and EBITDA increased by 1.3%.

Highlights for the year included mobile services revenue growth of 5.9%, mobile data growth of 21.7%, wireless broadband revenue growth of 34% (with more than 1.6 million subscribers), and fixed broadband ARPU continuing to increase.

Mr Thodey said that fixed telephony, however, continued to present a significant challenge, with PSTN declining by 8% over the year, in line with global industry trends.

"Telstra is addressing the fixed line challenge with innovative new fixed products like the THub home phone, which now has more than 40,000 users, and the T-Box internet TV service which now has more than 15,000 users," Mr Thodey said.

Mr Thodey said that the company has good momentum for the start of fiscal 2011

"In the second half of 2009/10 we recorded 7.1% growth in mobile services revenue, 11,000 new fixed broadband customers and 26% growth in IP Access revenues."

"The new bundled prices have been popular with consumers, with nearly 300,000 customers subscribing to these offers since their launch in November.

"For our business customers we expect strong take-up of our new digital business products and services, and we will secure new enterprise customers because of our unique IP and services capabilities," he said.

National Broadband Network (NBN)

On 20 June 2010 Telstra signed a Non-binding Financial Heads of Agreement with NBN Co to participate in the rollout of the NBN.

A final agreement would result in Telstra progressively migrating services that use its copper network and cable broadband product to the NBN, and allowing NBN Co to use Telstra's infrastructure. The transaction, if completed, would deliver to Telstra post-tax net present value of approximately $11 billion, including the value of Telstra avoiding certain costs. Final agreement would require ACCC approval, the passage of enabling legislation, and the approval of Telstra shareholders expected to be sought in the first half of 2011.

Mr Thodey said that Telstra would continue to work constructively with the Government of the day irrespective of the outcome of the Federal election.

Outlook

2011 will be a transition year as Telstra invests to prepare the company to compete in the future. The company will invest to:

* continue to improve customer service and satisfaction;
* simplify the business, re-engineer core processes and reduce costs; and
* prepare the business for an NBN world by investing to grow new revenue streams
that compensate for reductions in traditional fixed revenues.

We are making capital and operational expenditure investments to develop and improve our product and service delivery capability. We believe these investments will allow us to fulfil the longer-term imperative of creating sustainable shareholder value.

The benefits of these investments will become obvious from 2012.

In 2011, Telstra expects an increase in the customer base and flattish revenues, but because of our investments and changing product mix the company expects a high single digit percentage decline in EBITDA, and free cashflow of between $4.5 and $5.0 billion.

Telstra also foresees capex/sales around 14 per cent for the medium-term, excluding possible spectrum acquisition costs.

This guidance assumes wholesale product price stability. Consistent with our normal approach it excludes potential future impairments to investments and any proceeds from the sale of businesses.

ENDS

Media contact:
Andrew Maiden
0458 487 754
www.telstra.com.au/abouttelstra/media

Reference: 279/2010

SOURCE: Telstra