Telstra Corporation Capitalises on AI for Future Growth

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Telstra Corporation Capitalises on AI for Future Growth

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  • FY21 net profit after tax up 3.4 percent to $1.86 billion
  • T25 growth strategy underpinned by use of artificial intelligence and predictive analytics technology and expanded 4G and 5G coverage in FY22.
  • Steady fully franked dividend of 16 cents per share set to continue in foreseeable future

Telstra Corporation (‘Telstra’ or the ’Company’) is a national, full-service telecommunication company providing telecommunications services to consumers, businesses and governments across Australia and Asia.

Full Year 30 June 2021 Financial Results

Telstra reported a net profit after-tax of $1.86 billion, an increase of 3.4 percent compared to FY20. Productivity improvements enabled total operating costs to be reduced by 10.6 percent during the financial year. This cost saving brings net productivity gains since FY16 to around $2.3 billion.  COVID-19 is estimated to have had a $380 million negative impact on the profit result. Total income generated for the financial year was $23.1 billion, a decline of 11.6 percent on the previous financial year.

The after-tax profit is equivalent to earnings per share of 15.6 cents, up 2 percent year on year. Shareholders will receive a fully franked 8 cent final dividend on 23 September, comprising a special dividend of 3 cents and an ordinary dividend of 5 cents per share. This brings the full year dividend total 16 cents, fully franked.

Net cash from operating activities was $7.23 billion and after allowing for cap-ex of $3.35 billion, free cash flow was up 11.6 percent to $3.88 billion. Cash at the end of the financial year was $1.12 billion and net debt decreased by 9.4 percent or $1.58 billion, to $15.26 billion at year-end.

T25 Strategy

The recently announced T25 strategy is a growth strategy that builds on the achievements of T22, which was a transformation strategy designed to streamline Telstra, simplify its product offering and take substantial costs out of the business. This transformation is now completed.

T25 paves the way for Telstra to grow using advanced technological tools like artificial intelligence and predictive analytics, as well as expand 4G and 5G coverage to 95 percent of the population and implement $500 million of more efficiency cost reductions in FY22.

In executing T25, Telstra is poised to grow as the digital economy shifts the way we work, study, transact and get our entertainment. Telstra stands at the forefront of this shift, which underpins Telstra’s future earnings growth, cash generation capacity and shareholder value creation.

Sale of Towers business for $2.8 billion

Telstra has reached agreement with the Future Fund and others to sell a 49 percent equity stake in Telstra InfraCo Towers, for $2.8 billion, with settlement to occur by the end of September. Telstra intends to return 50 percent of the proceeds to shareholders, most likely by way of a share buy-back. The balance of proceeds will be used to pay down Telstra debt.

FY22 Outlook

FY22 earnings guidance is for total income to be in the range of $21.6 billion to $23.6 billion and free cash flow of $3.5 billion to $3.9 billion. These estimates compare to total income of $23.1 billion and free cash flow of $3.88 billion in FY21.

However, with already announced productivity gains of $500 million to be realised in FY22, Telstra is set to remain a strong cash generator with a profit to cash conversion ratio above 100 percent, as it rolls out its T25 strategic initiatives. Lower debt from the sale proceeds of Telstra InfraCo Towers should also support earnings growth. This implies a consistent, fully franked dividend flow to shareholders over the medium term.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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