August 11th, 2015: Transurban published strong FY15 results in regards to equity but weak credit-wise,…
Telstra reported a mixed set of results for FY15 with total income increasing 1.2% to reach $26.6bn and EBITDA decreasing 3.5% to $10.7bn mainly as a result of lower revenues in fixed voice. By key product line:
- Mobile revenues (41% of Group revenues) increased 10.2% over the period, the strongest growth rate in 3 years, thanks to strong growth in hardware, postpaid and prepaid handheld ARPU and 4.1% customer growth. Machine to Machine also growing by double digits thanks to the successful expansion into transport and banking sectors;
- Fixed revenues (27% of Group revenues) were down only by 1.9% over the period , the lowest decline in 5 years, thanks to data revenue growth of 7.3% offsetting decline in voice (7.1%) and more customers moving onto bundled plans (71% of retail fixed data customer base on a bundled plan now);
- Network application and services (or NAS, 9% of Group Revenues) is the key growth driver for Telstra with a 23.2% increase in revenues driven by continued strong growth in Industry solutions, Cloud services, Managed Network Services and Integrated Services thanks to existing and new contracts and acquisitions;
- Data and IP (11% of Group revenues) revenue fell 2.9% due to customer migration from ISDN and legacy calling products to IP solutions, with some price pressure impacting yields;
Free cash flow on a reported basis was down to $2.6bn (from $7.5bn in previous period and a guidance of $5bn) due to 1) expenditure on spectrum of $1.3bn 2) acquisitions totalling $1.2bn and 3) cash from divested entities (CSL and Sensis) included in the previous period.
The combined effects of reduction in gross debt of $1bn, the spectrum licence payments of $1.3bn, the increased dividend of $3.7bn and share buy-back of $1bn was a reduction in liquidity to $1.4bn (from $5.5bn at the end of FY14) and net debt to increase to $13.6bn (from $10.5bn).
As a result, impact on credit metrics was mixed, with gearing increasing to 48.3% from 43% (still below its target zone of 50-70%), net leverage increasing to 1.3x from 0.94x (called debt servicing at Telstra, at the bottom of its target range 1.3-1.9x) while interest cover increased from 13.8x to 15x (target range is above 7x) thanks to the improvement in earnings. Therefore all the metrics were at the bottom of Telstra’s target range and in-line with its objective of single A credit rating.
Guidance: Telstra is expecting to deliver mid-single digit income growth and low-single digit EBITDA growth. It announced it will increase its capex to sales ratio to 15% in FY16 and FY17 (over $4bn per annum) which includes at least an additional $500m into mobile. It also expects FY16 free cash flows to be in the range of $4.6-5.1bn, depending on capital expenditures, higher working capital due to increased receivables related to timing of the NBN amounts. This guidance is assuming stability of wholesale prices, however there are number of upcoming ACCC decisions that might impact wholesale prices, like new Access Determinations, including a draft determination on Fixed Lines.
Next Event: Telstra 1H16 to be published in February 2016