Telstra provided stable results for the year ended 30 June 2016 which were slightly ahead of guidance. Excluding discontinued operations (divestment of the Autohome Group), revenue increased by 1.5% while EBITDA slipped modestly by 0.6%. The Retail segment continues to be the primary contributor to earnings (61% of income) but EBITDA dipped by 3.9%. The decline was driven by a decline in fixed line (voice) margins and the ongoing impact of the migration to the National Broadband Network (NBN). These difficult market conditions are somewhat being absorbed by the Telstra’s Global Enterprise and Services (GES) business which is being driven by Network Application & Services (NAS) (14% increase in revenue), Data & IP (11% increase in revenue) and strategic acquisitions such as Pacnet, Bridge Point and O2. Overall, GES income grew by 12% over 2016. Due to the increased cash balance, net debt decreased by 7% to $12.5 billion (gross debt increased by 11% to hit $17.3 billion). Telstra’s credit metrics remain very strong and policies remain unchanged.
- Gearing was 43.9% (Comfort Zone of 50% – 70%)
- Interest Cover was 13.0x (Comfort Zone of greater than 7.0x)
- Debt Servicing was 1.2x (Comfort Zone of 1.3x – 1.8x)
The telecommunications sector has become increasingly competitive and as a result Telstra is continuing to make changes in its business mix from traditional business segments (Retail) to more technology based units (Pacnet, Data & IP and NAS). The NBN continues to be the primary focus for the group as it will change the competitive landscape immensely over coming years. Click here for updated research