Telstra announces AU$2.1b profit for half year

Telstra has announced its first-half results for the 2016 financial year, reporting a net profit after tax of AU$2.13 billion for the six-month period, up AU$28 million or 1.3 percent year on year from last year's AU$2.099 billion.

Revenue, excluding finance income, was up by 7.6 percent, from the AU$12.72 billion reported last year to AU$13.68 billion this year.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) increased by 1.7 percent, to AU$5.41 billion.

Capital expenditure, however, increased by a substantial 20 percent, to reach AU$2.07 billion, while operating expenditure grew by 14.2 percent, to AU$8.78 million.

Telstra CEO Andrew Penn welcomed the results, saying the growth in both profit and expenditure echoes Telstra's focus on continuing to invest in and build out its core network in the face of increasing competition.

"Our results have been achieved against increased mobile competition and acceleration in the NBN multi-technology model rollout. We have continued to innovate and develop products and services to meet changing customer preferences and expectations in our fixed and mobile businesses," Penn said.

"We strengthened our domestic network leadership, with our 4G footprint covering 96 percent of the Australian population, with 99 percent planned by June 2017.

"More than 1,200 additional sites have been upgraded to 4GX standard for more reliable service and coverage in more places, including deeper in buildings. We also have more than 500,000 customers registered with our Telstra Air Wi-Fi network, including 120,000 mobile customers."

Revenue from Telstra's mobile business grew by 3.7 percent, to AU$5.33 billion. Post-paid handheld contributed AU$2.71 billion to this, up 0.2 percent, while prepaid handheld contributed AU$495 million, down 0.6 percent; mobile broadband AU$639 million, down 1.5 percent; machine-to-machine (M2M) AU$60 million, up 9.1 percent; and hardware AU$1.12 billion, up 18.5 percent.

Average revenue per user (ARPU) for post-paid customers was AU$61.38, decreasing by 1.4 percent. Telstra added 235,000 domestic retail mobile customers, to bring its total up to 16.9 million, with a post-paid churn rate of 10.7 percent. Prepaid ARPU also fell by 1.4 percent, down to AU$21.20. ARPU for mobile broadband was AU$27.38, a drop of 5.2 percent, M2M ARPU was AU$6.15, a drop of 11.3 percent, and satellite ARPU was AU$43.60, a fall of 6.5 percent.

The falls in ARPU were due to higher data allowances and lower excess data rates, Telstra said.

Revenue from the telco's fixed business decreased by 1.5 percent, on the other hand, down to AU$3.56 billion, with fixed data revenue growing by 6.7 percent, to AU$1.25 billion. Revenue from voice services declined by 7.6 percent, to AU$1.77 billion.

Other fixed revenue accounted for AU$538 million, with inter-carrier services declining by 5.2 percent due to a decision made last year by the Australian Competition and Consumer Commission (ACCC) to cut the prices that Telstra can charge its wholesale customers for use of its legacy copper network during the transition to the NBN by 9.4 percent. This decision cost Telstra AU$16 million in EBITDA, according to CFO Warwick Bray, with Telstra taking the matter to the Federal Court.

Telstra added 121,000 retail fixed broadband customers, bringing the total to 3.3 million, and 163,000 retail fixed bundle customers over the half year, to 2.2 million in total. Fixed voice customers number 5.9 million, while fixed voice ARPU decreased by 4.8 percent, to AU$40.66. Fixed data ARPU was AU$51.60, a rise of 0.1 percent.

Telstra attributed the overall gain in its customer base to its entertainment and broadband bundles, as well as access to Telstra Air.

Telstra received AU$636 million under its definitive agreement with the National Broadband Network (NBN) company over the half, Penn said.

This was made up by AU$118 million in Commonwealth agreements and other government policy commitments, including the USO; AU$186 million under the infrastructure services agreement (ISA) covering ducts, racks, and backhaul; AU$101 million in ISA ownership receipts; and AU$231 million in per subscriber address amount revenue.

Telstra will also begin seeing income from a memorandum of understanding it entered into in December with NBN for a "significant contract" to manage the design, engineering, procuring, and construction of NBN's hybrid fibre-coaxial (HFC) network currently within Telstra's HFC footprint.

An additional two contracts were also signed for Telstra to supply operations and maintenance services for NBN, with work beginning in early 2016. Combined, the two contracts are worth AU$80 million in first-year revenue.

Telstra added 118,000 NBN connections over the half for a total of 329,000 NBN connections -- 18,000 data only, 52,000 voice only, and 259,000 voice and data bundles.

Telstra's Data and IP business brought in AU$1.91 billion, up 32.7 percent from last year's AU$1.66 billion. IP access contributed AU$597 million of this, down 0.7 percent; ISDN AU$312 million, down 8.2 percent; international data and calling products AU$466 million, jumping by 139 percent; and other data and calling products AU$539 million, up 2.1 percent.

Telstra's media business grew by 2.4 percent, to AU$476 million in total, with AU$350 million of this from Telstra's 50 percent stake in Foxtel -- an increase of 3.7 percent with subscriber growth of 17.9 percent.

Revenue for its IPTV business, including the Telstra TV, was AU$34 million, a decrease of 19 percent. IPTV subscribers grew by 17.9 percent, to 224,000. There are now 43,000 Telstra TVs in the market. BigPond Movie downloads numbered 2.2 million for the year, a drop of 17.6 percent.

Income from Telstra's Network Applications and Services (NAS) business increased by 32.7 percent, to AU$1.34 billion, with international NAS revenue doubling to AU$86 million.

Of its NAS income, managed network services contributed AU$303 million, an increase of 28.9 percent; unified communications AU$402 million, up 15.5 percent; cloud services AU$181 million, up 50.8 percent; industry solutions AU$362 million, growing 44.2 percent; and integrated services AU$88 million, up 66 percent.

The half-year results mark the first six-month reporting period taking into account revenues from its $697 million Pacnet acquisition. According to Telstra, Pacnet added AU$247 million to income growth, with AU$35 million added to NAS revenue.

"We are tracking ahead of our targeted integration synergies, and have successfully combined the teams of the two companies across branding, products, pricing, and customer relationships," Penn said.

"Our Telkomtelstra joint venture in Indonesia is fully operational and serving its first customers, as well as showcasing business offerings through Indonesia's first Customer Experience Centre."

Its international Autohome business, of which it owns 54.3 percent, brought in AU$392 million in revenue.

Cash and cash equivalents stood at AU$2.17 billion at the end of the six-month period, an increase of 29.7 percent, with net assets of AU$14.82 billion.

For the remainder of FY16, Telstra is predicting mid single-digit income growth and low single-digit EBITDA growth.

Last week, Telstra experienced a nationwide mobile data and voice outage caused by "embarrassing human error". The outage, which COO Kate McKenzie said was caused by an incorrect procedure being followed after one of the telco's 10 nodes was taken down to be repaired, took down 2G, 3G, and 4G services across the country for several hours.

As a result, Telstra gifted all customers with a free data day on Sunday.

Penn said during the financial results call that this led to the largest single day of data ever for Telstra, with almost 2,000TB of data consumed.

Rival telco Optus last week announced a net profit of AU$227 million on revenues of AU$2.43 billion for the quarter ending December 31, due to growth in mobile and NBN.

EBITDA was AU$685 million, up AU$33 million or 5.1 percent from the AU$652 million announced in December 2014.

Optus lost 26,000 mobile post-paid handset customers over the quarter due to "the deactivation of a wholesale customer" -- likely TPG -- but gained 61,000 prepaid handset customers, with total 4G customers up 314,000 quarter on quarter, to 4.45 million. Its 4G mobile services now have a 47 percent penetration rate.

Optus' post-paid mobile ARPU was AU$61, while prepaid ARPU was AU$28.