Telstra dividends up for first time in seven years, but profits slide

Outgoing Telstra boss Andy Penn has left shareholders a parting gift, with his company lifting its dividend for the first time in seven years despite posting a drop in profit.

Outgoing Telstra chief executive Andy Penn has left shareholders a parting gift, with his company lifting its dividend for the first time in seven years and returning $1.9bn to shareholders despite posting a drop in annual profit.

In its full-year results – the last under Mr Penn – the telco posted a net profit after tax of $1.8bn for the 12 months ending June 30 – down 4.6 per cent year-on-year.

Total income was down 4.7 per cent, earnings before interest, tax, depreciation and amortisation fell 5 per cent and earnings per share were 14.4c, down 7.7 per cent.

The results, which were within guidance and analyst expectations, were affected by the tail end of NBN headwinds, which Mr Penn said had been a “large and difficult pill to swallow”.

The telco’s one-off payments from NBN connection revenue was $672m lower than last year. Despite the widespread hit to its numbers the company will pay a fully franked dividend of 8.5c per share – up by half a cent – bringing the total dividend to 16.5c.

“This represents the first increase in the total Telstra dividend since 2015 and recognises the confidence of the board following the success of our T22 strategy, the ambition in our T25 strategy of high-teens EPS growth from FY21-FY25, the strength of our balance sheet and the recognition by the board of the importance of the dividend to shareholders,” Mr Penn said on Thursday.

He said the company had performed strongly across its mobile segment, with post-paid per user revenues up 2.9 per cent.

Telstra shares closed down 1.4 per cent – or 5.5c – at $3.96. They have fallen some 6.4 per cent since December 31.

Mr Penn will be replaced by chief financial officer Vicki Brady as CEO from September 1.

“When I started as the CEO of Telstra in 2015 I did so with a vision – a vision to help make Telstra a world-class technology company that empowers people to connect. When I shared that vision externally, many stakeholders, not unreasonably, believed it was implausible given what would be required to achieve it,“ Mr Penn said.

“Nonetheless, as I reflect at the end of my time, I am incredibly proud to step down after more than seven years knowing that is what Telstra has become.”

Incoming CEO Vicki Brady says she is committed to growing the dividend. Picture: NCA NewsWire / Andrew Henshaw

Telstra chairman John Mullen said Mr Penn had “led ­Telstra during a period of significant change and will be known for his courage in setting a bold ambition through the T22 strategy to deliver a transformed experience for customers, shareholders and employees”.

“There is no doubt T22 has delivered beyond expectations and has laid the foundations for Telstra’s T25 strategy and a renewed focus on growth and innovation,” Mr Mullen said.

“During his time as CEO, Andy has driven a focus on digitisation underpinned by a commitment to simplifying our products and ­services for our customers and ­employees.

“He has also maintained our leadership in mobile and fixed networks, including recently through our investment to lead on 5G.

“During his time as CEO, Andy also developed a strong team to ensure the ongoing successful leadership of the company. The greatest testament to this was the ability to announce an internal successor to the role of CEO and I’m thrilled to welcome Vicki Brady into the role.”

Ms Brady said the telco “remains absolutely committed” to growing the dividend through FY23 and in to the future, but that inflation and other factors including changes in customer demand would impact the company’s earnings from the 2026 financial year onwards, and in particular its $1.6bn inner-city fibre project.

Telstra last month signed a five-year strategic agreement with Microsoft that will see the US multinational become the anchor tenant of the telco’s new fibre ­network.

“Not surprisingly, in the current economic environment, we have seen cost inflation for construction and fibre supply,” Ms Brady said. “I am looking forward to stepping into the CEO role on September 1 and I am grateful to be taking over with Telstra in a strong position thanks to Andy’s leadership and the foundations he has laid as a result of our successful T22 strategy.”

Telstra provided guidance for total income of $23bn to $25bn for the 2023 financial year and underlying EBITDA of between $7.8bn and $8bn.

Natalie Tam, an equities analyst at abrdn, said the results were largely in line with expectations, with the exception of the dividend lift which came as a surprise.

“That was a real positive and will trigger upgrades to dividend forecasts in FY23 and beyond,” she said. “The mobile result was also particularly strong, with a 6.4 per cent growth in mobile services revenue. The other thing that was interesting was Vicki Brady’s comments on inflation. I haven’t seen a company comment so much on inflation this earnings season, and I wonder whether that will set the tone for what we might expect from other companies.

“It’s clear part of Telstra’s strategy to offset inflationary headwinds is to flex prices upwards, and Telstra can afford to increase prices because of their 5G network leadership. Vicki inherits a Telstra that is vastly simplified, it’s much more forward-facing and it has, quite importantly, earnings momentum. Its outlook is certainly a lot stronger than it has been for many years.”

Moody’s vice president Ian Chitterer said Telstra’s results for 2022 were credit-positive. “Gross debt, net of hedges, continued to decline, with leverage improving to 1.9x for fiscal 2023 based on Moody’s calculations,” he said. “We expect Telstra’s leverage to remain below 2x over the next 12 to 18 months, a level supportive of the company’s credit profile.”

UBS equities analyst Lucy Huang said Telstra had outperformed across its fixed enterprise earnings – up $360m compared with an expected $325m.