Dear Shareholders,

Telstra continued to perform strongly, growing revenues, adding fixed and mobile customer services, continuing to invest in our network advantage and returning $4.7 billion in dividends and buy-back proceeds to our shareholders.

We continued to execute on our strategy to improve customer advocacy, drive value from our core business and build pathways to future growth. We made good progress on our transition from a traditional telecommunications company into a world class technology company that empowers people to connect.

The markets within which we compete continue to undergo significant change, in Australia and around the world. Technology is driving rapid change and constant innovation across industries, with software and digitisation improving delivery of services to customers and creating new opportunities for growth.

Within this dynamic environment, which in Australia includes the structural change of the industry as we transition to the National Broadband Network, we remain absolutely committed to improving the service we provide to our customers.

Financial results and capital management

In our first full financial year operating without Hong Kong mobile business CSL, which we sold in May 2014, our results show that our business continues to perform strongly. On a reported basis, our total income was up 1.2 per cent and EBITDA was down 3.5 per cent. On a guidance basis^[1], and excluding the CSL operating results from the prior period, our total income was up 6.6 per cent and EBITDA was up 4.5 per cent. The reduction in EBITDA on a reported basis reflects the one off profit of $561 million from the sale of CSL included in our 2014 results.

We are pleased to have again delivered on our financial commitments and to have delivered, in total, a 30.5 cent fully franked dividend for the 2015 financial year, distributing $3.7 billion to shareholders and representing a 3.4 per cent increase in dividends over FY14.

We continued to create shareholder value through capital and portfolio management. Our off market $1 billion share buy-back was substantially oversubscribed, a sign of the strong market support for this as an efficient way to return capital to shareholders.

Following feedback from our shareholders we also announced the reactivation of the Dividend Reinvestment Plan, which enables shareholders to reinvest either all or part of their dividend payments into additional fully paid Telstra shares in an easy and cost-effective way from the 2015 final dividend.

Our strategy

During the year we maintained our focus on our three strategic pillars: improving customer advocacy, driving value from the core and building new growth businesses.

Improve customer advocacy

Our customers remain our highest priority and we continue to improve the way we interact with them every day. We are giving our customers more value and confidence, through our suite of products, as well as providing more personalised service experiences for both our business and consumer customers.

We continue to measure our progress and we actively seek feedback from our customers using our Net Promoter System (NPS). Our overall NPS score improved by five points over the 2015 financial year, building on the improvements we saw last year. While we have made significant progress, we know we have more to achieve.

Driving value from the core

Our investment in network superiority and customer advocacy initiatives continue to attract new customers and have led to the net addition of 664,000 retail mobile customer services, and 189,000 retail fixed broadband customers during FY15.

We are committed to maintaining our network leadership and will increase our investment in our mobile network providing an additional half a billion dollars for mobiles over the next two years. In total, over three years to June 2017 we expect to have invested more than $5 billion in Telstra™s mobile network.

In June, we were selected to participate in one of the largest ever expansions of mobile coverage in regional and remote Australia through the Federal Government™s Mobile Black Spot Programme.

This will build on our existing 4G network, which already covers 94 per cent of the Australian population. Our objective is to expand this footprint to reach 99 per cent of the population, bringing coverage to more communities across the country. We also launched our new 4GX service, which utilises our newly acquired 700 MHz spectrum to offer customers in over 1,200 suburbs and towns some of the fastest mobile data speeds in the world.

We have also switched on Australia™’s largest Wi-Fi network, Telstra Air, with 4,000 Wi-Fi hotspots already provided in more than 250 towns and cities at launch.  More than 50,000 Telstra Air members have joined the network.

We aspire to offer Australians access to two million hotspots across the nation by 2020, and we already provide access to more than 16 million international hotspots through our partnership with Fon Wireless Ltd.

Throughout the year, we continued to transform our internal business processes to streamline the way we work and remove internal barriers that impede productivity. The total value achieved through our productivity program in FY15 was approximately $1 billion, including expense benefits, revenue benefits, cash and capital expenditure benefits and avoided costs. We have reinvested these benefits in the business to support our customer advocacy initiatives, growth in our customer base and building new growth businesses.

Build new growth businesses

Our strategic growth plan is designed to set the company up for continuing success into the future.

Investing in new businesses and growing telecommunications services in Asia supports our growth ambitions and significant progress has been made this year. We made a number of acquisitions, including Pacnet Limited, a provider of connectivity, managed services and data centres in the Asia Pacific region.

The Pacnet acquisition increased the scale and capability of our fixed infrastructure, network density and reach across the region, as well as our customer base and operational capability. In a recently published Gartner^[2] report on network services in the Asia Pacific, as a combined entity, Telstra and Pacnet were ranked number one for low-latency and high capacity networks, with the best submarine cable infrastructure in the region.

We announced our joint venture (JV) with Telkom Indonesia in the first half of the year. The JV launched a suite of Network Applications and Services (NAS) in the second half for domestic enterprises and multinationals operating throughout Indonesia.

Another growth opportunity, Telstra Health, was formally launched during the 2015 financial year and will develop and deliver innovative technology solutions across the health industry.

National Broadband Network (NBN)

During the year we finalised revised NBN Definitive agreements with NBN Co and the Commonwealth, preserving value for shareholders, as we maintained the overall value of the original agreements. These became effective in June 2015.

As with the original agreements, the estimated value of the revised agreements is based on a range of dependencies and assumptions over the long term life of the agreements.

Part of the community

Telstra is committed to showing we care in the way we respond to important economic, social and environmental challenges.

Our longstanding investment in building people’s digital skills and capabilities reflects our belief that digital connectivity is an increasingly essential service. This year we reached almost 117,000 people through our digital literacy training programs and helped over one million vulnerable customers stay connected.

We are also committed to minimising our environmental impacts and to working with our customers to achieve better environmental outcomes. This year our total carbon emissions decreased by 1.3 per cent despite data loads on our network increasing by 36 per cent. This meant our carbon emissions intensity reduced by 27 per cent, leaving us well positioned to meet our three year target.

Looking ahead

We have a clear strategy and our focus for the year ahead remains on improving our customer service, ongoing investment in our network advantage and building pathways toward future, sustainable and long term growth.

We operate in a dynamic and competitive environment where technology is taking us into a world of rapid change, constant innovation and competition. We see great opportunity to embrace change, great opportunity for those of us that embrace technology innovation and great opportunity for Australian companies and Australia.

We understand that we need to continue to innovate and to ensure we can build our capability in our growth areas. At Telstra, we are investing in becoming a truly world class technology company that empowers people to connect.

In 2016 Telstra expects to deliver mid-single digit income growth and low-single digit EBITDA growth. Free cashflow is expected to be between $4.6 billion and $5.1 billion and capital expenditure to be around 15 per cent of sales to fund increased mobile network investment.

This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. Capex to sales guidance excludes externally funded capex.

The Australian Competition and Consumer Commission is consulting on new Access Determinations including a draft determination on Fixed Line Services. While Telstra disagrees with the draft decision on fixed line services, the EBITDA reduction in FY16 would be up to $90 million if implemented from October.

We would like to thank the leadership team and all of our employees for their commitment, effort and initiative. We also thank you for your loyalty as shareholders.

 

 

Your comments and feedback are welcome and can be provided to investor.relations@team.telstra.com, via phone on 1800 880 679, or in the mail to the Investor Relations Department, Telstra, Level 25, 242 Exhibition Street, Melbourne, VIC 3000.

 

^[1] Guidance basis assumed wholesale product price stability, no impairments to investments, excluded any proceeds on the sale of businesses, mergers and acquisitions (M&A) and purchase of spectrum. The FY15 guidance excluded the FY14 CSL profit on sale of $561m from FY14 Income and EBITDA.

^[2] Critical Capabilities for Network Services, Asia/Pacific, Gartner 2015 – www.gartner.de