Telstra tightens FY26 guidance after delivering strong H1 earnings growth
Telstra Group (ASX: TLS) has tightened its FY26 guidance range to $8.2 billion – $8.4 billion for underlying EBITDAaL, following a strong first-half performance that saw Cash EBIT grow by 14% to $2.48 billion. The telecommunications provider also announced an increased interim dividend of 10.5 cents per share (90.5% franked) and expanded its share buyback programme from $1 billion to $1.25 billion, signalling Board confidence in the company’s financial strength and the momentum building behind its Telstra Connected Future 30 strategy.
The H1 FY26 results demonstrate tangible progress across core business operations. Underlying EBITDAaL reached $4.19 billion, with the Mobiles division delivering $93 million in EBITDA growth driven by 5.6% mobile services revenue growth. The company achieved positive operating leverage of 3.1 percentage points, meeting its Connected Future 30 target through $179 million (2.4%) in operating expense reductions and disciplined cost control.
CEO Vicki Brady attributed the performance to momentum across the business, stating the results reflect “strong cost control and disciplined capital management.” The tightened guidance range narrows from the previous $8.15 billion – $8.45 billion band, reducing uncertainty for investors ahead of the second-half delivery.
CEO Vicki Brady
“On the back of cash earnings growth, the Board resolved to pay an interim dividend of 10.5 cents per share. The interim dividend uplift, and the level of franking applied, is consistent with our Capital Management Framework, and our aim to deliver a sustainable and growing dividend.”
The increased buyback reflects strong execution, with $637 million already completed in H1 FY26. Combined with the dividend increase of 10.5% on a cash basis compared to H1 FY25, total capital returns to shareholders are accelerating. The buyback expansion is expected to support earnings and dividend per share growth, with management maintaining its Connected Future 30 ambition to deliver mid-single digit growth in cash earnings.
Breaking down Telstra’s key financial metrics
The relationship between underlying EBITDAaL, Cash EBIT, and shareholder returns forms the foundation for assessing Telstra’s operational performance. Underlying EBITDAaL measures earnings before interest, tax, depreciation, amortisation, and after lease costs, providing a clear view of core business profitability. Cash EBIT takes this further by subtracting business-as-usual capex and spectrum amortisation, revealing the actual cash generation available for dividends, buybacks, and strategic investment.
Mobiles emerged as the primary earnings driver in H1 FY26. The division’s $93 million EBITDA growth was supported by higher average revenue per user (ARPU) and customer retention on Telstra’s network. Mobile services revenue growth of 5.6% demonstrates the pricing power and market position the company commands in its core connectivity business.
Operating expense discipline played a critical role in delivering positive operating leverage. Telstra reduced underlying operating expenses by $179 million (2.4%), more than offsetting inflationary pressures in a period of modest revenue growth. This cost control enabled the company to achieve its 3.1 percentage point operating leverage target, a key metric within the Connected Future 30 framework.
Return on invested capital (ROIC) reached 10.5% on a reported basis and 8.9% on an underlying basis (excluding guidance adjustments). The H1 Cash EBIT growth rate of 14% exceeds full-year expectations of approximately 5-10% growth, primarily due to lower business-as-usual capex timing in the first half. Capex spend typically increases in the second half of the financial year, which will moderate the Cash EBIT growth rate but does not indicate deteriorating fundamentals.
| Metric | H1 FY26 | FY25 Full Year | FY26 Guidance |
|---|---|---|---|
| Underlying EBITDAaL | $4.19b | $8.02b | $8.2b – $8.4b |
| Cash EBIT | $2.48b | $4.31b | $4.55b – $4.75b |
| BAU Capex | $1.55b | $3.39b | $3.2b – $3.5b |
| Strategic Investment | $0.23b | $0.33b | $0.3b – $0.5b |
The split between BAU capex and strategic investment demonstrates Telstra’s approach to balancing network maintenance with growth initiatives. BAU capex of $1.55 billion in H1 FY26 maintains core network operations, while strategic investment of $0.23 billion funds transformational projects including the Aura Network and Viasat satellite capabilities. This allocation strategy supports long-term competitive positioning while delivering near-term cash returns to shareholders.
What is EBITDAaL and why does it matter for telco investors?
EBITDAaL stands for Earnings Before Interest, Tax, Depreciation, Amortisation after Leases. This metric adjusts traditional EBITDA by accounting for lease obligations, which are particularly material for telecommunications companies operating extensive infrastructure networks with significant property and equipment lease commitments.
Telecommunications providers favour EBITDAaL because their business models are capital-intensive, requiring substantial ongoing investment in network infrastructure, base stations, fibre routes, and data centres. Many of these assets are leased rather than owned outright, making lease costs a significant operational expense. By measuring profitability after lease costs but before depreciation and amortisation, EBITDAaL provides a clearer picture of cash-generative operational performance.
Cash EBIT takes this analysis further by subtracting business-as-usual capex and spectrum amortisation, capturing actual cash generation after essential network investment. This metric is critical for assessing Telstra’s capacity to fund dividends, share buybacks, and strategic growth initiatives. Investors tracking whether Telstra is growing profitably while maintaining network investment discipline should monitor both underlying EBITDAaL (for operational performance) and Cash EBIT (for cash generation capacity).
Connected Future 30 strategy gains momentum
The Telstra Connected Future 30 strategy outlines the company’s roadmap to 2030, centred on connectivity leadership, customer experience enhancement, and AI-driven business transformation. Tangible progress across all three strategic pillars was evident in the H1 FY26 results, with infrastructure deployment milestones, customer satisfaction improvements, and workforce AI adoption all advancing according to plan.
Investing in connectivity:
- $1.1 billion in strategic investment across Aura Network and Viasat projects deployed from FY23 to H1 FY26
- 7,000km of fibre deployed on the Aura Network, reaching the halfway mark
- Sydney-Melbourne coastal route via Canberra now operational
- Additional routes expected in FY26, including Sydney-Melbourne central via Canberra and Sydney-Perth
- Achieved umlaut “Best in Test” recognition for the 8th consecutive year with the highest score to date
- Telstra Satellite Messaging service launched
Supporting customers:
- 86% of consumer service interactions completed via Digital Self Service channels
- Strategic Net Promoter Score (NPS) increased by 5 points over 12 months
- Episode NPS increased by 2 points over 12 months
- AI Virtual Assistant launched November 2025, delivering almost a three-fold increase in customer query resolution
- 99.9% of 7.7 million consumer customers successfully migrated to new digital stack
Laying foundations for growth:
- 5G Advanced investment moving towards smarter, more adaptable network architecture
- Adaptive Network Centre launched June 2025
- Joint Venture with Accenture accelerating AI transformation across the business
- Legacy platform retirement and strengthened Responsible AI governance frameworks implemented
The Aura Network represents a particularly significant infrastructure investment. With 7,000km of fibre now deployed and major route segments operational, the network is positioned to deliver recurring revenue streams from wholesale connectivity services while enhancing network redundancy and resilience. The completion of the Sydney-Melbourne coastal route via Canberra provides critical infrastructure connecting Australia’s two largest cities with improved capacity and diversity.
Customer experience improvements are translating into measurable satisfaction gains. The 5-point increase in Strategic NPS and 2-point increase in Episode NPS over 12 months suggest operational changes are positively impacting customer perceptions. These improvements reduce customer churn and support premium pricing strategies, both of which contribute to revenue sustainability and margin protection.
AI transformation accelerating across the business
The Joint Venture with Accenture is serving as the catalyst for enterprise-wide AI adoption across Telstra’s operations. Workforce engagement metrics demonstrate cultural acceptance, with more than 75% of team members with access to AI tools using them weekly or more frequently. Almost 9,000 employees completed the Data & AI Academy course during FY26, building internal capability to leverage AI technologies effectively.
Practical applications are already delivering operational benefits. The AI Virtual Assistant launched in November 2025 achieved almost a three-fold increase in customer query resolution, directly reducing the need for human-assisted service interactions. Data architecture improvements and access to global innovation via the Silicon Valley hub are strengthening the foundation for scalable AI deployment across customer service, network operations, and business processes.
These AI-driven efficiency gains are already visible in the financial results. The $179 million reduction in underlying operating expenses and achievement of 3.1 percentage point operating leverage demonstrate how technology investments are translating into cost savings. As AI adoption deepens across more business functions, these productivity gains are expected to support the company’s mid-single digit cash earnings growth ambition.
Capital returns and balance sheet strength
The expanded share buyback programme represents direct capital return to shareholders beyond the dividend stream. Telstra has increased its current on-market buyback from up to $1 billion to up to $1.25 billion, with $637 million already completed during H1 FY26. The execution pace demonstrates management’s commitment to reducing share count while maintaining balance sheet flexibility for strategic opportunities.
The interim dividend of 10.5 cents per share consists of 9.5 cents franked and 1 cent unfranked, resulting in 90.5% franking. The dividend represents 10.5% growth on a cash basis compared to H1 FY25’s fully franked 9.5 cents per share. The franking level reflects Telstra’s current taxable income position, with the company targeting sustainable dividend growth supported by cash earnings momentum.
CEO Vicki Brady
“The on-market share buy-back is expected to support earnings and dividend per share growth, and along with the increased interim dividend, reflects the Board and management’s confidence in our financial strength and outlook.”
Telstra’s capital management framework balances growth investment with shareholder returns. The company’s capital allocation priorities include maintaining network investment at $3.2 billion – $3.5 billion for BAU capex, funding $0.3 billion – $0.5 billion in strategic investment, delivering a sustainable and growing dividend, and returning excess capital via buybacks. The expanded buyback signals that current cash generation exceeds the capital required for these other priorities, demonstrating the strengthening financial position underpinning the Connected Future 30 strategy.
Investment outlook and what to watch
The tightened FY26 guidance reduces execution risk for the second half. Narrowing the underlying EBITDAaL range to $8.2 billion – $8.4 billion (from $8.15 billion – $8.45 billion) provides greater certainty around full-year outcomes, particularly given the strong H1 performance. Cash EBIT guidance of $4.55 billion – $4.75 billion implies approximately 5-10% growth for the full year, consistent with the Connected Future 30 ambition for mid-single digit cash earnings growth.
The gap between H1 Cash EBIT growth of 14% and full-year guidance of approximately 5-10% reflects capex timing rather than deteriorating fundamentals. BAU capex of $1.55 billion in H1 FY26 represented lower spending than the typical run rate, with second-half capex expected to normalise toward the $3.2 billion – $3.5 billion full-year guidance range. This capex pattern is consistent with Telstra’s historical spending profile and does not indicate operational weakness.
Key milestones to monitor in the second half include the completion of additional Aura Network routes (Sydney-Melbourne central via Canberra and Sydney-Perth), continued AI productivity gains across customer service and network operations, and execution of the remaining $613 million in the share buyback programme. Mobile services revenue growth and customer acquisition trends will provide early indicators of whether the Mobiles division can sustain its earnings momentum through FY26.
The Connected Future 30 framework positions mid-single digit cash earnings growth as the medium-term performance benchmark. Investors should assess Telstra’s progress against this target by monitoring Cash EBIT delivery relative to guidance, operating leverage maintenance at or above 3 percentage points, and the sustainability of both dividend growth and capital returns through the buyback programme.
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