Telstra earnings results

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14 February 2019

Results ($m)

Half Year 2019

Half Year 2018

Change

Net Profit after Tax ($m)

1,233

1,713

-28%

Earnings Per Share (cents)

 10.4

14.4

-27.8%

Consensus (cents)

12.0

 

 

Total Income ($m)

13,798

14,391

-4.1%

Earnings Before Interest & Tax ($m)

2,117

2,877

-26.4%

Operating Expenses ($m)

9,541

9,264

+3%

Interim Dividend ($)

 0.08

0.11

-27.3%

Telstra (TLS) disappoints with a dividend cut

 

Results

  • Telstra has reported a 27.4% fall in first half net profit after tax to $1.2 billion while total income was $13.8 billion, a decline of 4%. EBITDA of $4.3 billion was down 16.4%.

Drivers

  • At a headline level TLS highlighted the underperformance in earnings continuing to reflect the rollout of the NBN. Removing the impact of the NBN rollout or looking at the underlying result, TLS delivered solid results in its underlying businesses.
  • One of the features of the result was the strong performance of the Mobile Business. Segment revenue over the period increased by 2.4% to $5.29 billion, with the number of customers increasing by 239,000. TLS now has 18 million domestic mobile customers. Wholesale added 125,000 mobile services – a combination of pre-paid and postpaid. There was also continued positive momentum in the internet of things (IoT) business, where revenue grew by 35.6% albeit to $99 million, as services were rolled out to industries including health & financial services. 
  • The Fixed business presented a familiar picture as it remained challenged by the NBN rollout. Revenue declined by 9.3% to $2.7 billion. The retail segment fell 7% & wholesale retreated by almost 20%. 
  • Higher costs were driven by $194 million in network payments to the NBN and a $148 million increase in hardware costs which helped support revenue growth. Balancing these outcomes was a $162 million reduction in fixed costs. Full time equivalent employees (FTE) fell by 9% or 3,205 over the period, which represents 40% of the targeted reduction in the TLS workforce by 2022. TLS expects to realise the financial benefit of the reduced workforce in 2H19 & FY20, with total costs in FY19 expected to be flat compared to 2018.

Dividend

  • The main focus for investors has been Telstra’s decision to cut its dividend. The total interim payment was reduced from 11 cents to 8 cents per share, with the payment comprising a 3 cent per share special dividend. The interim ordinary payment reflected an 84% payout of underlying earnings, a result consistent with its earlier guidance.  

Outlook

  • Telstra confirmed FY19 guidance consistent with its September 2018 announcement. In FY19 Telstra expects total income of $26.2 - $28.1 billion and EBITDA (excluding restructuring costs) of $8.7 to 9.4 billion. Capital expenditure is expected to be between $3.9 and $4.4 billion, while free cash-flow is expected to be between $3.1 and 3.6 billion.

Share price

  • Telstra shares retreated sharply on the news of the dividend cut, with the shares falling as much as 6.5%, trading as low as $3.00. Year-to-date however the shares are still higher by more than 9%. 

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