Shares in Telstra Corporation Ltd (ASX: TLS) are trading higher this morning as the market digests a better-than-expected half-year report. In the six months to 31 December 2013, group revenue increased 4.1% to $12.6 billion, whilst net profit jumped 9.7% to $1.7 billion – when compared to the half-year ending 31 December, 2012.
Rather than top and bottom line growth, many shareholders would have been focused on any mention of a dividend increase. Today, faithful shareholders will be excited by the prospect of a slightly higher 14.5 cent interim dividend – the first change to the telco's legendary payout in eight years.
Standout performers in the half year were as follows:
- Network Application Services (NAS) revenue up 29.3% – Which includes Cloud (up 28.6%), Unified Communications (up 27.6%) and Managed Network Services (up 64.8%).
- International revenue up 28.3% (local currency 15.5%) – Including the group's sold Hong Kong CSL mobiles business (up 13.2%), China Digital Media (up 53.8%) and Global Connectivity and NAS (up 9.7%).
- Mobiles – Revenue up 6.4% to $4.861 billion, customers up 739,000 to 15.8 million, improved EBITDA margin to 39%.
The group continued to add to its huge client base, proving its customer-first strategy is paying dividends. In addition to mobiles, the number of customers in fixed retail, bundle and IP showed strong growth.
Key Group Metrics
Along with the bumper results and a higher payout, Telstra's dominance in key markets has enabled it to improve upon a number of key financial metrics and become a more efficient company.
1H13 | 1H14 | Change | |
Earnings Per Share (cents) | 12.6 | 13.7 | 8.7% |
Dividends (cents) | 14 | 14.5 | 3.6% |
Return on Equity (ROE) | 27% | 26.8% | -0.2% |
Return on invested capital (ROIC) | 13.5% | 15.2% | +1.7% |
Gearing | 53.4% | 51.4% | -0.2% |
Data Sourced from Telstra 1H 2014 Report, 13 February 2014
Commenting on the results and outlook for the remainder of FY14, CEO David Thodey said: "These are a solid set of results and we see good opportunity going forward… Importantly, we are on track to meet our full-year guidance."
He said the telco plans to grow its superior 4G network to 85% of the population by Christmas, thanks to upgrades at 1,500 base stations throughout the country.
Foolish takeaway
Shareholders in Telstra will be very pleased with today's results. Growing its huge customer base ahead of expectations and increasing the dividend is all you could expect from the telecommunications heavyweight. International operations and Network Services continue to grow rapidly. Although the NAS and International divisions represent only a small part of the business – contributing only 6.4% and 8.5% of group revenue respectively – they are exciting growth prospects with huge potential. For Australian income investors, it's hard to go past Telstra for yield, safety and quality.