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Telstra Corporation Ltd (ASX:TLS) posts $3.5 billion full-year profit

The Telstra Corporation Ltd (ASX: TLS) share price will be on watch today after the telco giant released its full-year results.

For the 12 months ended June 30, Telstra posted revenue from continuing operations of $29 billion and a net profit after tax of $3.5 billion. This was an increase of 3% and a decline of 8.9%, respectively on FY 2017’s results. Though, it is worth pointing out that Telstra’s profit result was ahead of its guidance and the market’s expectations. Basic earnings per share fell 7.7% year-on-year to 30 cents.

The Telstra board elected to declare a fully franked final dividend of 11 cents per share. This brings the total dividend for the financial year to 22 cents per share, comprising an ordinary dividend of 15 cents and a special dividend of 7 cents. This was in accordance with the dividend policy announced last year.

Telstra has been working hard on reducing costs during FY 2018. It achieved a 7% or $480 million reduction in underlying core fixed costs during the period. This means the company is on course to achieve its target of reducing underlying core fixed costs by $2.5 billion by FY 2022.

During the 12 months Telstra added 342,000 domestic retail mobile customer services, 88,000 domestic retail fixed broadband customers, 135,000 Retail bundles, and 229,000 wholesale mobile services. This complemented the 770,000 nbn additions, bringing its total to 1,946,000 connections. This equates to a market share of 51% excluding satellite connections.

In addition to this, the company’s Sports Live Pass user numbers increased by almost 1 million to 2.3 million subscribers across AFL, NRL, and Netball.

Here is a summary of how Telstra’s different businesses performed in FY 2018.

Source: Company presentation

As you can see above, the company’s Fixed segment continues to weigh heavily on its performance due to an increased rate of NBN migration and competition.

Telstra’s Mobile segment managed to deliver top line growth during the 12 months thanks largely to customer additions and the strong performances from its Mobile hardware and Machine to Machine businesses. This managed to offset declines in average revenue per user (ARPU) from its post-paid mobiles. Post-paid ARPU fell by 3.4% to $65.41 and management expects this weakness to continue in FY 2019, possibly due to the arrival of TPG Telecom Ltd (ASX: TPM) in the mobile market.

Outlook.

Telstra has reiterated the guidance for FY 2019 that it gave in June at its T22 event.

In FY 2019 Telstra expects income in the range of $26.5 billion to $28.4 billion and EBITDA (excluding restructuring costs) of $8.8 billion to $9.5 billion. FY 2019 additional restructuring costs are expected to be around $600 million.

Net one-off NBN DA receipts less NBN cost to connect are expected to be between $1.8 billion to $1.9 billion. Capital expenditure is expected to be between $3.9 billion to $4.4 billion or approximately 16% to 18% and free cashflow is expected to be in the range of $3.1 to $3.6 billion.

Unfortunately, management has not provided any guidance in respect to its dividend.

Should you invest?

While its shares are tempting at these levels, until Telstra provides an update on its dividend in FY 2019 I plan to stay clear of it.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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