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Telstra hits guidance and declares 16 cents per share FY 2020 dividend

Telstra share price
Source: Telstra presentation

The Telstra Corporation Ltd (ASX: TLS) share price will be in focus on Thursday after the release of its full year results for FY 2020.

How did Telstra perform in FY 2020?

For the 12 months ended 30 June 2020, Telstra reported a 5.9% decline in total income to $26.161 billion. This means the telco giant achieved its guidance of $25.3 billion to $27.3 billion.

The main drag on its performance during FY 2020 was the Consumer and Small Business segment. Telstra’s largest segment reported a 6.7% decline in income to $13.326 billion during the 12 months. It was impacted by an 8.4% decline across fixed products and a 5.2% decline in mobile service revenues. The latter was due to a reduction in its average revenue per user (ARPU), which offset customer additions.

The company’s Enterprise segment also posted a decline for the year. It recorded income of $7.97 billion, down 3.3% on the prior corresponding period. This was largely due to declines in legacy calling and fixed products.

Offsetting some of these declines was a solid reduction in operating expenses during the year. Telstra’s operating expenses fell 14.5% to $16.951 billion in FY 2020 thanks to strong progress with its T22 strategy.

This ultimately led to Telstra posting reported earnings before interest, tax, depreciation, and amortisation (EBITDA) of $8.9 billion and underlying EBITDA of $7.4 billion. The latter was within its guidance range and represents a 9.7% decline on the prior year. However, if you exclude the NBN headwind, Telstra’s underlying EBITDA would have increased by $40 million in FY 2020.

It is worth noting that the underlying result includes an estimated net negative impact from COVID-19 of approximately $200 million. This relates to lower international roaming, financial support for customers, delays in NAS professional services contracts, and additional bad debt provisions.

On the bottom line, Telstra’s net profit after tax fell 14.4% to $1.8 billion and its earnings per share dropped 15.5% to 15.3 cents.

Telstra maintains its dividend.

Telstra also delivered on its guidance for free cash flow in FY 2020. It reported free cash flow of $3.4 billion, compared to its guidance of $3.3 billion to $3.8 billion.

In light of this, it was able to maintain its full year dividend of 16 cents per share fully franked. This will see $1.9 billion returned to shareholders for the year. Its final dividend of 8 cents per share will be paid on 24 September.

Outlook.

While the company acknowledges that it will not be immune from further disruption and difficulty during the pandemic, it is confident enough in its outlook to provide guidance for FY 2021.

It expects total income to be in the range of $23.2 billion to $25.1 billion, underlying EBITDA in the range of $6.5 billion to $7 billion, and free cashflow after operating lease payments of $2.8 billion to $3.3 billion.

Management also expects the in-year NBN headwind for FY 2021 to have a negative impact on underlying EBITDA of approximately $700 million. As a result, to achieve growth in FY 2021 (excluding the in-year NBN headwind), underlying EBITDA will need to be around the mid-point of its guidance range.

It is also worth noting that this underlying EBITDA guidance assumes an estimated negative impact from the COVID-19 pandemic in FY 2021 of approximately $400 million.

While it did not mention its dividend, based on this guidance, Telstra appears well-placed to maintain its 16 cents per share payout next year.

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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. 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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