After reporting a 13% jump in full-year net profit to $2.05 billion, Australia’s biggest Telco, Telstra Group Ltd has bumped its dividend powered by its booming mobile business despite softer conditions for its enterprise division.
“Our focus remains on delivering long-term, sustainable growth and the objectives and principles of our capital management framework, including seeking to grow our dividend,” says chief executive Vicki Brady.
Telstra reported underlying earnings before interest taxation depreciation and amortisation (EBITDA) of $8 billion, a 9.6% increase on the prior year. The company will pay a final dividend of 8.5¢ per share, bringing its total dividend for the year to 17¢ per share, up 3% from a year earlier.
No plans to offload infrastructure business
As part of a long-term sustainable growth strategy, the group plans to keep its massive infrastructure business, InfraCo Fixed, which plays an important role, particularly in an inflationary environment.
InfraCo Fixed is a division of Telstra that holds physical infrastructure assets such as fibre, data centres and subsea cables. Valued at around $15 billion and with income of $1.6 billion this year, up 0.5% on a year earlier, Telstra had been considering selling a stake in the division but that looks to be off the table for the time being.
Telstra did sell a 49% stake in specialist tower company, Amplitel, last year to a consortium of superannuation investors for $2.8 billion, prompting speculation that InfraCo Fixed would be the next asset on the block.
The telco has been considering selling a stake in InfraCo Fixed in the 2023 financial year.
Telstra's 9.6% lift in full-year profit was boosted by the acquisition of Papua New Guinea-headquartered telecommunications provider Digicel Pacific in July, which was mostly funded by the Federal Government amid fears it might be acquired by a Chinese state-owned entity and used for espionage. Excluding Digicel Pacific, Telstra’s underlying EBITDA rose 5%.
The company reported that its mobile services business earnings came in better than expected, up 15% to $4.6 billion. However, earnings in its enterprise business, which provides services to corporations and governments, fell 28% to $411 million.
T25 strategy intact
As part of its T25 strategy, Telstra has been trying to slash some $500 million in costs. In July, the group said it would cut 472 jobs and automate some operations to better compete for business customers with software-based rivals.
Brady said while the cost-cutting program was “being challenged” by high inflation — net finance costs soared 27% due to high debt and borrowing costs — Telstra still aimed to achieve most of its cost cuts by the 2025 financial year.
eToro market analyst Josh Gilbert commented on the result:
"This solid result comes despite inflation driving costs higher, with the price of labour increasing in the full year. CEO Vicki Brady has done a stellar job in implementing the business’ T25 plan, first announced in late 2021.
"With this strategy, the company is going into efficiency mode, starting with job cuts earlier in 2023. As indicated by a strong jump in net income, which came in above market estimates, its strategy is paying off.”
Telstra expects to report underlying EBITDA of between $8.2 billion and $8.4 billion in 2024.
“The good news for investors is that Telstra’s bottom line looks set to continue growing. The business has forecasted EBITDA of A$8.2 billion to A$8.4 billion in FY24, well ahead of FY23 of A$7.86 billion” said Gilbert.
“It certainly won’t all be one way for Telstra in FY24, largely due to rising costs keeping a cap on margins and increasing competition. Nevertheless, today's results will please shareholders, and the company's forecast indicates a promising path ahead, with further profit growth on the cards."