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Telstra Posts Modest Growth in Profit

Telstra Posts Modest Growth in Profit
Feb 18, 2016 By Simon Herrmann Tags: TLS

The telecommunications giant Telstra Corporation Limited (ASX:TLS) released earnings results for the 1H16 period which revealed a 1.7% rise in EBITDA.

Total Income up 9.1%

Telstra’s total income excluding financial income improved 9.1% to $14.2 billion. Reported EBITDA increased 1.7% to 5.4 billion while NPAT rose 0.8% to $2.1 billion. Capital expenditure increased 20% to $2.1 billion. Subsequently, operating expenses rose 14.2% to $8.8 billion due to higher sales costs incurred to generate revenue and customer growth in core businesses.

Telstra ascribed the income growth achieved across all segments to its expansion in retail fixed bundle and mobile customer numbers. The company’s CEO Andrew Penn noted that Telstra focused on investing in its core technology in order to strengthen its domestic network leadership with its 4G footprint covering 96% of the Australian population. Telstra aims to expand its reach to 99% by June 2017.

Mobile revenue rose 3.7% to $5.5 billion while post-paid churn rate declined 0.1% to 10.7%. While overall revenue from the company’s fixed business dropped 1.5% to $3.6 billion, its fixed data revenue grew 6.7% to $1.3 billion. However ‘fixed voice’ revenue declined 7.6%.

The board announced a fully franked interim dividend of 15.5 cents per share, a 3.3% boost on last year’s distribution.

Strong International Business Operations

Mr. Penn highlighted that the company made significant progress through a successful international growth strategy, especially in regards with its expansion in Asia via the acquisition of Pacnet. This acquisition contributed $247 million to income growth and more than doubled Telstra’s international revenues from Network Applications and Services (NAS), which reached $86 million.

Overall NAS revenues grew 32.75% to $1.3 billion underpinned by strong underlying performance and the achievement of significant contractual milestones from major accounts.

Mr. Penn commented on the results: “Our results have been achieved against increased mobile competition and acceleration in the NBN multi-technology model roll out. We are actively working to simplify our business, drive down costs and help our customers experience what technology can do to their lives and businesses.”

Outlook

The company reaffirms its previously stated guidance as it expects to deliver ‘mid-single digit income growth’ and ‘low-single digit EBITDA growth’ in FY16. Free cash flow is anticipated to be between $4.6 billion and $5.1 billion and capital expenditure is projected to be approximately 15% of sales.

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Simon Herrmann Author: Simon Herrmann Feb 18, 2016

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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