Telstra Group Ltd (ASX: TLS) shares are on watch today after the ASX telco giant reported its FY24 financial results.
In short, all 'underlying' numbers were in line with expectations but reported statutory profits declined significantly as the company booked a sizeable one-off cost related to its business restructuring.
Let's find out how the ASX blue-chip stock pared in the last financial year.
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Telstra's underlying profits are largely in line with expectations
- Total income increased by 1% to $23.5 billion
- Reported earnings before interest, taxes, depreciation, and amortisation (EBITDA) fell 4.2% to $7.5 billion, while underlying EBITDA increased by 3.6% to $8.2 billion
- Reported net profit after tax (NPAT) dropped 12.8% to $1.8 billion, but underlying NPAT increased by 7.5% to $2.3 billion
- Underlying earnings per share (EPS) increased by 5.7% to 18.5 cents
- Dividend per share (DPS) for FY24 came in at 18 cents, up 5.9% year-over-year
- The underlying return on invested capital (ROIC) was 8.3%, which improved from 8.1% a year ago
Compared to analyst consensus by S&P Capital IQ, revenue was slightly below expectations, but underlying EBITDA was in line.
There were a number of one-off expenses booked for the year, including $311 million related to Telstra Enterprise's reset and exit and $247 million of restructuring costs associated with the organisational changes announced in May 2024.
These one-off costs were excluded from the company's underlying numbers.
What else happened during FY24 for Telstra?
Telstra's strong growth in underlying EBITDA was supported by its mobile division, which delivered a 9.2% growth to $424 million. Telstra Infrastructure division raked in $147 million of additional profit, mainly driven by Amplitel, which grew 16% from a year ago.
Cost reduction efforts continued in FY24, and the company highlighted it saved operational costs of $122 million over the last two financial years.
During the year, Telstra undertook a major restructuring in its Enterprise business to simplify its operations and improve productivity.
This included a massive job reduction, up to 2,800 positions, which the company expected to help achieve $350 million of its operating cost savings by the end of FY25.
Key takeaways from management
Commenting on the FY24 results today, Telstra CEO Vicki Brady highlighted its strong mobile business performance. She said:
Our mobiles business continues to perform very strongly, with more peopl choosing our network and average revenue per user (ARPU) growth conributing to our underlying EBITDA growth.
In addition, she reaffirmed the company's ongoing cost-saving initiatives to overcome operational challenges. She added:
While most parts of our business performed strongly, Fixed Enterprise is clearly a long way from where we need it to be.
We've also been challenged by higher-than-expected inflation and costs, which have made it tougher to meet our cost reduction ambitions.
We recognised the need to take significant action and in May we announced proposals to simplify our operations and increase productivity. These measures, along with our existing actions, are forecast to reduce $350 million of fixed core costs over FY23-25.
What's next?
Looking forward, the company provided FY25 guidance as follows.
- Underlying EBITDA of $8.5 billion to $8.7 billion, similar to the company's previous guidance of $8.4 billion to $8.7 billion
- Business-as-usual capex of $3.2 billion to $3.4 billion
- Strategic investment of $0.3 billion to $0.5 billion
- Free cash flow after lease payments before strategic investment of $3 billion to $3.4 billion
The company aims to improve its underlying ROIC by improving operating efficiency.
Telstra also plans to focus on achieving 95% population coverage on its 5G network by the end of FY25, up from 89% in FY24.
Valuation merits
Telstra shares are valued at a price-to-earnings ratio (P/E) of 20x based on S&P Capital IQ's FY25 EPS estimate. This is about the midpoint of its historical trading range of between 10x and 30x.
Using FY24 dividends declared, Telstra shares offer a fully-franked dividend yield of 4.7%.
The Telstra share price fell nearly 15% this year to a low of $3.39 in May. From there, Telstra shares rebounded to $3.86 on valuation merits and as the company increased its mobile pricing in July.
