Telstra's (ASX: TLS) full-year profit has dropped 8.4 per cent to $3.56 billion, as the telco giant faces increasing competition and is hurt by the further rollout of NBN.

Total revenue for the 12 months to June 30 was largely unchanged at $26 billion, with mobile revenue flat at 0.4 per cent and fixed-line revenue declining by 9.2 per cent.

Telstra said challenging trading conditions were expected to continue in 2018/19, with earnings likely to be affected by ongoing pressure on average revenue per user (ARPU) and costs from the NBN network rollout.

NBN connections grew by 770,000 to 1,946,000 for a total market share, excluding satellite, of 51 per cent.

In a letter to shareholders on Thursday, Telstra chairman John Mullen and chief executive Andrew Penn said the rollout of NBN had had an "enormous impact on our business".

"Wholesale prices have risen, meaning we and other industry participants are facing a fixed-line market where reseller margins are rapidly reducing,” Mullen and Penn said.

"At the same time, competition in the mobile market is increasing with the expected entrance of a fourth mobile network operator."

Telstra Phone Box

Morningstar equities analyst Brian Han was unfazed by the result, describing it as in line with expectations.

"That's not because I'm a star forecaster, but because they gave guidance in June as to what they expected 2017/18 earnings to be," he said.

Han points to Telstra's continued ability to compete for customers in an intensely competitive market as encouraging signs of future recovery.

"We know that Optus had gained around 220,000 subscribers in the six months to June 2018 on the back of the World Cup, and Vodaphone gained 170,000 subscribers on the back of aggressive pricing and data plans," Han said.

"However, Telstra’s effort to retain data-hungry customers with unlimited mobile data plans and the removal of excess data charges seems to be working."

Han adds that Telstra2022, or T22, strategy, aimed at simplifying customer experience and cutting costs, appears to be on track, freeing up more cash for the company to compete for new customers.

Telstra declared a final dividend of 11 cents per share, down from 15.5 cents a year earlier and leaving the full-year dividend at 22 cents, down from 31 cents a year ago. Management did not provide guidance on fiscal 2019 dividends.

At 2pm Sydney time, Telstra shares had risen by 6 per cent, to three-month highs of $3.08. Morningstar’s $4.40 fair value estimate is stable following the result.

Performance highlights

  • Revenue flat at $26bn
  • Net profit down 8.4 per cent to $3.56 bn
  • Final dividend 7.5 cents plus special dividend 3.5 cents

 

More from Morningstar

• 5 yield stocks worth considering

• CBA full-year cash profit down 5pc

• Make better investment decisions with Morningstar Premium | Free 4-week trial

Emma Rapaport is a reporter with Morningstar Australia.

With AAP. 

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.