NBN influences Telstra's numbers
Telstra has slashed its dividend outlook and reported a 33 per cent dive in full-year profit.
Telstra reported a profit of $3.9 billion this week, down from last year's $5.8 billion but within expectations after the sale of its $1.8 billion stake in the Chinese Autohome venture.
Telstra says it will pay a lower-than-expected full-year dividend of 31 cents per share this year.
But there may be more trouble to come for investors’ cherished dividends, with Telstra announcing it will cut next year's full-year payout by 30 per cent to just 22 cents per share.
The change comes after a nine-month review of issues including the NBN’s rapid erosion of its traditional fixed-line phone and internet businesses.
Telstra chief executive Andy Penn said, given the changes the NBN will bring in coming years, the company expects earnings to take a hit of about $3 billion a year.
To balance that out, Telstra will look to its two income streams from NBN — ongoing payments for the use of existing infrastructure, (growing to $1 billion per year), and $9 billion it will receive over coming years as compensation for the telco having to give up its traditional wholesale business.
Mr Penn said these challenges force Telstra to cut dividend payouts from almost 100 per cent of underlying earnings to a range of 70 to 90 per cent.
This year's payout represented 99 per cent of underlying earnings.
“We do not underestimate the impact on shareholders, which is why we are providing advanced guidance,” Mr Penn told an investor briefing.
“It is about setting the business up for the future and giving us the flexibility to invest and grow the business.”
Future dividends should also be helped by the planned sale of forthcoming NBN receipts.
That plan, which requires approval from the NBN, Federal Government and investors, could see Telstra sell 40 per cent of long-term recurring NBN receipts for about $5.5 billion.
“Our intention would be to use the proceeds to reduce debt by around $1 billion, with the balance to support a capital management program to enhance shareholder returns, most likely through a series of on-and-off-market buy-backs,” Mr Penn said.
Telstra’s total underlying earnings — minus one-off items — grew 1 per cent to $3.9 billion, while revenue rose by 4 per cent to $28.2 billion.
There has been an ongoing decline in the fixed-line business, with earnings down another 5 per cent.
Mobile earnings edged up 0.8 per cent.
The biggest gains came from Network Application Services — including management services like cybersecurity and cloud systems — where earnings rose by over 30 per cent to $3.4 billion.
Telstra’s media activities, including its stake in Foxtel, grew by 8 per cent to $935 million.
The biggest impact on the result came from Telstra’s NBN income, which grew by almost 90 per cent to $2.5 billion.