Telstra Meets Lowered Expectations

By Glenn Dyer | More Articles by Glenn Dyer

A ho hum half year result from Telstra yesterday that left the market mildly interested as the shares edged up half a per cent to $3.45.

As expected Telstra cut its dividend by more than a quarter to 11 cents a share for the December half.

At the same time the company made it clear there will be more job losses as it reshapes its business to counter the rollout of the nbn and the continued growth of rivals telcos like Optus, Vodafone and TPG.

The company revealed a fully franked dividend – interim ordinary dividend of 7.5 cents a share and an interim special dividend of 3.5 cents a share – with a total value of $1.3 billion.

Last year, Telstra paid an interim dividend of 15.5 cents a share, and no special.

Last August the telco announced a major change in dividend policy via a “material” reduction in its long-term dividend policy – the first big change since its 1997 float.

That saw the shares fall to their lowest point in five years and they have struggled to regain the lost ground since.

Its dividend policy for financial year 2018 is to pay an ordinary dividend of 70% to 90% of underlying earnings.

Telstra reaffirmed it expects its its total payout for the year to come in at 22 cents a share fully franked, including ordinary and special dividends.

Just based on interim dividends the company is looking at a payment of 50% of the previous 31 cents a share and the topping up will be done through one off payments.

Telstra chairman John Mullen previously described the change of policy to stop paying out all profits as dividend as one of the ‘toughest decisions the board ever had to make. Analysts at the time said it was a "positive" move that would help Telstra re-invest in its core business.

Telstra reported a 5.8% fall in net profit to $1.7 billion, despite reporting a decline in fixed costs and an increase of subscribers on mobile and fixed connections.

That fall was due to the $273 million non-cash impairment of its US video arm Ooyala which had been previously announced.

Without this impairment charge, profit would have increased a solid 9.5% to $2 billion. “Within that environment, we are pleased to have delivered a solid result in line with guidance for this half,” CEO Andy Penn said in yesterday’s statement.

Telstra has, so far cut fixed costs by $249 million and has targeted more than $1 billion in efficiencies over the next four years.

“This is critical against the background of the acceleration in the rollout of the nbn, which is having a material economic impact on Telstra.

Of the estimated $3 billion annual impact, to date we have cumulatively absorbed approximately $870 million of the negative impact to EBITDA from the nbn, including $370 million in the period,” the company said in yesterday’s release.

In a briefing Fairfax Media report that Mr Penn said that while the company was “always sensitive to anything that we’re doing that has an impact on jobs […], we do need to increase the efficiency of the business, the productivity of the business, because ultimately that’s what’s going to make us successful,” he said.

This meant changing the workforce of the company, particularly due to the NBN, as Telstra moves into new technology and redefines its role in the market, he said.

Mr Penn said the company was making investments in new technology and 5G because "regardless of the NBN, they’re the right thing to do for the future of our customers and our shareholders", but it was "critically important because we need to find ways to mitigate and offset the negative economic impact of the roll-out of the NBN".

While its traditional telco jobs may be reduced, Telstra was creating jobs in new business areas such as cyber security and the internet of things, which involves connecting devices and appliances around the house to be controlled online, he said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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