A 5% fall – to $3 – wasn’t unexpected as Telstra slipped out what amounts to a disguised earnings downgrade for the year to June 30, and an implicit warning of the tough times continuing into 2018-19 thanks to the gradual advance of the NBN.
Telstra told the ASX yesterday said it now expects earnings to be at the bottom end of its full year guidance range and has flagged challenging conditions to continue in the year ahead.
A further update will be made in around five to six weeks time, but Telstra shareholders will be gloomily looking for more bad news after the shares hit six and a half year lows yesterday.
Telstra said it expects earnings before interest, tax, depreciation and amortisation (EBITDA) to be at the lower end of its $10.1 billion to $10.6 billion range, on the back of increasing pressure on both fixed and mobile margins and challenges from the rollout of the national broadband network (NBN).
And the company warned shareholders and other investors that despite investments in new technologies to keep up with industry changes, it expects the ongoing pressures will continue in the 2019 full year.
For shareholders though, Telstra also reaffirmed it expects its 2017-18 total dividend to be 22 cents per share fully franked including ordinary and special, in accordance with its dividend policy announced in August 2017.
In a trading update contained in a speech made overnight Monday in the US, the company’s CEO, Andy Penn said:
"The challenging trading conditions in FY18 are expected to continue in FY19, including ongoing pressure on mobile and fixed ARPUs and the accelerating impact of the nbn.
"Telstra will provide a further update to the market in the second half of June regarding additional strategies it is implementing to address these pressures, leveraging the investments already made as part of its strategic investment plan.
"For Q3 results, in fixed Telstra is pleased with retail fixed data net adds (3Q FY18 +36,000) and with nbn market share at the end of March of 50%. However, bundle minimum monthly commitment is challenged (3Q FY18 -2.4% on PCP) due to price competition and the ongoing negative nbn impact on underlying earnings.
"In mobiles, good momentum on postpaid handheld subscribers (3Q FY18 +60,000) has been offset by declines across postpaid handheld ARPU (3Q FY18 -3.6% on PCP), prepaid handheld revenue and mobile broadband revenue. Mobile EBITDA is expected to decline against PCP in FY18 due to these reductions. As a result of these factors, Telstra said investors can expect for the year to June 30 the following:
"Income is expected around the middle of the $27.6 – $29.5 billion range, EBITDA is expected at the bottom end of the $10.1 – $10.6 billion range, Net one-off nbn DA receipts less nbn net C2C is expected at the mid to upper end of the $1.4 – $1.9 billion range, Capex is expected at the mid to upper end of the $4.4 – $4.8 billion range; Free cashflow is expected at the top end or moderately above the $4.2 – $4.7 billion range
"Telstra continues to focus on reducing costs and expects FY18 underlying core fixed costs to decline approximately 7%. Telstra is expected to incur incremental restructuring costs of approximately $300m in FY18 in line with guidance of $200 – $300 million.”