“Enormous Challenge”: Telstra Confirms Profit Drop

By Glenn Dyer | More Articles by Glenn Dyer

More pressure on shares in Telstra after the telco warned of a further deterioration in market conditions in 2019 as it posted a 8.9% drop in annual profit to $3.56 billion for the year to June 20.

Revenue for the year to June was flat at $26 billion.

Despite the warning Telstra shares rose more than 2% to $2.97 in early trading, despite a sharp fall in the wider market after a Wall Street sell-off.

A letter to shareholders from CEO Andy Penn and chairman John Mullen said the company was “operating in times of enormous challenge and change” with mobile competition tipped to get even more intense as a fourth entrant, TPG Telecom, moves into the market with a new network.”

“Despite the challenges in the market in fiscal 2018, our results are in line with guidance and show strong subscriber growth in both fixed and mobile,” the letter said.

And looking to 2018-19 the letter pointed out that the new corporate plan from nbn co might force the guidance for the year to be recast, a move that investors will nervously await.

"FY19 is a very material year in the migration to the nbn and its impact on our business. This guidance is based on management’s best estimates and may need to be adjusted when nbn co releases its Corporate Plan, which is expected on 31 August 2018,” the company warned in its statement to the AS wth the 2017-18 results.

"The FY19 guidance has not changed from that provided on 20 June 2018 at Telstra’s announcement, except to adjust for the impact of a new Australian Accounting Standards Board accounting standard (AASB15). The result of the adjustment is that FY19 income guidance has decreased by $100 million and EBITDA guidance has increased by $100 million.

"In FY19 we expect income in the range of $26.5 to $28.4 billion and EBITDA (excluding restructuring costs) of $8.8 to $9.5 billion. FY19 additional restructuring costs are expected to be around $600 million.

"FY19 net one off nbn DA receipts less nbn cost to connect are expected to be between $1.8 and $1.9 billion. Capital expenditure is expected to be between $3.9 to $4.4 billion or approximately 16 to 18 per cent of sales, and free cashflow is expected to be in the range of $3.1 to $3.6 billion.”

Telstra announced a fully franked final dividend of 11 cents a share. This brings the total dividend for the financial year to 22 cents a share.

“Despite the challenges in the market in FY18 our results are in line with guidance and show strong subscriber growth in both fixed and mobile,” directors said.

"We saw strong customer growth for the year and good progress on our productivity program, but the continued downward pressure on EBITDA and NPAT caused by the further rollout of the nbn and lower Average Revenue Per User (ARPU) reinforced the importance of our T22 strategy.

"During the year we added 342,000 retail mobile customers, 88,000 retail fixed broadband customers and 135,000 retail bundles. However, challenging trading conditions are expected to continue in FY19, including ongoing pressure on ARPU and further negative impact of the nbn network rollout on our underlying earnings.”

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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