NBN Slowdown Forces Telstra To Trim Earnings Outlook

Telstra edged higher in yesterday’s big sell-off even though the company produced yet another profit downgrade.

But unlike some warnings in the past two years, the market had been awaiting this update because it was based on the new corporate plan for the next year from the NBN Co and Telstra had been pointing out that final guidance for 2018-19 depended on what that company had to say.

The shares rose 3.3% to $3.12 in a market down 0.9% for the second day in a row.

The bottom line from what the NBN said in its plan is that a lower than expected number of NBN customers will are available for connection over the next year.

Telstra its revenue, as a result, will be $300 million lower than previously expected and the company has trimmed its earnings guidance excluding restructuring costs to between $8.7 billion and $9.4 billion, down from its previous forecast of between $8.8 billion and $9.5 billion. Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) will be down by $100 million.

Guidance for total income is now $26.2 billion to $28.1 billion, down from $26.5 billion to $28.4 billion. EBITDA guidance is now $8.7 billion to $9.4 billion, compared with the previous $8.8 billion to $9.5 billion.

NBN forecasts show 2019 will be the biggest year for construction with an additional 2.7 million premises to be declared Ready to Connect by companies like Telstra.

By the end of next year, more than 80% of Australian homes and businesses are forecast to be Ready to Connect to a service over the network. A further 1.9 million homes are projected be added to the footprint in the NBN network’s final year of construction in 2020.

Telstra last month revealed an 8.9% fall in net profit for 2016-17 to $3.53 billion due to higher costs, lower margins and intensifying competition, especially in mobile.

The telco said yesterday that its 2018-19 “guidance included an assumption that the NBN rollout and migration in FY19 would be broadly in accordance with management’s current best estimates and may be updated for any material changes, including after taking account of the NBN Corporate Plan 2019 when it was published.

“The NBN Corporate Plan 2019 includes lower than previously estimated premises declared Ready for Service (RFS) and premises activated for FY19. This has the effect of deferring Per Subscriber Address Amount (PSAA) receipts from NBN in FY19 into future periods. This will be partly offset in FY19 by the natural hedge including benefits from lower NBN costs to connect (C2C), lower network payments to NBN and retained wholesale EBITDA.

“While the lower volumes impact Telstra’s outlook for FY19, it is anticipated these changes will be financially positive to Telstra over the full rollout due to the effects of the natural hedge,” Telstra’s statement added.

Telstra shares have been supported by the news of the planned merger of rivals Vodafone and TPG, a move investors see as easing the intense competition in mobile services in particular.

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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