Telstra Confirms NBN Pain, Dividend Cut

Telstra has slashed its final dividend after a sharp slide in profit for the year to June 30.

The telco trimmed the full-year payout to 16 cents a share from 22 cents with the payment of an 8 cents a share final – down from 11 cents previously – a cut of nearly a third.

Telstra joined Woodside and Blackmores in hacking into their returns to shareholders after weak results.

In the case of Telstra, the result was flagged several months ago in updated guidance.

Telstra yesterday warned shareholders to brace for an even bigger impact on its bottom line next year as a result of the National Broadband Network.

The current 2019-20 financial year is when the impact from the NBN is forecast to be at its greatest so it is likely that net earnings could be down on 2018-19’s slide.

Telstra’s net profit after tax fell 39.6% in the 2019 financial year to $2.15 billion, with revenue down 2.3% to $25.26 billion.

Earnings before interest, tax, depreciation, and amortisation (or EBITDA) fell 21% to $8 billion.

Telstra shares opened 2.2% lower at $3.85, but that was also in a market down more than 2% in the wake of the biggest slide on Wall Street this year when the Dow and S &P 500 lost 3%.

The guidance met the new estimates from the company when CEO Andy Penn outlined a new strategy for the telco called Telstra 2022 or T22, after five-year lows in the share price led to an outcry from shareholders and a campaign against what was seen as overpaid executives at the company.

The plan included cutting 8,000 employees from its workforce in an effort to allow Telstra to absorb the disruption from the rollout of the National Broadband Network, growing competition in mobile and a new focus on costly (investment wise) high-speed 5G networks.

“FY19 has been a pivotal year for Telstra. Notwithstanding the intense competitive environment and the challenging structural dynamics of our industry, it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced,” Mr. Penn said yesterday.

A letter from chairman John Mullen and chief executive Andy Penn to shareholders posted to the ASX on Thursday morning alongside the results said the telco had taken “great strides toward becoming a company that is easier to interact with” in the year since T22 was launched.

While we are making good progress on our T22 strategy, we continue to feel the significant impact of the rollout of the NBN on our earnings and profit, and competition in the mobile market remains high,” the letter said, pointing to $600 million of the decline in earnings as due to the impact of the NBN rollout. Excluding the NBN rollout, earnings declined about 4 percent.

“To date, we estimate the NBN has adversely impacted [earnings] by approximately $1.7 billion, and we estimate we are around 50 percent of the way through the recurring financial impact of the NBN,” Mr. Mullen said in his letter.

Telstra has forecast the 2020 financial year to have the biggest impact so far from the NBN and that’s why Telstra, led by Mr. Penn has been adding pressure for the NBN Co to reduce its wholesale pricing to enable retailers to improve or at worst maintain profit margins.

Telstra has forecast total revenue for the 2020 financial year to be $25.7 billion to $27.7 billion ($27.8 billion in the year to June 30) and underlying earnings to be $7.3 billion to $7.8 billion ($8 billion).

The dividend could very well be cut judging by the makeup of the final – it was five cents a share plus a 3 cents a share special. That special doesn’t have to be paid this year so the full-year payout could be 13 cents a share, or lower is the 11 cents a share interim is chopped next February.

Some investors took issue with the 34% jump in CEO Andy Penn’s pay to $5 million in a year when earnings and revenue fell and the dividend was sliced. Not a good look.

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.

View more articles by Glenn Dyer →