Telstra Holds Dividend But Outlook Weighs On The Share Price

Telstra shares fell sharply on Thursday even though the country’s biggest telco maintained final dividend in the wake of a 14.1% fall in net profit for the year to June which saw the company’s operations and finances stretched first by the bushfires and then the COVID-19 pandemic.

The company will pay its final unchanged dividend of 8 cents a share to shareholders. That makes a steady 16 cents a share payout for 2019-20.

That didn’t impress investors who instead focused on forecasts for sharp falls in revenue and earnings for 2020-21.

Telstra said it expects total income to be in the range of $23.2 billion to $25.1 billion next financial year and underlying EBITDA to be in the range of $6.5 billion to $7 billion.

That compares to revenue to $26.2 billion for 2019-20, which fell 6%.

Net profit of $1.8 billion year to June was also a lower result in line with its guidance.

Earnings before interest, tax, depreciation, and amortisation came in at $8.9 billion which is much higher than the forecast for the current financial year.

So the company is forecasting falls in revenue (income) of up to 15% at worst and EBITDA of close to 27%

As a result, the shares fell 8% to $3.11 yesterday.

Telstra CEO Andrew Penn was upbeat though, saying the 2019-20 result highlighted the telco’s resilience in what was a rough year.

Telstra was hit by a series of crises – bushfires and the pandemic (as were many other businesses) which came on top of the continuing pressures of customers moving to the NBN and intensifying competition in mobile and the arrival of 5G.

The cost of free mobile services for firefighters and infrastructure repairs was $44 million while the pandemic impacts were reduced international roaming, a fall in professional services revenue, and increased financial support for customers.

“It says a lot about the strength of our business and strategy that through all this we were able to meet guidance, maintain the dividend and provide guidance for the year ahead,” Mr. Penn said.

Mobile revenue fell $461 million, or 4%, for the full financial year to $10.1 billion, due to declines in average revenue per user for postpaid and prepaid customers and fewer people buying mobile phones. International roaming fell by $75 million.

Fixed-line revenue fell by 12.1% as customers’ migrated to the NBN which is substantially complete.

Telstra is still pushing ahead with its T22 transformation strategy despite the challenges this year. However, Mr. Penn said he would keep redundancies on hold for permanent local and international employees until February next year.

“We know many are doing it tough at the moment, and we hope this decision will give some certainty to our people in what is a very challenging time for Australia – and many of the countries in which we operate,” Mr. Penn said.

“There will be some roles that finish in the interim where projects have come to an end or work is no longer required, volumes have declined, or fixed-term contracts end, particularly related to our involvement in the construction of the NBN. However, for the majority of our teams, this will continue to give them some certainty at least until the new year.”

The company had previously announced 12,000 indirect role reductions and 7,300 direct workforce cuts.

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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