Dividend cut drives Telstra down
Townsville TELSTRA shares have plunged to a five- year low after the telco giant cut future dividends in a move to build up a war chest to protect its massive market amid growing competition.
Australia’s biggest telco announced a slim 1 per cent lift in fullyear profit and a slimmer 0.4 per cent rise in revenue to $ 26 billion yesterday but attention was centred on a new dividend policy that will cut payouts from 2017/ 18.
Telstra CEO Andrew Penn defended the move that ends a longstanding practice to pay almost 100 per cent of underlying profit to shareholders. The new policy to pay between 70 and 90 per cent of underlying profit will take 2017/ 18 dividends to 22 cents, from 31 cents this year, and was “more in line with global peers and local large companies”, he said.
“We realise this is a material reduction from the historic level of our dividend and we do not underestimate the impact on our shareholders,” Mr Penn said. “This is about setting the business up for success in the future.”
Chief financial officer Warwick Bray said the change would offer flexibility during an uncertain period of digital disruption, increasing competition and the transition to the national broadband network.
“Technology innovation is accelerating, we’re seeing new competitors,” Mr Bray said. “The business needs to transform, and our dividend policy needs to match.” Telstra also announced it is looking to monetise its future income stream from the NBN — comprising compensatory payments and charges to access Telstra’s “last mile” copper network infrastructure — to boost its balance sheet.
Mr Penn said any arrangement was yet to be decided but if it went ahead, it would be worth $ 5 billion to $ 5.5 billion, with $ 1 billion of the proceeds used to pay down debt, with the balance — around 75 per cent of NBN income — used for shareholder returns. Telstra had already flagged a $ 3 billion boost to spending on its network and Mr Penn said so far $ 750 million had been spent on improvements to speed and capacity.
“Our expected total capital investment including spectrum over the three years to FY19 will come to more than $ 15 billion,” he said.
Across its divisions, Telstra reported a 1.5 per cent drop in earnings for its mobile business to $ 4.3 billion, while fixed- line earnings dropped 10.5 per cent to $ 2.96 billion.
Mobile customers increased 300,000 to 17.5 million but revenue from mobile dipped 3 per cent to $ 10.1 billion.
Recurring national broadband network payments grew 20 per cent to $ 420 million and data and IP earnings dropped 9.5 per cent to $ 1.59 billion. Earnings for the fast- growing NAS IT services division more than doubled to $ 301 million.
Telstra said NBN connections grew by 676,000 to 1,176,000, bringing total market share to 52 per cent.