NBN plays big part in Telstra profit drop

TELSTRA has reported a 40 per cent fall in full-year profit to $2.15 billion and flagged another earnings squeeze next year as construction of the National Broadband Network nears completion.

Profit for the 12 months to June 30 fell from $3.59 billion a year ago on $800 million in previously announced restructuring costs and $600 million in earnings lost to the government-owned NBN.

The company cut its final dividend to 8c per share from 11c a year ago, with its full-year payout down to 16c from 22c in FY18.

Telstra shares fell by as much as 2.2 per cent yesterday before closing down 1.78 per cent at $3.87, having nudged a near two-year high of $4 last week. But the stock has still climbed more than 40 per cent since its T22 restructuring program was announced last June.

Telstra said yesterday the NBN had absorbed about $1.7 billion of earnings since FY16 and it expected to lose as much again by the time customer migration was complete. It said earnings lost to the NBN would increase to $800 million to $1 billion in FY20.

“We will continue to advocate for a reduction in NBN wholesale prices to help ensure the long-term sustainability of the industry,” it said in its letter to shareholders.

But chief executive Andy Penn said Telstra’s $2.5 billion cost-reduction program – announced in June 2018 – would leave it in good shape.

About $456 million in underlying costs savings were achieved over the financial year after staff cuts, digitisation and property sales.

“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.

Telstra’s total income for the year decreased by 3.6 per cent to $27.8 billion, while total operating expenses increased by 6.5 per cent to $19.8 billion on restructuring costs.

The firm flagged in May it would be bringing forward $200 million in restructuring costs to the FY19 result, while writing down legacy IT assets to the tune of $500 million.