The strong flow of dividends from Telstra are about to shrink.
Australia’s biggest telco today foreshadowed an almost 30% cut in dividends during the current financial year after a big 12 months of share buybacks.
In early trade, Telstra’ shares dropped more than 10% to $3.88, wiping out about $4.7 billion in market capitalisation.
Telstra posted a 32.7% drop in annual net profit after tax to $3.89 billion, down from $5.78 billion in 2016.
However, adjusting for the $1.8 billion sale of Autohome in 2016, net profit was up just 1.1%, but within forecasts.
Revenue from continuing operations was up 0.4% to $26.01 billion.
The company declared a fully franked final dividend of 15.5 cents a share, bringing the total payout for the financial year to 31 cents.
Telstra will have returned $5.2 billion to shareholders in 2017, including $1.5 billion in share buy-backs.
However, the company says it expects total dividends for 2018 to well down on 2017 at 22 cents a share fully-franked, including both ordinary and special dividends, a 29% cut on 2017.
Telstra’s new dividend payout ratio is between 70% and 90% of underlying earnings, which it says is more in line with global peers and local large companies. Previously the telco paid out out almost 100% of profits.
The company said:
“In adjusting the capital management framework and resetting the dividend policy we have balanced the importance of providing consistent returns to shareholders with the long term sustainability of returns and strategic direction of the company.
“We realise this is a material reduction from the historic level of our dividend reflecting the lower payout ratio. We do not underestimate the impact of this on our shareholders. It is for this reason we are providing advance notice of this change and why the Board has maintained a 31 cents per share dividend this year.”
CEO Andrew Penn says he’s pleased to have delivered in line with the company’s guidance and strategy in a highly competitive and dynamic market.
“We are seeing new entrants into both mobile and fixed as well as pricing pressure in all sectors through price reductions, value enhancements and increased data allowances,” he says.
“Digital disruption is continuing to accelerate, not just for us but also for our customers, and we are entering a significant point in the transformation of the telecommunications market with the nbn rollout reaching scale.”
NBN connections grew by 676,000 to 1,176,000, bringing total market share to 52%.
However, Telstra sees the negative impact of the NBN rollout on its earnings as being bigger than initially thought.
Last year the telco said it expected the negative effect of the NBN rollout on Telstra’s earnings would be in the range of $2 billion to $3 billion.
“We now expect the impact is likely to be at the top end of this range, around $3 billion,” says Penn.
Over the last year, Telstra saw continued growth across key segments, with retail mobile net adds of 218,000, including 169,000 postpaid handhelds and 132,000 domestic retail fixed broadband customers.
In 2018, Telstra expects income in the range of $28.3 billion to $30.2 billion and EBITDA (earnings before interest, tax, depreciation and amortisation) of $10.7 billion to $11.2 billion.
Full time staff fell in 2017 by 4.1% or 1,366 to 32,293 in 2017.
Late last year, the telco announced a $1 billion cost-cutting drive that resulted in staff cuts throughout this year.
A further 1,400 staff cuts, as revealed in June, will join the 1,366 that have already exited.