Telstra smashes profit and announces a $1.5 billion buyback

Telstra CEO, Andy Penn (Photo by Matt King/Getty Images)

Telstra posted a 35.9% rise in full year profit to $5.8 billion, is giving back $1.5 billion in capital to shareholders and has increased its dividend payout.

The result includes $1.8 billion from the sale of Telstra’s Autohome shares, the Chinese online car sales business.

Shareholders will get most of this windfall in the form of a tax effective return of capital through $1.25 billion in a off-market share buy-back and $250 million on-market.

Telstra also committed to invest up to an extra $3 billion over three years in a major wave of investment in its networks and digitisation.

On the downside, Telsra wrote down $246 million in the value of its intelligent video subsidiary Ooyala.

Excluding the $1.8 billion from Autohome, the remaining $4 billion after tax profit is in line with expectations.

The company declared a fully franked final dividend of 15.5 cents a share, bringing the total dividend for the financial year to 31 cents, up 1.6% on the prior year.

CEO Andrew Penn says the result was influenced by increasing competition, the changing product mix of earnings and acceleration in the rollout of the NBN network.

“There is no doubt that competitive intensity has increased across our segments and products,” he says.

“The rollout of NBNhas progressed and the pace of technology innovation has continued to accelerate.”

Telstra’s domestic retail mobile services increased by 560,000 to 17.2 millions.

Fixed line revenue fell fell as people ditch the old service. However, the number of customers on bundled plans increased by 322,000 to 83% of the retail fixed data customer base.

Fixed data partially offset the decline in voice, with domestic retail subscriber numbers increasing by 235,000 to 3.4 million.

Demand for NBN grew by 289,000 to 500,000.

Penn says details of the $1.5 billion investment program will be progressively confirmed during 2017 to 2019 financialo years to maintain strategic advantage in a competitive environment.

He says a significant proportion of the money would go towards transforming the next generation of networks.

“Our networks and the products and services they support are integral to the Telstra brand,” he says.

“Network differentiation is a long-standing contributor to our success, underpinning our clear market leadership and shareholder returns.”

In 2017, Telstra expects to deliver mid to high-single digit income growth and low to mid-single digit EBITDA (earnings before interest, tax, depreciation and amortisation) growth. Free cash flow is expected to be between $3.5 billion and $4 billion and capital expenditure to be approximately 18% of sales.

The 2016 results in detail:

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at