TPG Telecom smashes its annual results but sees a fall in earnings ahead

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TPG Telecom beat its own guidance and market forecasts for its annual results but sees a margin squeeze ahead.

The company also cut dividends, retaining cash to help build Australia’s fourth mobile network at a cost of about $1.9 billion.

The telco posted a 9% rise in net profit after tax to $413.8 million and EBITDA (earnings before interest, tax, depreciation and amortisation) of $890.8 million.

Underlying EBITDA for 2017 increased 8% to $835 million, or $5 million above the top end of the $820 million to $830 million guidance range and the $831 million consensus.

TPG shares rose steadily. In early afternoon, they were up 6.5% to $5.56.

The market had been worried about lower margins on the due NBN business.

In the company’s 2018 outlook today, TPG says it’s anticipating another year of solid growth but expects this to be offset by NBN margin headwinds as revenue for fixed line rentals fades.

The company says 2018 EBITDA is now expected to be between $800 million and $815 million, compared to the $835 million previously expected.

“The fixed-line residential broadband margin erosion faced by the industry in light of the NBN underlines the importance of the group’s strategy to take advantage of the valuable assets it has assembled to inject itself into the industry’s mobile sector, vastly expanding the addressable revenue pool for the group into the future,” the company says.

This chart shows how TPG sees its operating earnings being squeezed:

Source: TPG Telecom

TPG executive chairman David Teoh says the board decided that a greater proportion of profits be retained to be used in the mobile rollouts, the company’s plan for a fourth mobile network in Australia.

“The board believes this to be a fiscally prudent approach,” he says.

The final 2017 dividend of 2 cents takes full year payout to 10 cents a share fully franked, compared to 14.5 cents last year.

The 2017 results at a glance:

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