NBN, streaming foray drag down Telstra profits

Source Telstra

Source Telstra

Telstra has posted a 5.8% drop in half-year profit, slashing its dividend by 11 cents, following the $273 million write-down of its U.S. streaming business "Ooyala".

Revenue was flat but the company added mobile subscribers.

Telstra also reduced fixed costs by $249 million in the six months to December 31, while it is targeting $1.5 billion in net productivity gains over the next four years.

The rollout has hurt earnings at rivals TPG Telecom Ltd and Vocus Group Ltd, and was one reason Telstra cut its guidance a year ago and said it would slash its dividend in 2017-2018.

Australia's biggest telco posted a statutory profit of $1.7 billion, down 4.9%, for the half year to December.

Revenue was flat at $12.9 billion, just 0.8% higher.

The move steered Telstra away from its historical practice of paying nearly all profits in dividends, to paying 70 to 90 per cent - a ratio it says is "more in line with global peers and local large companies".

The company says the NBN has had an $870 million impact on earnings to date, including $370 million in the first half of the current financial year, and expects it will cost about $3 billion over the course of the rollout.

Telstra first took control of Ooyala in 2014, and its $500 million investment has essentially been written down to zero.

Telstra declared a total interim dividend of 11 cents a share, fully franked, including a special dividend of 3.5 cents, representing a 71% payout ratio on underlying earnings.

CEO Andrew Penn says Telstra is operating within a significant period of change, including migration to the NBN, competitive challenges, accelerating pace of technological change and preparation for the transition to 5G.

Despite this, the telco affirms it will distribute $1.3 billion to shareholders by March.

We need to do more, and we need to do it faster, so I'm committed to driving a greater sense of urgency in everything we do.

"The results are in line with guidance and arguably we have seen one of the most dynamic periods the company has ever faced, "Penn said". For example, we're stepping up how we aggressively compete in the mobile market by leveraging our multi-brand strategy including Telstra Belong, Boost and Wholesale.

Fixed voice and fixed data EBITDA margins declined to 38 and 17 percent, respectively, negatively affected by upfront costs of connecting customers to the NBN network, and rising network payments to NBN Co.

Telstra added 454,000 nbn connections, maintaining a 51% market share, excluding satellite.

During the half, Telstra added about 57,000 retail bundled customers - one third of the bundles include entertainment packs.

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