By Robb M. Stewart
MELBOURNE, Australia--Telstra Corp. (TLS.AU) on Thursday warned of an even bigger hit this financial year from the rollout of the nationwide broadband network after the migration of customers to the government network led to sharply lower profit and saw it slash its dividend.
Still, Australia's dominant telecommunications provider signaled that the 2020 financial year would mark the peak in terms of customers migration to the national network and said efforts to simplify its services portfolio and restructure its operations were making progress.
Net profit fell 40% to 2.15 billion Australian dollars (US$1.45 billion) in the 12 months through June from A$3.59 billion a year earlier, in line with previous guidance and market expectations, Telstra said. Total income from ongoing operations was 3.6% lower at A$27.81 billion, compared with A$28.84 billion a year earlier.
For the second half of the year, the company plans to pay a dividend of A$0.08 a share, including a further special dividend, for a full-year payout of A$0.16. That is 27% lower than dividends the year before.
It was a third straight annual decline in profit for Telstra, and included a headwind for underlying earnings from the rollout of Canberra's NBN of about A$600 million. The hit to earnings in fiscal 2020 is expected to grow to as much as A$1 billion, though Vicky Brady, who took on the role of chief financial officer last month, said that should be the peak and the company was now over the halfway mark with customers migrating to the NBN.
The company also cut A$456 million from underlying costs over the year, taking reductions since fiscal 2016 to A$1.17 billion.
Telstra, which has been listed on the local stock exchange since 1997 and is a leading player across the telecom industry in Australia, has been squeezed by competition and the rollout of the NBN, which effectively renationalized a material part of Telstra's business. To fill the big earnings shortfall, Telstra has cut jobs and is investing in upgrading its networks developing the latest 5G next-generation mobile network.
In May, the company flagged an about A$500 million impairment and write down of older information-technology platforms. It flagged an increase in restructuring costs to about A$600 million as it worked to cut about 6,000 jobs by end-June in an effort to reach a A$2.5 billion cost-cutting target by the end of 2022.
Ms. Brady told The Wall Street Journal that while competition in the mobile segment had been very strong over the last year, the industry is at a point in its cycle where companies are looking at prospects for next-generation 5G technology and on returns on investment.
Telstra is among the first Australian operators to roll out 5G commercially and Ms. Brady said customers were beginning to move on to the new technology.
In an effort to raise up to A$2 billion from its assets, Telstra this week agreed to sell three international data centers in Europe and Asia to private-equity firm I-Squared Capital for about A$160 million.
Write to Robb M. Stewart at email@example.com