Reuters logo
UPDATE 2-Nasty profit surprise sparks fears for Telstra's growth strategy
February 15, 2017 / 10:18 PM / 9 months ago

UPDATE 2-Nasty profit surprise sparks fears for Telstra's growth strategy

* H1 underlying profit A$1.79 bln vs analysts’ A$2.04 bln

* Shares drop 5 pct, biggest fall in more than 4 yrs

* New investments slow to replace falling traditional income (Adds quotes, shares price move)

By Tom Westbrook

SYDNEY, Feb 16 (Reuters) - Australia’s largest telecoms company, Telstra Corporation Ltd, on Thursday posted an unexpected 11.8 percent fall in first-half profit, dragged down by declining revenues for its mainstay fixed-line and mobile telephone business.

The company’s shares registered their biggest intraday drop in more than four years on fears that new investments made to offset falling income from traditional sources were not contributing to the bottom line fast enough.

“Realistically if one puts them in the context of Telstra, they’re not going to be material additions to economic EBITDA pre-2020,” Chief Executive Andrew Penn told investors on a conference call.

Telstra’s growth strategy has been to defend mobile market share by spending A$3 billion ($2.32 billion) on its network, while looking to venture-capital to find growth in new businesses such as mining, healthcare and cloud computing.

But none of these are yet picking up the slack against the traditional revenue declines.

“Our aspiration with them really, for 2020 and beyond, is to build some new profit growth for the company through these areas,” Penn said.

Telstra’s underlying profit for the six months to Dec. 31 was A$1.79 billion, missing analysts’ expectations for a profit of A$2.04 billion and tracking below company guidance for mid-to-high single-digit growth through the year.

The company said it was now likely headed for the bottom end of its previous guidance.

Telstra shares fell 5 percent in early trade to A$4.93, their biggest drop since August 2012, while the broader S&P/ASX 200 was flat.

Telstra dominates the mobile telephone and broadband industries in Australia. But like incumbent telecoms around the world, Telstra is facing falling profits from its traditional fixed-line networks and competition is squeezing mobile margins.

“Fixed voice is in decline as some people give up fixed voice, but we kept our decline there in single digits which is creditable compared to the rest of the world,” Telstra Chief Financial Officer Warwick Bray told Reuters.

The company said a one-off regulatory charge stemming from government price-setting in the wholesale messaging market had weighed in particular on the mobile business, which reported an 8.7 percent fall in revenue.

Telstra is also facing an additional hit to earnings before interest, tax, depreciation and amortisation (EBITDA), forecast by the company to be between A$2 billion and A$3 billion, from the loss of its wholesale business when a new government-owned broadband network replaces Telstra’s copper lines by about 2020.

Bray said that so far Telstra had 51 percent market share on the new network.

The company announced a steady interim dividend of 15 cents per share. ($1 = 1.2955 Australian dollars) (Reporting by Tom Westbrook; Editing by Stephen Coates)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below