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Telstra profit drops 40% as NBN hits hard

Alex Druce
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TELSTRA

Restructuring costs and the NBN have cut Telstra's FY profit by 40 per cent to $2.15 billion

Telstra has reported a 40 per cent fall in full-year profit to $2.15 billion and flagged another earnings squeeze next year as construction of the national broadband network nears completion.

Profit for the 12 months to June 30 fell from $3.59 billion a year ago on $800 million in previously announced restructuring costs and $600 million in earnings lost to the government-owned NBN.

The company cut its final dividend to 8.0 cents per share from 11 cents a year ago, with its full-year payout down to 16.0 cents from 22.0 cents in FY18.

Telstra shares fell by as much as 2.2 per cent on Thursday before closing down 1.78 per cent at $3.87, having nudged a near two-year high of $4.00 last week.

Nonetheless, the stock has still climbed more than 40 per cent since its T22 restructuring program was announced in June last year.

Telstra said on Thursday the NBN had absorbed about $1.7 billion of earnings since FY16 and it expected to lose as much again by the time customer migration was complete.

The company said earnings lost to the NBN would increase to between $800 million and $1 billion in FY20.

"We will continue to advocate for a reduction in NBN wholesale prices to help ensure the long-term sustainability of the industry," the company said in its letter to shareholders.

Nonetheless, chief executive Andy Penn said Telstra's $2.5 billion cost reduction program - announced in June 2018 - would leave it in good shape.

About $456 million in underlying costs savings were achieved over the financial year following staff cuts, digitisation measures and property sales.

"Notwithstanding the intense competitive environment and the challenging structural dynamics of our industry, it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced," Mr Penn said.

Telstra's total income for the year decreased by 3.6 per cent to $27.8 billion, while and total operating expenses increased by 6.5 per cent to $19.8 billion on restructuring costs.

The company flagged in May it would be bringing forward $200 million in restructuring costs to the FY19 result, while also writing down its legacy IT assets to the tune of a $500 million.

Restructuring costs of about $300 million are expected in FY20.

Mobile revenue for the year increased by 1.6 per cent to $10.5 billion, with growth across hardware, postpaid handheld, connected devices and wholesale partly offset by prepaid handheld and mobile broadband declines.

Mobile retail customers services increased by 622,000, bringing the total to 18.3 million.

Fixed service revenue declined by 9.4 per cent to $5.2 billion due to NBN migration, competition and ongoing legacy decline, while Data and IP revenue decreased by 7.7 per cent to $2.36 billion.

The company said it had made 6,000 of the 8,000 staff cuts announced in June last year as part of its T22 strategy, including removing three management layers so far.

"The impact our T22 strategy has on our people is the hardest of the changes we are making," the company said.

"Returning to growth will take time ... however, we have great confidence that our strategy can arrest the decline in our earnings."

About 1,500 new roles have been added in areas such as cybersecurity and software engineering.

Telstra's guidance for FY20 forecasts a softer income outlook of between $25.7 billion and $27.7 billion.

NBN, RESTRUCTURING WEIGHS ON TELSTRA'S FY19 RESULT

* Net profit down 40pct to $2.15b

* Total income down 3.6pct to $27.8b

* Final dividend down 3.0 cents to 8.0 cents, fully franked.