Telstra's net profit falls almost 9 percent

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Telstra's net profit falls almost 9 percent

As telco 'absorbs' some of its annual NBN earnings hit.

Telstra has recorded an 8.9 percent drop in net profit for the full year, which it attributed to the ongoing NBN migration and continuing declines in average revenue per user (ARPU).

The telco said in financial filings that its net profit after tax was $3.53 billion, down from $3.87 billion a year ago.

These are some of the same reasons the telco unveiled its ‘T22’ strategy in late June, which includes significant job cuts and a major shake-up in the way Telstra does business.

It reiterated previous guidance that the “challenging conditions” would flow into FY19.

The telco continued to grow its raw subscriber numbers across fixed and mobile segments.

It also managed to “absorb” $1.4 billion of the $3 billion negative impact on earnings that it now expects to incur each year as a result of the NBN.

The telco flagged back in May 2016 that the NBN would have a negative impact of $2 billion to $3 billion on future earnings before interest, tax, depreciation and amortisation (EBITDA) a year.

The predicted earnings hit is largely the financial result of no longer having a wholesale fixed-line business once the NBN is complete, taking into account the cost of services lost to the NBN and the cost of servicing retail NBN connections of its own.

Telstra CEO Andy Penn said in financial filings that the telco had “absorbed approximately $1.4 billion of the annual approximately $3 billion recurring EBITDA impact of the NBN”.

“This was reflected in the decline of 34.6 percent in fixed [line] EBITDA (excluding NBN cost to connect),” Penn said.

Overall fixed line revenue for the year declined 9.2 percent to $5.8 billion, which Telstra blamed on factors including the NBN migration and competition.

This is despite the carrier largely faring well in the continued race to sign up NBN customers. It managed to snare 770,000 sign-ups for the year, for a total of 1,946,000 NBN users.

The telco also recorded “NBN transaction adjustments” of $735 million for the full year - slightly above the $700 million it had forecast - which is effectively the impact of NBN Co’s HFC sales freeze.

Telstra - like others - is sweating on the next revision of the NBN corporate plan, which is due out at the end of the month.

"FY19 is a very material year in the migration to the NBN and its impact on Telstra," chief financial officer Warwick Bray told financial analysts.

"There is not a current NBN corporate plan and therefore the basis of our FY19 guidance is Telstra management’s best estimates.

"Our guidance may be updated after taking account of the NBN corporate plan 2019 when it’s published. We expect NBN Co to publish on August 31."

Penn also reiterated margin issues being felt by NBN resellers as NBN Co changes its pricing construct.

"In terms of reseller margins, that’s obviously very tough with wholesale prices from NBN Co more than doubling and continuing to increase," Penn said.

"That’s putting pressure on margins right the way across the industry.

"But we saw our NBN market share increase and we think it’s really important we continue to compete for our customers."

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