Telstra Full Year Result: The expected cut to TLS’s future dividends is now a reality

 Australia’s largest listed telco, Telstra (TLS) reported a softer than expected set of full year numbers and also advised the market it would be cutting its dividend payout ratio in the future. Revenue for the year fell 2.7%, total income also fell by 4.9% and its mobile revenue decreased by 3.2% 

 Telstra Retail’s income, the company’s largest business segment accounting for 58% of all income, fell 2.1% over the year hit by the impact of its Mobile Terminating Access Service (MTAS) regulatory decision. This is where the Australian Competition and Consumer Commission's (ACCC) decision to cut mobile call and SMS termination rates last year, where termination rates per call fell from 3.6 cents per minute to 1.7 cents, and message costs from 7.5 cents to 0.03 cents. Retail customer services increased by 218,000 during the year and Telstra now has 17.5 million domestic retail customers. The number of NBN connections rose by 676,000 with Telstra now holding a 52% share of the market. 

 TLS’s Business income was hit by lower mobile services revenue while its Network Applications and Services (NAS) business revenue continued to grow, increasing by 11.5%, driven by its cloud professional services. Telstra’s growing Global Enterprise Services division saw its income increasing by 1.6%. Telstra’s wholesale income increased by 7.2% largely due to an increase in payments from the ownership of assets used by the National Broadband (NBN) paying ownership receipts. Operations income grew by 95.4% primarily due to an increase in NBN commercial business, as expected. 

 Costs fell over the year and Telstra’s capex/sales ratio of 17.8% FY17 in line with guidance of near 18%. Telstra sold its fixed-line infrastructure to the government for a total of $11 billion to help build the NBN and receives ongoing payments but now expects a negative effect of the rollout of $2-$3 billion. 

 The market has been expecting to see Telstra pulling back its dividend ratio for a few years due to the tough market conditions and NBN rollout. TLS said it decided to lower the payout after reviewing longer-term expenditure needs. TLS will seek to pay out between 70% and 90% of underlying earnings as a dividend, and currently TLS pays out just under 100%. TLS said it will top that up with special dividends” to pass on benefits from the money received from the NBN Co lease payments run until 2045. For 2018 financial year this could mean a fall of around 

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