Telstra loses $5bn in market value
Shares in Telstra fell by as much as 12% today after the company warned it will make a material cut in its dividends for the first time since listing in 1997.
From a closing price of $4.33 on Wednesday, Telstra shares fell as to low as $3.81 in its largest ever decline. By midmorning the shares were trading at $3.91 — representing a $5 billion reduction in Telstra’s market value — before recovering somewhat to $3.98 by early afternoon.
The slump came as Telstra revealed that it will reduce its dividends by 29% next year to 22 cents per share, to reflect the impact of the nbn rollout on its profitability. The company expects the nbn rollout to wipe around $3 billion from its earnings before interest, taxation, depreciation and amortisation (EBITDA).
In addition, Telstra announced its results for FY17, showing that its net profit for the year fell 33.8% to $3.9 billion. This was mainly due to the sale of the company’s Autohome classifieds business for $2.1 billion in the prior financial year — excluding discontinued operations, net profit grew 1.1%.
Revenue meanwhile grew 4.3% to $28.2 billion, but the company felt the effect of new competition in both the mobile and fixed markets and the attendant pricing pressure.
“Digital disruption is continuing to accelerate, not just for us but also for our customers, and we are entering a significant point in the transformation of the telecommunications market with the nbn rollout reaching scale,” Telstra CEO Andrew Penn said.
In response to the changing market dynamics, Telstra has previously announced plans to invest up to $3 billion over the next three years in transformation initiatives.
The operator has spent $750 million since November on initiatives including doubling the download speed capacity of basic 4G for 89% of the population, preparing for 5G technology trials next year and rolling out LTE Cat-M1 functionality for IoT services.
The company is also accelerating its efforts to cut costs and improve productivity. Penn said Telstra is bringing forward its target of achieving $1 billion in net productivity gains by one year to FY20, and increased its ultimate target by a further $500 million to $1.5 billion in gains by FY22.
Telstra’s results also indicate that the company had 1.176 million nbn customers by the end of the financial year — a more than 100% increase year on year — giving it a total share of the nbn market (excluding satellite connections) of 52%.
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