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Shock drop pulls Telstra profit down to $1.8b, shares slump

Thursday, 16 Feb 2017 07:08:09 | Stephen Letts

Telstra's sales revenue surprised with a 3.4 per cent slide. (AAP: Joel Carrett, file photo)

Telstra has seen its first-half profit tumble to $1.8 billion, hit by the effects of tougher competition, adverse regulatory rulings and ongoing restructuring.

Net profit was down 14.4 per cent on last year's first-half result and well below the market's, and the company's own, expectations.

Sales revenue fell to $12.8 billion, 3.4 per cent down on last year and the company's guidance.

Telstra also missed its own guidance on net profit by almost 6 per cent, free cash flow by 15 per cent and operating expenses by 2 per cent.

The reversal in fortunes comes despite solid growth in the dominant telco's customer base.

Telstra added almost 200,000 domestic mobile phone services, 90,000 new fixed broadband subscribers and almost 300,000 NBN connections, as well as boosting numbers of customers buying bundled packages and TV devices.

The company's chief executive, Andy Penn, defended the results saying they showed the company had performed well in a highly competitive market.

"Data volumes have increased and intense competition on pricing across fixed, bundles, mobile, data and IP has had an impact," Mr Penn said.

"Those are in parallel with the acceleration of the rollout of NBN which, over the longer term, will have a negative impact on EBITDA (earnings before interest, tax, depreciation and amortisation) of $2-3 billion dollars."

Regulatory decisions, competition cost Telstra dearly

Telstra said adverse regulatory decisions from the ACCC on SMS and voice terminating charges negatively affected both its mobile and fixed line businesses and cost $438 million in the first half.

Mobile revenues fell to $5 billion, down almost 9 per cent on the first half last year, while traffic over the mobile network in the 12 months to December increased 39 per cent.

Fixed line revenue also fell sharply, down almost 5 per cent on last year to $3.3 billion.

External Link: Telstra results

Given income growth in the first half was negative, and the impact of lower "hardware" sales, Telstra noted its full-year guidance of "mid-to-high single digit" income growth would now come in at the bottom end of expectations.

The company has commenced a $3 billion capital expenditure program to improve the reliability of its network after a series of major and highly embarrassing outages in recent years, although the work was described as "incremental" and only in its "early stages".

Telstra also embarked on a review into the allocation of the massive compensation windfall it will receive from the NBN rollout.

"The review will also cover long term capex post the NBN rollout, and investment decisions on mergers and acquisition criteria and take into consideration shareholder returns, including dividends and buybacks," Mr Penn said.

Mr Penn committed to another round of cost-cutting to strip $1 billion off Telstra's ongoing cost base over the next five years to cover up to a third of the $2-to-$3 billion revenue black hole the NBN will cause.

The interim dividend was maintained at 15.5 cents per share.

However, that was not enough to placate investors, with the company's shares tumbling 4.1 per cent to $4.98 by 10:36am (AEDT).

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