Telstra lowers guidance after NBN rollout setback, keeps dividend promise

Telstra is sticking with a dividend promise despite a looming hit to earnings and revenue from delays to part of the NBN rollout.

The NBN rollout will be hit by delays to hybrid fibre coaxial connections.

Telstra is sticking with its 22 cents a share dividend promise to shareholders, despite the telco copping a $600 million hit to its full year 2018 earnings as a result of NBN Co suspending its HFC rollout.

The telco (TLS) has revised its full year revenue guidance from a range of $28.3 billion to $30.2bn to a range of $27.6bn to $29.5bn, a reduction of $700m.

Meanwhile, EBITDA guidance for the period has been cut from a range of $10.7bn to $11.2bn to $10.1bn to $10.6bn — a reduction of $600m.

According to Telstra, the earlier guidance assumed that the rollout of the National Broadband Network would continue unimpeded during the next 12 months.

However, NBN Co’s decision to stop the sale of services over the hybrid fibre coaxial (HFC) portion of the NBN for up to nine months, along with its decision in August to cut almost 200,000 premises out of the activation timetable in FY18, has forced Telstra to rethink its numbers.

The telco has however managed to keep it dividend policy impact, reaffirming that it expects FY18 total dividend to be 22 cents per share fully franked.

In August, Telstra slashed its dividend by 30 per cent to 22 cents, an unprecedented move by the telco in the face of tightening competition in the mobile market and the loss of its traditional wholesale monopoly.

NBN Co on Monday announced an immediate halt of the HFC rollout, conceding that the network couldn’t accommodate more end users. The suspension will see a delay in the compensation Telstra receives from NBN Co as the telco’s customers migrate to the NBN.

Telstra added today that the HFC halt will also see a delay in the revenue Telstra will make from the NBN Co as part of a $1.6bn commercial works contract.

Under the terms of the agreement, signed in April 2016, Telstra is in charge of planning and construction services of the HFC network in Sydney, Melbourne, Brisbane, the Gold Coast, Adelaide and Perth.

There is a flip side to the delay for Telstra that will help it contain some of the damage.

“There will be benefits, including lower NBN costs to connect (C2C), lower network payments to NBN and retained wholesale EBITDA, which will partially mitigate the reduction in one-off receipts,” Telstra said today.

“While the NBN rollout delay impacts Telstra’s outlook for FY18, it is anticipated the delay will be modestly financially positive to Telstra over the full rollout due to the effects of a natural hedge.

“It is noted that NBN Co remains committed to completing the rollout by 2020.”

Telstra shares closed yesterday at $3.42.