Telstra tells shareholders there is ‘no easy fix’ for dividend cut

Telstra has warned shareholders facing a dividend cut that it’s “very hard” to replace earnings lost because of the NBN.

Telstra chair John Mullen. Pic: Renee Nowytarger

Telstra chairman John Mullen has warned shareholders that there is no easy fix to tackling the impact of the National Broadband Network on Telstra’s books.

It comes as Telstra (TLS) shareholders face a cut in dividends.

“I have had shareholders ask why we can’t just go out and find growth businesses to replace the $3 billion in earnings that we are losing because of the NBN, so we can maintain the dividend at previous levels … that is very easy to say and very hard to do,” Mr Mullen told Telstra’s annual general meeting.

“To expect that we can suddenly just go out and create another $3bn EBITDA business overnight is simply just not realistic.”

Mr Mullen said the recent change to Telstra’s dividend policy is just one of many difficult decisions the telco needs to take to remain relevant.

“Changing our dividend policy is just one change among the many that we will need to make,” Mr Mullen told shareholders.

“Whether we like it or not, we have to accept that the world around us has changed dramatically and Telstra is having to change just as dramatically as well.”

Telstra is cutting its overall dividend for next year by 30 per cent to 22 cents a share as part of its overall transformation strategy.

The telco booked a reduced full-year profit in FY17 of $3.89 billion compared to $5.85bn the year before. Net profit after tax from continuing and discontinuing operations slumped 33.8 per cent to $3.9bn. Revenue for the year was 2.7 per cent lower at $26.01bn from $26.74bn.

The limited growth prospects for Telstra domestically, coupled with tighter competition, have been a shock to the system for the telco’s army of retail shareholders, used to the steady stream of dividend payments.

The telco’s shares have been hovering near five-year lows price and are yet to recover from the dividend cuts and lingering fears about the road ahead for Telstra.

Mr Mullen reiterated that Telstra can’t buy its way out of its current predicament.

“This would be very expensive, could take us away from our core competencies into whole new areas of risk, and could jeopardise the strength of our balance sheet.”

Instead Mr Mullen said new growth will have to come from building bespoke technology businesses connected to Telstra’s core network and continuing to improve customer experience.

“This may sound a bit boring but it is not – it is prudent, well thought through and best leverages our strengths.”

With the local telecom industry undergoing a structural shift courtesy of the NBN, Mr Mullen said shareholders needed to understand the extent of the hit Telstra will take from the project.

The NBN is expected to have around a $3 billion negative impact on Telstra’s earnings and Mr Mullen said that the earnings loss was more than what most ASX companies would need a decade to achieve.

“To put that number into context, that is equivalent to the annual earnings of a major company the size of an Origin Energy, or a CSL, or even a Qantas,” he said.

“It can take decades to build a business that size – but we don’t have decades.”