MELBOURNE, Australia--Telstra Corp. (TLS.AU) plans to scale back the dividend payouts that have been a draw for investors to Australia's biggest telecommunications company and said it is moving to lock-in recurring payments from the country's nationwide broadband network.
The decisions on capital came as the company turned in a slight fall in revenue for the latest financial year and a fairly steady profit, after stripping out a gain the year before on an asset sale.
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Analysts had been bracing for an eventual cut in the dividend as Telstra faces up to tough market conditions and a market changed by the rollout of the federal government's National Broadband Network, which is built on infrastructure sold by Telstra.
On Thursday, Telstra said it will in future seek to pay out between 70% and 90% of underlying earnings as a dividend, against the close to 100% it has handed shareholders in recent years, but will top that up with special dividends as it passes along to investors roughly 75% of the money received from the NBN over time. For the coming financial year, that is expected to mean the overall dividend falls 29%.
The shift in the dividend policy will be backed by a proposed move to leverage the just under A$1 billion (US$793 million) a year Telstra gets from the NBN, effectively selling about 40% of that revenue in a deal that could be worth as much as A$5.5 billion and would help the company reduce debt by about A$1 billion.
Telstra Chief Executive Andrew Penn said the decisions followed a review of the company's balance sheet, longer-term expenditure needs and returns to shareholders.
He said the company would continue to maintain a balance sheet consistent with a single-A credit rating and maintain flexibility for strategic investments.
"We realize this is a material reduction from the historic level of our dividend and we do not underestimate the impact on our shareholders," Mr. Penn said.
In the 12 months through June, Telstra's net profit dropped by 34% to A$3.87 billion from A$5.85 billion the year before, although stripping out the prior-year's sale of its stake in Autohome, China's biggest consumer automotive website, profit was up 1.1%, the Melbourne-based company said.
Revenue for the year was 2.7% lower at A$26.01 billion from A$26.74 billion.
In mid-June, Telstra moved to cut up to 1,400 jobs by the end of 2017 as it grapples with intensifying competition, new technologies and an up to A$3 billion earnings shortfall as the National Broadband Network switches on around the country.
A year ago, Telstra launched a A$3 billion investment to upgrade its networks over three years as part of efforts to attract and retain customers. As the NBN network rolls out, Telstra is gradually being stripped of its wholesale infrastructure monopoly. It agreed to sell its fixed-line infrastructure to the Australian government for A$11 billion to help build the NBN.
International rivals including Vodafone Group PLC (VOD.LN) and Singapore Telecommunications Ltd.'s (Z74.SG) Optus unit have been pushing hard for market share in the Australian mobile market by upgrading their networks and boosting the attractiveness of their plans. Telstra also faces competition from a new domestic rival, after TPG Telecom Ltd. (TPM.AU) recently said it would invest A$1.26 billion on a new mobile network that would be aggressively priced.
Telstra said it planned to pay a final dividend of 15.5 Australian cents a share for a full-year payout of 31 cents. Half-yearly payments have now remained steady at 15.5 cents five periods running, but for the year ahead the company said it expected a full-year dividend of 22 cents.
Still, despite the changes in the market Telstra said it continued to grow its customer base across important sectors, with retail mobile adding 218,000 customers, and its number of NBN connections rising by 676,000 to bring its overall share of the market to 52%. Costs have also fallen, and it now plans to accelerate its efforts and save A$1 billion in the 2020 financial year, one year sooner.
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(END) Dow Jones Newswires
August 16, 2017 19:49 ET (23:49 GMT)