TPG Telecom’s 2017-18 financial results underline the logic of the company merging with Vodafone Australia – the headwinds from the NBN and the costs of its building out of a new mobile network are not making it easy to survive and grow earnings, especially with mobile competition intense which is where TPG is expanding.
TPG reported a 4.6% drop in full-year profit to $396.9 million after the NBN hit broadband margins and home phone revenues.
That was after earnings before interest tax depreciation and amortisation for the year to July 31 slipped 5.6% to $841.1 million, although underlying earnings were up 0.7% since the 1016-17 year was boosted by the sale of investments.
The total payout for the year was set at 4 cents a share with a steady final of 2 cents a share.
That is down sharply from 10 cents a share in 2016-17 and follows a decision by the company to save cash and slash returns to shareholders while it builds out its first mobile network.
The future scope and complexity of that network is now up in the air following the decision by TPG to talk merger with rival, Vodafone Australia which already has its own mobile network.
TPG directors yesterday warned of further profit headwinds from the national broadband network in the current financial year when it expects to complete the merger with Vodafone Australia – which remains subject to competition watchdog approval.
There will also be a negative impact on earnings from a new accounting standard on revenue recognition.
TPG executive chairman David Teoh said the impact of the NBN on full-year profit was in line with, or slightly lower than, expected.
Mr. Teoh also highlighted “pleasing” $72 million growth in earnings from the telco’s corporate segment, as well as fiber-to-the-building services and cost savings from the ongoing integration of the iiNet business acquired in 2015.
Mr. Teoh said FY18 marked the 10th consecutive year of underlying revenue growth for the group.
TPG shares were steady at $8.72 a share. They are up more than 65% in the past year because of the Vodafone merger story.
Total capital expenditure for the year of $956.3 million included $597.3 million of spectrum payments (includes a $594.8 million installment for the 2x10MHz of 700MHz spectrum acquired at auction in early 2017) and $101.0 million invested in the mobile network builds in Singapore and Australia. The remaining ‘business as usual’ capital expenditure of $258.0 million was $104.5 million lower than FY17 as the fibre expansion for the Vodafone fibre contract was substantially completed during the year.
TPG said that at the July end of the 2018 financial year it had net debt of $1.266 billion and had over $1 billion undrawn and available in its debt facilities to fund the remaining planned mobile network investment in Australia and Singapore.
