Telstra has confirmed that it is still expecting peak financial pain from the NBN, but not this financial year but in 2020-21.
The postponement of the hit to revenue and earnings was originally forecast for the current financial year but Telstra says looking at the NBN’s new corporate plan, maximum financial pain will be delayed by around a year.
There will still be pain experienced this year, with lower revenues but the impact on earnings won’t be as severe. That will come in 2020-21.
That postponement of the maximum financial pain a year is why perhaps the stock market reaction was to mark down Telstra shares by around 2.1% to a closing level of $3.64.
Telstra now expects its total revenue to fall by $400 million, to between $25.3 billion and $27.3 billion for 2019-20, but for underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to increase by $100 million to between $7.4 billion and $7.9 billion.
This is due to NBN Co reducing by 500,000 the total number of premises forecast to be connected in 2019-20 to 1.5 million.
“Telstra no longer anticipates 2019-20 being the year of peak NBN headwind and now estimates this will occur in 2020-21,” the company wrote to shareholders on Monday.
Telstra receives a payment for every premise transferred from its network to NBN Co. So fewer NBN connections reduce these payments. However, Telstra also receives higher wholesale prices the longer these premises stay on its copper network, hence higher EBITDA.
Telstra has also adjusted its free cash flow after operating lease payments for FY20, dropping the amount by $100 million to a range of $3.3 billion to $3.8 billion, while the telco’s cost reduction target has been moderated from $660 million to $630 million for the coming year.
The company – which gave its original guidance at its full-year results just two weeks ago – said underlying earnings excluding in-year NBN headwind are however expected to be up by $500 million in 2019-20.
Last month Telstra said earnings lost to the NBN would increase to between $800 million and $1 billion this financial year as customers migrate from its copper network to the NBN.
