The Telstra Corporation Ltd (ASX: TLS) share price fell 10% to $3.91 this morning, after the company released its annual results for 2017. Revenue from continuing operations rose 0.4% to $28,205 million, while profit from continuing operations grew 1.1% to $3,874 million. On a statutory basis, Telstra's profit fell 33%, but this is due to profits from the sale of Autohome in 2016 that were not repeated this year.
Surprisingly, Telstra also confounded the naysayers and maintained its dividend at 31 cents per share. The company did announce a change to its dividend policy though, and will in the future target a payout ratio of between 70% and 90% of underlying earnings (excluding one-off NBN payments). Dividends in 2018 are expected to be up to 30% lower, at 22 cents per share.
More buybacks
Telstra also announced that it would look to monetise its nbn receipts, effectively 'selling' a portion of its future nbn receipts in exchange for an up-front cash payment of around $5.5 billion today. If this sale goes ahead, the proceeds will be used to pay down some debt as well as possibly fund further buybacks, although discussions are in a preliminary stage.
As to the business itself, Telstra's earnings were modest. The core retail segment saw revenues fall modestly, although this was compensated for by strong growth elsewhere:
Telstra continues to cut costs, and expects to save $1.5 billion by 2022, increasing the scale of a previously announced cost-savings program. Capital expenditure increased to $5.3 billion and is expected to remain elevated for several years as the company increases its investment program in the face of increasing competition.
The telco giant has its work cut out over the next few years, and with these results and the future lower dividends, it looks like shareholders may have to get used to seeing a share price with a $4 – or even a $3 – at the front of it.
