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Australia's Telstra posts lowest profit since listing, cuts dividend

TELSTRA warned that the rollout of a state-owned broadband network will cut earnings this year by up to A$1 billion (S$941 million), as a shrinking fixed-line business pushed annual profit and final dividend to their lowest since listing.

Australia's largest telco by market value said on Thursday that fiscal 2020 could be the "biggest in-year NBN (National Broadband Network) headwind", and lower earnings before interest, tax, depreciation and amortisation by A$800 million to A$1 billion.

Telstra dominates Australia's mobile telephone and broadband markets but like incumbent telecom firms around the globe, profits from its mainstay fixed-line phone and Internet business are dwindling, with the NBN replacing a copper system it had monopolised. Telstra must pay to use the new network.

"FY19 was the year in which, as an industry, we passed the half-way mark in the migration to the NBN," chief executive officer Andrew Penn said in a statement.

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The company's net profit for the year ended June 30 fell to A$2.15 billion from A$3.59 billion a year earlier.

It cut its final dividend by 27 per cent to 8 Australian cents per share, further eroding what used to be a big reason for investors for owning the stock.

Telstra shares fell 1.6 per cent, compared with a 1.9 per cent drop in the benchmark index.

Telstra has tried to arrest its crumbling profits by launching a restructuring last year, which included cutting a quarter of its workforce. Shares have responded favourably, rising 38 per cent this year after four years of declines.

In May, the telco said it wrote down its legacy IT assets, mostly customer data-storage hardware and software, after upgrading its systems.

The company forecast underlying core earnings to rise 6.4 per cent to A$8.3 billion in fiscal 2020, excluding the impact of the NBN rollout.

"We have been really impressed by the turnaround that Telstra has had over the course of the last 12 months," said James McGlew, executive director of corporate stockbroking at Argonaut.

Mr McGlew said a couple of failed bids for TPG has erased mobile network competition. The Vodafone-TPG merger had potential to be a " bigger challenge", but regulatory hurdles to the tie-up only reinforced the view that Telstra will be a dominant player, he said.

Australia's anti-trust regulator blocked a A$15 billion merger between TPG Telecom and Vodafone's Australian joint venture on competition grounds in May. REUTERS