‘Sleepless nights’ on call to cut Telstra dividends

Telstra chairman John Mullen says the telco’s board had “many sleepless nights” agonising over the decision to cut its historically high dividends but making no change would have put the company’s balance sheet at risk.

Mr Mullen told shareholders at the company’s annual general meeting in Melbourne on Tuesday that he realised the recent decision to change its dividend policy was tough on shareholders.

“We spent many long hours debating it, many sleepless nights working it through in our minds, knowing full well the impact it would have on our shareholders,” Mr Mullen said.

“To have continued on the same course would also have put at real risk our other great strength which is our balance sheet and our ‘A’ band credit rating.”

From the 2018 financial year, Telstra will pay out 70 to 90 per cent of underlying earnings and dividends, ending its historical practice to pay out almost 100 per cent of net profits.

In addition to the ordinary dividend, Telstra intends to return about 75 per cent of net one-off NBN receipts over time through special dividends.

Telstra expects the total dividend in FY18 to be 22¢ per share, fully franked.

“While we cannot predict earnings out into the future, as a consequence of our new dividend policy in FY18, the dividend has been reduced to a level where we would be disappointed if we were not able to maintain, or even increase, the total dividend over time as we seek to grow underlying earnings and the special dividends decline,” Mr Mullen said.

Mr Mullen also highlighted the impending arrival of TPG as a fourth mobile network operator, saying it was “a formidable operator” and Telstra was not underestimating its impact on pricing and competition.

Telstra chief executive Andrew Penn told shareholders that the operating environment for telcos was challenging, with increased competition, digital disruption and the migration to the NBN to be dealt with over the next two to three years.

Telstra has confirmed its guidance for 2017/18, saying it expects income in the range of $28.3 billion to $30.2 billion and EBITDA (earnings before interest, tax, depreciation and amortisation) of $10.7 billion to $11.2 billion.

Telstra shares were up one cent to $3.56 at 9.50am.