etract from the Chairman's address

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    7. Our change to the dividend policy
    With that background, let me now explain the new dividend policy itself.
    Our new policy moves us away from an historical practice of paying out almost 100 per cent
    of net profits – ie returning everything we earn to shareholders and not keeping anything
    back for reserves against the future or for new growth opportunities.
    From the 2018 Financial Year we will adopt an ordinary dividend payout ratio of 70 to 90 per
    cent of underlying earnings, which is in line with global peers and in line with other large
    local companies.
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    In addition to the ordinary dividend, we intend to return in the order of 75 per cent of net oneoff
    NBN receipts to shareholders over time through fully franked special dividends. These
    are the one-off receipts relating to the transition of our customers to the NBN.
    With the implementation of this new dividend policy we expect the total dividend in FY18 to be 22c per share, fully franked.
    Then 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 again increase, the total dividend over
    time as we seek to grow underlying earnings and the special dividends decline.
    However, this will of course depend on economic conditions at the time and our ability to
    grow underlying earnings in order to support the ordinary dividend. Any decision about future
    dividends will, of course, always be contingent on our underlying earnings and will be made
    in accordance with our capital management framework.
    Now I would like to say that changing the dividend policy was one of the toughest decisions
    the Board has ever had to make.
    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, and trying to arrive at
    the best balance between providing consistent shareholder returns and the strategic
    direction the company must take.
    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. We believe that it is
    absolutely fundamental to maintain our balance sheet strength in this challenging
    environment so as to manage the business effectively and invest for growth.
    And we must do that, because our potential competitors of the future are not just the
    traditional Optus and Vodafones, but are also likely to be dynamic newer companies like
    Amazon which does not pay a dividend and which reinvests an ever-growing cash flow in
    cheaper and better products.
    Lastly, despite the dividend policy change, I would like to point out that Telstra’s payout ratio
    and yield still remain at the higher end of ASX companies.
    And, because we absolutely understand and appreciate the impact this policy change has
    had on shareholders, we took the decision to maintain the 31c dividend for this full year and
    gave advance warning of the changes, rather than just cutting the dividend overnight as is
    usually the case.
    I don’t like it, I know that you don’t like it, but the world has changed and it would have been
    irresponsible of the Board not to take this tough but correct decision for the future.
    And it is the future, and in particular Telstra’s future growth opportunities that I would like to
    focus on now.
    8. Growth
    I have had shareholders ask why we can’t just go out and find growth businesses to replace
    the $3b in earnings that we are losing because of the NBN, so we can maintain the dividend
    at previous levels.
    Firstly, that is very easy to say and very hard to do. As I mentioned earlier, the earnings that
    we are losing are more than very few ASX companies achieve in total even after decades of
    existence. And to expect that we can suddenly just go out and create another $3b EBITDA
    business overnight is simply just not realistic.
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    Secondly, I do not think that shareholders would appreciate our going out and spending
    billions of dollars to buy a business or businesses that would replace the lost earnings
    through acquisition, just for the sake of making up the numbers. This would be very
    expensive, could take us away from our core competencies into whole new areas of risk,
    and could jeopardise the strength of our balance sheet.
    Instead, therefore, our strategy to grow the business, position it to meet the challenges and
    opportunities ahead, and to create long-term shareholder value, is built on three strong
    • delivering much better customer experiences than we do now;
    • driving further value and growth from our core business; and,
    • building new growth businesses close to the core.
    This may sound a bit boring but it is not – it is prudent, well thought through and best
    leverages our strengths.
    Delivering brilliant customer experiences means offering customers simple, intuitive and
    increasingly digital ways to interact with us. While our customer experience scores are
    excellent with big enterprise customers we know that we fall down too often with consumers.
    And that is significant because one way or another virtually everybody in Australia is a
    Telstra customer, whether directly as a Telstra mobile, fixed or broadband customer, or
    indirectly through our wholesale relationships with other providers.
    As I said just now, despite our world class networks and coverage, too many customers will
    have had a bad experience with Telstra, or will know someone who has had a bad
    experience with Telstra. This has to be once and for all eliminated and we are doing
    everything that we possibly can to fix it. If we do this well, we will win more market share
    from our competitors which will mean more revenue and more earnings should follow.
    Then driving value and growth from the core is about leveraging our strengths in networks
    and connectivity and making the best use of our skills, expertise and experience to deliver
    additional value. If we do this well our customers will be willing to pay more for better and
    better products and services.
    And building new growth businesses close to the core recognises the opportunities we have
    to expand with new products and new services in new markets. If we do this well, we will
    increase our revenue and earnings from new but related areas and improve the retention of
    existing customers.
    Everywhere we look there are these growth opportunities; 5G is coming with a huge range of
    new and upgraded opportunities; the Internet of Things where there are nearly 1b intelligent
    sensors today in Australia and the market is forecast to be worth $5b in 5 years; driverless
    cars, drones, connected homes, artificial Intelligence, machine learning, smart cities, smart
    agriculture, and many, many more. These opportunities represent our future, but as fast as
    these new technologies are developing it is still going to take a few years before they are
    scale businesses that can replace the old legacy businesses that we are losing.
    So despite today’s challenges, we are in a strong position as we look to grow our business:
    • We have one of the best overall management teams in the industry and certainly the
    best that I have seen in my time on the Board.
    • We have an incredible mobiles business, which is, of course, built around the best
    network in the land.
    • We deliver great earnings, have strong market share and are counted as a world
    leader in our industry.
    • We are the largest reseller of the NBN.
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    • Our Network Applications and Services business grew income this year by 30 per
    cent and has become a $3.3 billion dollar business from a standing start five years
    • Our productivity program took a quarter of a billion dollars of underlying core fixed
    cost out of the business this year, ahead of our target, and is on track to deliver $1.5b
    of annual savings.
    • And we continue to make targeted acquisitions in exciting new areas like cloud,
    workplace mobility, internet-of-things and cyber security.
    These new capabilities leverage our already world class networks and will help us grow in
    the markets of the future.
    One thing we think is critically important, therefore, is that we do not allow a pre-occupation
    with replacing the earnings lost through the NBN to be the defining point in our strategy.
    Our strategy is about doing what we do now much better to drive value from the business we
    still have, rather than starting from the premise of having to go out and replace the lost
    earnings overnight. Put another way, we are not going to do anything foolish to plug the $3
    billion gap. It is critical Telstra makes bold choices and we will do that, but we have no
    intention of risking the company.
    At the macro level, if we achieve a digital transformation of our company, and deliver as
    good a customer experience as the new, first generation businesses that I have mentioned,
    then we will transform our customer acquisition and customer retention, we will protect our
    balance sheet and we will build market share. Then over time these new markets will
    achieve scale and we will be a major player in most of them.
    All of this will lead to materially improved financial outcomes from our core business as well
    as growth in the closely related markets of the future, which is always going to be a better
    road to follow than starting new businesses in markets we do not know so well.
    Telstra remains a fantastic company with great people, great assets and great technologies
    – and we have many opportunities to grow without taking excessive risk.
    9. In Conclusion
    In conclusion then, 2017 was a year of significant progress for Telstra, but also a year of
    significant change and challenge. Whether we like it or not, we have to accept that the world
    around us has changed dramatically and Telstra is having to change just as dramatically as
    However, over our long history we have actually used periods of change in technology and
    challenges in industry structure to grow our company, and to move forward.
    Changing our dividend policy is just one change among the many that we will need to make
    as we enter the exciting new world of the future, some we can control and some we cannot.
    But whatever the future brings, Telstra is an exceptional company with exceptional people
    and exceptional assets. There is no reason why we should not do just as well in this
    unknown world of the future as we have done in the past.
    We must continue to develop our capabilities, build our resources, and make our networks
    stronger, faster and better so we can continue to be at the cutting edge of companies
    delivering the promise of the digital age. And as that digital age unfolds, we will be at the
    forefront and we will be better positioned than most of our competitors.
    Lastly, we will not forget who our shareholders are and the responsibility that we have to
    them. We will continue to do everything that we can to deliver shareholder value through
    Telstra Annual General Meeting - 17 October 2017 Page 7 of 8
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    dividends, capital management and other value enhancing activities, despite the changes
    that are going on around us.
    In closing, I really want to sincerely thank Andy Penn, his senior executives, and the entire
    32,000 strong Telstra team for their efforts in delivering the many achievements I have
    described this morning. They have one of the most difficult tasks in business today and I
    think that they are doing a fine job.
    I would also like to thank my Board colleagues for their support and strategic guidance – all
    of us feel very privileged to lead this great company.
    And I would like to thank you our shareholders for your patience and support.

    courtesy of Bell Direct

    ( DYOR )

    i hold TLS

    will have to re-read it , i haven't seen a mention of buy-backs or debt reduction ( as was more recently proposed )

    if no buy-backs institutional holders may reduce their holdings on market .

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