Telstra announces outcomes of capital allocation strategy review
Thursday, 17 August 2017 – Telstra has announced the outcomes of the capital allocation strategy review it
commenced in November 2016, including a potential plan to monetise a portion of locked-in recurring nbn
receipts, a new dividend policy and a revised capital management framework.
Speaking at the company’s full year results announcement, Telstra CEO Andrew Penn said Telstra had
reviewed its balance sheet structure and settings, longer term capex requirements, investment decisions
including M&A, returns to shareholders including dividends, buy-backs and other forms of returns, and the
best way to manage receipts from the nbn.
“We have consulted extensively with shareholders and other stakeholders during this review and the
overwhelming and consistent feedback from this consultation process has been to ensure we are planning for
the longer term, and retaining financial flexibility,” Mr Penn said.
“This includes the importance of retaining a strong balance sheet through the nbn transition period and in light
of the increased competitive dynamics and digital disruption.”
The outcomes of the capital allocation review are:
1) a potential monetisation of a portion of locked-in recurring nbn receipts, subject to legal
documentation and satisfaction of certain conditions;
2) a revised capital management framework focused on maintaining tight fiscal discipline, maximising
returns for shareholders, maintaining financial strength and retaining financial flexibility for investment
in the future; and
3) a new dividend policy to more closely align ordinary dividends to underlying earnings1 and to return
in the order of 75 percent of net one-off nbn receipts2 to shareholders over time via fully-franked
Potential monetisation of recurring nbn receipts
At its Investor Day in November 2016 Telstra said it would look at ways to crystallise value from recurring
nbn receipts for key infrastructure and today announced a potential plan to monetise a proportion of these
Mr Penn said recurring receipts for access to Telstra’s extensive infrastructure were expected to grow to
just under $1 billion annually by the end of the nbn migration period.
“If we were to proceed with these plans, it would involve approximately 40 percent of the total receipts that
are expected, representing the already locked in receipts for fibre and exchanges,” Mr Penn said.
“The scale of the proposed transaction is approximately $5 − 5.5 billion4 with Telstra to retain some equity
interest. Our intention would be to use the proceeds to reduce debt by around $1 billion, with the balance to
support a capital management program to enhance shareholder returns, most likely through a series of on
and off market buy-backs.
“The proposed transaction is subject to agreement and a number of steps including approvals and
consents from investors, the Government and nbn co.
“We are currently in discussions regarding these matters. We cannot confirm whether they will be achieved
but we will update the market in due course,” Mr Penn said.
Dividend Reinvestment Plan
Given the ongoing discussions with nbn co and Government on the potential monetisation of a proportion of
the recurring nbn receipts, in order for Telstra to manage its ongoing continuous disclosure obligations it has
suspended the Dividend Reinvestment Plan with an intent to reinstate it when circumstances allow.
Capital Management Framework
The objectives of the revised capital management framework remain the same as those communicated to the
market in 2012, including maintaining Telstra’s tight fiscal discipline, maximising returns for shareholders,
maintaining financial strength and retaining financial flexibility.
As a result of the capital allocation strategy review some of the principles supporting these objectives have
changed. The new principles are to:
• Maintain balance sheet settings consistent with an A band credit rating;
• Pay a fully-franked ordinary dividend of 70-90 percent of underlying earnings;
• Target capex/sales ratio of ~14 percent excluding spectrum from FY20; and,
• Maintain flexibility for portfolio management and to make strategic investments.
The revised Capital Management Framework is attached.
The new dividend policy supports the objectives of the capital management framework and is consistent with
shareholder feedback to maintain a strong balance sheet and flexibility to manage the business and invest,
especially during the nbn transition.
Mr Penn said the new dividend policy, which will commence after the payment of the final dividend for the
2017 financial year, would move Telstra away from a historical practice of paying out almost 100 percent of
“From FY18 we will adopt an ordinary dividend payout ratio of 70-90 percent of underlying earnings1, which is
more in line with global peers and local large companies,” he said.
“In addition to the ordinary dividend, we intend to return in the order of 75 percent of net one-off nbn receipts2
to shareholders over time via fully-franked special dividends.
“We believe this is appropriate given one-off income is akin to compensation for an asset sale over a number
of years and aligns with market feedback and expectations that these receipts are returned to shareholders.
“With the implementation of this new dividend policy, we expect total dividends in respect of FY18 to be 22
cents per share fully-franked, including both ordinary and special dividends.”3
Mr Penn said in adjusting the capital management framework and resetting the dividend policy Telstra had
balanced the importance of providing consistent returns to shareholders with the long term sustainability of
returns and strategic direction of the company.
“We realise this is a material reduction from the historic level of our dividend and we do not underestimate the
impact on our shareholders. It is for this reason we are providing advance notice of this change and why the
Board has maintained a 31 cents dividend this year,” Mr Penn said.
“These are important changes to Telstra’s approach to capital management and appropriate in the context of
our strategic transformation. This is about setting the business up for success in the future.”
courtesy of Bell Direct
( DYOR )
i hold TLS ... make that top up price below $3.90
would have liked to see more debt retired .