After facing significant headwinds from the migration of DSL (digital subscriber line) and home phone service customers to lower margin national broadband network (NBN) services, TPG’s reported earnings and net profit have taken a hit during the 2018 financial year, ending 31 July.
On top of this, the telco also cited electricity price increases as a challenging point.
Reported earnings before interest, tax, depreciation and amortisation (EBITDA) took a hit from $890.8 million in FY17 down to $841.1 million in FY18. Net profit slid from $413.8 million down to $396.9 million. Revenue slightly rose from $2.490 billion to $2.495 billion.
TPG pointed out that its FY17 EBITDA result had benefited from a $55.8 million profit from the sale of an investment. And despite the $49.7 million decrease in reported EBITDA, underlying EBITDA for FY18 increased $6.1 million from $835 million to $841.1 million.
The telco cited $72 million in ‘other’ EBITDA growth stemmed from its corporate segment, TPG fibre-to-the-building (FttB), and cost savings from the ongoing integration of iiNet. The corporate segment EBITDA grew from $312.8 million to $330.1 million.
“This EBITDA growth has been driven by continued strong data and internet sales, and increased revenue from the VHA [Vodafone Hutchinson Australia] fibre contract offsetting ongoing declines in voice revenues,” TPG executive chairman David Teoh said in a statement to the Australian Securities Exchange.
TPG’s consumer segment EBITDA dipped from $530.4 million to $513.1 million in FY18.
“The gross profit decline is driven by broadband gross margin erosion and loss of home phone voice revenue, both due to the NBN rollout,” Teoh said. “The significant decrease in employment and overhead costs reflects the results of further investigation of iiNet operations within the broader group.”
Teoh noted that if the merger with Vodafone Hutchison Australia (VHA) proceeds, TPG’s small cell network would complement VHA’s mobile network, bringing greater strength to the combined group through increased coverage and capacity in densely populated areas.
On 30 August, the telco announced its intentions to merge with VHA, creating a $15 billion challenger in the market. The merger proposal is currently pending approval by the Australian Competition and Consumer Commission.
In Singapore, TPG said it was on track to achieving its outdoor service coverage milestone by the end of 2018, with the production network already covering 90 per cent of outdoor areas.
During FY19, the telco anticipates further headwinds as DSL and home phone services switch over to the NBN, and also a one-time step reduction in EBITDA due the adoption of the new AASB15 revenue accounting standard.