Telstra to use Autohome share sale for AU$1.5b capital management program

Telstra has used its Investor Day to discuss how it will use the proceeds from the sale of Autohome shares, as well as the negative impact the NBN will have on its EBITDA.

Telstra has announced a capital management program of around AU$1.5 billion for the second half of calendar 2016, with the telecommunications provider planning to use the AU$2.1 billion sale of its shares in Chinese online company Autohome to fund the program.

The definitive monetary amount, timing of delivery, and nature of the return of capital to shareholders is yet to be determined by the company, and is conditional on regulatory approvals, the telco said during its Investor Day 2016 presentation.

"I am pleased that we are able to confirm such a significant capital management program as the result of active management of our investment portfolio. Given our recent announcement of the sale of Autohome shares, we believed it was important to provide the market with further information about how we intend to use those funds," Telstra CEO Andrew Penn said.

"While specific details of the nature of the capital management program are yet to be confirmed, creating this type of shareholder value is in accordance with our capital management framework. Importantly, we also maintain sufficient capacity to invest in our growth plans for the future."

Telstra said it would announce more details during its full-year results presentation on August 11.

The telco also revealed that the long-term effects of the National Broadband Network (NBN) would result in an annual negative impact of AU$2 billion to AU$3 billion on Telstra's earnings before interest, tax, depreciation, and amortisation (EBITDA).

"The NBN has one-off and recurring impacts. The one-off impacts only partially compensate us for the long-term recurring impacts to our business," said chief financial officer Warwick Bray at Investor Day.

"Once the NBN is fully migrated, the negative impact on our EBITDA, which we're aiming to offset, is AU$2 billion to AU$3 billion per annum."

Telstra identified these impacts as arising from one-off costs of NBN connections and transitions, and recurring costs including NBN access costs that include the connectivity virtual circuit (CVC) and access virtual circuit (AVC) charges, as well as the loss of wholesale revenues.

"These are significant, and will result in a decline in our fixed margins," Bray said.

"These access costs will be partially offset by a reduction in our legacy network costs, and other avoided costs, including reduced capex.

"Another recurring consequence of the NBN is loss of wholesale revenue including PSTN, ADSL, and unbundled local loop."

The CVC charge -- which reserves a consumer's bandwidth from the point of interconnect (POI) and now has a dimension-based pricing structure that encourages greater usage of data -- accounts for "by far the largest element" of the estimated negative impact of the NBN on Telstra's bottom line, Bray said.

The AU$2 billion to AU$3 billion EBITDA impact will be partially offset by the commercial works agreements with NBN, particularly the AU$1.6 billion contract to design and manage the construction of the hybrid fibre-coaxial (HFC) network, with the contract to run until the network completes construction in 2020.

Telstra said its own net debt is up by AU$1 billion for the year, now sitting at AU$14.1 billion.

The telco has tipped its 4G network to reach 98 percent of the Australian population as of June 30 this year, and 99 percent by June 30, 2017, while its Telstra Air customers now number 650,000, with more than 300,000 Wi-Fi hotspots across the country.

In regards to its expansion throughout the Asian region, Bray said Telstra's Pacnet acquisition, which it bought for $700 million in December 2014, "has allowed us to emerge as a leader in international connectivity".

Since acquiring Pacnet, Telstra has made wholesale deals in China and throughout Asia; has become the "leading international connectivity provider in South-East Asia", particularly in regards to high-capacity, low-latency networks; and its combined network now represents 30 percent of all intra-Asia lit submarine capacity.