Headwinds abound as TPG stumbles into 2020

Headwinds abound as TPG stumbles into 2020

The 2019 financial year was unpleasant for telco TPG Telecom (ASX: TPM) to say the least.

First, the company was forced to abandon its planned 5G mobile network, what was to be Australia's fourth major mobile network, following the federal government's ban of Chinese-made Huawei 5G technology.

Following this setback, the company announced its plans to merge with Vodafone Hutchinson Australia.

That too was shot down by the regulators, with the Australian Competition and Consumer Commission (ACCC) concerned a merger would lessen competition.

Going into FY20 things don't appear to be easing up for the telco.

The company is currently attempting to fight back against the ACCC's merger decision in the Federal Court. That hearing is scheduled to commence on 10 September, and we'll likely receive a result in early October.

If successful the merger of the two telcos will be implemented by a TPG scheme of arrangement, with the new merged group listed on the Australian Securities Exchange and renamed TPG Telecom Limited.

TPG shareholders will own 49.9 per cent of the equity of the merged group, with VHA shareholders owning the remaining 50.1 per cent.

The company also anticipates FY20 will see the company hit with headwinds from customer migration to the NBN, with an estimated financial impact of around $85 million.

By the end of FY20 the company expects to have less than 15 per cent of its residential broadband customer base remaining on ADSL.

The company does not expect organic growth in FY20 to offset the headwinds of NBN migration, with EBITDA expected to be in the range of $735-750 million in the financial year.

TPG today released its FY19 results which were heavily impacted by the decision to dump the rollout of its planned mobile network. This setback resulted in the company suffering from an impairment expense of $236.8 million in FY19.

Excluding the impairment and the costs associated with the planned Vodafone merger the group's underlying EBITDA for the year was $818.4 million.

Reported profit for the year was down 56 per cent to $175 million, and revenue was down 0.7 per cent to $2.5 billion.

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