TPG beats guidance despite NBN rollout 'eroding' profit

TPG beats guidance despite NBN rollout 'eroding' profit

Internet and mobile phone service provider TPG Telecom (ASX: TPM) saw its margins decline in FY18 as broadband subscribers moved to NBN bundles, pushing net profit after tax (NPAT) down 4 per cent to $396.9 million.

However, underlying NPAT rose 3.6 per cent to $432.6 million and EBITDA ended up $41 million higher than FY18 forecasts made around this time last year.

In financial results commentary released today, executive chairman David Teoh said a gross profit decline in the consumer segment was "driven by broadband gross margin erosion and loss of home voice revenue, both due to the NBN rollout".

These margin setbacks were partially offset by a significant decrease in employment and overhead costs, resulting from further integration of iiNet operations within the broader group, but the consumer segment EBITDA was down 3.3 per cent.

In contrast, TPG's corporate segment EBITDA was up 5.5 per cent.

The group forecasts business as usual (BAU) EBITDA will be down in FY19, but this does not take into account the proposed merger with Vodafone Hutchison Australia (VHA), a deal that could potentially create a $15 billion telecommunications company that could take on the likes of Telstra and Optus.

"In Australia, the Group's small cell network rollout is continuing in major capital cities and densely populated metropolitan areas," said Teoh.

"If the merger with Vodafone Hutchison Australia (VHA) proceeds, TPG's small cell network would be complementary to VHA's mobile network bringing greater strength to the combined group through increased coverage and capacity in densely populated areas."

On that note, company secretary and CFO Stephen Banfield said this roll-out would form a platform for the delivery of high-speed 5G services.

"As 5G network elements become available in the market we will have the optimal architecture to take advantage of them," he said.

The executive also made reference to the 5G spectrum auction.

"We consider the spectrum is clearly a key ingredient for all wireless networks so we will be looking closely at the auction laws when they become available," Banfield said.

"We are pleased that the [Communications] Minister has requested the ACCC (Australian Competition and Consumer Commission) to advise on competition limits - competition limits are extremely important.

"In terms of quantifying how we would fund it, clearly that's an impossible question to answer at this time because we don't know how much the spectrum would cost, but what I would say to you is that we have $2.4 billion of debt facilities with a good $1 billion of capacity in those facilities at this time."

A sign of what's to come for the Australian market?

TPG COO Craig Levy also made an announcement for the Singaporean market which Australian consumers and businesses may want to watch closely.

"We are very excited to announce our first mobile offering in Singapore. This offering is a TPG community initiative and it has been designed to assist senior citizens in Singapore as well as the Singapore Government Smart Nation Initiative," Levy said.

"The plan we will be offering is a 24-month plan this plan includes 3G of data each month, unlimited calls to local mobiles in Singapore as well as a free SIM. And this plan will be charged at zero dollars for 24 months for each subscriber that signs up to the plan.

"The plan will be available on our state-of-the art mobile network in the second half of 2018."

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