TPG takes a $150M hit to profit after mobile network halt

Plus $4.4 million has been put towards merger with Vodafone

Credit: Dreamstime

TPG Telecom has closed the first half of 2019 with $46.9 million in net profit after tax (NPAT), down 76.4 per cent or $151.2 million less than the previous corresponding year.

The result was expected as the company previously revealed it would write down $76 million in capital expenditure associated with the end of its mobile network roll out.

Specifically, the telco, which is public-listed on the Australian Securities Exchange (ASX), advised it had to recognise an impairment expense of $227.4 million in the first half ended 31 January. This comprises of $91.8 million spent on spectrum licenses, $76 million on mobile network assets, and capitalised interest related to spectrum licenses and mobile network assets $59.6 million.

The results also include a $4.4 million one-off transaction costs relating to the proposed merger with Vodafone Hutchinson Australia (VHA).

These also had an impact in the company's earnings before interest, tax, depreciation and amortisation (EBITDA) reported at $420 million, or 1.7 per cent increase compared to the previous corresponding period. Revenue was down 1.5 per cent to $1.2 billion.

"Excluding these irregular items, underlying EBITDA increased from $413.0 million in HY18 to $424.4 million in HY19, underlying NPAT increased by 3.5 per cent to $225.2 million and underlying EPS increased by 3.3 per cent to 24.3 cents per share," the company told shareholders.

The consumer business contributed with $852.6 million of the total revenue for the six months ended 31 January, or a 28 per cent decrease. The corporate segment increased 9.2 per cent, contributing with $383.2 million to the company's revenue.

The corporate segment saw an increase in data/internet but TPG experienced a decrease in voice and legacy (iiNet) services.

National Broadband Network (NBN)

Underlying EBITDA has continued to be impacted by a loss pf margin as digital subscriber line (DSL) and home phone customers migrate to low margin NBN services. However this was within the telco's expectations.

"The $39 million of other EBITDA growth achieved relative to HY18 was driven by growth in the corporate division (including an uplift in contribution from the VHA fibre contract) and the continued realisation of operating expense efficiencies across the group," TPG stated.

The NBN roll-out has also impacted the company's gross profit decline, which was driven by broadband gross margin erosion and loss of home phone voice revenue.

TPG-VHA merger

In August 2018, TPG and VHA confirmed plans to merge in Australia with the combined entity set to create a $15 billion “challenger” in the market.

In January, TPG decided to stop the roll-out of its mobile network in Australia due to the Government ban on Huawei.

Now, TPG said it has no business plan or strategy for using its spectrum licenses, acquired in December in a joint venture with VHA, and other mobile network assets on a standalone basis. TPG has to reassess the carrying value of these assets.

If the merger goes ahead, the assets will be complementary to VHA.

"However, as the merger remains subject to regulatory and shareholder approval and is, therefore, not certain to proceed, the expected use by and value to the merged entity of these assets may not be taken into account in determining their current value to the group," TPG stated.

For the full 2019 financial year TPG expects EBITDA to be in the range of $800 to $820 million.

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