Telstra blames NBN as profit drops by more than a quarter

Telstra has ‘done most of the heavy lifting’ for its largest-ever IT transformation, CEO says

Telstra has blamed on the ongoing impact of the NBN rollout for a 27 per cent drop in net profit after tax for the first six months of its financial year.

The telco today revealed total income on a reported basis of $13.8 billion, a drop of 4.1 per cent, and EBITDA on a reported basis of $4.3 billion, down 16.4 per cent.

The results reflect “the dynamic and challenging market” Telstra is operating in, CEO Andy Penn said in remarks prepared for an analyst presentation today.

“With around 55 per cent of Australian premises connected to the NBN, we are now over half way through,” the CEO said. So far the telco has absorbed more than $1.7 billion of the $3 billion negative impact on recurring EBITDA it expects from the NBN rollout.

Penn said that the telco had been successfully growing its customer base, adding 240,000 net retail mobile services (across retail postpaid, prepaid handheld, mobile broadband, and Internet of Things) during the half. The CEO said that Telstra also added 261,000 net new IoT services during the six months to 31 December.

Wholesale mobile services grew by 125,000, Telstra said.

Mobile revenue grew 2.4 per cent compared to the first half of FY18, and IoT revenue was up 36 per cent.

“We are now connecting on average 2000 things every day to our IoT networks including vehicles, machines, infrastructure, smart meters and all sorts of sensors,” Penn said.

The telco cut underlying fixed costs by $162 million during the half. Since a cost-cutting program was launched in FY16 the company has recognised around $900 million in annualised cost reductions.

Penn in June last year revealed Telstra’s strategy — dubbed T22 — to address the impact of the NBN and rising competition in the mobile market. That plan will see net job losses of around 8000, with some of the telco’s highest-profile executives already shown the door.

In addition to cutting costs and streamlining the company’s structure, T22 has seen the creation of a new business — InfraCo — to hold the telco’s fixed-line assets and a push to simplify Telstra’s product lineup.

Penn said that T22 was built on the foundation of the telco’s $3 billion strategic investment program, which was announced in 2016. So far the company has spent $1.6 billion on its networks and $1 billion on digitisation as part of the investment program. In return, the company has so far netted $212 million of EDBITDA benefits, Penn said today.

Telstra’s ‘largest IT transformation’

“The digitisation program includes creating new technology stacks - one for mass market and one for enterprise but with shared capabilities across both,” the CEO said.

“This is a huge undertaking and probably the largest IT transformation in our history. It is also critical for the success of our business in the future.”

“The enabling technology includes new CRM, provisioning, billing and e-commerce systems and is directly linked to the improved customer experience, increased digital sales and reductions in call centre activity I mentioned earlier,” the CEO said.

He said Telstra has “done most of the heavy lifting” already for this in its mass market consumer and SMB systems.

“We have stood up the infrastructure and platforms, implemented Salesforce CRM, and upgraded ecommerce systems and will be rolling these out progressively over the coming months with the first capabilities reaching the hands of our employees and customers next month,” the CEO added.

The CEO said that some 1600 of Telstra’s 18,000 enterprise customers have now migrated to the Telstra Connect platform, which has cut by 13 per cent the average call volume handled by the company’s contact centres.

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