Telstra full year profit plunges, but CEO sees ‘turning point’ on horizon

NBN biggest factor in earnings decline, Telstra says

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Telstra’s net profit after tax dropped 39.6 per cent in FY19, the telco revealed today. The company reported NPAT of $2.1 billion, with earnings before interest, tax, depreciation and amortisation (EBITDA) down 21.7 per cent to $8 billion.

Total income decreased 3.6 per cent to $27.8 billion.

Telstra pointed to the NBN as the biggest factor in the drop in earnings. The company said that during FY19, it absorbed a $600 million recurring hit to EBITDA related to the new network.

Telstra’s CEO, Andy Penn, has previously indicated that the NBN will have an approximate ongoing $3 billion negative effect on earnings. The company said today it had absorbed around $1.7 billion of the expected total impact and “estimates it is around 50 per cent of the way through the recurring financial impact of the nbn.”

Excluding the impact of the NBN, underlying EBITDA declined around 4 per cent, Telstra said.

In a statement released by Telstra, Penn struck an optimistic note. The CEO said that Telstra had made good progress on its ‘T22’ strategy to address the changes in the Australian telco sector.

Penn first announced T22 in June 2018. The strategy has seen the telco move to slash its workforce, including the exit of some high-profile executives, streamline its mobile offerings, digitise its systems, and launch a new loyalty program. The company has also created a new business unit, InfraCo, that controls Telstra’s fixed line assets and that Penn believes could potentially play a role in a privatised NBN Co.

“FY19 has been a pivotal year for Telstra. Notwithstanding the intense competitive environment and the challenging structural dynamics of our industry, it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced,” Penn said.

“We completed our strategic investment program announced in 2016 to digitise our business and create the networks for the future, delivering over $500 million of EBITDA benefits. We passed the halfway mark of customers migrating onto the NBN network. We launched 5G, the next generation of telco technology and the platform for future growth for us and our customers. And at the start of the year we commenced our T22 strategy, where we have made very significant progress.”

The CEO said that Telstra had cut underlying costs by $456 million during the year, bringing to $1.17 billion the total since FY16. Telstra is aiming to cut its costs by $2.5 billion by FY22.

The CEO said that Telstra had struck a $160 million agreement to sell three data centres in Europe and Asia to I-Squared Capital, which owns Hutchison Global Communications. The move to sell the facilities is part of a T22 effort to monetise up to $2 billion of assets by the end of FY20, Telstra said.

Three quarters of the net 8000 direct workforce redundancies that form part of T22 have been identified, Penn said, with the CEO saying there had also been “progress creating 1,500 new roles in areas like cyber security and software engineering”.

Telstra said for FY20 it expects total income in the range of $25.7-27.7 billion, and underlying EBITDA of $7.3-7.8 billion. FY20 is forecast to include the “biggest in-year nbn headwind to date,” Telstra said: The telco expects an $800 million to $1 billion recurring impact from the NBN in FY20.

“Returning our business to growth will take time,” Penn said. “However, I have great confidence that our strategy can arrest the decline in our earnings and create opportunities for growth.”

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