Thursday, 13 August 2020 12:30

Telstra profits slump in face of 'pressure' from pandemic, bushfire crisis Featured


Telstra has suffered a 14% drop in profits with the telco putting the decline down to pressure put on it by the the coronavirus pandemic and the national bushfire crisis.

Australia’s largest telco reported a 6% fall in income for the FY20 to $26.2 billion and net profit of $1.8 billion for the financial year, and said results were in line with guidance.

Telstra also announced a dividend payment of 8 cents per share, comprising a final ordinary dividend of 5 cents per share and a final special dividend of 3 cents per share, bringing the total dividend for FY20 to 16 cents per share.

“This will see $1.9 billion returned to Telstra’s shareholders for the year,” Telstra said, while also reporting:

  • Reported Total Income, NPAT and EBITDA in line with market expectations
  • Strong growth in numbers of mobile services
  • Good progress on T22 strategy which is more than halfway through•Final dividend of 8 cents per share, bringing total dividend to 16 cents per share
  • On track to achieve $2.5 billion net cost reduction target in FY22

Telstra also provided financial guidance including assumptions on a range of metrics for FY21, which it said was “giving the market clarity on its expectations for the year ahead”.

CEO Andrew Penn said the results showed that “through a challenging period Telstra continued to deliver for customers, support its people and the community, while generating long-term shareholder value”.

“2020 is proving to be an enormously challenging year for everyone – for governments, businesses, communities, and for all of us as individuals. The emotional, mental and economic stresses as a result of the COVID-19 pandemic and necessary restrictions are profound,” Penn said.

“Through this extraordinary disruption – both the COVID-19 and bushfire crises, Telstra was challenged to adapt, to find new ways of supporting our customers, our people and the country in a time of need. I am very proud of the way our team responded, while dealing with the implications on themselves personally.

“The COVID-19 period has also highlighted that connectivity has never been more critical. We have witnessed a huge acceleration in the digital economy, an area now critical to a fast economic recovery where Telstra has a key role to play. The reasons we introduced T22 two years ago – a need to rapidly simplify and digitise, to remove customer pain points, to remove legacy systems and processes – have never been more relevant and necessary.

“Importantly, it says a lot about the strength of our business and strategy that through all this we were able to meet guidance, maintain the dividend and provide guidance for the year ahead. We have also retained our strong balance sheet and A-band credit ratings.”

“Excluding the in-year NBN headwind – which gives the clearest view of the long-term business – underlying EBITDA grew by approximately $40 million, with growth in the first half of the year offset by a second half decline,” Penn said.

“Telstra continued to grow its customer base in FY20, in spite of a competitive and challenging market. At the end of June, and while reaching approximately one third population coverage with its 5G network, Telstra also announced refreshed plans for mobile customers which included increased data allowances and saw 5G included on most plans.

“Telstra’s multi-brand strategy continued to deliver subscriber growth, particularly in mobile where it added 240,000 retail postpaid handheld mobile services, including 154,000 from Belong. It also added 171,000 retail prepaid handheld unique users, 347,000 Wholesale services and 652,000 IoT services.

“Overall mobile revenue declined $461 million in FY20. Reported postpaid handheld ARPU declined 8.2 per cent, or 6.8 per cent excluding the impact of COVID-19 on international roaming.

In the fixed business, revenue continued to be impacted by nbn migration, alongside the continued decline of voice and legacy services and operational issues.”

Telstra says that through a focus on differentiated customer experiences including the Telstra Smart Modem, the company continued to have a “market-leading share with 46% of the estimated NBN market (excluding satellite).

“nbn wholesale pricing remains the largest negative impact on our fixed business,” Penn said.

“Without some sort of long-term change leading to improvement in RSP economics, the risk of retail price increases, reduced customer experience or customers moving onto other networks such as 5G will increase. “In Telstra’s case the profitability of reselling the nbn is negligible at best – that is not sustainable.

“Notwithstanding these comments I do want to acknowledge and applaud nbn’s response to COVID. nbn acted swiftly to increase capacity to RSPs during this time at no charge enabling RSPs to support their customers as they moved quickly to work and study from home.”

Penn also noted that during the year Telstra reduced underlying fixed costs by $615 million, or 9.2%.

“This brought underlying fixed cost reductions achieved since FY16 to $1.8 billion and put Telstra on track to achieve its $2.5 billion net cost reduction target in FY22.Telstra has announced 12,000 indirect role reductions and 7,300 direct workforce role reductions since it launched T22 in June 2018,” Penn said.

“As at the end of June 2020, the direct workforce was around 5,700 lower than two years ago. This figure includes 1,600 new roles recruited like software engineering and cyber security – and some additional roles brought on board in response to COVID-19 to mitigate workforce offshore capacity issues.

“In March we put all job reductions on hold for six months to give our people certainty during this difficult time.

“As we approach the end of that pause, it is clear that the impacts of COVID-19 will be with us for some time. We have therefore made the decision to keep our T22 productivity role reductions on hold for permanent Telstra employees in Australia and internationally until February next year.

“We know many are doing it tough at the moment and we hope this decision will give some certainty to our people in what is a very challenging time for Australia – and many of the countries in which we operate.

“There will be some roles that finish in the interim where projects have come to an end or work is no longer required, volumes have declined, or fixed term contracts end particularly related to our involvement in the construction of the nbn. However, for the majority of our teams this will continue to give them some certainty at least until the new year,” Penn said.

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Peter Dinham

Peter Dinham - retired and is a "volunteer" writer for iTWire. He is a veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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