Turning point: Telstra declares victory in transformation program

Telstra has declared victory in its four-year transformation program one year ahead of schedule.

CEO Andy Penn said the telco had reached a "turning point" in the past year as it announced 3.4% higher full-year earnings of $1.9 billion (US$1.4 billion).

He said the company had already hit around 80% of the targets in its T22 transformation project and was now a "vastly different company."

Shake off the old: Telstra has undergone a radical shake-up to make it fit for the 21st century. 
  (Source: Akshay Chauhan on Unsplash)
Shake off the old: Telstra has undergone a radical shake-up to make it fit for the 21st century.
(Source: Akshay Chauhan on Unsplash)

It plans a stock buyback to return to shareholders nearly half of the A$2.8 billion ($2.1 billion) raised from the sale of its tower business.

The buyback and the improved outlook boosted the Telstra share price 3.66% on the ASX Thursday.

Beneath the covers

Profit aside, the bullish sentiment isn't readily evident in the headline numbers.

Total revenue declined 11.6% to A$23.1 billion ($17 billion), EBITDA retreated 14.2% to A$7.6 billion ($5.6 billion), and sales fell in every segment.

But underlying revenue, which excludes the NBN impact and the COVID-driven A$1.1 billion ($808.7 million) loss of income from international roaming and handset sales, was down just 3%.

Underlying EBITDA rose A$3.3 billion ($2.4 billion) in the first half to A$3.4 billion ($2.5 billion) in the second half, the company said, describing it as a sign of "strong momentum."

Mobile, the biggest line of business, rebounded in the second half, generating the first growth in services revenue in four years, and posting positive EBITDA.

Counting the costs

Penn said T22, launched in 2018, had been necessary because "we did not respond quickly or significantly enough to the reality of the impact of the NBN on Telstra."

The national wholesale broadband network provider has had a negative impact on Telstra EBITDA of up to A$800 million ($588.2 million) annually.

In its T22 achievements to date, Telstra cites the elimination of A$2.3 billion ($1.7 billion) in cost, the slashing of the number of consumer and small business plans from 1,800 to 20, and the two-thirds reduction in the volume of calls to contact centers.

It has also shed a third of its workforce, aided by transfers to NBN Co as well as efficiency initiatives, reducing direct and indirect headcount by 25,000.

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The company may reap the rewards of a future IPO by Foxtel, of which Telstra owns 35%. The News Corp-led pay TV company has performed its own turnaround, with paid streaming subscribers up 155% over the past year.

Telstra's biggest digital business, the health division, grew 6% in revenue and has just splashed A$350 million ($257 million) on acquiring Medical Director, the country's biggest cloud-based provider of software to family doctors.

Penn said Telstra's 5G network was now "more than twice the size" of rival Optus' and reached 75% of the population, with 1.6 million devices in operation.

He said the company would unveil its post-T22 plans at a briefing next month.

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— Robert Clark, contributing editor, special to Light Reading

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