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Telstra stock slides after 14% profit fall

Australian telco Telstra stock slides after reporting 14% profit drop in full-year earnings, amid concerns over mobile and broadband businesses.

Robert Clark

August 13, 2020

3 Min Read
Telstra stock slides after 14% profit fall

Telstra investors have punished the stock after it reported a 14% fall in profit amid concerns about its mobile and broadband businesses.

The Australian telco announced full-year earnings of A$1.84 billion (US$1.32 billion) on 5.9% lower revenue of $A26.16 billion ($18.75 billion) Thursday.

CEO Andy Penn said the results were in line with guidance, and included an estimated COVID-19 impact of A$200 million ($143 million), and A$44 million ($32 million) in costs incurred from the bushfires that ravaged swathes of the country late last year.

That wasn't enough to deter investors from dumping the stock, which closed down 8.26% at A$3.11 ($2.23).

Trying times
The company has also set aside a A$50 million ($36 million) provision pending an investigation by the regulator into potentially deceptive conduct at some Telstra stores.

Penn and CFO Vicki Brady said NBN costs weighed heavily on the result.

Brady said underlying EBITDA was down 9.7% primarily because of "headwinds" from NBN migration. This year costs peaked at A$830 million ($595 million), up A$380 million ($272 million) from last year.

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Penn said the NBN retail business was "not sustainable."

"NBN wholesale pricing remains the largest negative impact on our fixed business," he said at a briefing.

"Without some sort of long-term change leading to improvement in [retail] economics, the risk of retail price increases, reduced customer experience or customers moving onto other networks, such as 5G will increase."

"The fundamental problem is: if your wholesale price is two-thirds of the retail price, which it is, that's what makes it incredibly challenging."

Telstra has built out a substantial lead in 5G, with 210,000 subscribers and its network reaching a third of the population, but the mobile business is struggling.

Revenue fell 4.4% thanks to sharper competition and a fall in hardware sales. Despite growth in customer numbers, ARPU fell, with postpaid ARPU shrinking 8.2%.

Cut your cloth
In other business units, the corporate division shrank 2.8%, the media group was down 8.9% and global connectivity declined 4.6% in constant currency terms.

The company has made progress in its T22 cost-cutting and rationalization program, with operating costs 10% lower. However, thanks to the pandemic the program is on pause until February.

For the year ahead, Brady said EBITDA would take a hit of approximately A$400 million ($287 million) from COVID-19, double the level of the year just completed.

She said half of this would be from the loss of international roaming, another A$100 million ($72 million) a result of postponed job cuts, and a further A$100 million from delays and changes to business services contracts.

Penn said Telstra would launch a 5G-based fixed-wireless broadband service in the coming year.

He said it was not for every customer but was "definitely viable and attractive for some customers" such as those not getting a good experience on the NBN.

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— Robert Clark, contributing editor, special to Light Reading

About the Author(s)

Robert Clark

Contributing Editor, Special to Light Reading

Robert Clark is an independent technology editor and researcher based in Hong Kong. In addition to contributing to Light Reading, he also has his own blog,  Electric Speech (http://www.electricspeech.com). 

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