Telstra takes US$474m hit on restructuring

• Australian operator reveals massive one-off cost to streamline ailing Fixed Enterprise division and axe 2,800 jobs
• CEO Vicki Brady says the restructuring measures, announced in May, will enable Telstra to meet its cumulative three-year A$350m (US$232) cost reduction target by the end of fiscal year 2025
• Investors welcome Telstra’s upwardly revised lower‑end of earnings guidance, nudging the share price up by nearly 3%

Australian national telco Telstra has recorded a A$715m (US$474m) one-off cost that is mostly related to the ‘resetting’ of its troubled Fixed Enterprise division, with CEO Vicki Brady describing the charge as “significant”. 

The charges related to that restructuring plan, which was announced in May and included a headcount reduction of 2,800 jobs (about 10% of the operator’s total workforce), were revealed as Telstra announced its financial results for the fiscal year 2024 that ended 30 June. 

The telco’s investor presentation inevitably threw the spotlight on how its T25 plan was shaping up: T25 is the operator’s current three-year (and three-pronged) corporate strategy launched at the start of the Australian operator’s fiscal year 2023 to improve customer experience, roll out ‘leading’ network and technology solutions, and increase shareholder value on a sustainable basis. Brady took on the CEO role a few months after T25 went live in July 2022.  

And one of the biggest threats to achieving T25 goals is the dire state of the Fixed Enterprise division, which turned in a dreadful FY24 performance. Underlying EBITDA (earnings before interest, tax, depreciation and amortisation), which excludes material one-off charges, slumped by a hefty 67% year on year to A$136m (US$90m).

Telstra attributes much of the blame on the unit’s NAS (Network Applications & Services) portfolio, which includes a lot of legacy voice services for which demand is declining rapidly as business customers switch to digital services.

“Fixed Enterprise is clearly a long way from where we need it to be,” acknowledged Brady on Telstra’s FY24 earnings call with investors and financial analysts. “We have faced into underperformance, particularly within NAS, and made decisions to begin the reset of that business. This includes reducing our NAS product portfolio by two thirds over the next few years and focusing on where we are clearly differentiated. We are also reorganising our teams to deliver better for our customers and reduce our cost base.”

She added, “The reset of our Enterprise business will take time, but I am confident in the initial actions we have taken. These necessary choices and decisions in Enterprise, together with our additional action on cost, mean we are confident in achieving our A$350m [US$232m] cost reduction ambition by the end of FY25.”

The original T25 cost reduction target was A$500m (US$332m), however, which Telstra subsequently reduced in May to its new goal. If the operator is to meet its lower three-year target by the end of June 2025, Telstra will need to find cost savings of A$228m (US$151 m) in FY25. That sum is nearly double the cumulative amount of cost savings achieved in FY23 and FY24 (A$122m/US$81m). 

Brady seemed nonetheless confident that things were going pretty much to plan.

“Overall,” she said, “our T25 strategy is on track, including our growth ambitions in underlying EBITDA, EPS [earnings per share] and ROIC [return on invested capital].”

Other FY24 numbers from Telstra

Underlying EBITDA grew by almost A$300m (US$199m), or 3.7% year on year, to A$8.2 bn (US$5.4bn). Total revenues were flat, up just 1% to A$23.4bn (US$15.5bn).

Telstra lifted the lower-end of its FY25 guidance on underlying EBITDA by A$100m (US$66m), giving a new range of A$8.5bn-A$8.7bn (US$5.6bn-US$5.8bn). 

Investors seemed to like the focus on costs and the earnings revision, helping to nudge up Telstra’s share price by nearly 3% to A$3.98 on the Australian Stock Exchange (ASX) soon after the FY24 results were announced. 

- Ken Wieland, Contributing Editor, TelecomTV