Telstra Corporation Limited [ASX:TLS] shares are hovering around $2.95 after the market opened today, despite recent news of their profit margins.
Telstra released their full-year FY18 results on the ASX, which revealed both positives and negatives for the company.
While there was a positive income growth of 3% to $29 billion, the ‘downward pressure’ on EBITDA and NPAT figures shows just how critical the NBN rollout has been for this telecommunications giant.
Nevertheless, the company remains optimistic about their increased income growth, as it reflects a greater customer and subscriber platform. According to their market release on the ASX this morning, Telstra will gain an additional 342,000 retail mobile customers to their existing database by the end of FY18. It also points to ‘good progress’ on their productivity program, which had been re-jigged earlier this year.
Of course, this does not make the EDITBA and NPAT reductions any less concerning. In fact, this expanding customer base holds a lower Average Revenue per User (ARPU) figure, meaning Telstra have to remain mindful of the affordability of their products and services.
Telstra CEO Andrew Penn is realistic about what this means for Telstra’s future:
‘…the challenging trading conditions are expected to continue in FY19.’
And so, now more than ever, we see the need for this T22 strategy.
Operation T22 in Play
This plan was announced back in June 2018, and was made up of four pillars. The first involved cutting the number of mobile plans by 99%. The second was the development of InfraCo, a separate business unit that can be used as an investor post NBN roll-out. There was also a simplifying of service structure, and finally the monetising around $2 billion in assets.
Telstra are putting a lot of force behind the T22 implementation. Andrew Penn states:
‘While it is less than two months since we presented our new strategy, we are well into the execution phase, building on the momentum provided by our up to $3 billion strategic investment in Networks for the Future and digitising the Company.’
The market release notes that InfraCo has been established as a standalone business unit. Simplification has come from the digitising of the business and a new organisational structure. Switching to 5G technology will naturally lead to the culling of dated mobile plans, as will launching newer ones ‘with no excess data charges’ — an ideal option in this smartphone-driven world.
Despite this NBN road-block, Telstra are confident their prior preparations will help the company stay relatively on track in FY19. They expect income between $26.5 to $28.4 billion. While this foresees a notable drop compared to FY18 figures, Telstra emphasise that it was inevitable:
‘FY19 is a very material year in migration to the NBN and its impact on Telstra.’
Time will tell whether the T22 strategy will deliver its intended outcome.
For Markets and Money
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