LA Private

Telstra’s strategic shift

Telstra (ASX:TLS) embarked on a significant investor pitch on Tuesday, unveiling cost reductions and other adjustments to reset its troubled Enterprises division. This narrative was accompanied by an optimistic outlook for 2023-24 earnings, alongside early guidance for 2024-25.

However, the crux of the matter lies in the announcement of job cuts totaling a substantial 2,800, marking a significant restructuring of the country’s largest telco. Telstra stated it anticipates one-off restructuring costs of $200 – $250 million across FY24 and FY25. These costs will be excluded from guidance and are additional to its annual restructuring costs and savings.

The company also mentioned its intent to persist in focusing on various measures to reduce its non-labor and indirect labor costs. With all actions outlined in the statement, Telstra anticipates achieving $350 million of its T25 cost reduction ambition by the end of FY25.

During its Half-Year Results in February, Telstra disclosed a comprehensive review of Telstra Enterprise, encompassing all facets of its domestic business. Several actions have been identified to initiate a reset of Telstra Enterprise, aiming to enhance its focus on areas of strongest differentiation, further improve customer delivery, and refine the business’s cost base.

These adjustments entail restructuring the business, implementing job cuts, relocating staff, streamlining product offerings, and targeting reductions in other costs.

“The review of Telstra Enterprise is ongoing, and the challenging market conditions it faces remain consistent. Further updates on next steps, including progress on the aforementioned actions, will be provided at the 2023-24 results in August.”

This accumulates to $500 million, with CEO Vickie Brady stating in the interim results announcement in February that $104 million of that target had been achieved in the six months to December 31.

Telstra reiterated its FY24 guidance ($8.2 billion to $8.3 billion) and provided FY25 Underlying EBITDA guidance of $8.4 – $8.7 billion. Additionally, Telstra reaffirmed its commitment to delivering its T25 growth ambitions for Underlying EBITDA, EPS, and ROIC growth (Return on Invested Capital).

“Our continued confidence in our capacity to grow mobile revenue and EBITDA, along with clear actions on cost reduction and the reset of our Enterprise business, has enabled us to advance our Underlying EBITDA guidance for FY25,” Ms. Brady stated in Tuesday’s announcement.

In acknowledgment of the impact of this decision and in response to rising price pressures and persistent inflation, the telco announced it would be updating customer terms on its postpaid mobile plans to cease the annual CP-linked review of prices.

“As a result of this change, we will not be implementing a CPI-linked annual price adjustment to postpaid mobile prices in July 2024. We will continue to review our pricing, and any changes will be communicated to customers in a timely and transparent manner,” Ms. Brady concluded.