Telstra, Australia’s leading telecommunications company, reported a 12.8 percent decline in net profit for FY24. However, despite this decrease, the market remained optimistic as shares rose. The decline in net profit was primarily attributed to the struggling fixed-line enterprise business, which prompted a $311 million writedown.
To address the challenges faced by its fixed-line business, Telstra implemented various measures, including the reduction of 2,800 jobs, which accounts for almost 10 percent of its workforce. These cost-cutting measures, along with the reduction of non-labor and indirect labor costs, are expected to result in $350 million in savings by the end of FY25.
The decline in net profit was also influenced by a 3.8 percent decrease in the number of data and connection services, leading to an income decline of $748 million in that sector. However, the mobile division performed well, with a 5.6 percent increase in revenues and the addition of over 560,000 new customers. Additionally, Telstra’s InfraCo asset base expanded by $150 million, contributing to an underlying profit increase of 7.5 percent to $2.3 billion.
Telstra’s Chief Executive, Vicki Brady, acknowledged the challenges faced by the fixed enterprise business and emphasized the need for improvement. She highlighted the significant structural changes occurring in the industry as enterprises transition to the cloud and rely more on technology hyperscale companies.
Chief Financial Officer Michael Ackland acknowledged that the recovery of the fixed enterprise business would take time. He stated that it would be a gradual process that spans several years. While the mobile division currently drives performance, it remains to be seen how the upcoming price increases for postpaid and prepaid services will impact customer demand.
Telstra may receive a financial boost if there is interest from a potential buyer for its 35 percent stake in Foxtel. Brady mentioned that Telstra would be supportive of a sale if the right price is offered. However, no concrete plans regarding the sale of Foxtel have been made yet.
Despite the overall decline in net profit, shareholders found solace in the increase in the full-year dividend, which rose by 5.9 percent to 18 cents, including a final dividend of 9 cents. This positive news, along with Telstra’s tightening of its FY25 EBITDA guidance range, was well-received by the market. Telstra shares saw a 2.7 percent increase in afternoon trade, reaching $3.98 per share.
In conclusion, Telstra’s net profit decline was largely driven by its struggling fixed-line enterprise business. However, the company’s cost-cutting measures, along with the strong performance of its mobile division, provide optimism for future growth. The recovery of the fixed enterprise business is expected to be a gradual process, and the impact of upcoming price increases on customer demand remains uncertain. Telstra’s potential sale of its stake in Foxtel and the increase in the full-year dividend also contribute to the positive outlook for the company.
