Customers up thanks to Belong in rare increase for Telstra in FY2020

Declining expenses means Australia's largest telco still banked AU$1.8 billion in net profit for fiscal year 2020.
Written by Chris Duckett, Contributor

Telstra CEO Andy Penn with a mmWave hotspot

Image: Telstra

It is unsurprising that Telstra has labelled 2020 a challenging year, in fact, to say 2020 is challenging might be one of history's great understatements.

For Australia's largest telco, 2020 saw reductions in revenue, earnings, and profit as well as a reduction in expenses to offset the declines somewhat. For the 2020 full year, Telstra reported a 6% drop in total revenue to AU$26 billion, operating expenses fell 14.5% to AU$17 billion to give earnings before interest, tax, depreciation and amortisation (EBITDA) of $8.9 billion, which represented an increase of 11.5% and a rare bright spot on Thursday's earnings.

With increased depreciation and amortisation, the company went on to record a 14% drop in net profit to AU$1.8 billion.

The company also revealed in its results that its Belong brand has been driving many of its customer gains over the past year, which is likely to continue into the future with Telstra increasing the prices on its flagship plans at the end of June.

Across the year, Telstra added 240,000 postpaid mobile services, of which, 154,000 were on Belong, as well as 171,000 prepaid mobile services, 347,000 wholesale services, and 652,000 Internet of Things services.

"In FY20, we added 80,000 broadband subscribers, with Belong accounting for all the growth," CFO Vicky Brady said.

Belong now has 400,000 mobile services and 330,000 fixed services around Australia. For its flagship brand, Telstra said it had decreased its number of consumer and small business plans from 1,800 to 20.

For its mobile segment, the company reported a 4.4% revenue decrease to AU$10 billion, with EBTIDA down 6.7% to AU$3.5 billion, and average revenue per user falling 8.2% to AU$50.29 each month. The company also experienced a AU$75 million drop in international roaming due to coronavirus travel restrictions.

It was a similar case of decreases in the fixed segment, with revenue dropping by 12% to AU$4.6 million and bundle and standalone data average revenue per user dropping 4.4% to AU$71.75 each month.

Data and IP recorded a 13% plunge in revenue to AU$2 billion, with EBITDA crashing 17.5% to AU$1.3 billion, while its network applications and services segment recorded an EBITDA increase of almost 65% to AU$593 million from revenue of AU$3.4 billion.

After it became a standalone business unit in the fiscal year, InfraCo saw 10.6% drop in revenue to AU$4.4 billion and an 11.7% drop in EBITDA to AU$2.8 billion.

Telstra also announced it was extending its job cuts pause until February next year for permanent staff.

"As we approach the end of that pause, it is clear that the impacts of COVID-19 will be with us for some time," CEO Andy Penn said.

"We know many are doing it tough at the moment and we hope this decision will give some certainty to our people in what is a very challenging time for Australia -- and many of the countries in which we operate.

"There will be some roles that finish in the interim where projects have come to an end or work is no longer required, volumes have declined, or fixed-term contracts end particularly related to our involvement in the construction of the NBN. However, for the majority of our teams this will continue to give them some certainty at least until the new year."

Penn added the company would need to return to the cuts and make tough decisions next year to hit its T22 goals.

Telstra's workforce is 5,700 employees smaller than it was two years ago, the company said, and its indirect workforce had 12,000 fewer jobs.

In March, the company needed to recruit 1,000 temporary call centre workers in Australia, after its overseas call centres were shut down due to coronavirus. This shifted the company's thinking, Penn said, and the company will be pushing digital channels of interaction even more as it aims to reduce inbound call centre volumes by two-thirds as part of its T22 plans.

"This means that over time we will need a smaller call centre workforce for our consumer and small business customers and our aspiration is that by the end of our T22 program all inbound calls from these customers will be answered in Australia," Penn said.

"Today we are already at more than 60%."

The company has also set aside AU$50 million for penalties related to selling practices that took advantage of vulnerable people, especially Indigenous Australians, as well as cut the pay of some executives, including the CEO.

"We are also cooperating with an ACCC investigation into our sales, complaint handling, and debt collection practices to resolve their concerns about potential misleading or deceptive conduct, unconscionable conduct, or false or misleading representations at a small number of our partner stores -- stores that are operated by licensees," Penn said on the matter.

"The board has also reduced the variable remuneration outcome for certain executives by 10%, not because they did anything wrong, but because they were accountable for the areas of the business where these failures happened. This includes me because ultimately as the CEO there is not a part of the business for which I am not accountable.

Elsewhere in its results, Telstra said it was 75% through its NBN headwinds, with an AU$830 million hit to its earnings that are pinned on the existence of the government-owned broadband wholesaler for this year. That total is said to be AU$2.6 billion since the 2016 fiscal year.

"NBN wholesale pricing remains the largest negative impact on our fixed business," Penn said.

"Without some sort of long-term change leading to improvement in RSP economics, the risk of retail price increases, reduced customer experience or customers moving onto other networks such as 5G will increase. In Telstra's case, the profitability of reselling the NBN is negligible at best -- that is not sustainable."

Telstra also took a AU$308 million impairment on its Foxtel stake and said it had 10,000 people working in agile teams.

For the year ahead, Telstra is expecting total income to be between AU$23 billion to AU$25 billion, with underlying EBITDA to be between AU$6.5 billion to AU$7 billion. The company also expects to spend AU$200 million either side of AU$3 billion in capital expenditure, with NBN headwinds to account for a AU$700 million hit to earnings, and coronavirus impacts hitting it for another AU$400 million.

The telco wants to cut another AU$400 million in costs during fiscal year 2021.

Too much Telstra is never enough

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