No major job cuts to take place in Telstra’s latest strategy

Telstra chief executive Andy Penn has ruled out large scale cuts to the telco’s workforce as he laid out a new strategic plan to drive shareholder value and slash $500 million in costs over the next three years.

The telco giant on Thursday morning unveiled what will be known as its T25 strategy, which includes a major push to increase 5G coverage in metropolitan and regional areas, a focus on reducing overall costs and aspirations to grow the company’s dividend.

Telstra CEO Andy Penn has unveiled the telco’s T25 strategy.Credit: Eamon Gallagher

But unlike the current strategy - T22 - which included about 8000 job losses to achieve $2.7 billion in savings by the end of financial year 2022 - Mr Penn said the new plan does not include material change to headcount.

“One of the things I said to the teams today was that headcount reduction was quite a significant feature of our T22 program. It is not a feature of our T25 strategy,” Mr Penn told The Sydney Morning Herald and The Age. ” In terms of the T22, we are essentially done on those [cuts] and so we don’t expect to see material changes to headcount and significant reductions going forward. However...we’re a large, complex company, so there will be organisational changes and that will impact roles going forward.”

The new strategy focuses on four areas: customer experience, technology, value for shareholders and creating a place where people want to work. Telstra said its 5G network will be extended to 95 per of the population under the plan, while 4G and 5G regional coverage will also expand a further 100,000 square kilometres.

Plans also includes plans to lift Telstra’s Health revenue to $500 million by 2025, expand Telstra’s Plus rewards program to 6 million members by 2025 (up from 3.5 million) and try and grow the fully franked dividend for shareholders over time.

The new strategy did not provide any specific update on the potential sale of Telstra InfraCo Fixed, but he say “monetisation opportunities” were on the cards. Any sale of this division could result in a capital return to shareholders.

Morningstar analyst Brian Han said the market should focus on growth in shareholder returns if T25 is executed rather than obsess over the way in which it is paid.

“It seems pedantic at this early stage to argue about in what forms those returns should be distributed - ie fully franked dividends, partially franked dividends, buybacks, capital returns,” Mr Han said.

Mr Penn said the company is expecting mid-single digit underlying earnings growth to financial year 2025. But he said talks with South Pacific telco provider Digicel were not factored into the current guidance.

Industry sources familiar with the deal, who spoke anonymously, said Telstra is continuing talks about acquiring the company, which is owned by Irish billionaire Denis O’Brien. The talks are in the advanced stages, they said, following a visit to Papua New Guinea by Mr Penn.

“It’s not included in any of the financial ambitions or the guidance that we have provided so far,” Mr Penn said. “Secondly, the process of restructuring Telstra into a new contemporary structure and that will create four subsidiaries. Were we to acquire it, we would effectively operate and run it through our international business relatively independently to the other parts of the business.

T25 is the second major strategic initiative implemented under Mr Penn, who took the helm of Telstra in 2015. In 2018, Mr Penn launched Telstra 22, a transformation plan that included about 8000 job cuts to help achieve $2.7 billion in savings by the end of this financial year. In March, the business was split into four parts - InfraCo Fixed, InfraCo Towers, ServeCo and Telstra International. It then sold a large stake in its tower business - now known as Amplitel - to a consortium of superannuation funds.

Mr Penn said that T22 was a “strategy of necessity”, but T25 was a “strategy” for growth”. “When we deliver T25, we will be a vastly different company, again,” he told investors.

Mr Han said the strategy should help achieve growth.

“I’m confident that the easing competitive dynamics in mobile and the end of NBN damage will make it easier to grow the business, and T25 is a good plan towards that end,” he said.

Telstra shares were trading at $3.98 in mid-afternoon, up 1.4 per cent. The telco’s share price has climbed more than 30 per cent so far this year.

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