Andy Penn leaves Telstra in better shape despite dismal facts

Despite many dismal facts Andy Penn has left Telstra in better shape than he found it. Picture: NCA NewsWire / Nicki Connolly

Andy Penn’s rein at Telstra makes a myth of the line that chief executives live on a knife edge not afforded a break from an unforgiving market.

In his time as Telstra boss, total returns on the stock have underperformed the market by a massive 66 per cent, he spent his first three years following the wrong growth strategies, churned through two of his own chosen executive teams and presided over an era (including as CFO) when earnings before interest, tax, depreciation and amortisation fell 25 per cent on a 9.5 per cent fall in sales, and destroyed $28.8bn in market value

You have to say he was a given a fair go and it’s time to leave.

Consider too, Telstra chiefs are running a company pocketing the lion’s share of government sector handouts, blended market share of 65 per cent including 75 per cent share of the business market, 55 per cent of NBN resale and 52 per cent of mobiles.

That is a hand of cards most chief executives would gladly take.

To put the relative market value losses in context, between March 1999 when Ziggy Switkowski was appointed at the top of the internet boom the company was valued at $110bn today it’s $46.2bn, a $64.7bn or 58 per cent fall in value.

That is massive value destruction over four chief executives even if you argue the company was overvalued at the peak.

Over his seven year term he also picked up roughly $5m a year in compensation which at 63 times the average wage means the budding artist can pay the rent.

Fact is, in spite of these dismal facts Penn has left the company in better shape than he found it.

That is the ultimate test, but his successor Vicki Brady now has a real challenge on her hands to turn the company, tagged a parking lot stock, into a must have in any portfolio.

Telstra accounts for 2.2 per cent of the index around the same as, Transurban Woolworths and Wesfarmers but in the eyes of the market is one of those stocks you buy, leave it in the top drawer and forget about it.

Sol Trujillo’s term was marked for its investment in the mobile network, David Thodey focused on customers and Penn’s legacy is structural reform laced with financial engineering.

History shows, with the exception of the Thodey era, Telstra, the elephant in the telco sector, has been in decline for all of this century, providing dumb pipes for others to make money from.

Illustration: Sturt Krygsman.

The Telstra team has worked wonders in rewriting history, sometimes before it even happens, to create Andy’s legend, some of which borders on the extraordinary.

Granted, he faced some headwinds, the forced migration of high margin customers to NBN, the digital revolution and a bloated workforce.

NBN went live in 2011, a year before Penn, the former AXA boss, became CFO and after long and detailed negotiations between the company and government to sort out compensation.

The loss of the high margin copper network customer was said to cost $2.5bn a year but the company received $19bn in compensation and for the next 30 years will receive taxpayer funds totalling $1bn a year in rents for its ducts and exchanges.

The work former CFO John Stanhope did on the compensation package was lauded so highly, there was thought given to erecting a statue of the Geelong tragic at the MCG.

So how does Penn, after three years as CFO, get to say in the top job in 2015, the company didn’t understand the impact of the NBN on the business.

It wasn’t just the NBN which killed the rivers of gold from voice on copper, it was technology, including that you can dial the world on your WhatsApp program for peanuts.

But the narrative says it was all the NBN’s fault.

No wonder Penn is now praising Communications Minister Michelle Rowland’s regulatory reset focusing on network quality compared with the Liberal party focus on process and eventual network privatisation.

It is also not afraid of exercising its market power which explains its constant ACCC surveillance.

Just how much his successor will be cheering remains to be seen when the details are known.

When anointing John Mullen to replace her, then chair Catherine Livingstone confided “ she believed the timing was right to enable a new Chairman to drive Telstra’s continued growth as a world class technology company.”

That was the mantra in the early Penn years before reality hit and costs were cut by sacking 10,000 staff to leave just 26,000 people and halving the number of contractors to 19,000.

T22 which slashed the number of product plans from 1,800 to 20 was the right strategy as is the financial engineering inspired structural separation of its infrastructure division.

It should have come on day one not day 2,555.

But as he prepares to leave, Penn has the company where he would like it to be with his chosen successor, Brady to take up the challenge.

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One of the legends of Australian business, Ray Horsburgh is gravely ill from complications from a fall in a Romanian steel mill he was touring in his role as a director for Sanjeev Gupta’s Liberty Steel.

The 78 year old former legatee made his name running Smorgon Steel, but served as chair and director of companies including Pact, CSR, Toll and Calibre and lifetime work for several charities focused on disadvantage youths.

The former Essendon football club president is devoted to his extended family and in business a plain speaking mentor to many including BlueScope boss Mark Vassella, former Fortescue boss Neville Power and Nexteel’s John Easling.

Throughout Horsburgh has always backed the little guy taking on the established powers, quick with a joke and always has the time to listen and to tell a good story.

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EY boss David Larocca is pinning hopes on a space tech venture with Swinburne University and NASA which uses satellites to gather data which then will be analysed with his own machine learning and data science teams delivering cheaper and more efficient data.

The space initiative is one of three potential growth ventures along with the EY net zero centre and digital work across Government departments.

The 20 year EY veteran was a founder of its infrastructure team and sees business transformation as the growth driver going forward including some $50bn worth of investment expected to help Australia become more energy efficient.

Last year’s $2.8bn in revenues came 38 per cent from consulting, 23 per cent from tax, 20 per cent from audit and the rest from strategy and transactions which includes the new acquired Port Jackson Partners.

Talks on a potential split of the consulting arm are ongoing and Larocca declined comment on progress.