Telstra bullish on earnings amid mobile boost
Telstra lifted its 2025 earnings guidance, with strong growth in mobiles and infrastructure offsetting its troubled enterprise business.
Telstra has lifted its 2025 earnings guidance, with strong growth in mobiles and infrastructure offsetting its troubled enterprise business as it spends $1.6bn building out a ultra-fast fibre network connecting Australia’s capitals.
The telco giant’s underlying earnings rose 3.7 per cent to $8.2bn for the year ended June 30, with revenue up 1 per cent to $22.9bn. It boosted its forecast for underlying 2025 earnings to between $8.5bn and $8.7bn from an existing range of $8.4bn-$8.7bn.
Macquarie said it was a “strong result with refined guidance and cash flow better than expected”.
The upgraded guidance “was due to the earlier-than-expected price increases and a better-than expected outcome with the enterprise bargaining agreement”, the broker noted.
It lifted the company’s full-year dividend by 5.9 per cent to 18c, including a final dividend of 9c, fully franked.
Telstra’s mobile business grew strongly, adding about half a million new customers. “Our mobiles business has continued to perform very strongly, with EBITDA growth of over $400m,” chief executive Vicki Brady said.
“This growth was driven by more people choosing our network, with more than 560,000 net new handheld customers.
“Mobile services revenue grew by 5.6 per cent and our mobile business underpinned our overall underlying earnings growth.”
The telco reported 560,000 new handheld customers, as well as average revenue per user growing in both postpaid and prepaid mobiles.
The telco added 116,000 new postpaid customers, with revenue jumping 4.5 per cent to $5.63bn as average revenue per user rose to $52.85 from $51.55.
Telstra’s net profit fell 13 per cent to $1.79bn as it continues to target a $350m cost reduction by the end of the 2025 financial year.
Under the program, the telco is cutting almost 3000 jobs – a hit which will cost it $247m in the current year.
Ms Brady has been frank about the telco’s fixed enterprise business’s performance and how increasing competition in the industry had the telco radically overhaul the services it provides to enterprises.
“While most parts of our business performed strongly, fixed enterprise is clearly a long way from where we need it to be,” she said. “We commenced action during the year to address challenges in our enterprise business, and took additional action on cost overall.”
Fixed enterprise revenue dropped 2.7 per cent overall to $3.53bn, which the telco attributed to increased competition and technology changes.
The number of data and connection services in operation dropped 3.8 per cent – by about 6000 connections over the full year – resulting in a data and connectivity income decline of $748m or 6.8 per cent.
Ms Brady said some customers using legacy products had left or lwere looking for upgrades.
Customers who use its network applications and services business include McDonalds, Drakes, Volkswagen and the South Australian Department of Education.
Some technology businesses were able to nab its customers and out-compete its offerings, and Telstra was looking to partner or pass some services completely to other providers, Ms Brady said.
“As enterprises move to the cloud, obviously the big-technology hyper-scaler companies play a bigger role in that so there has been large, structural change under way,” she said.
The telco was also experiencing the fallout of many corporates pulling back on costs they no longer see as crucial, including those involving the cloud.
“What we have seen happen from the very late part of last calendar year, and we see it continuing through this calendar year, is businesses pulling back a little bit from any spend that might be more discretionary in nature,” Ms Brady said.
“It might be a digital transformation project, and that in particular has impacted our network application and services business, particularly our professional services business where we did see our sales pipeline reduce.”
Chief financial officer Michael Ackland said losses in fixed enterprise business would take “ a number of years” to recoup.
The telco hopes the intercity fibre project, which is building 10 routes across Australia and laying 14,000km of cable, can help recoup the costs of its shrinking fixed-enterprise business. It expects the rollout will return $200m per year in revenue once fully operational in 2027.
Mr Ackland said it was an investment already beginning to pay off, as Telstra secured a multimillion-dollar deal with one of the world’s largest tech companies.
“The fact that Microsoft are committing to that well ahead of us completing the routes that they’re going to be using is a big vote of confidence in the project,” he said. The telco expects they’ll last at least two decades, adding it believed they were pivotal in “future-proofing Australia’s speed and capacity needs”.
Comparatively, the telco added a larger number of prepaid customers, at 124,000 over the full year, with revenue jumping 10.9 per cent to $1.19bn. Prepaid ARPU grew 3.8 per cent.
Meanwhile, Ms Brady was upbeat on the telco’s ability to manage wage inflation, as it had signed an enterprise agreement which was overwhelmingly supported by staff and will arrive in October.
Telstra announced in May it would undergo major cost-cutting measures, including laying off 2800 staff. Since then it has begun lay-offs, the equivalent of 560 people a month, the last of whom will leave by the end of September – ahead of a new enterprise agreement which would have seen a major jump in the $247m in cost associated with the lay-offs.
About half of the laid-off workers have come from the fixed enterprise business, which has failed to impress the telco’s C-suite.
Those losses were partially offset by growth in its mobile business and its intercity fibre project.
Ms Brady also acknowledged investor interest in Foxtel and said the telco support a sale if it had come in at the right price.
Telstra shares closed Thursday 2.1 per cent higher at $3.95 each.
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