Telstra’s T25 ‘a strategy for growth’, CEO Andy Penn tells investors

Telstra chief executive Andy Penn has affirmed his commitment to leading the telco as he unveiled his corporate vision for the next four years.

Telstra has done away with cost-cutting and replaced it with what chief executive Andy Penn describes as ‘a strategy for growth’. Picture: Aaron Francis

Telstra chief executive Andy Penn has affirmed his commitment to leading the telco, despite suggestions the conclusion of the T22 strategy would be an appropriate time for a leadership change, as he unveiled his corporate vision for the next four years.

Outlining T25, which Mr Penn described as “a strategy for growth” following T22’s aggressive cost-cutting program, he said Telstra would pursue “high-teens” underlying earnings per share growth rates to 2025, along with a pledge to extend 5G coverage to most of Australia’s population.

Mr Penn, who cut about a third of Telstra’s workforce under T22, said the sleeker telco was now ready to aggressively win over new customers across its consumer and enterprise units.

“This is a very exciting day for Telstra as we announce what comes after T22,” Mr Penn said in a virtual presentation on Thursday.

“T22 has been a defining strategy for us. It has been ubiquitously in our narrative for the last few years. It has guided every strategic decision we have made, so it’s quite the moment today to be sharing with you what will be succeeding it.”

If T22 was a strategy of necessity, T25 was a strategy for growth, Mr Penn said.

“And in its implementation, we will be using exactly the same disciplines and governance that we used for T22 – the metrics and the milestones, the road maps and the scorecard. And this is why I am confident it will be a success – why change a winning formula when you don’t need to?”

As well as pledging to extend 5G coverage to most of Australia’s population, Telstra said it would add 100,000sq km of new 4G and 5G regional coverage. It will also target a 50 per cent carbon emissions reduction by 2030.

But the focus on cost control is not abating, with Telstra pledging to remove a further $500m in fixed costs from FY23 to FY25.

Telstra was expected to announce net fixed cost savings of $300m but instead declared a more ambitious target of shedding $500m in costs from the balance sheet.

Those cost savings largely wouldn’t come from further redundancies, according to Mr Penn, who said extra efficiencies would mostly flow through as a result of consolidation work already done in T22. “We’re growing at the same time, so in context it’s $500m in cost reductions compared to $2.7bn,” he said.

“I’ve reduced headcount by a third but, in so doing, I’ve brought more people in-house than out-house and that’s what I’ll continue to do.”

Telstra customers will also receive more services, with telco, energy and tech products and services personalised and localised for individual customers using predictive analysis.

“Telstra is a vastly different company to what it was four years ago,” Mr Penn said. “With T25 Telstra will be a vastly different company, again.”

Mr Penn also quashed speculation that he was ready to anoint a successor, instead declaring his intentions to finish the work he’d started.

“I obviously understand why there’s speculation around my plans at a time when we’re announcing a new strategy but, what I would say is we’re here today to talk about T25.

“T25 has been a collective effort. The whole team has been involved in creating it and the whole team will be involved in leading it, just as much as they were on T22.

“But, candidly, I’ll be a part of this next strategy as I was a part of the previous strategy.”

Shares in Telstra rose to $3.95, closing up 0.51 per cent.

Aberdeen Standard Investments’ deputy head of Australian equities Natalie Tam said she expected Mr Penn to stick around for the next few years in order to lead the telco through at least the majority of the T25 program.

“But as we get to its conclusion it’s a natural point for him to consider what his future plans might be,” she said.

“If you think about the evolution of Telstra, he’s implemented T22 and executed that, and that wasn’t an easy strategy to execute on. He made lots of people redundant and simplified the business and did a lot of really tough work to get the business to where it is today, and now it’s time for Andy to reap the rewards a little bit.”

Ms Tam added that Telstra’s T25 outlook was largely positive for investors, including the all-important dividend.

“It gives us confidence in ongoing capital returns above the current 16c-per-share dividend, and I also think it’s becoming more clear that the dividend can actually grow over time. And that’s not entirely factored into the market’s expectations,” she said.

Mr Penn said he recognised the importance of dividends.

“The franked dividend is particularly important so we’ve updated our dividend policy to recognise that and to also recognise the fact we’re currently in a ­really strong position. We’re regenerating and converting cashflows very strongly. Our focus is to maximise our fully franked dividend and to grow it over time.”

The executive this month received some flak from the Communications Union over a proposed vaccine mandate that would force 8300 Telstra workers to be fully vaccinated, and potential ‘‘medical retirement’’ for anyone who declined the jab.

Mr Penn said his stance “hasn’t changed at all”.

“I‘m very pro-vaccines and we’re doing everything we possibly we can to support it,” he said. “I don’t apologise for taking this stance, I know that not everybody agrees but it’s ultimately about protecting our people and looking after their safety.”

Mr Penn received $5,305,000m in take-home pay for the 2021 financial year, a 45.1 per cent rise from the prior year. His base salary remained at $2.39m.