Telstra's toughest NBN challenge yet to come, sheds $1.4 billion in profits

Telstra’s NBN headache has shown no signs of easing as the telco shed $1.4 billion in net profit in FY19.

The telco giant’s revenue dropped 3.6 percent to $27.8 billion for the financial year ending 30 June 2019, while EBITDA slipped 21.7 percent to $8 billion.

Net profit copped the biggest hit, falling 39.6 percent to $2.1 billion for the year.

As it’s done since at least 2016, the telco blamed its financial woes on the ongoing headwinds from the construction of the NBN. Telstra estimates the network’s rollout has led to $1.7 billion in missing EBITDA since FY16, roughly 50 percent of the overall impact.

Telstra has managed to absorb a large portion of its missing EBITDA since committing to simplify and digitise its business processes in 2016, bringing down direct and indirect labour costs. So far, it has achieved $1.17 billion in reductions since 2016, and reducing underlying costs by $456 million in FY19 alone.

“FY19 has been a pivotal year for Telstra,” said chief executive Andy Penn. “Notwithstanding the intense competitive environment and the challenging structural dynamics of our industry, it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced.”

That being said, the company forewarned that the worst is yet to come with the NBN, predicting a recurring financial impact between $800 million and $1 billion in FY20 when the network’s construction is expected to finish. Telstra expects to spend another $300 million on restructuring in FY20.

Despite its misfortunes, there were a few positive highlights throughout the year stemming from initiatives in its T22 strategy, the plan announced in June 2018 that will restructure the entire business and drastically reduce costs, including cutting at least 8000 net jobs, in an effort to recoup $3 billion lost in earnings from the NBN’s construction.

The telco said around 75 percent of the 8000 net direct job cuts have been identified, and has “made progress” in creating 1500 new jobs in areas such as cyber security and software engineering.

On the upside, Telstra made good on its promise to cut the number of consumer and small business plans from 1800 down to 20, launched its commercial 5G network, scrapped its no lock-in plans for fixed and mobile customers and removed excess data charges. As a result of these changes, call centre calls have dropped 22 percent.

“We completed our strategic investment program announced in 2016 to digitise our business and create the networks for the future, delivering over $500 million of EBITDA benefits,” said Penn.

“We passed the halfway mark of customers migrating onto the NBN network. We launched 5G, the next generation of telco technology and the platform for future growth for us and our customers. And at the start of the year we commenced our T22 strategy, where we have made very significant progress.”

On the mobile front, Telstra’s core business, the telco added 378,000 net retail postpaid handhelf mobile services in FY19, bringing its customer base to 8.2 million, while wholesale MVNO mobile services added another 230,000 customers to reach 1.2 million.

As for internet, Telstra added 107,000 net new fixed-line retail and data services, bringing the total number of services to 3.7 million.