Telstra to shed 10 percent of its workforce to simplify operations and improve productivity.

Job cuts equal to 10 percent of employee base

Telstra has announced 2,800 job reductions by the end of this calendar year, including 377 staff redundancies by end of July 2024, mainly from areas supporting the products and services to be exited by Telstra. The job cuts account for about 10 percent of Telstra’s 28,000 employees. These and other non-labour and indirect labour cost savings will total about $350 million by FY25, although one-off restructuring costs to implement these changes may be up to $250 million across FY24 and FY25.

The job cuts relate to the Telstra Enterprise segment of the business which sells services to large Enterprise businesses and governments. This area of Telstra operates in an evolving competitive landscape within a dynamic environment which is experiencing rapid advances in technology, changing customer needs and ongoing inflationary pressures, like all businesses in Australia. The changes will enable a sharper focus on a streamlined product portfolio, a simplified customer sales and service model, and an improved cost base of the business.

Importantly, Telstra has reaffirmed FY24 guidance and issued preliminary FY25 earnings guidance that implies the 19 cents per share fully franked annual dividend remains safe, despite the franking account balance being tight.

The Future

The Mobile business continues to perform strongly with increasing subscriber numbers running at about 4 percent per annum, while the existing Mobile network in terms of coverage, performance, reliability, speed and security is superior to the competition offering.

However, it is the increasing growth rates in data volumes on networks that underpins long-term earnings growth for Telstra. Servicing the needs and providing the processing capacity required by users of the Cloud and Artificial Intelligence requires significant investment in infrastructure and technology to improve and expand connectivity. Cybersecurity is also a focus for Telstra customers and Telstra is ideally placed to invest in the infrastructure essential to mitigate this risk.

Interestingly some investors have referred to Goodman Group as being a better exposure and leverage to growth for data and Artificial Intelligence themes than Telstra. At the Market Update on 21 May, Telstra executives pointed out that while Goodman are investing in Data Centres, these facilities don’t operate as islands on their own and must be connected through the data network. This is where Telstra has a significant and growing investment through their InfraCo business, which includes Telstra’s intercity fibre investment. This investment involves laying new fibre across the country connecting capital cities and major population centres and requires the infrastructure of ducts, tunnels and manholes and pits in which to install cable.

The digital economy is a significant explosive growth area for Telstra and provides active and passive earnings tailwinds and operating leverage and explains why their capital is being deployed in providing these services.

Telstra executives have publicly stated that ownership of InfraCo will reside with Telstra for the medium-term. This could be interpreted as 3 to 5 years but beyond that this network connectivity infrastructure could be divested into a separate listed entity.

Telstra Health is another emerging earnings segment of the Group. It is a sound value proposition for the healthcare sector by linking healthcare providers and government departments with digital health and connectivity across pharmaceutical scripts, GPs, hospitals, aged care, and disease registries.

The digital economy is a significant explosive growth area for Telstra and is where considerable capital is being invested from which material recurrent, passive earnings should be derived over the long-term.