Updated ,first published
Telstra is reaping the rewards of aggressive cost-cutting that has led to the shedding of more than 2300 jobs in the past year, posting a bumper profit while warning consumers may face higher mobile bills related to a $7.2 billion government spectrum charge.
The telco giant reported on Thursday a $1.2 billion half-year profit, up 8.1 per cent. Its shares rose by nearly 4 per cent after the results beat analysts’ consensus expectations.
Underlying earnings rose 5.5 per cent to $4.2 billion for the half-year ended December 31, driven by strong mobile performance, with services revenue up 5.6 per cent. Earnings per share climbed 11 per cent to 9.9¢, and the board declared a 10.5¢ interim dividend, up from 9.5¢ a year earlier. Net profit rose 9.4 per cent to $1.1 billion.
Chief executive Vicki Brady said there was strong momentum across the business, and that Telstra had delivered “strong cost control and disciplined capital management”. She pointed to the mobiles division as the standout performer, with “more customers continuing to choose our network and the value it provides”.
But the earnings growth has come at a significant human cost. Total direct roles fell by 2356 to 29,520, with redundancy expenses surging $63 million as Telstra continues a sweeping reset of its enterprise division. Last week, the company proposed axing a further 442 positions, including 209 from its $700 million Accenture data and AI joint venture, with some work to be offshored to India via a new Infosys partnership.
Asked whether AI was replacing jobs at Telstra, Brady said: “There’s not a role I could say has directly been taken by AI. But of course, our investment in digitising our business, our investment in applying AI, is generating a more efficient business.”
She said Telstra had consolidated its software partners from 400 to two, improved development efficiency by more than 20 per cent, and launched a generative AI customer assistant that tripled resolution rates.
Underlying operating expenses fell 2.4 per cent, or $179 million, delivering the positive operating leverage Brady has promised investors.
The telco tightened its full-year guidance to $8.2-8.4 billion in underlying earnings, and boosted its share buyback from $1 billion to $1.25 billion after completing $637 million of repurchases at an average price of $4.90.
Barrenjoey analyst Eric Choi said the result showed Telstra could generate reliable free cash flow, and that the dividend suggested “the market will need to revise their future Telstra dividend forecasts up”.
Zavier Wong, a market analyst at eToro, said mobile remained “the engine room” and that Telstra had shown it could grow through pricing discipline, but warned “cost discipline can only carry them so far” in underperforming divisions.
Ratings agency Moody’s said the increased shareholder returns were unlikely to threaten Telstra’s credit position.
Saranga Ranasinghe, a senior credit officer at the ratings agency, said earnings had been “supported by broad-based contributions across its core businesses and continued cost discipline”, and that despite the higher dividend and expanded buyback, Moody’s expected Telstra’s “strong cash generation and disciplined financial management to continue supporting its credit profile”.
But he flagged competitive dynamics and inflationary pressures as ongoing risks.
Hanging over the result is Telstra’s escalating fight with communications regulator ACMA over spectrum pricing. In a pre-budget submission, the company warned the regulator’s proposed $7.2 billion licence renewal fee – of which Telstra’s share would be $2.7 billion – could flow through to consumer bills.
Brady has previously stated the additional cost would either reduce network investment or be passed on to customers.
Asked whether there was a landing zone between the two figures or whether the gap was binary, Brady said the process remained ongoing.
“If you look globally, telcos have been challenged on getting reasonable returns, because we need to be profitable to make sure we can keep investing,” she said. “Higher spectrum costs just puts again extra costs we need to consider, and we would have to think about various trade-offs.”
She rejected the suggestion Telstra could simply absorb the additional cost through lower shareholder returns, pointing to the company’s underlying return on invested capital of 8.9 per cent. “It is above our cost of capital, but it’s not at the level that our investors would ultimately hope for,” she said, noting Telstra had more than a million shareholders and estimating about 16 million Australians benefited through superannuation.
Brady also used the result to renew her push for a national digital infrastructure plan, saying the country needed “a clear plan for how we maximise the use of spectrum to get the maximum benefit for consumers and businesses”.
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