Telstra (ASX:TLS) share price slumps lower as telco slashes FY19 profit guidance after unveiling new strategy


The Telstra Corporation Ltd (ASX:TLS) share price has fallen 14 cents or 4.8 per cent to $2.77 after announcing a new strategy to simplify its products, improve customer service and reduce its cost base.

As part of its strategy day, the wounded telco giant also cut its FY profit forecast by around 10 per cent, something that will also certainly see the Telstra dividend cut further next financial year.

Telstra will simplify its products by retiring all of its more than 1,800 consumer and small business plans and instead introducing 20 core plans. Customers will start to benefit from this simplified approach in July, with Telstra making excess data charges a thing of the past.

Cost-wise, Telstra announced a net reduction of 8,000 employees and contractors over the next three years, focusing on executive and management roles and minimising any impact on customer facing teams. This will help Telstra increase its productivity program by a further $1 billion to $2.5 billion.

The plan, dubbed Telstra2022, was developed in response to anticipated changing market dynamics.

CEO Andrew Penn said Telstra was now at a tipping point where it must act more boldly if it is to continue to be the nation’s leading telecommunications company.

“The Australian telco market is entering an extremely challenging period driven by a number of factors including the nbn transition and increased mobile competition.

We are seeing this play out in our financial performance and therefore the impact on the economics of the company are very significant.

Against that background, we announced in May that FY18 earnings will be at or around the bottom end of guidance. We expect the trends to continue in to FY19. In our guidance for FY19 we have assumed the market will decline 2 to 3 per cent in mobile and fixed revenue,” he said.

Telstra provided guidance for FY19, which is a further downgrade on FY18. The table below summarises, using the midpoints of Telstra’s guidance.

Telstra Guidance
FY18 FY19 Change
Income $28.6 $27.6 -3.50%
EBITDA $10.1 $9.0 -10.89%
Dividend 0.22 ??


Telstra confirmed that it does not provide forward guidance on the dividend, it is reconfirming today that the total dividend for FY18 will be 22 cents per share.

Dividend decisions for FY19 will be announced in FY19, but a further cut to the dividend looks almost inevitable.

Earlier this month, Citi said their view was the Telstra dividend should be cut to 14 cents per share to give management the flexibility to restore the competitive position of mobile.

The details of Telstra’s new mobile plans are still to come, but it appears the company may be going to compete on data — with the possibility of unlimited data plans — and potentially also on price.

The winners and losers

A chunk of Telstra employees are obvious losers. Shareholders have seen their dividend cut, and Telstra shares fall 33 per cent over the past 12 months.

The big winners are consumers, whether that be on the Telstra network, Optus, Vodafone or the soon to be rolled out data-only TPG Telecom Ltd (ASX:TPM) network.

Lower prices. More data. Faster data, including Telstra’s 5G network, ready later this year. 

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