Is Telstra Corporation Ltd. looking good post FY18 Results and key transformation shift?

Telstra Corporation Ltd. (ASX: TLS)

FY18 Result – Earnings rebased to another level

For FY18, Telstra reported NPAT fall of 8.9% to $3.5 billion while revenue from ordinary activities noted a growth of about 3% to $29 billion against last year. There was a slight drop in basic and diluted EPS to 30 cents compared to 32.5 cents of previous year while net operating cash flow of $8,606 m was reported against $7,775 m of last year. The final dividend of 7.5 cents and special dividend of 3.5 cents per share helped taking the full year dividend to 22 cents which was down from 31 cents for FY17. Group’s earnings suffered owing to decline in services revenue, hardware mix and lower benefits from mobile leasing; however, net debt reduced at the back of free cash flow generated in FY18.

With the result that did not turn out to be too bad to consider, the stock moved up 21% in last one month while a drop of about 1% was noted at August 24, 2018, market open. Upside on the stock now tethers on cost reductions, nbn economics, and benefits from Telstra2022 strategy while FY19 will be another year of competition. The journey to upgraded productivity target of $2.5 bn will be key to watch while the group has enhanced FY19 EBITDA guidance by $100 million.

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New organizational structure and leadership team for TLS

Under the Telstra 2022 (“T22”) strategy, the group has unveiled some structural and leadership changes for effective operations and commitments to customers. The group is taking charge on simplifying the products and services built on new technology and next year will mark the full roll out of leading products and services. The group is enhancing technical capabilities around product development and management with focus on innovation in networks while supporting the build out of 5G and Internet of Things. The key aim is to remove duplication, hierarchy and silos across the organization with more efficiency of the business being attained.

Under the changes, Michael Ebeid is joining TLS to run the Enterprise team servicing Australian and international business and government customers; Vicki Brady will continue to lead Consumer & Small Business designing digitally-led propositions for customers; Nikos Katinakis is joining TLS in mid-October to lead Networks & IT; and Brendon Riley will become the CEO of Telstra InfraCo. David Burns (from the Enterprise team) will lead Global Business Services while Robyn Denholm will take charge as Chief Financial Officer & Head of Strategy; and Alex Badenoch will be leading the T22 strategy transformation execution while Carmel Mulhern, Legal & Corporate Affairs will continue in her role. TLS also announced that four senior leaders, Warwick Bray, Stephen Elop, Will Irving and Joe Pollard, will leave the Company. With these changes, the group expects better organization scenario and is positioning itself for a leapfrog improvement in performance.

Given the platform and recent developments, TLS may require growth catalysts in different quadrants to re-emerge with the strength it once had in the Telecom Industry which is now witnessing giants like TPG Telecom and junior players like Vocus Group Ltd trying to seek a greater pie of the market share.

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