Telstra boosted investor confidence in its ‘T22’ transformation plan on Wednesday after confirming that 6000 of the 8000 job cuts planned as part of the strategy will be locked in this financial year.
The accelerated job cuts mean $200 million of restructuring costs will be brought forward to the current fiscal year. The company also announced $500 million in writedowns on its legacy IT systems.
Investors saw the news as a positive sign the company is on track with the $2.5 billion worth of annual cost savings it promised the market at the launch of the T22 strategy last year.
“It is favourable for earnings that they can actually achieve these cost savings,” said Investors Mutual’s senior portfolio manager Hugh Giddy. “This is a sign they are very focused on it.”
There is now hope that Telstra can actually overdeliver on its cost-cutting plan.
“It gives us comfort that the T22 strategy is ahead of schedule,” said Wilson Asset Management portfolio manager John Ayoub, who added there is “potential for upside” for the program.
Telstra has been battling fierce competition in the mobile market, and thinner margins in its once hugely profitable fixed line business amid the transition to the NBN.
Shares in the telco, which have recorded gains of around 27 per cent this year, closed 1¢ higher at $3.57 on Wednesday.
Telstra announced the T22 strategy in June last year to cut $2.5 billion in annual costs, with net job losses of around 8,000 employees, as well as streamlining its services and product offering to customers.
“We expect to have announced or completed approximately 75 per cent of our direct workforce role reductions by the end of [June],” said Telstra chief executive Andy Penn.
The company stuck to its full year earnings guidance and said the writedown and restructuring costs are subject to board approval.
“We will continue to see role reductions as we replace our legacy systems, digitise and simplify how we work, and respond to things like declining NBN and call volumes, but if a final decision is made on the proposal announced today we expect the majority of our T22 restructure will be behind us,” said Mr Penn.
JP Morgan analyst Eric Pan said the firm was forecasting a 5,000 headcount reduction in 2019, but cautioned that a lot of the actual cost savings from the 6,000 job cuts won’t be realised this year.
He also said the reduced depreciation and amortisation costs from the writedown will help boost earnings.
Telstra said it has started consultation with unions and staff over the job cuts, and expects the process to conclude in mid June. The extra $200 million in restructuring costs that are expected to be recognised this year will raise the total bill for this fiscal period to $800 million.
Mr Penn said the $500 million writedown of legacy systems is due to the progress it has made in setting up its new systems.
“It’s a beacon of the fact that we are making very solid progress on the digitisation part of our T22 program so we’re pleased about that,” said Mr Penn said on a conference call.
This article was first published by The Sydney Morning Herald. Read the original here.