TLS

[Snoopy]

However the 21st May 2024 market update has indicated the inflation linked aspect of postpaid price increases will not proceed in July 2024:
"Today we announced that we will be updating the customer terms for our postpaid mobile plans to remove the CPI link annual price review. This change simplifies our pricing strategy by bringing the approach to postpaid mobile plans into line with other products. This approach reflects there are a range of factors that go into any pricing decision, and will provide greater flexibility to adjust prices at different times and across different plans based on their value proposition and customer needs."

This suggests to me that any mobile revenue increases for Telstra will likely track population growth in FY2025/FY2026 and mobile revenue growth will be no greater than that. That doesn't mean mobile network profit increases will be limited to that though, as there will be the cost savings from shutting down the 3G network.

I review the prospects of the three growth engines of this company going into FY2025.

1/ The mobile growth engine is possibly stalling.
2/ The cash benefit of the fibre superhighway is only starting to build AND
3/ Massive restructuring at Network Assets and Services is underway.

The prospect of any real growth in FY2025 is not looking great. Any forecast profitability increases from the company's historical growth engines being Mobile and TelstraHealth (being priced for recovery) are likely already priced in.

Interesting to see Telstra announcing today that they are lifting mobile plan prices in the coming few months, after canning the inflation increase in July 2024. They say it will be a price rise of $2-$4 per month. On a medium monthly plan of $65, that amounts to an increase of 3 to 6%. Probably a bit less than the previous year's inflation. But as a carrot, they are increasing the data allowance on their post paid starter plan, while keeping the price the same.

There is always some customer churn with price rises like this. So it will be interesting to observe what happens this time. With the threat of rising interest rates in Australia. I had been expecting the Telstra share price, with Telstra being a 'yield play', to head back down. Yet the opposite has happened over the last two weeks. Maybe someone second guessing a net positive from the mobile plan price rises announced today?

The other thing that may be happening is that investors are buying Telstra as a proxy for buying the $A, (like some international players buy Spark as a proxy for the $NZ). Thus if the Reserve Bank of Australia puts up interest rates in August, or there are enough market rumours to suggest that it might, then these international investors may sell down Telstra as the value of their $A invested in Telstra rises. Expect this little game, if that is what it is, to play out over the next month or so.

SNOOPY

[Snoopy]

ix/ Equity Investment Telstra is joint owner (35%), together with Newscorp (65%) of NXE Australia, trading as Foxtel, a pay TV operator. Foxtel operates using cable television, satellite television, and IPTV (Internet television) operator. What does the name mean? "Fox" represents News Corporation's 'Fox Network Television' and "Tel" representing Telstra. Foxtel transmits its cable service via Telstra hybrid fibre-coaxial (HFC) cable into the Brisbane, Sydney, Melbourne, Adelaide and Perth metropolitan areas, along with the Gold Coast. Foxtel's satellite service covers the rest of Australia. Foxtel on Mobile launched on Telstra's Next G Network in late 2006. Netflix is the market leader in pay TV in Australia (December 2019 figures, Roy Morgan) with 11.9 million subscribers. At the same date Foxtel had 5.5million subscribers. Third in this market is Australian-owned Subscription TV service Stan, which is now accessible by more than 3.3 million Australians. Stan is a fully owned subsidiary of the Nine Entertainment company.

Article today reporting from Newscorp sources that their majority owned pay TV provider Foxtel could be 'on the block'.
https://www.abc.net.au/news/2024-08-...xtel/104203940

"News Corp said after its full-year results that it had received "third-party interest in a potential transaction involving Foxtel"."
"The company announced it had been conducting a "strategic review" of its assets over the last year."

"In a statement, a Telstra spokesperson said the company has noted News Corp "are assessing strategic and financial options for the Foxtel Group"."
" "Consistent with the statements made by News Corp, there is no assurance regarding the timing of any action or transaction, nor that the strategic review will result in a transaction or other strategic change," the statement said."

I see NWS was up 7.6% on the release of that news with their fourth quarter result. while Telstra was up 0.3% or 1c. We can read into this that it was the strong performance by Newscorp subsidiaries in general that lifted the NWS share price today. Not the potential sale of Foxtel. But it will be interesting to see who this potential third party acquired turns out to be.

SNOOPY

[peat]

its all about the 'underlying' ​ growth.

[Snoopy]

its all about the 'underlying' ​ growth.

It is a FY2024 result that deserves some scrutiny to be sure:

Actual EBITDA down 4.2%. Underlying EBITDA up 3.7%
Actual NPAT down 12.8%. Underlying NPAT up 7.5%

It is enough to make one turn on the BSometer to see how those numbers are being fiddled.

Here is what CEO Vicki Brady said on the underlying strength at the full year results presentation:

"There is enormous and growing demand for our core products and services. For example, the amount of data moving through Telstra’s mobile network grew by another 20% over FY24."

"Our Mobiles business has continued to perform very strongly, with EBITDA growth over $400 million. This growth was driven by more people choosing our network, with more than 560,000 net new handheld customers along with ARPU growth. Mobile services revenue grew by 5.6%, and our Mobile Business underpinned our overall underlying earnings growth."

"Our infrastructure business also grew, reflecting ongoing demand for our assets. InfraCo Fixed and Amplitel (cell phone tower) EBITDA grew by around $150 million in aggregate, further strengthening my confidence in our infrastructure growth ambitions. Our Intercity Fibre Network is an investment in Australia’s future growth, connectivity and digital prosperity."

"We announced an expansion of our strategic partnership, with Microsoft including signing contracts for the first routes they will use as a foundational partner on the network. This is an example of the strong demand we see for these assets and their role in underpinning technology including AI."

So what were the factors that shifted the underlying growth to a negative number for FY2024?

From slides 9 and 40 in the FY2024 results presentation:
1/ Non-cash impairments following the 'Telstra Enterprise' (telco services for large businesses and governments) reset: These include:
1i/ 'Data and Connectivity' capitalised commissions (EBITDA adjustment $177m),
1ii/ 'Network Application and Services' goodwill impairment on 'Alliance Automation' (IoT industrial automation solutions and control systems) and 'Aquara Technologies' (delivers key technology and telecommunications infrastructure solutions including industrial wireless, complete access networks, unified communications and industrial IoT) (EBITDA adjustment of $52m)
1iii/ Aged 'work in progress', software and inventory related products to be exited (EBITDA adjustment of $82m)
2/ Restructuring Costs: Redundancy costs for full time employee reductions (EBITDA adjustment $247m)
3/ Retail energy impairments: The proposal to launch a packaged infrastructure business offering electricity and telecommunications services all on one bill has been abandoned. (EBITDA adjustment $45m)
4/ Office building impairments: Impairment of 'right of use' assets that will partially sub-leased to new tenants from FY2025 (EBITDA adjustment $82m).
5/ M&A adjustments: Costs in acquiring 'Versent' (a digital transformation consultancy) and the in-sourcing of the 'Telstra T-Partner' into in house 'Telstra Business Technology Centres' (EBITDA adjustment $30m).

That makes a total EBITDA adjustment booked to the FY2024 accounts of $715m.

The results as reported:
Reported EBITDA: $7.5billion
Underlying EBITDA: $8.2billion
The difference is $0.7billion, which ties up with the itemised EBITDA adjustments that I have detailed above.

I am getting a 'zero' reading on my BSometer as a result of all of these one off adjustments. I think the EBITDA adjustments over FY2024 were one off and justified.

SNOOPY

[Snoopy]

Article today reporting from Newscorp sources that their majority owned pay TV provider Foxtel could be 'on the block'.
https://www.abc.net.au/news/2024-08-...xtel/104203940

"News Corp said after its full-year results that it had received "third-party interest in a potential transaction involving Foxtel"."
"The company announced it had been conducting a "strategic review" of its assets over the last year."

"In a statement, a Telstra spokesperson said the company has noted News Corp "are assessing strategic and financial options for the Foxtel Group"."
" "Consistent with the statements made by News Corp, there is no assurance regarding the timing of any action or transaction, nor that the strategic review will result in a transaction or other strategic change," the statement said."

Update on what Telstra would do from the FY2024 results presentation, on a potential offer for 'Foxtel'

------------------------

Jenny Wiggins (AFR): "On Foxtel, if News Corp does go ahead and sell Foxtel, would Telstra also sell its stake in Foxtel? Or do you want to retain that? I note in your annual report you talked about declining revenues from Foxtel."

Vicki Brady (CEO): "As we look at Foxtel, we own a 35% stake in Foxtel. We’ve been long term shareholder in that business with News Corp. What’s been really pleasing to see is how Patrick and the team have really transformed that business over the last few years. And obviously Kayo and the subscription business, the streaming business that now exists there, is such a stark difference to where it was many years ago. So in terms of, as I said, very early stage, there are no decisions made. But from our point of view, if it got to the stage where there was an offer for Foxtel at the right level of value, then yes, we would be supportive of that with News Corp. So just to be clear on Foxtel. But we’re not at that stage; a very early stage, but yeah, are pleased with the job that Patrick and the team have really done, transforming the Foxtel business. And we remain 35% owner of that business."

---------------

SNOOPY