Telstra Share Price Strong Despite $200 Million Hit

Telstra Corporation Ltd [ASX:TLS] opened higher at the beginning of trade this morning, up 0.42%, or 1.5 cents, to trade at $3.575.

Despite the telco giant’s struggles with increased sector competition, Telstra shares have rebounded strongly from the beginning of the year thanks to a return of subscriber momentum, as seen in the chart below:

Telstra Share Price
Source: TradingView

What happened to the Telstra share price?

The Telstra share price rose steadily over the course of the day.

Last year, the telco announced plans to cut almost 8,000 jobs as part of its T22 strategic plan. Today they said it has started consultation with employees and representative unions regarding the next stage of the proposed job reductions.

The T22 plan is Telstra’s strategic investment in digitisation announced in 2016, which will see the company implement a range of new IT platforms so that it can retire some of its legacy platforms.

Telstra hopes its plan can breathe new life back into the company. Legacy telcos around the world have been struggling as new competition and technology have obliterated their mainstay fixed-line businesses.

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Of the 8,000 proposed job cuts, about 6,000 of those are likely to happen by the end of the current financial year. This will result in $200 million in restructuring costs, Telstra announced this morning. As a consequence, Telstra expects total FY19 restructuring costs to increase from around $600 million to around $800 million.

Telstra also announced it will record $500 million in impairments in its full year 2019 results as it writes off legacy IT assets.

In today’s announcement, the company said it expects total remaining restructuring costs from T22 initiatives after full year 2019 to be in the vicinity of $350 million. It has left its full year guidance for fiscal 2019 intact, with its full year income to come in the range of $26.2 billion to $28.1 billion.

Despite the increase in restructuring costs, the total savings to Telstra over the medium term are likely to offset restructuring expenditure.

What’s next for Telstra?

Telstra CEO Andrew Penn said the expedited job reductions will give the organisation more certainty moving forward.

It’s really important for us to move forward and give the greatest certainty to our teams and our people.

That’s not to say there won’t be role reductions in the future but that we will be able manage them more naturally.

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.

It is important to note that the effects of these job cuts aren’t likely to be felt in Telstra’s end of year results, with the full extent of costs savings not likely to be realised until at least 1H FY2020.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

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