Telstra has finally cut the NBN earnings anchor and can chart its own earnings course

Nothing in the corporate world has see-sawed quite like opinions on the performance of Telstra’s outgoing chief executive, Andy Penn. But on Thursday as he delivered his final result in the top job, he must be deeply satisfied he muscled through the detractors to leave the telco on an earnings high note.

His parting gift to Telstra – the first increase in its dividend in seven years – is particularly meaningful because it says everything about the Telstra board’s certainty about the company’s prospects to increase its earnings.

Aspirations and guidance from any corporation can be rubbery and subject to change, but the fact Telstra is paying out more in dividends than it makes in profit is a clear statement of confidence around the growth in future earnings, at least in the current year. Its guidance for the 2023 financial year for underlying earnings is $7.8 billion to $8 billion, up from the $7.3 billion it posted in 2022.

Telstra’s headline earnings before interest, tax, depreciation and amortisation, and income, were down 5 per cent and 4.7 per cent respectively, but the underlying earnings result was up 8 per cent. And it is the underlying measure, devoid of lots of distorting impacts including the NBN, which allows investors a closer look into the company’s ongoing performance.

This is particularly important from this point onwards because the last of Telstra’s customer migration to the NBN has been completed. This $3.6 billion earnings anchor has now been cut.

Penn has produced an impressive final act, but it’s been a roller-coaster performance marked by some stumbles and sideswiped by issues outside his control – most notably COVID-19 and more recently hyperinflation.

That said, this year also marks the completion of the T22 strategic overhaul of Telstra. This was a massive undertaking that included simplifying mobile plans, the roll-out of 5G, $2.7 billion in cost savings and the part sale of the towers business, and injecting a new level of digitisation.

The cost-cutting and productivity gains added a bit of positive juice to the earnings of most of its divisions, even those that produced underwhelming performances.

In any year, Telstra produces a mixed bag of results from its business units and this year was true to form.