Telstra explores NAS divestment options amid Connected Future 30 strategy

Telstra has flagged it was exploring potential divestment options in its NAS portfolio as it revealed its Connected Future 30 strategy, which aims to “radically innovate” its core business.

Telstra CFO Michael Ackland said the telco’s current disciplined approach when it comes to evaluating and deploying capital is “likely to see us focus on divestments in the shorter-term”.

As an example, he cited the business’ Network Applications and Services (NAS) unit, saying that it is exploring potential options “as we look to simplify and streamline that business”.

The telco’s work in its NAS unit has been ongoing for some time, with it dragging down pre-tax earnings for FY24 and indicating intentions to simplify its NAS portfolio by two thirds.

During the course of 2024, the telco expressed its commitment to resetting its Enterprise business, of which NAS is a part of with Telstra CEO Vicky Brady saying the reset of its Enterprise business was “progressing well”.

Ackland said the telco was looking at strategic growth investments, like its Intercity Fibre project, launching its first route in June this year.  

Doubling down on connectivity

Telstra CEO Vicki Brady said the Connected Future 30 Strategy will see the telco leverage its “leadership in mobiles and digital infrastructure”, as well as focus on cost discipline and efficiency, while also delivering consistent growth and value for shareholders.

“We’re at an inflection point, as technology and connectivity are transforming again,” she said. “Customer needs are changing and the connectivity we provide has got to get more sophisticated and flexible. How we anticipate and meet changing needs will be crucial.

“There’s no version of the future that doesn’t rely on technology and it all needs to be connected.

“As a connectivity and digital infrastructure business with a long history of innovation, this is a massive opportunity for us.”

The strategy revolves around three layers: customers, network and infrastructure.

At the customer layer, Telstra said it is targeting growth in its net promoter score by more than 50 per cent by the 2030 financial year and to be consistently in the top 10 strongest brands in Australia as per external Brand Strength Index.

Meanwhile, the network layer will see the telco work on network as a product. As a means of measuring its success, Telstra said it has a developed a Network Experience Index based on mobile and fixed customers’ network availability and speed. Its intended goal at this layer is to lift the Index by 1 point each year to FY30.

Additionally, by FY30 the telco is also aiming to transform its connectivity platform, with the majority of its connectivity revenue enabled by network as a product.

The digital infrastructure layer will target sustained cash earnings before interest and tax (EBIT) growth to FY30 and mid-teens initial rate on return (IRR) on strategic investments and partnerships.

Goal enablers

To deliver the strategy, Brady said the telco has four enablers – people and culture, technology leadership, sustainable operations and financial discipline.

Goals area also set in place for each of these enablers. For people and culture, this includes maintaining position in the top 25 per cent of companies globally for employee engagement.

Meanwhile, its technology leadership goal is to be in the top 25 per cent of global enterprises in AI maturity by FY30.

In terms of its sustainability focus, the telco is aiming to maintain its previous goal of reducing absolute Scope 1+2 emissions by 70 per cent and absolute Scope 3 by 50 per cent by 2030 from a FY19 baseline.

As for its financial discipline, Telstra is targeting positive operating leverage with underlying income growing faster than costs and business as usual (BAU) capital expenditure (capex) each year to FY30.

“How we create value will be fundamentally underpinned by growth in our core business cashflows. We are also focused active portfolio and investment management, along with disciplined capital management,” Brady added.

Ackland also reaffirmed the telco’s guidance for FY25, which indicates that it expects to be at the top end of both free cashflow and BAU capex guidance.

He expects to be at the low end of its strategic investment guidance for FY25 while depreciation and amortisation will continue to increase “in the coming years”.