Telstra Corporation Ltd (ASX: TLS) is holding its Annual General Meeting (AGM) today and confirmed its financial year 2019 (FY19) profit guidance and defended its executive pay packet.
Telstra is Australia’s largest telecommunications business, it also operates the low-cost provider Belong.
FY19 Guidance Confirmed
Telstra has projected that it will generate total income of $26.2 billion to $28.1 billion. The telco is also predicting EBITDA excluding restructuring costs will come in between $8.7 billion and $9.4 billion (click here to learn what EBITDA is).
The above-mentioned restructuring costs will be around $600 million and Telstra will spend $3.9 billion to $4.4 billion on capital expenditure. Meaning, this will leave the business with free cash flow of between $3.1 billion and $3.6 billion, Telstra said.
Why is it investing so much?
Telstra is currently investing for the arrival of 5G. It boasts of having Australia’s first 5G ‘Innovation Centre’, the world’s first precinct of 5G-enabled Wi-Fi hotspots and Australia’s first 5G-connected car. Telstra plans to have more than 200 5G sites live around Australia by the end of December 2018.
CEO Andy Penn commented: “I know we are going through a challenging time at the moment and returns to shareholders are not what we would like them to be.”
Executive Pay
Perhaps a result of the challenging times there has been a lot of grumbling about Telstra’s executive pay this year. Telstra shareholders have seen their dividend payments reduced and a fall of 13% of the share price over the past year, according to Google Finance.
CGI Glass Lewis, ISS and Ownership Matters have all reportedly recommended voting against Telstra’s remuneration report.
However, Montgomery Investment Management’s Tim Kelley recently wrote in a blog post that punishing management for the share price fall is an “erroneous conflation of company performance and management performance” and “much of that, I think can be attributed to things outside management control“.
CEO Andrew Penn’s pay was defended as a “modest 2.8% increase” to his fixed pay and it hadn’t changed since being appointed in May 2015, equating to a less than 1% pay rise per year since then.
Even so, the Telstra Board decided to reduce the variable remuneration of management by 30%. Telstra will receive a ‘first strike’ against the remuneration report based on proxy and direct voting positions.
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