TELSTRA has undertaken a radical restructure of its media assets and has given warning that its ailing directories arm Sensis is likely to suffer one of the biggest revenue declines in its history.
The news leaves the future of company veteran Bruce Akhurst, the head of Sensis, in question.
Speaking at the telco’s annual investor day in Sydney yesterday, Telstra chief executive David Thodey said that, while the expected revenue crunch at Sensis would shake up the company’s total revenue mix for fiscal 2012, the telco was still on track to hit guidance of low single-digit growth in revenue and operating profits.
Better than expected sales in mobiles and fixed broadband would offset the drag from its directories arm, he said.
Sensis, despite slashing hundreds of jobs this year in a desperate effort to cut costs as part of a transformation to a more digitally focused business, has been unable to arrest the fast decline of its Yellow Pages revenues.
It is understood that Sensis missed its revenue targets by about 10-15 per cent for this quarter, prompting management to recast the projected decline into the high teens for the full year.
But even with those declines, few expected that Mr Akhurst, who was once considered a candidate for the job of chief executive, could fall victim to the changes being wrought within the telco as it continues its transformation into a company that is more focused on digital and media sales.
As part of that transformation, the ailing Sensis has been targeted in a divisional restructure that will put it alongside the telco’s other media assets and strip Mr Akhurst of his direct reporting privileges.
The restructure unveiled yesterday by Mr Thodey will amalgamate the company’s media assets — which include Sensis, BigPond, Trading Post, Foxtel and its IPTV initiatives — under the banner of Telstra Digital Media, to be headed by Television NZ chief executive Rick Ellis. He will join Telstra early next year.
Mr Akhurst, alongside Telstra head of media J.B. Rousselot, will report to Mr Ellis.
Mr Thodey said the Sensis revenue slump — a fall of 15-19 per cent is forecast — had been brought on by slower than expected sales of digital products and an accelerated decline in Telstra’s terminal Yellow Pages business in the first quarter.
Sensis, which accounts for 7 per cent of Telstra’s total revenue, suffered its worst financial result in the December half, when the group reported a 17.9 per cent fall in revenue to $695 million, mainly due to an 18 per cent fall in Yellow Pages print revenues.
Full-year revenue declined 6.4 per cent to $1.8 billion.
“Every directories business in the world is going through this, it’s nothing new,” Mr Thodey said.
“We’ve done very well to hold print so long, but print is declining and it has gone faster than we expected.”
The shifting of Sensis into a new media arm of Telstra marks a dramatic change in attitude towards Telstra’s directories arm, which has until now been considered a core component.
The faltering performance of Sensis is in stark contrast to the high regard in which it was held only six years ago, when former Telstra boss chief executive Sol Trujillo declared it “more relevant” than Google.
Since that time, telcos around the world have hurriedly offloaded investments in archaic paper directories as the accelerated shift to digital has eaten into print sales. New Zealand Telecom was able to sell its equivalent Yellow Pages for $NZ2.2bn in 2007.
“In hindsight, it perhaps should have separated or divested this business a few years back, when private equity funds had bigger appetites,” said Nomura analyst Sachin Gupta.
Mr Thodey yesterday committed Telstra to seeing through the transformation of Sensis into a successful digital business, but indicated that if a prospective suitor came “knocking on the door with a big bag of cash”, then the Telstra boss would seriously consider the offer.
“We are working hard with Sensis. We have started a three-year transition and we will continue to look at all options going forward, but we are committed at the moment to getting through this,” Mr Thodey said.
“We manage a wide range of assets so that any one time we can look at different options just depending on the market conditions. We will look at anything if it creates value for shareholders.”
In March, Sensis unveiled a major plan to transform itself into a digitally focused advertising and directories sales business. That transformation is expected to be a painful one; revenues are expected to fall by mid-single-digit percentage points for the next three years.
Despite the challenges, Mr Thodey is hopeful that the Sensis business will bounce back.
“Online retail has taken off very quickly in the last six to nine months in Australia. We are putting that online proposition to customers and I think that if you didn’t have an online product then potentially you would be worse off,” he said.
The new digital division, responsible for 4000 staff and annual revenues of more than $4 billion, will focus on driving new opportunities and revenue growth through the digital arena.
“More than anything else we are bringing all these together so we can build scale and capability,” Mr Thodey said.
“We’ve got to be very clear that media in telecommunications is not the same as a traditional media company.
“For us and media, it’s about how we use the network with content to create a unique customer experience,” Mr Thodey said.
Mitchell Bingemann – 19 November 2011
theaustralian.com.au/australian-it/telecommunications/telstra-revamp-as-sensis-hit-hard-in-radical-media-shake-up/story-fn4iyzsr-1226199499749
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