The Business Times

Telstra names Andrew Penn CEO after Thodey doubled market value

Published Fri, Feb 20, 2015 · 12:30 AM
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[SYDNEY] Telstra Corp named Andrew Penn as its next chief executive officer to succeed David Thodey, who doubled the market value of Australia's largest phone company.

Mr Penn, 51, will take the CEO role from May 1 after joining the company as chief financial officer in 2012, Melbourne-based Telstra said in a regulatory statement Friday. Mr Thodey will remain at the company until the financial year ends in June.

Before joining Telstra, Mr Penn spent 20 years at AXA Asia Pacific Holdings Ltd, including the role of CEO prior to the insurer's acquisition by AMP Ltd. and AXA SA in 2011. Mr Thodey, a 60-year-old former International Business Machines Corp executive, led Telstra to an A$11 billion deal with the government to give up its copper wire network and spent billions to win customers for its mobile services.

"David Thodey did a good job smoothing over relations with the government, which had been a bit hostile," Sean Fenton, who helps manage the equivalent of about US$4 billion at Tribeca Investment Partners in Sydney, said by phone. "A change of CEO is always a little bit of a concern, but Telstra's a pretty broad, stable business. It's a quasi-oligopoly, so the risks probably aren't significant." Shares of Telstra fell 0.5 per cent to A$6.58 at 10.21 am in Sydney. The stock has gained 10 per cent so far this year, outpacing the 9.1 per cent rise in the S&P/ASX 200 index.

Mr Penn will have an annual salary of A$2.325 million (US$1.8 million) before bonuses, the company said. That figure is 12 per cent below the A$2.65 million fixed pay of Thodey, according to Telstra's latest annual report.

Under Mr Thodey, Telstra's market value rose from less than A$40 billion when he took the role in May 2009 to a 14-year high of A$81.5 billion Feb. 5.

His investment in wireless networks and customer service has helped the former state-owned company capture more than half the nation's mobile phone market.

Founded as part of Australia's postal services, Telstra had a legal monopoly on phone services until 1991 and was majority- owned by the government until 2006.

Under Mr Thodey's predecessor Sol Trujillo, the company regularly clashed with the government: former prime minister John Howard said in 2006 that he wouldn't be "blackmailed" into changing regulations, after Trujillo said rules on access to Telstra's copper wires were destroying the company's value.

Mr Thodey said a "strong relationship with the government" was very important after his succession was announced in May 2009. Even so, the company's shares fell further during his first year as it faced calls from the government to be broken up to allow the building of the state-backed NBN fiber network.

"We have come a long way in the past 5 years and there is a brighter future ahead," Mr Thodey said after the announcement in a posting to his Twitter Inc. account, "and I know we can improve customer service more!!!!" Mr Penn will preside over a period when the rollout of the government's national fiber network will cause Telstra's more profitable fixed-line business to shrink further, leaving it dependent on mobile. The company competes for wireless customers with Singapore Telecommunications Ltd.'s Optus and the Vodafone- branded venture of Vodafone Plc and Hutchison Whampoa Ltd.

Mr Thodey has spent heavily on Telstra's mobile network to prepare for this, with A$8.7 billion dedicated to capital spending over the past three fiscal years to help build a fourth-generation network that offers download speeds equivalent to the fastest on the NBN.

Telstra's share of the mobile market has risen from 42 per cent in June 2009 to 51 per cent last June. The company has added 5.7 million mobile customers over the period, equivalent to 24 per cent of Australia's population.

In first-half results last week, the company said net income rose 22 per cent to A$2.09 billion and mobile profit margins increased to 40 per cent, even as its competitors offered plans that are at least 46 per cent cheaper according to Citigroup Inc.

Mr Thodey also returned to boosting the company's dividend payments after a nine-year hiatus, raising the appeal of the company to investors seeking income from their shareholdings.

"They're in a very dominant position with very stable, predictable earnings," Daniel Mueller, an analyst at Morningstar Inc in Sydney, said by phone Feb. 10. "It's almost bond-market like." Telstra's now the world's second-most richly-valued large telephone company, according to data compiled by Bloomberg. Its enterprise value of about 8.7 times its forecast earnings before interest, tax, depreciation and amortization trails only SingTel among telecommunications businesses with sales of more than US$10 billion, the data show.


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