Telstra : HYR22 Presentation - Transcript

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18 February 2022

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Telstra Half Year Results Presentation, 17 February 2022 - Transcript

I attach a copy of the transcript from the analyst and media briefings held on Thursday 17 February 2022 in relation to Telstra's results for the half-year ended 31 December 2021, for release to the market.

Authorised for lodgement by:

Sue Laver

Company Secretary

Telstra Corporation Limited ACN 051 775 556 ABN 33 051 775 556

Telstra Half Year Results Presentation, 17 February 2022 - Transcript

Introduction
Nathan Burley:	Good morning. Good morning and welcome to Telstra's First Half Financial
only	Year 2022 Results presentation. My name is Nathan Burley, Head of Investor
Relations. I respectfully acknowledge that I am joining today from the lands
of the Kulin Nation. And on behalf of Telstra, I would like to acknowledge
and pay my respects to the traditional custodians of country throughout
Australia, and recognise their continued connection to land, waters and culture.
We pay our respects to their Elders past, present and emerging.
This morning after presentations from our CEO Andy Penn, and CFO Vicki
Brady, we will be taking questions from analysts and investors, and then media.
	I will now handover to Andy Penn. Andy.
Presentation from Andrew Penn
Andrew Penn:	Well, thank you very much, Nathan. And good morning, everybody. And
use	welcome to Telstra's results announcement for the half year ended 31st of
December 2021. It's a half in which we saw our underlying business continue
to grow, and a half in which we also saw the benefits of our T22 strategy
personal	flowing through for our customers, and for our shareholders. And a half in
which we announced the transition to T25 - a strategy for growth, a strategy
overview of our results. Vicki will then take you through the numbers in detail
	that leverages the foundation and capabilities that we have built through T22.
	Now, we believe that we have achieved these results because we have stayed
	very disciplined and focused on delivering what we said we would. Our T22
	strategy has been a clear success. We are now a vastly different company, and
	we are determined to finish the job.
	And as the nation has developed an ever-increasing reliance on digital
	connectivity, particularly over the last two or three years as we've navigated
	our way through COVID, we are very well placed to deliver the infrastructure,
	the solutions, and the security needed by our customers, and to support
	Australia's aspiration to become a world leading digital economy by 2030.
	This morning, I will make some introductory remarks and take you through an
For	before we move to Q&A. Can I say though, thank you all for attending today,
albeit virtually. And hopefully, we will get the chance to catch up face to face
soon. With that, let me turn to the results.

FY22 is a pivotal year for Telstra financially, as we see the near final negative transitional effects of the NBN in our reported results, but with the growing momentum in our underlying performance starting to show through. For example, our reported total income includes declines of around $450 million in one off NBN receipts, and $200 million in NBN commercial works. Whilst on the other hand, our underlying results demonstrate the benefits of our T22 strategy.

Total income for the half therefore decreased 9.4% to $10.9 billion on a reported basis. NPAT decreased 34% to $0.7 billion, and Earnings Per Share

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Telstra Half Year Results Presentation, 17 February 2022 - Transcript

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was down 35.9% to 5.9 cents per share, also both on a reported basis.

In addition to the impact of the NBN, the declines on a reported basis also reflect the one-off gains last year, from the sale of our Velocity and South Brisbane exchange fibre assets, and the sale and leaseback of our Pitt Street exchange.

In contrast, though, to our reported results, underlying EBITDA on a guidance basis increased 5.1% to $3.5 billion. This was the second consecutive half of underlying EBITDA growth. Underlying EBITDA including an NBN headwind in the year of $190 million, which was down on last year, and which will of course be less again in the second half.

Underlying EPS was up 55% to 6.2 cents per share, a very strong start against our T25 ambition of underlying EPS CAGR in the high teens from FY21 to FY25. The Board has resolved to pay a fully franked interim dividend of 8 cents per share, returning around $940 million to shareholders. And whilst this is the same level of the total interim dividend as last year, it's worth noting that it includes an increase in the ordinary dividend component from 5 cents to 6 cents per share.

Also, by the end of December, we were more than 40% of the way through our $1.35 billion on-market share buy-back. We expect to complete the buy-back by the end of the current financial year.

I will now turn to some of the operating highlights for the half. We continued to see good customer growth in mobiles, despite the impact of COVID on population growth and our retail presence. We added 84,000 net retail postpaid mobile services, including 62,000 branded, with a strong contribution from Enterprise. Our branded performance reinforces the benefits of our clear leadership in 5G. In wholesale we added 91,000 services, and we added another 452,000 IoT services.

Our continued focus on mobile leadership and building value resulted in 5% postpaid handheld ARPU growth, 6.3% mobile services revenue growth, and $392 million mobile EBITDA growth. Our performance in fixed for consumer and small business customers has been more challenged, particularly as we are now at the end of the migration to the NBN, and dealing with some of the most difficult cases. Net new retail bundles were negative 50,000, although bundle and standalone data ARPU increased 0.5%.

Notwithstanding the disappointing sales performance, we are confident of restoring momentum by leveraging the benefit of the many value-added home broadband features that Telstra offers. These include the Telstra Smart Modem, Telstra TV, the Telstra Wi-Fi guarantee, and of course our new 5G fixed wireless offer.

Also earlier this month, Foxtel reported a 19% increase in paid streaming subscribers to more than 3.9 million, compared to last year. This strong subscriber growth positions Foxtel, and of course our investment in Foxtel, very well for the future, as well as providing great entertainment experiences

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Telstra Half Year Results Presentation, 17 February 2022 - Transcript

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for our customers.

In Enterprise, and in line with our previously communicated aspiration, we returned to income and EBITDA growth, and we are on track to deliver growth for the full year.

Growth in the half was achieved across mobile, international and NAS. NAS income and EBITDA grew in the half by 2.4% and 67%, respectively. And Vicki will talk a bit more about that later. We also recently signed a major contract with the Department of Defence.

InfraCo Fixed income was also up 1.5% for the half to $1.2 billion excluding commercial works. Telstra Health also had a strong half, both strategically and operationally. Revenue was up 9%, or if you include the acquisitions of MedicalDirector and PowerHealth, up 37%.

Confirming our continued improvements in customer experience, episode NPS improved 11 points in the last 12 months, and five points in the last six. Strategic NPS declined two points in the last 12 months, and four points in the last six, although remains up 13 points since the launch of T22.

Finally, on our operating highlights, we have made very strong progress in our productivity program. For the half, underlying fixed costs were down $254 million, and total operating expenses were down $644 million, or 8%. We're on track to deliver a reduction in our underlying fixed costs of approximately $430 million for the full year.

So it is clear we have financial momentum. And in fact, if you look at the left- hand side of this slide, it shows the growth that we have achieved in underlying EBITDA in the last three halves, including the $3.5 billion delivered this half. Against this, our guidance for the full year is $7 to $7.3 billion, which indicates growth again in the second half.

The chart on the right-hand side of this slide shows the evolution of our full year underlying EBITDA, including our aspiration to be in the range of $7.5 to $8 billion in FY23, and our T25 ambition for mid-single digit CAGR out to 2025. These statements for FY23 and FY25 are not guidance. They are aspirations and ambitions, which means that they are subject to greater risks and uncertainties associated with them, compared to our normal guidance statements. Nonetheless though, the chart clearly demonstrates our ongoing financial momentum and our ambition for further growth.

With that, let me turn back to our progress with T22. We have completed, or we are on track to deliver, over 80% of our T22 scorecard metrics as we enter the final six months. I will highlight today just a few of our many T22 achievements. But at the full year, I will provide a comprehensive review as we close out the program.

Since announcing T22, we have radically simplified our business, reducing the number of consumer and small business plans from 1,800 to 20. And we now have more than 9.4 million services on those plans.

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Telstra Half Year Results Presentation, 17 February 2022 - Transcript

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We have removed lock-in contracts, we've removed excess data charges, and many other fees. We have 4 million customers signed up to our rewards program, Telstra Plus. And we are seeing strong engagement with NPS for customers who are members of Telstra Plus, around 20 points higher than the customers who are not.

For consumer and small business customers, digital sales interactions were up 11 percentage points in the half to 50%. In fact, overall, almost three quarters of all service interactions with consumer and small business customers are now digital.

The number of calls coming into our consumer and small business contact centres has fallen by 70%. That's 70%. And by the end of this financial year, we expect to answer all of these calls in Australia.

We are also well progressed on the arrangements to bring our licensee stores back in-house. By the end of December, we had insourced almost half of the 166 branded stores previously run by independent licensees. We've also completed the acquisition from1 Vita, bringing another 104 stores back in- house.

In Enterprise, we have rationalised the number of active products by more than a half, and our adaptive networks and adaptive mobility products are providing more flexibility to our customers. And similar to our digitisation progress in consumer and small business, more than a third of all Enterprise service interactions are now through the digital channel.

On ways of working, we have further progressed our journey to introduce Agile, and today we have around 17,000 people working in Agile at a high level of maturity.

Excluding hires due to COVID workforce restrictions, we have met our T22 target to reduce our direct workforce by 8,000 net. Overall, in fact, we have reduced our direct and indirect headcount by one third, or 27,000, in response to the transfer of a material part of our business to the NBN, and from our digitisation and efficiency initiatives.

At the same time, we have exceeded our target to recruit new capabilities in new areas, such as software engineering, data analytics, cyber security, and artificial intelligence, with more than 1,500 new hires to date.

We have delivered cost reductions of $2.5 billion, and we are on track to deliver our T22 productivity target of $2.7 billion.

We've monetised over $2 billion worth of assets, further strengthening our balance sheet. And this is in addition to the sale of a 49% stake on a non- controlling basis in our Towers business for $2.8 billion, which was finalised

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