Telstra : Transcript from analyst and media briefing

17 February 2023

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• Telstra Group Limited (ACN 650 620 303)
• Telstra Corporation Limited (ACN 051 775 556)

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Telstra Half Year Results Presentation, 16 February 2023 - Transcript

In accordance with the Listing Rules, I attach a copy of the transcript from the analyst and media briefings held on Thursday 16 February 2023 in relation to Telstra Group Limited's (ASX: TLS) results for the half-year ended 31 December 2022, for release to the market.

The material is also provided for the information of Telstra Corporation Limited (ASX: TL1) noteholders.

Authorised for lodgement by:

Sue Laver

Company Secretary

Telstra Half Year Results Presentation, 16 February 2023 - Transcript

Introduction
Vicki Brady:	Good morning, and welcome to Telstra's results announcement for the half
	year ended 31 December 2022, and my first results as CEO.
	I'm joining today from the lands of the Kulin Nation. 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.
	For those of you that are regulars at our results presentation, we are taking a
	slightly different approach to previous years. I will make some brief
	comments on our key highlights. Michael will then take you through the
	financials in detail, after which I will summarise our progress against T25,
	and reinforce our FY23 key focus areas. We will then take questions from
	analysts, investors and media.
	Before I hand to Michael, you will see that our financials for the half show
	strong and continued growth, with positive momentum across our key
	indicators. Importantly, we saw growth in the first half in both our reported
	and underlying results. This momentum is also reflected in the progress we
	have made in the first six months of delivery against our T25 strategy. I will
	speak to this in more detail when I take you through our T25 achievements.
	Focusing on the key highlights. Total income was up 6.4%, and EBITDA
	increased 11.4%, driven by momentum from our mobiles business, and
	support from the acquisition of Digicel Pacific. Excluding Digicel, underlying
	EBITDA increased 6.8%. This flowed through to a 25.7% increase in net
	profit after tax. Reported earnings per share increased 27.1%. It was also
	pleasing that our episode NPS increased by four points.
	We are a growing business with a lot to be excited about in our future, and
	our T25 strategy provides a clear roadmap to get us there. Our core mobiles
	business continues to be central to this growth, and perform very strongly,
	endorsing our strategy to lead the industry on network experience, and bold
	decisions on plan simplification.
	I do want to be clear upfront that while our momentum is good, we are just at
	the start of our return to growth. We are also a multi-faceted business, and
	there are specific elements of the business where we cannot be complacent,
	and others that need to see improvement. Cost out is an area where we remain
	disciplined, particularly considering the external economic environment. We
	are also very focused on addressing the disruption in our Enterprise business,
	which continues to prove challenging. We will talk to these challenges in a
	bit more detail through the presentation. Overall, we remain committed to
	achieving our T25 ambitions, including growth in underlying EBITDA and
	earnings per share.
	On the back of our continued growth, the Board resolved to pay a fully
	franked interim dividend of 8.5 cents per share, representing a 6.3% increase
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Telstra Half Year Results Presentation, 16 February 2023 - Transcript

on the prior corresponding period, and in line with the second half of last financial year. The interim dividend is consistent with our policy to maximise the fully franked dividend, and seek to grow it over time. I will now hand over to Michael to go through the numbers in detail.

Presentation from Michael Ackland

Michael Ackland:	Thanks Vicki. It is great to be presenting Telstra's results for the first time.
	While our momentum is good, we're just at the start of our return to growth.
	I'll step you through the high-level results before getting into some detail.
	Starting with our income statement on slide 6, which clearly demonstrates our
	growth. First half '23 income was $11.6 billion, up 6.4%. EBITDA was $3.9
	billion, up 11.4% from ongoing mobile-led organic growth, and M&A
	including our acquisition of Digicel Pacific. EBIT was $1.6 billion, up 25.4%.
	Net financing costs increased 5.9%, reflecting higher debt levels following
	the acquisition of Digicel Pacific, and higher borrowing costs given exposure
	to floating rates.
	Tax increased 40% on higher profit before tax, and one-offs associated with
	M&A in the first half of '22. We expect the effective tax rate to be around
	30% for financial year '23.
	EPS was up 27% to 7.5 cents, reflecting higher earnings, lower average shares
	on issue following our buyback in FY22, as well as higher minority interests
	following the 49% sale of Amplitel last financial year.
	Looking at product performance on slide 7. We saw strong growth in Mobile
	and International, partly offset by fixed Enterprise decline. Mobile benefited
	from growth in service revenue, partly due to higher international roaming,
	while International growth mostly came from the Digicel Pacific acquisition.

I will now step you through our key products, starting with Mobile on slide

8. In Mobile, we achieved continued growth in revenue, EBITDA and SIOs from the successful execution of our strategy. On the top left, you can see mobile service revenue up 9.3%. All segments and sub-products including MBB, IoT and wholesale grew. Growth was supported by international roaming lifting by around $100 million, to approximately 70% of pre-COVID levels, and a $42 million one-off in prepaid from product migration.

Excluding these, service revenue grew 5.3%, driven by volume and value, in line with our mid-single digit CAGR ambition. In postpaid handheld, we added net 68,000 SIOs, while prepaid handheld unique users increased 137,000 SIOs.

We estimate the cyber incident at Optus also impacted our first half '23 net adds, in the order of positive low to mid tens of thousands, split across C&SB, Enterprise, postpaid and prepaid, and wholesale. Port-ins from Optus have now largely normalised.

Postpaid ARPU, shown on the bottom left hand chart, grew 4.5%. This was

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Telstra Half Year Results Presentation, 16 February 2023 - Transcript

from higher roaming, and around three and a half months of benefit from consumer and small business price increases in line with CPI implemented in the half. Partly offsetting this was an Enterprise COVID related messaging benefit in the prior corresponding period.

Prepaid also achieved exceptional performance supported by incoming travellers, and ARPU growth through increased data usage, and migration to new simplified plans.

In fixed C&SB, we delivered on growing EBITDA in line with our commitment. NBN reseller margin was up to 7% from 4% in the prior corresponding period, with 3.7% ARPU growth achieved from price rises. We also saw continued evolution of plan mix as customers choose the plans that suit them.

We continue to migrate our customers to our new digital stack, which is delivering better customer outcomes. First half '23 episode NPS improved 19 points on sales and activation, with new stack 24 points above legacy. Proactive fault identification, resolution, and better agent tools to resolve queries, have delivered a PCP improvement of over six points to [episode] NPS. On-net fixed wireless also continues to scale, while in SMB and mid- market we've gained traction in NBN reseller.

However, there remain challenges. We are focused on evolving our customer propositions and our multi-brand strategy to support stabilising SIOs and longer term sustainable growth. Going forward, we are targeting greater than 8% NBN reseller margins in FY23, and mid-teens in FY25. While we continue to drive efficiencies, achieving these ambitious targets sustainably will require us to stabilise volume performance.

We're also focused on reducing cost, and improving on-net losses through the rationalisation of our legacy voice, ADSL, and transmission networks, as well as continuing to optimise field service costs, as the remaining customer numbers decline.

Turning to fixed Enterprise on slide 10, which is made up of data and connectivity, and network applications and services. DAC revenue declined 14.4% in line with the previous half, as it remained impacted by ongoing [disruption] from technology change and competition. We've been re-pricing our plans and proactively targeting customers at risk of churn, resulting in renewals at lower rates and ARPU compression. Going forward we'll continue simplifying products and IT platforms, targeting improved customer experience and lower cost to connect and serve through automation.

Our focus is on retention, and we expect further ARPU declines as we proactively target the base, as well as customers who have previously churned. We have also implemented a new customer care approach for high risk mid-market and business customers. This has resulted in the improvement in Telstra Fibre SIO trajectory, including lower churn and positive net adds late in the second quarter.

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Telstra Half Year Results Presentation, 16 February 2023 - Transcript

In NAS, revenue grew 2%, reflecting growth from cloud, security, and the Viasat contract, and acquisitions, offset by headwinds in calling products due to fixed legacy and lower product exits, and lower usage. Faster decline in legacy calling is the reason we're below our mid-single digit revenue and growth ambition. With revenue recognition linked to milestone timing, the business remains seasonal. Our focus is on continuing to build deep strategic relationships with hyperscalers, and extending our industry expertise with specific partners, applications and software in our go to market strategy.

Overall, [while] our ambition is to grow total domestic enterprise across T25, including mobile, this will be a significant challenge in FY23, given the level of first half decline. We are focused on five areas; ongoing momentum in mobility; strong second half NAS performance consistent with normal seasonality; limiting the level of calling decline, retaining fibre SIOs; and managing cost.

Turning to International on slide 11. Following the acquisition of Digicel Pacific, International now represents around 10% of EBITDA. International excluding Digicel Pacific grew 9.3% in Australian dollars, or 7% in constant currency. Pleasingly, Digicel Pacific is performing well, with core mobile and SIO growth in all markets. Revenue and EBITDA are up 7% and 9% respectively, versus pro forma at constant currency.

Note that following the implementation of our corporate restructure from the second half of '23, International reporting will include internal revenue with Group eliminations increasing in an equivalent amount. The restructure will also create [other] additional internal revenue and costs.

Turning to infrastructure on slide 12. While reported revenue and EBITDAaL grew 3.6% and 2.7% respectively, core excess growth for ducts fibre and network sites was above this level. NBN commercial works declined in line with contract expiry, partly offset by an increase in legacy network disposals.

Core access grew from both internal and NBN recurring revenue growth. The latter grew 4.8% supported by CPI indexing, and a further 7.3% price increase was applied from 1 January 2023.

The EBITDAaL result also reflected incremental investments in strategic infrastructure projects, power and maintenance costs. As we think about InfraCo Fixed, it's important to understand there are a range of asset classes, each with different investment models: ducts represents most of the earnings and the value. It is very high quality, low capex with difficult to replace assets, and long term predictable earnings; long haul fibre we're investing in, and we view it as a growth business; access fibre is about leveraging the existing footprint; and finally, Fixed network sites provide opportunities, especially in large [regional and] metro sites. Outside of these areas, we're giving significant focus to how we reduce cost. Vicki will talk further about InfraCo Fixed.

Turning to our operating expenses, which you can see on slide 13. Total operating expenses increased 4.2%. Excluding one-offs, restructuring and

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