Telstra Group Limited

Good morning and welcome to Telstra's results announcement for the half year ended 31 December 2023. I am joining today from the lands of the Gadigal people. On behalf of Telstra, I acknowledge and pay my respects to the traditional custodians of country throughout Australia and recognise the continued connection Australia's First Nation peoples have to land, waters and culture. We pay our respects to elders past and present. I will make some brief comments on our key highlights. Michael will then take you through the financials, after which I will summarise our progress against our T25 strategy and areas of focus for the second half of FY24. We'll then take questions from analysts, investors and media. Our results for the half show continued growth in reported and underlying earnings, with positive momentum across many of our key indicators. This momentum is also reflected in the progress we have made in the second year of delivery against our T25 strategy. focusing on the key highlights for the half. Total income was up 1.2% and EBITDA increased by 3.8%, driven by momentum from our mobiles business. Underlying EBITDA increased by 121 million or 3.1% to 4 billion. EBITDA growth flowed through to an 11.5% increase in net profit after tax to $1 billion. Earnings per share increased 12% to $0.084. Underlying ROIC increased to 7.8% and above our cost of capital. Our episode NPS increased by 3 points over the last 12 months to 44. Overall, our T25 strategy is on track, including our growth ambitions in underlying EBITDA, earnings per share and ROIC. On the back of continued growth, the Board resolved to pay a fully franked interim dividend of $0.09 per share, representing a 5.9% increase compared to last year. The increase in the interim dividend is consistent with our capital management framework to maximise the fully franked dividend and seek to grow it over time. At the same time, we continue to invest in our network and infrastructure to deliver connectivity, reliability and security to our customers. While our overall momentum is good, we have some parts of our business performing well and others where we see challenges. Our mobile business remains central to growth and continues to perform strongly, growing EBITDA almost 300 million in the half, driven by more customers, ARPU growth and cost discipline. Our customers are seeing the benefits from our leading mobile network and the continued execution of our T25 strategy. Our consumer and small business fixed business more than doubled EBITDA, largely due to productivity. Our infrastructure businesses also grew, reflecting continued strong demand for our assets. We remain disciplined on reducing our costs, particularly considering the external economic environment, which Michael will cover in more detail. Within our enterprise fixed business, data and connectivity is performing as expected, but NAS is clearly a long way from where we need it to be. We have seen negative trends in NAS accelerate, and we have a detailed review of our domestic enterprise business underway. Michael will cover the first half NAS performance in detail, and I will come back and speak to the immediate and significant actions we are taking to address this, which are both cost and revenue based. Given the performance in our NAS business, we are tightening our FY24 underlying EBITDA guidance range to 8.2 to 8.3 billion. FY24 guidance across other measures is reaffirmed. Overall in the half, we achieved continued growth in underlying earnings and positive momentum across many of our measures. We are focused on delivering the second half of our strategy and setting the business up strongly for beyond T25. I remain very confident about the important role we will play in a more digitised future, underpinned by investment in our networks, infrastructure and capabilities, and in our ability to continue to deliver sustainable growth into the future. I will now hand over to Michael to go through the financial performance in detail.

Thanks, Vicky. I am pleased to present Telstra's half-year 2024 results. Starting with our income statement on slide seven, which shows our continued growth since last year in line with our T25 strategy. Total income for the half was 11.7 billion, up 1.2% on the prior corresponding period or PCP. EBITDA was 4 billion, up 3.8%, supported by strong cost discipline. Underlying EBITDA was also $4 billion, up 3.1%, with strong growth in mobiles. Depreciation and amortisation decreased slightly in the half. However, it is expected to increase in FY24. EBIT was $1.8 billion, up 10.8%. Net financing costs increased around 26%, mostly reflecting higher borrowing costs from floating rates. More than 50% of our borrowings are fixed. Tax was broadly flat. And finally, earnings per share was up 12% to 8.4 cents, reflecting higher earnings. Looking at product performance on slide eight, we delivered strong earnings growth in Mobile, Fixed CNSB, InfraCo Fixed and Amplatel, partly offset by the decline in Fixed Enterprise, International and other. International's reported result was impacted by FX and changes following our corporate restructure. On an underlying basis, international wholesale and enterprise continues to perform well, while Digicel Pacific's performance was impacted by the operating environment in P&G. The decline in other reflects corporate adjustments, including bond rate changes on employee liabilities, lower energy contribution, and reporting changes due to the corporate restructure. These offset a gain of $47 million, reflecting value uplift from tower access agreements. Turning to mobile, which you can see on slide nine, we achieved growth through disciplined execution of our strategy. This follows significant investments we've made over several years in our network, brand, and customer experience, including the insourcing of retail stores and onshoring of our call centres. Mobile service revenue continued its recovery up 6% on PCP. This is in line with our ambition for mid-single-digit growth to FY25. This result reflects continued growth in customers and average revenue per user. We also received a small benefit of international roaming recovery, which lifted by 21 million on PCP. International roaming is now normalised. Retail handheld and wholesale SIO growth of 4.6% was supported by market growth driven by travellers and immigration, with net ads across all segments. We added a net 63,000 postpaid handheld services, 99,000 prepaid handheld, and 182,000 wholesale unique users during the half. IoT services also continued to scale. Our multi-brand strategy continues to optimize value across our portfolio. Customers have a broad range of price points, brands, and choice, helping make mobile connectivity affordable. Average revenue per retail, handheld and wholesale user was 2.1% higher than PCP with growth across all categories. Postpaid handheld ARPU grew 5.4%, driven by consumer and small business price changes and higher roaming. Prepaid handheld ARPU growth was driven by plan refresh and wholesale grew on mix. Finally, we saw growth in accessories and wearables, but lower handset sales. However, absolute hardware margin, including our loyalty program, improved. In fixed CNSB, ongoing execution of our strategy continued to deliver EBITDA growth. ARPU grew 2.6% to $81.67 due to price rises that came into effect in November 2023, as well as positive product mix. We continue to see the benefits of our investment in customer experience and have delivered margin expansion through greater cost efficiency. NBN reseller margins grew to 10%. We continue to scale our fixed wireless offering and have seen take-up of the product double over the year. While our EBITDA growth is pleasing, customer growth remains challenged and we have more work to do to stabilise this in the medium term. We aim to continue EBITDA growth by further improving customer experience, optimising across technologies, focusing on cost efficiency and limiting on-net legacy losses. Turning to fixed enterprise on slide 11, which is made up of data and connectivity, or DAC, and network applications and services, or NAS. DAC continues to be impacted by competition and technology change. Pleasingly, the rate of decline of DAC revenue slowed. It fell 10.2% in the half, driven by ARPU compression, as we reprice and proactively renew customers. We expect the rate of revenue decline to continue to slow as ARPU declines to FY25. Connectivity is the cornerstone of our enterprise offering, and our focus remains on customer retention, simplifying products and IT platforms, and reducing cost to connect and serve. Turning to NAS, where as Vicky mentioned, we have challenges. Looking at NAS revenue in the bottom chart, calling revenue, which is higher margin, declined approximately 18% as it continues to be impacted by a shift from traditional voice to cloud applications. This was as expected, and the headwind continues to get smaller. Professional services was impacted by lower business confidence and a slower trading environment, with customers holding off on projects and lower levels of pull-through on other product sales. We also saw a wind down of a number of large infrastructure contracts. Professional services revenue fell 18% sequentially, in contrast to the 33% growth seen in FY23, or 8% excluding acquired businesses. Such a rapid change in trajectory made it difficult to adequately adjust our cost base, which was set up for more growth. Finally, in the chart you can see that revenue from cloud resale and equipment grew. These resale businesses are low margin and high variable cost, and margins were lower in the half. These revenue, cost overhang and margin factors all contributed to lower NAS EBITDA. Given our pipeline continues to show the impact of a slower trading environment, we have not assumed the typical second half uptick in NAS in FY24. As Vicky mentioned, we're taking immediate actions to set the business up for success. The medium term outlook for NAS is positive and we remain confident in our capabilities and market opportunities. Turning to international on slide 12, which includes our wholesale and enterprise business, as well as Digicel Pacific, which was acquired last financial year. You'll recall that the implementation of the corporate restructure introduced internal revenue and cost to reporting not reflected in the prior period. Our reported results reflect this restructure, as well as foreign exchange impacts and one-offs. So let me talk you through the underlying performance. Wholesale and enterprise continue to perform well with strong demand for our infrastructure, subsea cable capacity and services. We're also continuing to invest for the long term. On an underlying basis, revenue and EBITDA both grew 3% driven by growth in DAC and NAS. Digicel Pacific's reported income rose 4.2%, while EBITDA rose 1.8%, reflecting higher operating costs. The results benefited from Australian dollar translation, however, on an underlying basis were impacted by the operating environment in Papua New Guinea. In PNG, mobile CIOs grew and ARPU remained broadly stable in local currency, while the performance in the hub markets was on track. Turning to infrastructure on slide 13, income from InfraCo Fix grew 8.2% on PCP, which includes commercial works and disposals. Income from Core Access grew 9% from both internal and NBN recurring growth. The latter grew 7.1% supported by CPI indexing. From January 1 this year, a further CPI indexing of 5.4% was applied. This growth was offset by declines in commercial works and legacy asset sales which we expect to be higher in the second half. Overall, Reported EBITDA grew 3.8% on PCP. We continue to invest in improving asset quality and efficiency to drive InfraCo growth. These are long term assets and we're investing for the long term, including through our strategic infrastructure projects. Our confidence in returns from the inner city fibre project continues to grow and we expect contributions from FY26 as capacity comes online. Amplitel's results demonstrate the strong demand for our towers and the work of our teams in securing signings. Income grew over 16% from new tenancies, escalations and increased services, including 5G upgrades. This included gains from customer contracts of 11 million. With the benefit of strong demand and momentum, we continue to anticipate Amplatel's EBITDA growth at the higher rate of mid to high single digit to FY25. Turning to operating expenses, which you can see on slide 14. Total operating expenses were broadly flat. We continue to focus on improving our productivity and reducing fixed cost core. During the half, we achieved 64 million in absolute cost reduction, despite inflation. We expect fixed cost core to reduce further sequentially in the second half, although the comparative period will make further absolute cost reduction difficult. Energy costs were broadly flat, with higher prices offset by consumption savings. We are committed to setting the business up for continued success and delivering on our growth strategy. We expect to achieve the large majority of our T25 $500 million reduction ambition, with most of this in FY25. Given the level of higher ongoing cost pressure, more significant action is going to be required to achieve this than previously expected. Productivity initiatives include significantly reducing our IT operations spend, decommissioning of legacy IT and networks, transforming our NAS cost base as well as more broadly across Telstra, and further process efficiency across customer and corporate back office functions. This includes the use of AI to provide better customer experience and further cost optimisation. Turning to free cash flow on slide 15. Our free cash flow was 955 million on a guidance basis. The decline compared to the first half of 23 reflects a stronger EBITDA, a reduction in working capital investment offset by CapEx and other, largely due to payment timings. First half cash flow is broadly consistent with the usual first half, second half seasonality. Working capital reversal and timing is expected to support free cash flow in the second half. Outside of guidance, spectrum payments of 1.3 billion are expected this financial year, including around 100 million paid in the first half. M&A payments this half included the acquisition of Versant. Turning to our capital position on slide 16, net debt remains stable at 1.9 times net debt to EBITDA with the increase in net debt reflecting seasonality of cash flows and the acquisition of Versant. We remain within our comfort ranges for all credit metrics. Our average invested capital increased, reflecting the full period's inclusion of Digicel Pacific. In the second half, net debt will increase with committed spectrum acquisitions, translating into a further increase in invested capital. We are absolutely focused on capital discipline and active portfolio management. ROIC have 7.8% increased in the PCP. Turning now to guidance for FY24, which we've seen on slide 17. You can see the ranges along with the conditions upon which we have provided them. Given the performance in NAS, we are tightening our FY24 underlying EBITDA guidance range to 8.2 to 8.3 billion. FY24 guidance across other measures is reaffirmed. This underlying EBITDA guidance range represents sequential growth in the second half from the timing of InfraCo asset sales, cost reduction and further net growth across products. This guidance excludes material one-offs such as Spectrum payments. We do not expect any material cash impact in FY24 or FY25 relating to the final price adjustment from the NBN rollout completion as detailed in our accounts. So to summarise, we continue to grow our business. We are focused on delivering our strategy, maintaining cost discipline and navigating challenges. And we remain committed to achieving our T25 financial ambitions. Finally, I'd like to thank the Telstra team for their ongoing efforts in delivering value for customers, the community and our shareholders. And I'll now hand back to Vicky.

Thank you, Michael. So while there are challenges in parts of our business, we see positive momentum overall, driven by continued growth across mobile, fixed CNSB and infrastructure. and we're confident in delivering on our T25 strategy. We also know that the external environment is putting pressure on consumers and businesses. We will continue to invest to deliver connectivity that is reliable, resilient and secure, and offer plans that are simple and deliver the services and choices our customers need, whilst also delivering value for our shareholders. Turning to our T25 strategy, we're now halfway through T25, a huge milestone. I'm very proud of what the team has delivered so far. We continue to see the positive impact of product simplification and digitisation on customer experience. We have 93% of consumer and small business sales on our new digital stack. And overall, we have digitised 71% of our key service transactions. Across the business, customer complaints continue to be at record lows and episode MPS remains at record highs. Episode MPS improved three points over the last 12 months and one point over the last six months, with improvements across consumer and small business and enterprise. TIO complaints from consumer and small business customers reduced by 18% over the last six months and are now more than two thirds lower than FY21. Cyber security, identity and scam protections remain extremely important to us and our customers. After a successful pilot, we launched our scam indicator in partnership with the Commonwealth Bank to help protect more Australians from phone scams. Through our Cleaner Pipes initiative, we are blocking on average more than 10 million scam calls and 11 million scam SMSs from reaching customers each month. We're also blocking almost 280 million scam and unwanted emails reaching our Big Pond customers each month. Despite this, our work is never done and we continue to look for new ways to help protect our customers. Improving customer experience remains the foundation for our growth ambitions. And while we have further to go, I am proud of this progress. We have continued to invest in network leadership and resilience. As at the end of December, we had around 87% 5G population coverage and 48% of our mobile traffic on 5G. Our mobile network covers 99.6% of the population and reaches 1 million square kilometres more than any other operator. We committed 1.3 billion to mobile spectrum in FY24, which means additional capacity to support more data, faster speeds and a more consistent experience for customers. We are on track to deliver even better services through 4G and 5G, and we are working towards transitioning our customers off our 3G network by 30 June 2024. More than 98% of our mobile sites already have 4G installed, and we have an absolute commitment to expand our 4G coverage to be equivalent to existing 3G coverage across the country by the end of June. And we were named best in test by industry benchmarking leader, Umlaut, for the fifth consecutive year. On satellite, we continue to work with a range of LEO satellite providers to enhance our fixed mobile and voice services for customers. We have released our enterprise internet product powered by Starlink, and we expect to launch our world first consumer broadband and voice product powered by Starlink in March. Our rollout of satellite-based backhaul for remote mobile sites is progressing well. We achieved a significant milestone with our first call on a mobile site using one web LEO satellite backhaul, and we will be migrating hundreds of sites over the next 18 months. We also signed an agreement with Link Global to explore and test direct to handset satellite technology as a potential way to extend mobile connectivity beyond our current footprint. We are Australia's biggest investor in digital infrastructure, and we continue to invest in areas of structural growth. On our new intercity fibre network, we now have more than 540 kilometres of fibre in the ground, and in November we announced five new routes that will begin construction in 2025, as well as an expansion to our network in the Pilbara. This brings us to a total of 10 routes and nearly 14,000 kilometres of fibre in planning that will be delivered by the end of FY27. And I'm pleased to say that the fibre is being produced locally here in Australia with our partner, Prismian. Outside of Australia, we operate APAC's largest subsea cable network, and we are responsible for carrying a third of intra-Asia and a quarter of Trans-Pacific traffic. Over FY24, we will invest an additional 100 million in subsea cables and satellite landing stations in Asia and the US to support capacity demand for our customers. This is absolutely foundational infrastructure for Australia and the region and means we're uniquely placed to lead in the digital economy and meet the increasing demand for data being driven by technologies, including AI. Against the growth and value pillar, we delivered growth in underlying EBITDA, EPS and ROIC. In the half, we grew our mobile, consumer and small business, fixed and infrastructure businesses. Let me now turn to the actions we are taking to address the performance of our domestic enterprise business. We commenced a review of this part of the business late last year, and implementing the actions from that review will be the focus of Oliver Campbell and Warner, our new group executive for Telstra Enterprise. This includes addressing the cost base of our enterprise business, including resetting costs across each function supporting enterprise, particularly NAS, to optimise end-to-end delivery for customers. a full review of the products and services we provide within enterprise and particularly our NAS portfolio to make sure they both meet the current and future needs of our customers and create shareholder value. This includes how we fully leverage Versant to unlock the evolving customer demand, the customer led transformation solutions. We remain absolutely committed to deliver for our enterprise customers. We expect professional and infrastructure services growth to return in time and are confident that we can navigate through this challenging period and set the business up for success. On cost, we continue to show discipline in the half, delivering 64 million core fixed cost out. Cumulatively, we've delivered 105 million since FY22. Michael mentioned the significant level of cost out required in FY25. I want to reinforce that while we're being challenged by cost pressure, we still expect to achieve the large majority of our cost out ambition by the end of FY25. We remain absolutely committed to capital discipline and delivering our T25 underlying EBITDA, EPS and ROIC growth ambitions. Against the place to work pillar, our employee engagement score was 79. We are focused on attracting, retaining and developing the best talent, as well as strengthening our culture by embedding our new behaviours. On digital leadership, we continue to invest in our digital capabilities to help improve customer experience, uplift our productivity and help industries and businesses to digitise. Our ambition is to become an AI-fueled organization, helping us unlock better outcomes for our customers, our people, and our organization. To underpin this, we are simplifying and modernizing our tech and data landscape and building reusable AI products for the whole organization to accelerate time to value. Within Telstra, we are now using AI to improve half of our key processes, including to automatically detect and resolve fixed services faults and to solve customer issues faster. For example, in the half, we piloted new AI applications, including Ask Telstra, an open AI-based solution with Microsoft to help our frontline teams find the information they need for better and more quickly serving our customers. We're also investing in our people, including through our Data and AI Academy, to upskill them in AI and help them understand how they can use it in their roles. On doing business responsibly, we are on track to achieve all our sustainability commitments, and we've now supported renewable energy projects worth more than $1.2 billion. Once these projects are fully up and running, our share of their renewable energy output will be equivalent to 100% of our own electricity consumption. We helped around 1 million customers in vulnerable circumstances stay connected in the half, and we welcome the new financial hardship standard as an important step to providing safeguards to consumers needing financial assistance. Our customers have faced a number of natural disasters over the last few months, including cyclone storms, floods and fires, and our teams have worked tirelessly to prepare and respond. We mobilised more than 3,000 of our people to respond on the ground across Queensland, Victoria and Western Australia. Currently, we also have teams responding to the impacts of recent severe storms in Victoria. As part of our preparation for future disasters, we successfully tested functionality that could underpin a temporary disaster roaming solution. which would allow people to connect to any available network in a disaster zone. Turning to our T25 scorecard, which we're on track to deliver the majority of our T25 metrics. In the half, we achieved our Telstra Plus FY23 ambition for 5.4 million customers and 70% engagement. We achieved our target of additional 100,000 square kilometres of mobile coverage ahead of time, with more than 140,000 square kilometres now added since FY21. We're also on track to meet our renewable energy generation target, as I just mentioned. In the second half of FY24, we will continue to prioritise activities that deliver a better customer experience and invest in the capabilities and infrastructure we need to deliver sustainable growth now and beyond T25. There are four areas I see as key to maintaining our financial momentum and delivering sustainable growth. First, continuing to improve the customer experience, including by finishing the job on migrating our consumer and small business customers onto our new digital stack. Second, continuing to grow the business, including continued growth in mobile, addressing challenges in NAS and achieving the large majority of our cost out ambition. Third, strengthening our culture by embedding our new behaviours, as well as attracting, retaining and developing the best talent, including through upskilling our people on data and AI technologies. And finally, setting up the business for long-term growth, including investments in digital infrastructure and active portfolio management to maintain the strength of our balance sheet and optimise returns and unlock value. With that, let me close out our half-year results presentation. Overall, our strategy is on track and we are focused on delivering the second half of T25. Thank you and congratulations to the Telstra team for everything we've achieved in the half. I will now hand over to Nathan Burley, Head of Investor Relations, to take us through Q&A.