Telstra Group Limited

Good morning and welcome to Telstra's results announcement for the half year ending 31st of December 2024. I am Nathan Burley, Head of Investor Relations. I am joining you today from the lands of the Gadigal people and 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 Nations people have to land, waters and culture. We pay our respects to elders past and present. This morning, we will have presentations from our CEO, Vicki Brady, and our CFO, Michael Ackland. We will then open to questions from analysts, investors, and the media. I will now hand over to Vicki.

Thanks, Nathan, and good morning, everyone, and thank you for joining us. I'll make some high level comments about the broader landscape, the telecommunications sector and Telstra's overall business performance before Michael gets into the detail of our financials. Starting with our sector, I spoke about at our full year results in August about the critical role the telecommunications has to play in Australia's future and in realising the benefits of transformative technologies, including AI, to unlock productivity, innovation and growth. When you think about the developments we've seen since then, you can see how rapidly this space is evolving. There are two points I'd like to make on this. First, AI needs to be underpinned by secure and reliable connectivity, which translates into massive demand for digital infrastructure assets. There is no AI without connectivity, and to realise its potential, we absolutely need to get the foundations right. The telecommunications sector has a vital role to play in Australia's future resilience and prosperity, and that role will only grow as technology continues to evolve. Second, to deliver on the connectivity demands of the future as a company, we absolutely need to be a leader in AI. Our joint venture with Accenture will see us tap into the global best to complement our own leading AI capabilities and help us reach our customer experience and network leadership ambitions faster. We are in an exciting era as connectivity and technology are transforming again. There are vast opportunities ahead of us, but to remain a leader, we need to accelerate. I see this joint venture as a defining moment in our AI journey to help unlock value for our customers, our people and our business. Turning now to Telstra's performance for the half. You can see a summary of our results on this slide. These are a strong set of results, delivering a fourth consecutive year of first half underlying growth, reflecting momentum across our business, strong cost control and disciplined capital management. Financial performance in first half 25 included EBITDA up 6% to $4.2 billion, profit for the period up 7.1% to $1.1 billion, Earnings per share up 6% to 8.9 cents and ROIC up 0.2 points to 8%. Our FY25 guidance remains unchanged. We are committed to increasing earnings, capital discipline and portfolio management with the aim to further improve ROIC. On the back of earnings growth, the Board resolved to pay a fully franked interim dividend of 9.5 cents per share representing a 5.6% increase on the prior corresponding period. This outcome is consistent with our capital management framework principle to maximise the fully franked dividend and seek to grow it over time. Today, we also announced an on-market share buyback of up to $750 million, which has been enabled by our fiscal discipline and the strength of our balance sheet. Our ongoing focus on portfolio management further strengthens our balance sheet and our ability to return capital. This includes the recently announced sale of our Foxtel interest to DAZN and the sale of our Titanium Ventures Fund 2 interest for $137 million. The buyback supports earnings and dividend per share growth over time. and along with the increased interim dividend, demonstrates the Board and management's strong confidence in our financial strength and outlook. Looking now at our results across the business. We grew underlying EBITDA across our mobiles, InfraCo fixed, fixed CNSB, fixed enterprise and international businesses. Our mobiles business has continued to perform strongly with EBITDA growth of 92 million. This growth was driven by more people choosing our network with 119,000 net new mobile handheld customers and ARPU growth. Mobile services revenue grew by 3.1%. Our InfraCo fixed EBITDA grew by 58 million, reflecting ongoing demand for our assets. Our fixed CNSB business continued to grow with EBITDA growth of 78 million. reflecting ongoing cost discipline and ARPU growth. Our fixed enterprise business EBITDA grew by 25 million, reflecting the decisive actions we have taken so far to reset this business, resulting in cost reductions. These actions include the progress we have made towards reducing our product portfolio by two-thirds and reorganising our teams, to deliver better for customers and operate more efficiently. We continue to focus on the overall reset of this business. Our international business EBITDA grew by 29 million due to strong growth in wholesale and enterprise from improved product mix and cost discipline. Our Digicel Pacific business continued to operate in a challenging environment. On costs, we reduced operating expenses through role reductions and productivity gains, partly offset by cost inflation. Core fixed costs decreased by 4.8% or $161 million. Cumulatively, we have reduced our core fixed costs by $283 million since FY22, and are on track to achieve our $350 million ambition by the end of FY25. Turning briefly to our T25 strategy. Overall, this is on track, including our growth ambitions in underlying EBITDA, EPS and ROIC. We are approaching a significant milestone as we finish one strategy and begin a new one. And we're in a good position with strong momentum in the business. Our achievements by strategic pillar and overall scorecard performance are included in the appendix slides lodged with the ASX today, so I won't talk to them in detail. The more than $40 billion in capex and spectrum we have invested over the last decade has radically transformed the connectivity Australia relies on, and we continue to invest. On digital infrastructure, we have seven fibre routes between Australia's major capital cities under construction as part of our new intercity fibre network with more than 3,000 kilometres of fibre in the ground. We are pleased to announce that the first two routes from Sydney to Canberra and Melbourne to Canberra will be ready for service later in 2025 and we are already taking orders. These brand new routes will enable at scale delivery of dark fibre solutions and options for wavelength services for a wide range of customers, including hyperscalers and the AI industry. The foundation fibre will also have the ability to serve regional cities and towns along the route, enabling productivity and economic development opportunities in regional Australia. As you can imagine, this is a big and complex project. We are building momentum whilst also managing some delays and cost pressures. We remain committed to managing the project within the $1.6 billion envelope and to delivering mid-teens IRR. We will be disciplined in the build of this 30-year asset, including prioritising the build of routes in line with customer demand and returns. We are very confident in what this network will deliver for customers, shareholders and Australia. We also continue to invest in our mobile network and we have expanded our coverage to more than 3 million square kilometres, now reaching 99.7% of Australia's population. To put that in perspective, our mobile network covers more than double the area of Optus' network and around three times the area of the Vodafone TPG network. We expanded our 5G network to cover 91% of the population, and we're on track to deliver on our goal of 95% 5G population coverage by the end of FY25. We will increase our mobile network investment by around $800 million over the next four years within our business-as-usual capex. This is to extend our network leadership and deliver customers the most advanced, resilient and reliable 5G mobile network in the country. As part of that, we are extending our partnership with Ericsson to deliver advanced 5G performance and to move towards autonomous self-healing networks. This plan will see us upgrade our radio access network with Ericsson's next generation Open RAN ready hardware, along with implementing 5G advanced software and AI and automation to optimize network management. This follows the closure of our 3G network in the half. I want to acknowledge there are a small number of customers who have faced issues since the closure. We are working with them to identify the cause and help them with their connectivity. This includes as well as a team of tech experts ready to find the best solutions to resolve issues. The driver for the closure of 3G remains the same, to deliver the best mobile network we can for our customers. This has meant migrating customers to 4G and 5G networks that are faster, more secure and more reliable, and being able to redeploy the 3G spectrum to further improve those services. In January, we announced a collaboration with SpaceX's Starlink to deliver direct-to- handset outdoor text message capability to parts of the country that are beyond the reach of our mobile network. Down the track, Direct to Handset has the potential to be a game changer from a safety perspective for people living and travelling in remote Australia. But just like mobile networks have not replaced fibre, satellite does not have the capacity to replace mobile in the majority of areas. Terrestrial mobile networks will remain the primary form of connectivity for most people. We will continue to invest. to maintain our terrestrial network coverage advantage so that our customers can have the richer experience from more areas before they hand over to complementary satellite coverage. For customers, we are continuously improving the experience for them. And while there is always more to do, I'm pleased to say we're on track to meet our Episode MPS T25 target. We also continue to be there for our customers in vulnerable circumstances, and we are on track to keep more than our target of 1 million customers connected in FY25. We know that cybersecurity and scams are a growing concern for our customers. We have expanded our scam indicator product with the Commonwealth Bank to cover both landlines and mobiles. and we recently extended this collaboration with a new product called Fraud Indicator to help prevent identity theft for our joint customers. Alongside this, for our Telstra customers, we launched Device Security Essentials to help protect mobile phones from online threats. We introduced Scan Protect to alert mobile customers to suspicious incoming calls. And our Cleaner Pipes initiative continues to block millions of scam calls, texts and emails from ever reaching them. For Australia, over the last six months, we have paid more than a billion dollars in dividends to shareholders, benefiting more than 16 million Australians. We also announced an up to $750 million share buyback today. On disaster preparedness, we committed to upgrading 1,000 payphones in disaster-prone areas with free Wi-Fi, USB charging ports and backup power by mid-2025. We've now upgraded almost 900, which can be a critical lifeline when the power goes out, and we continue to focus on improving the resilience of our assets to power failures. A big thank you to our teams who work all year round to make sure we're as prepared as we can be for when disaster strikes. As we look ahead, we are focused on finishing T25 strongly and putting the business in the best possible position to commence our new strategy. I'm looking forward to sharing more details about our new strategy closer to the end of this financial year. To close out FY25 strongly, we remain focused on lifting customer experience, delivering financial growth and value from our world-leading mobile network and infrastructure, continuing the reset of our enterprise business and delivering on our commitment to simplify our operations and improve our productivity. Let me close by reiterating that there is no version of Australia's future that does not rely on technology in some form and it will all need to be connected. Telstra's digital infrastructure and network will be increasingly important to Australia's future prosperity and we will continue to invest sustainably to deliver for our customers, our shareholders and for Australia. My sincere thanks to the Telstra team for all their efforts over the half. As we head towards the finish line on T25, it is their work and dedication that has helped put us in a strong position. I'll now hand to Michael to take you through the results in detail.

Thanks Vicki. So turning to slide 12, which shows our continued growth. This is our fourth consecutive year of first half underlying growth. We've delivered a net profit after tax of 1.1 billion, up 7.1%, and earnings per share of 8.9 cents, up 6%. This growth has been driven by strong cost management and earnings growth across key products, despite higher depreciation and amortization expense. While total income increased just under 1%, we reduced operating expenses by almost 2% with our ongoing focus on cost discipline. This result follows the cost actions we announced in May 2024. EBITDA of 4.2 billion was up 6% on a reported basis and 5.8% on an underlying basis. Depreciation and amortization expense of 2.4 billion was up 7.6%. This reflects spectrum acquired in recent periods and the ongoing shift to shorter life assets. We expect the trend of higher DNA to continue in the coming years as we execute the capital program, except for a decrease in the second half of FY25 due to asset retirements in the first half. Finance costs were broadly flat, as was tax, supported by an effective tax rate of 27.1%. We expect our effective tax rate will remain under 30% due to the mix of domestic, lower tax international earnings and non-controlling interests not taxable for us. With stronger earnings, the Board increased interim dividends to 9.5 cents per share, up 5.6%. Turning to slide 13 on product profitability, we're seeing solid growth across nearly all our products. including mobile, fixed consumer and small business, fixed enterprise, international and infrastructure. This was offset by a decline in fixed active wholesale and other. Our international business achieved growth in wholesale and enterprise, while Digicel Pacific benefited from the release of the remaining earn-out provision of 39 million. Other EBITDA includes ongoing costs not allocated to products. The decline was due to a $47 million gain from tower access agreements in the prior period. Other also includes negative FX impacts this half. Turning to each of our products, starting with mobile on slide 14. Mobile continues to demonstrate strong performance. Income rose 5% with service revenue and hardware growth, while EBITDA was up 4%. Mobile service revenue grew 3.1% driven by postpaid, prepaid and wholesale handheld, partly offset by mobile broadband. Our handheld mobile user base grew 119,000 in the half or 2.5% versus the prior corresponding period. This is a slower rate than recent years due to lower immigration and the one-off events like the 3G closure. Despite these headwinds, we've seen strong consumer handheld user growth and consumer branded churn has remained broadly stable. We implemented price rises across our portfolio in the half. These changes enable us to maintain our ongoing investments in network coverage, differentiation and customer experience. Prepaid price changes included Introduced in late October 2024, supported a 6.5% lift in average revenue per user, or ARPU, while wholesale saw a 6% increase. Postpaid consumer and small business price increases contributed to ARPU growth. Reported ARPU reflected three and a half months of this benefit, as well as the enterprise ARPU drop in the second half of FY24 that we spoke about at the full year. We expect the second half to reflect the full six-month benefit of the price increases implemented in the first half. Turning now to fixed consumer and small business, where our disciplined execution, focus on sustainable economics and a portfolio of technologies supported EBITDA growth of 74% to 183 million. ARPU grew 6%. reflecting price rises that came into effect in November 2023 and July 2024, as well as positive product mix. However, continued SIA losses remain a challenge. Our portfolio of technologies includes our 5G fixed wireless offering, which we continue to scale with over 100,000 customers, up 24% this half, and our satellite home internet product. Turning to fixed enterprise on slide 16, These results reflect the initial actions we've taken to reset our enterprise business, including actions on cost, enhanced commercial discipline and guardrails, and product exits aligned with our roadmap. We are focusing on profitable business closer to our core. Other areas may be exited or potentially divested. As Vicky said, we continue to reorganise our teams, which is resonating with customers as demonstrated by recent wins and re-contracts. While these results show improvement, there is still lots more work to do to simplify our portfolio and execute against our roadmap. Data and connectivity, or DAC, remains impacted by ARPU compression and technology change. Income fell 8% and EBITDA dropped to 42 million. In Network Applications and Services, or NAS, revenue was up slightly due to the contribution of prior year acquisitions. This was offset by ongoing structural decline in calling applications, lower sales in less profitable products consistent with our strategy, and a decline in professional services. Our cost reduction program supported earnings growth, with EBITDA of 54 million up from 17 million in the first half of FY24. In addition, growth was supported by the timing of BAU redundancies, which is expected to reverse in the second half. Turning to international on slide 17. Wholesale and enterprise revenue continued to benefit from ongoing demand for our offshore infrastructure and subsea cable capacity. DAC grew 4% in constant currency, offset by declines in legacy voice and NAS. Cost reduction and positive product mix saw EBITDA grow by 9% to $194 million. Digicel Pacific reported EBITDA increased 8% to $179 million, reflecting a release of the remaining earn-out provision. Excluding this, and in constant currency, EBITDA was down 3%, with modest sequential growth from initiatives taken to address the challenging operating environment. Turning to infrastructure on slide 18, income from InfraCo fixed grew 3.8%, with core infrastructure access up 4.7% due to demand from NBNCo internal and other customers for dark fibre and darks. Core access EBITDA grew 8.3%, reflecting lower operating and maintenance costs and operating leverage. Amplitel continued to benefit from strong demand for new towers and new signings. EBITDA grew 5.6%, excluding the gains from customer contracts in the prior period. Regarding our strategic investments, including the inner city fibre network, we expect to spend 1.6 billion above BAU capex across FY23 to FY27. We are responding to delays and cost pressures and will optimise the rollout for customer demand by adjusting where appropriate routes, phasing and kilometres deployed. We expect to be at the low end of our strategic investment guidance in FY24 with spend shifting into FY26 and FY27. We are deploying significant capacity, which we expect will support strong revenue growth from growing demand and increased utilization over the life of this 30-year asset. The timing of reaching 200 million of annual revenue will depend on routes, phasing, and types of customer contracts. Turning to operating costs on slide 20, our strong focus on productivity resulted in an overall reduction in cost, This included a $161 million reduction in fixed cost core. This was driven by reductions in our workforce, partly offset by salary increases, reductions in indirect labour, lower commissions and licence fee IT vendor rationalisation and other productivity more than offsetting inflation. Business as usual redundancies were also higher in the prior period. This brings our cumulative reduction in fixed cost core to 283 million since FY22. We remain on track to achieve 350 million by the end of this financial year. We expect further productivity gains over the medium term. Our free cash flow after leases before strategic investment increased 7.6% to 1.1 billion as shown on slide 21. Growth came from higher underlying EBITDA flat capex and leases and lower tax paid. We also delivered this growth while absorbing around 300 million in restructuring costs consistent with our guidance. Working capital and other reflects these restructuring costs. Normal first half, second half seasonality, including an increase in inventory and growth in handset receivables on higher hardware sales. We expect working capital reversal to support free cash flow in the second half. Slide 22 shows our strong position, our strong capital position and liquidity. Net debt is stable at 1.9 times as higher debt was offset by EBITDA growth. Our balance sheet is strong and we remain committed to an A band credit rating. This has enabled us to announce an on-market share buyback of up to 750 million as Vicky outlined. We will continuously evaluate the feasibility of future buybacks within the context of our strategy and capital management framework. We have also improved return on invested capital compared to the prior period and taken actions to demonstrate our focus on capital discipline and active portfolio management in the half. Finally, turning to guidance for FY25 on slide 23, which is unchanged. In summary, our performance continues to benefit from the investments we're making in productivity, our network and customer experience, while our key mobile and digital infrastructure assets benefit from long-term demand drivers. Our focus is on increasing operating cash generation to support our ambition to grow the dividend over time. I am pleased we've done this for a third consecutive year in the first half and that our financial strength and outlook has also enabled us to announce a share buyback. Finally, I'd like to thank the Telstra team for their ongoing efforts in delivering value for customers, for the community and for our shareholders. I'll now hand to Nathan for Q&A. Thank you.