Telstra Group Limited · ASX:TLS
Telstra — H1 2019 Earnings Presentation
54 slides from Telstra's earnings presentation, Feb 14, 2019
Slide 1: Half-year results CEO/CFO analyst briefing cover letter
14 February 2019 Office of the Company Secretary Level 41 The Manager 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA Market Announcements Office Australian Securities Exchange For personal use only th General Enquiries 03 8647 4838 4 Floor, 20 Bridge Street Facsimile 03 8600 9800 SYDNEY NSW 2000
Slide 2: Disclaimer
{] {| Chief Executive Officer i) Disclaimer ¢ |] These presentations include certain forward-looking statements that are based on information and assumptions known to date and are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different
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Slide 6: T22 strategy scorecard
T22 strategy | Scorecard ¢ Customers E ; SSM Market leading Simplified products, Extended network Hanerimen Net cost Rota GRle ae customer business and operating superiority and temtacatso productivity of 510% experience model 5G leadership encasanend $2.5bn by FY22 toimprove din allkey industry @ 8
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Slide 9: Group results: income statement
Total income? $14.4b $13.8b 4.1% 3.9% 1.8% Sales costs* $3.9b $4.2b 8.8% Fixed costs — underlying $3.8b $3.7b 4.2% Fixed costs — other $0.9b $1.0b 7.0% - One-off nbn DA and nbn C2C $0.2b $0.2b 10.1% Restructuring and guidance adjustments $0.4b $0.4b 2.9% Operating expenses $9.3b $9.5b 3.0% EBITDA $5
Slide 10: Group results: free cashflow
Group results: free cashflow T 1H19 free cashflow 1H18 change $m 1H19 Free cashflow declined due to lower EBITDA including restructuring, increased working capital, and lower net proceeds on disposal partly offset by lower tax paid and EBITDA - reported basis $5,096m pss $4,258m capex $650m Free cas
Slide 11: Group results: income by product
Group results: income by product T 1H18 1H19 income 1H19 % Mobile $5,169m change $m Be $5,291m 2.4% Hardware revenue +$135m; +36% loT revenue growth Fixed excl. one-off nbn C2C! $3,006m 289 || $2,717m -9.6% +64k Fixed broadbandnet adds offset by -25% standalone voice revenue Recurring nbn pe $304m |
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Slide 13: Capital position
Capital position T 1H1 1H1 Gross and net debt were flat year on year. Debt increased since 30 June due to typical Gross debt’ $16.4b $15.4b $16.4b seasonality and lower free cashflow Cash and cash equivalents $0.6b $0.6b $0.5b Average gross borrowing costs remain flat Net debt $15.8b $14.7b $15.8b .
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Slide 15: Capital management framework
Capital management framework T Fiscal discipline | flexibility Principles 1. We remain committed to retain balance sheet settings consistent with an A band credit rating 2. Pay fully-franked ordinary dividend of 70-90% of underlying earnings! 2 3. Target capex/sales ratio of ~14% excluding spectrum
Slide 16: Product performance: Mobile
Product performance: Mobile Mobile Revenue Mobile services Postpaid handheld Prepaid handheld Mobile broadband Internet of things (loT) Other" Hardware* EBITDA Margin Customers ~ retail Postpaid handheld mobile SIOs Internet of things (loT) SIOs Postpaid handheld ARPU. Postpaid handheld churn $5,169
Slide 17: Product performance: Data & IP
Product performance: Data & IP Data & IP Revenue IPVPN" ISDN Other data & calling products? EBITDA Margin IPVPN SIOs ISDN SIOs $1,298m $539m $245m $514m $828m 63.8% 114k 173k $1,217m 6.2% $511m 5.2% $206m 15.9% $500m 2.7% $782m $46m. 64.3% +0.5pp 126k 10.5% 148k 14.5% PMAN/Et! , Inboun IPWAN, nbn. ‘
Slide 18: Product performance: Global connectivity
Product performance:Globalconnectivity ¢ Solid revenue performance in local currency with growth in more profitable products within Data & IP offsetting legacy fixed products Global connectivity Revenue! $764m $801m 48% 0% decline Telstra will enter into agreements to invest in Fixed $151m $144m 4.6
Slide 19: nbn DAs and commercial works
nbn DAs and commercial works ¢ Overall decline in one-off DAs * PSAArevenue decline is mainly due to the reduction in disconnection volumes caused Income $1,785m $1,404m $1,561m 12.5% by the nbn HFC Cease Sale in CY2018 + One-off ISA revenues has however TUSOPA! $77m $90m $84m 9.1% increased in-line
Slide 20: AASB16 illustrative impacts in FY20
AASB16' illustrative impacts in FY202 T Income statements EBITDA ~+$0.7b to +$1.0b Reduction in opex, no ongoing lease expense EBIT ~+$30m to +$70m Depreciation of the right-of-use asset lower than previous operating lease expense Net Profit Before Tax ~-$80m to -$120m Balance sheet Assets ~+$3.0b t
Slide 21: Telstra InfraCo historical proforma
Telstra InfraCo historical proforma (AASB15)' Income $5,437m EBITDA by product: Recurring nbn DA $574m Mobile $335m Fixed excl. nbn C2C? $1,217m Data & IP and NAS $915m Global connectivity $144m Other? $170m EBITDA $3,355m ion methodologies and minor differer sin mposition of TelstralnfraCo once ope
Slide 22: CEO & CFO speech notes
CEO & CFO SPEECH NOTES TELSTRA HALF YEAR RESULTS 14 FEBRUARY 2019 For personal use only ANDREW PENN – CEO Slide – Half Year 2019 Results Good morning and welcome to Telstra's results announcement for the half year ended 31 December 2018. Our results reflect the dynamic and challenging market in whic
Slide 23: CEO speech: dividend and NBN impact
Consistent with Telstra's revised dividend policy, the Board has resolved to pay a fully franked interim dividend of 8 cents per share. This comprises an interim ordinary dividend of 5 cents per share and an interim special dividend of 3 cents per share. Telstra's circumstances today are very differ
Slide 24: CEO speech: NBN connections and cost reduction
In the half, we added 308,000 new NBN connections with an estimated NBN market share excluding satellite of 51% and taking the total number of NBN connections from Telstra to 2.3 million. Turning to costs, we continued to make progress with our cost reduction program during the half. Underlying fixe
Slide 25: CEO speech: customer experience and plans
One of the biggest customer pain points has always been fear of excess data charges. This half we removed that pain point leading the market with our peace of mind mobile plans. We now have 489,000 Telstra customers enjoying the benefits of the Peace of Mind data. In the half, we also launched more
Slide 26: CEO speech: Telstra InfraCo and structure
Telstra InfraCo is now up and running and segment reporting is included in the financial accounts we are releasing today. High-level SLA's detailing the asset and services provided by Telstra InfraCo have also been developed and Telstra InfraCo is on track to be fully operational by the end of this
Slide 27: CEO speech: digitisation program
The investments will be largely complete by the end of the current financial year. In the meantime, let me add some colour to what we have been doing in this half. The digitisation program includes creating new technology stacks - one for mass market and one for enterprise but with shared capabiliti
Slide 28: CEO speech: 5G
Making sure we will have the handsets from the get go after announcing exclusive access partnerships with a number of key global providers in January. 5G will be transformative for the industry and offer significant opportunities for revenue growth. We believe as 5G rolls out - as with 4G, customers
Slide 29: CEO speech: outlook
Secondly, the 24/7 App. Ironically, one of the side effects of our successful peace of mind data plans is customers are going to their App less to check their data consumption because they no longer need to worry about this. This is good news for customers and we are therefore working on other initi
Slide 30: CFO speech: group results
We have made some changes in the disclosures for this earnings presentation to ensure we are increasing the transparency of results and the underlying trends. There are also two accounting standard changes that we have implemented as of the beginning of FY19: AASB9 & 15. A further standard, AASB16 w
Slide 31: CFO speech: capex and dividends
Capex remains within the FY19 guidance envelope. 1H19 capex was elevated as a result of the strategic initiatives, mobile capacity requirements and 5G network preparations. Capex in the second half will be lower. We continue to expect capex to reduce in FY20 following the completion of our three-yea
Slide 32: CFO speech: fixed and data products
We saw a strong performance in retail broadband with net adds of 64,000 services and reduced churn. This was the result of our multi-brand strategy, enhanced differentiated experiences for our customers, and base management. We have also refreshed our fixed business disclosure in the supporting mate
Slide 33: CFO speech: costs and EBITDA by product
Our industry partners who provide technology, consultancy and other services have a workforce of approximately 40,000 supporting Telstra. As we simplify our business and optimise costs, we expect the number of people our partners employ to work on our business to decline. The indirect workforce is a
Slide 34: CFO speech: capital position
Looking at our capital position, gross and net debt increased during the half, reflecting typical seasonality and lower free cashflow. Our average debt maturities reduced slightly to 3.7 years. On 2 January 2019 we borrowed $300 million on a 7-year-term at attractive rates. Together with an expected
Slide 35: Half year results and operations review
Half year results and operations review For personal use only
Slide 36: Half year results and operations review
Half year results and operations review For personal use only
Slide 37: Half year results and operations review
Half year results and operations review For personal use only
Slide 38: Half year results and operations review: retail and wholesale fixed
Half year results and operations review For personal use only Retail fixed Wholesale fixed
Slide 39: Half year results and operations review
Half year results and operations review For personal use only
Slide 40: Half year results and operations review: operating costs
Half year results and operations review For personal use only +$91m $9,541m +$328m +$148m +$22m -$162m +$63m $9,122m +$194m $8,857m -4.2% cost out
Slide 41: Half year results and operations review
Half year results and operations review For personal use only
Slide 42: Half year results and operations review
Half year results and operations review For personal use only
Slide 43: Half year results and operations review
Half year results and operations review For personal use only
Slide 44: Half year results and operations review
Half year results and operations review For personal use only
Slide 45: Half year results and operations review
Half year results and operations review For personal use only
Slide 46: Results of operations
Results of operations Half-year ended 31 December 2018 2017 Change Change Restated (i) $M $M $M % Revenue (excluding finance income) 12,586 12,809 (223) (1.7) Other income (ii) 1,212 1,582 (370) (23.4) Total income (excluding finance income) 13,798 14,391 (593) (4.1) For personal use only Labour 2,7
Slide 47: Total income
Total income Half-year ended 31 December 2018 2017 Change Change Restated (i) $M $M $M % Fixed products Retail bundles and standalone data 1,653 1,660 (7) (0.4) For personal use only Retail standalone voice 477 633 (156) (24.6) Other retail fixed (ii) 127 136 (9) (6.6) Total retail fixed revenue 2,2
Slide 48: Total expenses
Total Expenses Half-year ended 31 December 2018 2017 Change Change Restated (i) $M $M $M % For personal use only Salary and associated costs 1,890 1,946 (56) (2.9) Other labour expenses 144 177 (33) (18.6) Labour substitution 417 474 (57) (12.0) Redundancy 271 102 169 165.7 Total labour 2,722 2,699
Slide 49: Statement of cash flows
Statement of Cash Flows Half-year ended 31 December 2018 2017 Change Change $M $M $M % Cash flows from operating activities Receipts from customers (inclusive of goods and services tax (GST)) 14,975 15,679 (704) (4.5) For personal use only Payments to suppliers and employees (inclusive of GST) (11,7
Slide 50: Statement of financial position
Statement of Financial Position As at (i) 31 Dec 18 1 Jul 18 31 Dec 17 Change (ii) (ii) Restated Restated 31 Dec 18 v 1 Jul 18 $M $M $M $M % Current assets Cash and cash equivalents 541 629 587 (88) (14.0) Trade and other receivables and contract assets 5,471 5,500 6,097 (29) (0.5) Inventories 869 4
Slide 51: Segment information from operations
Segment information from operations Total external income EBITDA contribution Half-year ended 31 December Half-year ended 31 December 2018 2017 Change 2018 2017 Change Restated (i) Restated (i) $M $M % $M $M % Telstra Consumer and Small Business 7,212 7,320 (1.5) 2,948 3,457 (14.7) For personal use
Slide 52: ARPU and services in operation
ARPU ($) Half-year ended Dec 18 vs Dec 17 Dec 18 vs Jun 18 Dec 2018 Jun 2018 Dec 2017 Change Change Change Change (i) (i) Restated Restated $ $ $ $ % $ % Fixed retail bundle & standalone data 75.90 76.69 78.56 (2.66) (3.4) (0.79) (1.0) Fixed retail standalone voice 43.70 44.07 44.40 (0.70) (1.6) (0.
Slide 53: Half-year comparison: summary reported data
Telstra Corporation Limited Half-year comparison Half-year ended 31 December 2018 Summary reported half-yearly data Half 1 Half 2 Full year Half 1 PCP Dec-17 Jun-18 Jun-18 Dec-18 Growth ($ Millions) Restated (vi) Restated (vi) Restated (vi) Total income Fixed products For personal use only Retail bu
Slide 54: Half-year comparison: selected statistical data
Telstra Corporation Limited Half-year comparison Half-year ended 31 December 2018 Summary reported half-yearly data Half 1 PCP Half 2 PCP Full Year PCP Half 1 PCP Dec-17 Growth Jun-18 Growth Jun-18 Growth Dec-18 Growth For personal use only Selected statistical data Fixed Retail bundles and standalo