Telstra Group Limited · ASX:TLS
Telstra — Non-Deal Roadshow (April 2005)
32 slides from Telstra's roadshow presentation, Apr 13, 2005
Slide 1: Telstra 2005 International Investor Roadshow: Building Momentum
Telstra Corporation Limited 2005 International Investor Roadshow John Stanhope Chief Financial Officer “Building Momentum” Page 1
Slide 2: Highlights of 1H 2004/05
Highlights of 1H 2004/05 Strong Profit & -Underlying NPAT $2.3b (+9%), EPS +11% — FCF (excluding asset sales / acquisitions) $2.2b (+20%) Free Cashflow — Steady underlying margins — Fully Franked Interim Ordinary Dividend 14cps (+8%) Capital Management Program — Fully Franked Special Dividend 6cps —
Slide 3: Reported Results
Reported Results ($ billions except EPS & DPS) 1 H 04 1 H 05 % Sales Revenue 10.46 11.28 7.8 EBIT 3.52 3.69 4.7 NPAT 2.29 2.34 1.9 EPS (cents) 17.9 18.6 3.9 Ordinary DPS (cents) 13.0 14.0 7.7 Growth in EPS & DPS Page 3
Slide 4: Underlying Results
Underlying Results ($ billions except margins & EPS) 1 H04 1 H05 % Sales Revenue 10.46 10.95 4.8 Underlying Domestic Sales Revenue 9.74 10.18 4.5 Operating Expenses 5.35 5.55 3.8 EBITDA 5.26 5.49 4.3 EBIT 3.46 3.66 5.9 NPAT 2.13 2.32 8.8 Underlying EPS 16.6 18.5 11.4 EBITDA Margin (%) 50.3 % 50.1 %
Slide 5: Our Strategy
Our Strategy Manage migration Improve - optimise traditional customer service — minimise churn Align Investment –grow new wave Cost and productivity Broadband improvements - maintain margins Wireless IP Network Advertising Execution will deliver shareholder returns Page 5
Slide 6: Improving Customer Satisfaction
Improving Customer Satisfaction Grade of service – Calls answered Broadband – Average connection (days) 100% 0.50% 35 30 Cable 0.40% 75% Calls answered in 20 sec (LHS) 25 0.30% 20 50% 15 0.20% ADSL 10 25% % of Calls > 15 mins (RHS) 0.10% 5 0% 0.00% 0 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 04- J a
Slide 7: PSTN Voice Products
PSTN Voice Products $4,200 -1.9% $90m ($89m) PSTN $4,100 $4,047m ($51m) PSTN Maximising PSTN ($15m) ($2m) $4,000 ($8m) $3,972m voice through: $3,900 Bundling $3,800 Rebalancing Feature penetration $3,700 Call completion $3,600 $3,500 1H 04 Basic Local STD ID Fixed to VAS 1H 05 Access Calls Mobile Op
Slide 8: Broadband Lift Off
Broadband Lift Off Pricing changes stimulated market Broadband Subscribers (000s) Reduced ARPU 1,228 Migrating to higher value plans 803 611 Retail market share estimate 38% Minimal impact on Dial-up base 507 379 361 220 245 121 617 Wholesale 57 424 240 287 Retail 188 1H 03 FY 03 1H 04 FY 04 1H 05 7
Slide 9: Mobiles – continuing to deliver
Mobiles – continuing to deliver Including Terminating Revenue Mobile ARPUs per month ($) 100 Incl terminating $2,620m $2,433m +7.7% 80 Postpaid $77 $198m $186m Handsets 60 Blended $53 Terminating $526m 40 $507m +3.7% Prepaid $19 20 0 1H 03 FY 03 1H 04 FY 04 1H 05 Mobile Services $1,896m $1,740m +9.0
Slide 10: Sensis – consistent growth story
Sensis – consistent growth story Revenue EBIT Underlying Underlying $508m $952m Growth Growth $453m $22m TPG $76m TPG +7.3% $809m +8.3% $62m $40m Other +5.9% Sensis Sensis $486m $453m (incl other) $769m (excl other) $814m 1H 04 1H 05 1H 04 1H 05 Growth in online & voice Higher 1H due to metro Yellow
Slide 11: Underlying Sales Drivers
Underlying Sales Drivers Movement Drivers of A$M Revenue Growth A$M Actual Growth% —— — 168 Total mobiles 2,094 8.7 155 Internet & IP solutions 624 33 100 Other Sales & Service 376 36.2 56 Pay TV 121 86.2 45 Advertising & Directories 814 5.9 - -20 ISDN 453 (4.2 ) - -21 Specialised Data 495 (4.1 ) -
Slide 12: Underlying Operating Expenses
Underlying Operating Expenses +3.8% $5,547m $5,345m ($1)m $29m Equity Labour +1.3% Accounted Salary increases absorbed $1,656m $1,635m losses Lower redundancy expense Greater front of house capability Goods & Services Purchased +17% Satisfying customer demand $1,737m $2,033m Handset subsidies Growth
Slide 13: Revenue and Margin Performance
Revenue and Margin Performance Domestic Underlying Sales Revenue $m 5400 +5.0% Underlying Sales Revenue & Margin 5200 +0.9% 5000 +3.9% 10 80 +3.0% 4800 +2.9% +3.0% 4600 EBITDA Margin (RHS) 60 4400 5 4200 EBIT Margin (RHS) Q104 Q204 Q304 Q404 Q105 Q205 40 $m Cumulative cost reduction – 3yr $800m 0 80
Slide 14: Capital Expenditure & Depreciation
Capital Expenditure & Depreciation 1H 05 1H 05 Domestic core Capex Depreciation & Total = $1,774m Total = $1,824m allocated Amortisation growth 77 31 61 to meet demand ... 131 is slowing ... 315 215 934 1H 04 386 1H 04 1,448 Total = $1,332m Total = $1,802m +33% +1.2% 29 60 120 Meet Current Demand 29
Slide 15: Effective Capital Management
Effective Capital Management Ordinary Dividend +8% Ordinary Special 6 $4.9b cash returns FY05 Dividends per share 3 +15% Gearing 44% CAGR Credit Rating A+ 14 12 12 13 13 Capital Management Distributions 11 11 11 8 Special Dividend $750m Format of 1H 2H 1H 2H 1H 2H 1H 2H 1H distribution 01 01 02 02 0
Slide 16: Target Financial Parameters
Target Financial Parameters % 1. Payout Ratio (Ordinary Dividends Declared) % 2. Gearing – Net Debt Weaker 55 Weaker 100 Target Zone 45 — 55% 50 Target Zone 80 % 80 45 60 40 40 Stronger 35 Stronger FY 00 FY 01 FY 02 FY 03 FY 04 1H 05 FY 00 FY 01 FY 02 FY 03 FY 04 1H 05 Times 3. Interest Cover – EBIT
Slide 17: Regulatory Issues
Regulatory Issues Current Price Caps Review Mobile Termination Pricing Final decision on ULL/LSS undertakings USO Costing Future Next Generation Networks e.g. FTTH T3 — Full Privatisation Regulatory issues being proactively managed Page 17
Slide 18: Outlook
Outlook Focus on domestic operations and customer service improvement Domestic revenue growth trending towards industry levels Steady underlying operating margins Domestic capex will be around $3.3 billion (including 3G) Emphasis on free cash flow and capital returns to shareholders Company financia
Slide 19: Supplementary Information
Supplementary Information Page 19
Slide 20: Economic Outlook
Economic Outlook Key drivers of forecast growth profile include: 6.0% Real GDP Growth a consumer spending likely to slow; 5.0% a oversupply in some key sectors and higher Actual interest rates likely to lead to slowdown in 4.0% Forecast housing construction; 3.0% a continuing strong business capex d
Slide 21: Telstra – A strong Performer
Telstra – A strong Performer Telstra has an impressive dividend yield, ROIC, EBITDA TCNZ 13th largest telco globally KT Corp 7 by market capitalisation 6 TELSTRA Strong Free Cash Flows 5 SBC Verizon BCE BT As at 23 February 2005 4 Bell South Fully integrated model 3 SingTel Vodafone Robust balance s
Slide 22: Peer Group Comparisons – CY04 Estimates
Peer Group Comparisons – CY04 Estimates* 100% 60% Payout Ratio EBITDA Margin 50% 80% 40% 60% 30% 40% 20% 20% 10% 0% 0% Telstra SGT TEL BT Group Deutsche France Telefonica Telecom Italia BellSouth Verizon SBC BCE Telstra SGT TEL BT Group Deutsche France Telefonica Telecom Italia BellSouth Verizon SBC
Slide 23: Telstra's Market Share Remains Strong
Telstra’s Market Share Remains Strong Basic Access Local Domestic LD International LD 18% 20% (16%) (18%) 73% 71% 63% 50% (74%) (52%) (75%) (65%) Sensis Advertising Mobile Data Subscription TV (main media) 13% 45% 64% 59% (46%) (64%) (58%) Narrowband Broadband Internet & IP Telstra share 26% (26%) 3
Slide 24: Integrated Consumer Communications Vision
Integrated Consumer Communications Vision Household services Access Line Pay TV & Video on Narrowband, Demand Broadband Media server Home Network options Home Security gateway, firewall, Monitoring & wireless LAN Automation Building stronger Customer relationships Page 24
Slide 25: Business & Government Segment – Evolving from Carriage to Services
Business & Government Segment –Evolving from Carriage to Services TB&G Product Revenue Mix Carriage Carriage, Solutions Business & Services Business Services Services 20% Grow our capability in ICT Services to respond to customer demand. Services 7% Solutions key solutions defined within Business an
Slide 26: Telstra's Broadband Access Networks – Fixed and Wireless
Telstra’s Broadband Access Networks –Fixed and Wireless =< 250-600kbit/s =<512kBit/s Satellite www Wireless NETWORKBigPond =< 1.5 Mbit/s ADSL ISP 2 HFC =< 6Mbit/s ISP n PayTV FTTP =< 128Kbit/s =< 100Mbit/s ISDN BigPond Wholesale 2G 2.5G 3G GPRS WCDMA Wireless GSM HSDPA 3GSM Under strategy study Netw
Slide 27: Volume Migration Impact
Volume Migration Impact $m Calling Events Volume Change — $m $300 $250 $297m $22m $215m $45m $1m $200 $150 ($87m) $100 $50 $0 -$50 ($26m) $42m $34m -$100 ($66m) ($13m) -$150 ($33m) Access B’Band LocalSTDF2MIDDISDN M2MM2FSMSA PartyTotal Represents estimate of $m decline due to: Represents estimate of
Slide 28: Wireless Capability
Wireless Capability 2.5G a1x National rollout complete ai-mode aPush To Talk 3G GSM aJV Established — national metro coverage aNetwork extension underway aServices to be offered 1H 05/06 3G CDMA aEVDO — capital city and selected regional coverage aSeamless handover to CDMA 1x 3G WiFi aLocations expa
Slide 29: 3G Network Share — How it Works
3G Network Share — How it Works Services Messaging Billing Content Messaging Billing Content and Support Systems Voice & Video Data Voice & Video Data Switch Switch Switch Switch Core Shared Radio Controller Radio Access Network Base Station Page 29
Slide 30: Sensis – a clear strategy for growth
Sensis – a clear strategy for growth Domestic Business Local Advertising M&A Services M&A Establish and grow Sensis Search search and M&A sensis.com.au / sensis ® 1234 / Sensis Wireless through Local Advertising Brands Business Services Yellow Pages ® Trading Post ® Future White Pages ® Invizage Tec
Slide 31: Key International Operations
Key International Operations HK$m Key Financials NZ$m Standalone basis Standalone basis 1H 04 1H 05 1H 04 1H 05 $2,014 $2,173 Total revenue $337 $351 $662 $623 EBITDA $78 $78 $252 $208 EBIT ($5) $1 Successful launch of 3G in December 04 Retail revenue growth 7% Pricing pressure remains intense Stren
Slide 32: Ownership
Ownership Public & Institutions Commonwealth of Australia Australian International Retail Institutions Institutions (24%) (17%) (7%) 52%* 48%* Full Market Capitalisation (1) : A$ 66b Market Cap. (Free Float) (1) : A$ 32b Shareholders: 1.7 m (1) Valued at $5.30 per share. * Percentages rounded to nea