Telstra Group Limited · ASX:TLS
Telstra — GSJBW Australasian Investment Forum (April 2006)
61 slides from Telstra's conference presentation, Apr 11, 2006
Slide 1: Telstra GSJBW Australasian Investment Forum
Telstra Corporation Limited GSJBW — Australasian Investment Forum John Stanhope Chief Financial Officer I’m ready to buy These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significan
Slide 2: The story so far...
The story so far... rc What have been the trends in the business? X
Slide 3: The story so far: trends in the business
The Story so Far What have been the trends in the business I’m ready to buy Page 3 The story so far... I’m ready to buy Page 4 Revenue mix shifting to currently lower margin products Revenue and cost trends are concerning... Income Growth 1H05 2H05 1H06 1.9% 2.6% 4.6% 3.0 5.0 4.0 0.0 1.0 2.0 % 6.0 1
Slide 4: Where are we now?
Where are we now? Highlights of 1H 2006
Slide 5: Highlights of 1H 2006
3 I’m ready to buy Page 5 Where are we now? Highlights of 1H 2006 I’m ready to buy Page 6 Sales Revenue 11.28 11.44 1.5 Total Income 11.36 11.58 1.9 Operating Expenses (before D&A) 5.88 6.28 6.8 EBITDA 5.48 5.30 (3.4) EBIT 3.75 3.49 (7.0) NPAT 2.39 2.14 (10.3) Basic EPS 19.1 17.3 (9.4) EBITDA Margin
Slide 6: Drivers of Revenue Growth
Movement ‘sm Drivers of Revenue Growth Intemet&P solutions Mobiles Sensis Pay TV 'SON Specialised Dato PSTNVoice
Slide 7: Growth drivers — broadband, Sensis, mobiles
4 I’m ready to buy Page 7 Sales Drivers Internet & IP solutions 888 42 Mobiles 2,486 4.6 Sensis 944 6.3 Pay TV 156 29 ISDN 421 (7.1) Specialised Data 453 (8.5) PSTN Voice 3,818 (7.6) Drivers of Revenue Growth Actual $m Growth % - -313 56 109 264 35 - -42 - -32 Movement $m Growth drivers — broadband,
Slide 8: Operating Capital Expenditure / Cash Flow
Operating Capital Expenditure / Cash Flow ae Capex Coshfiow: Lower earnings, tower investment FY06 operating capex guidance $4.8b-$5.1b woewd
Slide 9: Operating Capital Expenditure / Cash Flow
5 I’m ready to buy Page 9 FY06 operating capex guidance $4.8b-$5.1b Operating Capital Expenditure / Cash Flow Capex: 3G JV payment to Hutchison $312m International transmission Cashflow: Lower earnings, lower investment spend 1,724 1,806 107 179 1H 05 1H 06 Domestic 8% Offshore Operating Capex 111 2
Slide 10: FY06 Earnings Guidance
FY06 Earnings Guidance FY06 EBIT change vs. FY0S (percent)
Slide 11: FY06 Earnings Guidance
6 I’m ready to buy Page 11 FY06 Earnings Guidance FY06 EBIT change vs. FY05 (percent) - -30% - -20% - -10% 0% - -7% to -10% - -15% to -20% - -21% to -26% September 05 guidance Program EBIT improvement (incremental Rev less COGS) Net Program opex cost (inc. additional in year redundancy) Additional D
Slide 12: Our Strategic Priorities
Our Strategic Priorities We are taking the tough medicine to create long term shareholder value... Focus on integrated services Invest to take out complexity and cost Implement market based management to know ‘the customer like never before ‘Win in mobiles and broadband - targeting 55% retail broadb
Slide 13: Our Strategic Priorities
7 I’m ready to buy Page 13 Our Strategic Priorities Focus on integrated services Invest to take out complexity and cost Implement market based management to know the customer like never before Win in mobiles and broadband — targeting 55% retail broadband market share by FY08 Invest in new services a
Slide 14: Our Strategic Priorities - One Factory
one oletra Our Strategic Priorities - One Factory ur current network and infastructre: Has significant duplication, complexity and under investment Isnot equipped to eliverintegrated applications & services isnot cost effective We will transform our IT capability to deliver truly integrated services
Slide 15: One Factory and Timeline for NGN Build
8 I’m ready to buy Page 15 Our Strategic Priorities — One Factory Our current network and IT infrastructure: Has significant duplication, complexity and under investment Is not equipped to deliver integrated applications & services Is not cost effective We have implemented a One Factory model: Princ
Slide 16: Progress to date
Progress to date
Slide 17: Strategic Outcomes — Progress to date
9 I’m ready to buy Page 17 What progress has already been made? Progress to date I’m ready to buy Page 18 Strategic Outcomes — Progress to date 1000 workforce reduction since June 30 (incl contractors) Cost reduction programs commenced 1H06 Capex saving of $300m identified and redirected to transfor
Slide 18: Strategic Outcomes - Progress to date
Strategic Outcomes - Progress to date Vendors signed: > Ericsson -3G 850 network to over 5,000 sites > Cisco-IP core > Tellabs - Multi-Service Edge/SDN replacement > Alcatel - IP DSLAMS and softswitches TT transformation: ‘> Detailed scoping for all 26 Operational Support Systems (08S) domains compl
Slide 19: Strategic Outcomes — Progress to date
10 I’m ready to buy Page 19 Strategic Outcomes — Progress to date Vendors signed: Ericsson — 3G 850 network to over 5,000 sites Cisco — IP core Tellabs -Multi-Service Edge/SDN replacement Alcatel — IP DSLAMS and softswitches IT transformation: Detailed scoping for all 26 Operational Support Systems
Slide 20: Regulation
Regulation uw > tesue structure ondlevel of pricing + our poston 530 overage undertaking lodge > Nest steps ACCC report to Government by end of March on pice sructure, ACCC sessment of pric level undertaking expected shorty ater, Safe guord > Issue lack of regulatory certainty on new investments our
Slide 21: Regulation
11 I’m ready to buy Page 21 Regulation ULL Issue — structure and level of pricing Our position — $30 averaged undertaking lodged Next steps — ACCC report to Government by end of March on price structure. ACCC assessment of price level undertaking expected shortly after Safe guard Issue — lack of reg
Slide 22: Key Messages
Key Messages ( 4H result shows continuation of deteriorating traditional product trends We are setting the foundations for successful execution of strategy
Slide 23: Key Messages
12 I’m ready to buy Page 23 Key Messages 1H result shows continuation of deteriorating traditional product trends We are setting the foundations for successful execution of strategy A new strategic direction has been announced I’m ready to buy Telstra Corporation Limited GSJBW — Australasian Investm
Slide 24: Telstra Citigroup Investment Conference
Telstra Corporation Limited Citigroup Investment Conference John Stanhope Chief Financial Officer
Slide 25: Disclaimer
Disclaimer These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking
Slide 26: The story so far...
The story so far... rc What have been the trends in the business? X
Slide 27: What have been the trends in the business?
The story so far... What have been the trends in the business? 3.0 5.0 4.0 0.0 1.0 2.0 % Page 3 What have been the trends in the business? Revenue mix shifting to currently lower margin products Revenue and cost trends are concerning... Income Growth 1H05 2H05 1H06 1.9% 2.6% 4.6% 3.0 5.0 4.0 0.0 1.0
Slide 28: Where are we now?
Where are we now? Highlights of 1H 2006
Slide 29: Highlights of 1H 2006
I’m ready to buy Page 5 Where are we now? Highlights of 1H 2006 I’m ready to Page 6 Sales Revenue 11.28 11.44 1.5 Total Income 11.36 11.58 1.9 Operating Expenses (before D&A) 5.88 6.28 6.8 EBITDA 5.48 5.30 (3.4) EBIT 3.75 3.49 (7.0) NPAT 2.39 2.14 (10.3) Basic EPS 19.1 17.3 (9.4) EBITDA Margin (%) 4
Slide 30: Drivers of Revenue Growth
Movement ‘sm Drivers of Revenue Growth Intemet&P solutions Mobiles Sensis Pay TV 'SON Specialised Dato PSTNVoice
Slide 31: Growth drivers — broadband, Sensis, mobiles
I’m ready to buy Page 7 Sales Drivers Internet & IP solutions 888 42 Mobiles 2,486 4.6 Sensis 944 6.3 Pay TV 156 29 ISDN 421 (7.1) Specialised Data 453 (8.5) PSTN Voice 3,818 (7.6) Drivers of Revenue Growth Actual $m Growth % - -313 56 109 264 35 - -42 - -32 Movement $m Growth drivers — broadband, S
Slide 32: Operating Capital Expenditure / Cash Flow
Operating Capital Expenditure / Cash Flow ae Capex Coshfiow: Lower earnings, tower investment FY06 operating capex guidance $4.8b-$5.1b woewd
Slide 33: Operating Capital Expenditure / Cash Flow
I’m ready to buy Page 9 FY06 operating capex guidance $4.8b-$5.1b Operating Capital Expenditure / Cash Flow Capex: 3G JV payment to Hutchison $312m International transmission Cashflow: Lower earnings, lower investment spend 1,724 1,806 107 179 1H 05 1H 06 Domestic 8% Offshore Operating Capex 111 240
Slide 34: FY06 Earnings Guidance
FY06 Earnings Guidance FY06 EBIT change vs. FY0S (percent)
Slide 35: FY06 Earnings Guidance
I’m ready to buy Page 11 FY06 Earnings Guidance FY06 EBIT change vs. FY05 (percent) - -30% - -20% - -10% 0% - -7% to -10% - -15% to -20% - -21% to -26% September 05 guidance Program EBIT improvement (incremental Rev less COGS) Net Program opex cost (inc. additional in year redundancy) Additional D&A
Slide 36: Our Strategic Priorities
Our Strategic Priorities We are taking the tough medicine to create long term shareholder value... Focus on integrated services Invest to take out complexity and cost Implement market based management to know ‘the customer like never before ‘Win in mobiles and broadband - targeting 55% retail broadb
Slide 37: Our Strategic Priorities
I’m ready to buy Page 13 Our Strategic Priorities Focus on integrated services Invest to take out complexity and cost Implement market based management to know the customer like never before Win in mobiles and broadband — targeting 55% retail broadband market share by FY08 Invest in new services and
Slide 38: Our Strategic Priorities - One Factory
one oletra Our Strategic Priorities - One Factory ur current network and infastructre: Has significant duplication, complexity and under investment Isnot equipped to eliverintegrated applications & services isnot cost effective We will transform our IT capability to deliver truly integrated services
Slide 39: One Factory and Timeline for NGN Build
I’m ready to buy Page 15 Our Strategic Priorities — One Factory Our current network and IT infrastructure: Has significant duplication, complexity and under investment Is not equipped to deliver integrated applications & services Is not cost effective We have implemented a One Factory model: Princip
Slide 40: Progress to date
Progress to date
Slide 41: Strategic Outcomes — Progress to date
I’m ready to buy Page 17 What progress has already been made? Progress to date I’m ready to buy Page 18 Strategic Outcomes — Progress to date 1000 workforce reduction since June 30 (incl contractors) Cost reduction programs commenced 1H06 Capex saving of $300m identified and redirected to transforma
Slide 42: Strategic Outcomes - Progress to date
Strategic Outcomes - Progress to date Vendors signed: > Ericsson -3G 850 network to over 5,000 sites > Cisco-IP core > Tellabs - Multi-Service Edge/SDN replacement > Alcatel - IP DSLAMS and softswitches TT transformation: ‘> Detailed scoping for all 26 Operational Support Systems (08S) domains compl
Slide 43: Strategic Outcomes — Progress to date
I’m ready to buy Page 19 Strategic Outcomes — Progress to date Vendors signed: Ericsson — 3G 850 network to over 5,000 sites Cisco — IP core Tellabs -Multi-Service Edge/SDN replacement Alcatel — IP DSLAMS and softswitches IT transformation: Detailed scoping for all 26 Operational Support Systems (OS
Slide 44: Regulation
Regulation uw > tesue structure ondlevel of pricing + our poston 530 overage undertaking lodge > Nest steps ACCC report to Government by end of March on pice sructure, ACCC sessment of pric level undertaking expected shorty ater, Safe guord > Issue lack of regulatory certainty on new investments our
Slide 45: Regulation and Stakes in the Ground
I’m ready to buy Page 21 Issue — structure and level of pricing Our position — $30 averaged undertaking lodged Next steps — ACCC report to Government by end of March on price structure. ACCC assessment of price level undertaking expected shortly after Safe guard Issue — lack of regulatory certainty
Slide 46: Key Messages
Key Messages ( 4H result shows continuation of deteriorating traditional product trends We are setting the foundations for successful execution of strategy
Slide 47: Key Messages
I’m ready to buy Page 23 Key Messages 1H result shows continuation of deteriorating traditional product trends We are setting the foundations for successful execution of strategy A new strategic direction has been announced I’m ready to buy Telstra Corporation Limited Citigroup Investment Conference
Slide 48: Half-year Review 2006
Half-year Review 2006 Telstra
Slide 49: Message from the Chairman and CEO
MESSAGE FROM THE CHAIRMAN AND CEO Dear Shareholders The first half of the 2006 financial year has been challenging for Telstra. The Board had to make tough decisions, including advising you in August that Telstra’s operating earnings would decline for the first time in light of the adverse operating
Slide 50: Contact details
contact details Telstra Corporation Limited Incorporated in the Australian Capital Territory Telstra is listed on Stock Exchanges in Australia, New Zealand (Wellington), and the USA (New York) General Telstra Enquiries and Switch Board Australia: 1300 368 387 All Other: +61(8) 8308 1721 Shareholder
Slide 51: Telstra Credit Suisse Investment Conference Hong Kong
Telstra Corporation Limited Credit Suisse Investment Conference Hong Kong - March 2006 Sol Trujillo Chief Executive Officer
Slide 52: Disclaimer
Disclaimer These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking
Slide 53: Telstra - the leading player with scale
Telstra - the leading player with scale Telstra is well positioned to take advantage of truly converged communications... I Telstra offers a full suite of communications services O Wireline - unparalleled reach to customers across Australia O Wireless - already rolling out one of the world’s most ad
Slide 54: We are on the move
We are on the move To know our customers and meet their needs better than anyone else We are on the move: Driving a new customer experience Driving new revenue sources Driving reduced complexity in the business Driving costs down Driving a new competitive culture Driving a new regulatory agenda
Slide 55: And here's the reason why....
And here’s the reason why.... Income Growth Revenue mix shifting to currently lower margin products Intense pricing pressure in a competitive market Cost Growth Before Interest We have too many of everything Regulation is increasing costs and hampering growth
Slide 56: 1H 2006 Result was on Plan
1H 2006 Result was on Plan Results tracking with plan PSTN, Mobiles Sensis Strong broadband performance Dividends consistent with guidance Tracking to full year guidance Total Income +1.9% to $11,578m Costs +6.3% to $8,089m EBIT -7% to $3,489m PSTN Revenue -7.6% Volume & Price erosion in PSTN Mobile
Slide 57: Our Strategic Priorities
Our Strategic Priorities We are taking the tough medicine to create long term customer value and shareholder value by... Implementing market based management to know the customer like never before Investing: Oin new services & applications to differentiate ourselves & grow revenues to take out compl
Slide 58: Strategic Outcomes - Progress to Feb
Strategic Outcomes - Progress to Feb 06 It’s early days, but there is progress in the transformation’s strategic goals... Cost reduction programs commenced 1H06 Capex saving of $300m identified, redirected to transformational projects 1000 workforce reduction since 30 June 05 (incl contractors) Mark
Slide 59: CSL/New World merger
CSL/New World merger First mover advantage in consolidation of HK mobile market The merged entity will be No. 1 operator in HK mobile market At least A$400m of cost savings to the merged entity The merged entity will enjoy strong brand recognition across all market segments No gain or loss on effect
Slide 60: Regulation
Regulation ULL I Issue - structure and level of pricing I Our position - $30 averaged undertaking lodged I Next steps - Government decision expected early April. ACCC assessment of price level undertaking expected shortly after Safeguards I Issue - lack of regulatory certainty of commercial return o
Slide 61: Telstra's transformation will deliver...
Telstra’s transformation will deliver... Customer O Needs based solutions O 1 click, 1 touch, 1 screen, 1 button, 1 step O Simplified and integrated customer experience Network O Leading wireless network - - Biggest network in Aust - - Fastest speeds - - Best in-building coverage O Australia’s large
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