Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Telstra Group Ltd (TLGPY, Financial) reported a 3.7% increase in underlying EBITDA to $8.2 billion, demonstrating strong operational performance.
- The mobile business saw significant growth with over 560,000 net new handheld customers and a 5.6% increase in mobile services revenue.
- The infrastructure business, including InfraCo Fixed and Amplitel, grew EBITDA by around $150 million, reflecting strong demand for assets.
- The company announced a strategic partnership with Microsoft, highlighting strong demand for Telstra's intercity fiber network.
- Telstra Group Ltd (TLGPY) increased its fully franked final dividend by 5.9% to $0.18 per share, reflecting confidence in future earnings growth.
Negative Points
- The enterprise business underperformed, with a 67% decline in fixed enterprise EBITDA to $136 million, driven by ARPU compression and lower business confidence.
- Reported EBITDA decreased by 4.2% to $7.5 billion due to significant one-off net costs totaling $715 million.
- The company faced challenges in its NAS portfolio, with a 4.5% decline in income and a drop in earnings to $41 million.
- Free cash flow guidance for FY25 includes a $300 million cash outflow related to FY24 restructuring costs, impacting overall cash generation.
- The delay in the 3G network shutdown could potentially impact cost savings and the company's ability to reduce energy use and emissions.
Q & A Highlights
Q: On postpaid ARPUs being down lightly in the second half versus first half. Is there any consumer downturn in there? Or is it all just mix of one-offs? And will these factors continue into FY25?
A: (Vicki Maree Brady, CEO) We do have a little bit of seasonality that happens first half versus second half. Roaming is a good example of that. In the second half in our enterprise business, messaging revenue came off. (Michael Ackland, CFO) On mobile ARPU in the second half, a little bit of seasonality around roaming and a drag in our enterprise ARPU due to messaging revenue decline. The larger postpaid price rises were done right in July 1 this year, so we don't see that first half, second half benefit that we've had in previous years.
Q: On the EPS outlook for '25. If I take the midpoint of your EBITDA guidance, it's suggesting an EPS outcome above $0.19. For the purposes of the dividend, will franked EPS be 0.5% lower than underlying EPS due to restructuring?
A: (Michael Ackland, CFO) Our franking balance is a little tighter than normal, but we are confident based on our FY25 guidance in our ability to maximize fully franked dividends and seek to grow them.
Q: On postpaid ARPU churn in the second half, particularly given the announcement of the supply side? Are you expecting elevated churn off the back of that event?
A: (Vicki Maree Brady, CEO) In terms of how churn performed in the second half, I remain very pleased with where churn is running at. We did have a little bit of movement inside our enterprise business in the second half. Our experience in terms of prior price changes, we would ordinarily expect the greatest impact when the pricing changes hit customers' bills for the first time.
Q: On free cash flow guidance, given the additional payment of the $300 million of restructuring costs, are you comfortable with lifting gearing into next year?
A: (Michael Ackland, CFO) Based on our free cash flow guidance, including the $300 million, with the EBITDA growth we’re guiding on, we see no issue on any of the credit comfort metrics. Our balance sheet remains very strong and inside those credit metrics.
Q: On prepaid subscribers, the growth slowed quite materially in the second half. Is this more structural or are you seeing some share shift in the prepaid segment?
A: (Brad Whitcomb, Group Executive - Consumer and Small Business) Prepaid remains a fantastic business for us, and we did grow in the second half. There is less migration typically in the second half, an uptick in the first half related to the Optus outage, and we cleaned up around 50,000 long expiry, non-tolling customers out of the numbers in the second half.
Q: On fixed enterprise, do we interpret that the revenue headwinds coming through more than offset the OpEx savings you've done annualizing next year, so fixed enterprise EBITDA declines into '25?
A: (Vicki Maree Brady, CEO) We are now well underway with the initial actions on the reset of the enterprise business. We have more work to do to work through it, right from the foundations to make sure we get this reset right. Our guidance for FY25 takes into account the actions that we will take throughout the year.
Q: On free cash flow, the guidance of $3 billion to $3.4 billion next year. If I take that a step further out to '26, the $300 million of restructuring dropped away, hopefully, another couple of hundred million of EBITDA growth, CapEx is flat to marginally down. Is there anything wrong with my thinking that the free cash flow in '26 could be well into the high threes?
A: (Michael Ackland, CFO) We are confident in the strong operating cash flow generation capability of this business. The only one thing I would note is for FY26, we do have an NBN true-up payment that lands in FY26 of around $250 million.
Q: On the narrowed guidance range into FY25, is it primarily greater clarity around mobile pricing than you had back in May?
A: (Vicki Maree Brady, CEO) Since May, we've made our decisions on pricing and our enterprise agreements have gone to a vote of our people and all four of our enterprise agreements were overwhelmingly voted through with a yes vote. These factors give us confidence, and that's why today, we have narrowed the guidance range.
Q: On mobile margins, do you see scope for mobile margins to continue to grow into FY25, notwithstanding that more recent reduction?
A: (Michael Ackland, CFO) The sequential change is really around the second half growth in hardware revenue depressing that margin just slightly. There's great operating leverage in the mobile business, particularly on the EBITDA level.
Q: On the intercity fiber project, when do you expect it to be a positive contributor to free cash flow?
A: (Brendon Riley, CEO - Telstra InfraCo) We haven't given any guidance on the free cash flow on the project. The previous guidance we've spoken about in terms of income, payback, and the IRRs all hold. The Microsoft deal is consistent with the guidance we've given the market in terms of the deal attributes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
