February 28, 2025

FY 2024 earnings call transcript

TPG TELECOM LIMITED · FY 2024

Disclaimer

TRANSCRIPT OF TPG TELECOM – FY24 RESULTS – 28.02.2025

Paul Hutton

Good morning. This is Paul Hutton from TPG Investor Relations. Thank you for joining us for our

2024 full year results presentation.

At TPG Telecom, we acknowledge the traditional custodians of country throughout Australia and the lands on which we and our communities live, work, and connect. We pay our respects to their elders, past and present.

This morning, our CEO managing director Iñaki Berroeta will present the results, highlights and a strategy update. Our CFO, John Boniciolli will then discuss our financial performance in more detail, before Iñaki closes with a discussion of our outlook and we turn to Q&A.

Iñaki Berroeta:

Thanks Paul, and good morning to everybody listening. In fiscal year '24, we deliver a strong financial result and address key strategic priorities as we build a simpler, a stronger and more competitive business. The highlights of the results were market leading service revenue growth in mobile, increased EBITDA margins reflecting improved product mix and cost discipline, a strong cash flow recovery, and higher return on capital. There were also three key strategic highlights. Firstly, our regional network shared implementation. We are now a month into operating our agreement with Optus after we signed this deal last April. This is a fundamental change for our business, more than doubling our mobile network coverage and materially increasing our addressable market. In the first four weeks, we have experienced a strong growth in net apps and port-ins across mobile and significant increase in data traffic among our customers. This step change in our mobile proposition sets up to compete much more effectively and grow our market share over coming years.

Secondly, our business transformation is delivering material simplification. We now have 2,500 fewer plants in the market, increased digital sales capabilities and substantially modernised IT systems. There is more work to do, but solid progress means customers are benefiting from simpler products and plans and we are creating cost efficiencies to TPG.

Thirdly, we complete the strategic review of our fibre assets and in October announce the transaction with Vocus. The value of this deal goes well beyond the proceeds. We will receive the strengthening of our financial position and the significant streamlining of our business. It removes future Capex needs and locks in costs for our fibre network access without volume- based increases as we add customers or as those customers use more data.

Now turning to our financial metrics. We said in 2022 that growing mobile service revenue was our objective, and that is what we have done by rationalising plans, refreshing pricing, and steadily adding subscribers. Mobile service revenue is up more than 15% over the past two years, including 5.4% growth in fiscal year '24. This was the main driver of our 1.5% increase in group service revenue to just over $4.7 billion.

We also said in 2022 that our objectives for our fixed business were to improve profitability. We have delivered on that, notwithstanding the slight decline in fixed revenue. Our group gross margin was up 3.5% in fiscal year '24 to just over $3.2 billion. A rate of growth, two percentage points better than service revenue. That was supported by the strength in our fixed wireless business and the direct cost discipline across all mobile and fixed products. At the half year result, we announced actions to address operating costs with opex increasing just 1% in the second half reflecting the continuous cost discipline of our organisation. This enabled us to increase EBITDA by 3.4% to $1.988 billion at the midpoint of our guidance range. That excludes

Disclaimer

TPG Telecom - FY24 results third-party transcript - this transcript is prepared by a third party and is provided for information only. Anyone accessing the transcript should undertake with responsibility for assessing the relevancy and accuracy of the content. material one offs, such as the impairment associated with the new regional network sharing implementation.

On the same basis, excluding one-offs, our impact was up 4.8% to $87 million reflecting

EBITDA growth, flattening depreciation, and amortisation expense, and much slower growth in financing cost.

Capital expenditure was reduced by $112 million to just over $1 billion, reflecting the gradual normalisation of our Capex levels, while working capital movement was $331 million better.

Combined, this enabled us to deliver $474 million improvement in operating free cash flow. We have declared a final dividend of 9 cents per share, taking full year dividends declared to 18 cents per share, the same as fiscal year '23. This dividend is unfranked.

As we communicate previously, our remaining historical franking credits were utilised against the interim dividend. Pleasingly, return on investment capital improved 40 basis points reflecting our profit growth and a slowing rate of investment. The improvements in cost of and capital efficiency made this the strongest financial results we have delivered since the merger of VHA and TPG five years ago.

We still have a lot to work to do, but we have entered 2025 with great confidence for the future as we focus on accelerating market share growth from a leaner cost and capital base.

Having delivered on key milestones in fiscal year '24, we are now entering a new phase. We have made significant changes to our business to become nimbler, simpler and more efficient.

• We have refreshed our strategy based on four principles:

• running network smarter,

• invigorating brands and services,

• making it easy for customers, and

• becoming faster, simpler, and stronger.

These principles inform how we set objectives and monitor our progress.

Running network smarter means using our capital in the most strategic disciplined and efficient way, investing where we can create value through a scale and partnering where we cannot, while enhancing our customers network experience.

Both the regional sharing agreement with Optus and the way we will access fibre under the

Vocus deal are consistent with this principle, enabling us to grow in the most cost-efficient way with certainty that higher revenue will lead to higher margins.

Invigorating brands and services is about differentiating our offerings to be more competitive and build share by bringing to market our best ever products and services.

Complex legacy systems have held back our product innovation. At times it has been more difficult than it should for customers to engage with us. Making it easier for customers is all about bringing the benefits of a simpler business to our customers. A smaller portfolio of great value plans and products increase digital capability and the benefits of a single lean IT architecture where legacy no longer slows us down.

Becoming faster, simpler than stronger is about simplifying our structure and reducing the capital and cost required to run the business. The proposed sale of the fibre and EGW fixed assets makes us leaner and simpler while enabling us to optimise our capital structure. This enables us to deliver a better cost profile with significant efficiencies to come.

In fiscal year '25, we are focused on accelerating the benefits of our strategy for both customers and shareholders – and the and the KPIs and metrics on this slide show how we will measure it.

Disclaimer

In networks, the regional sharing agreement is just the beginning of what we can achieve through greater infrastructure sharing. We continue to work with Optus to drive greater efficiencies from what we call the eJV, a pre-existing arrangement that covers sharing of towers and rooftop sites in metro areas.

We are also looking forward to the separation of our fibre network and EGW fixed business with

Vocus and embedding the benefits of the deal.

Meanwhile, we expect our focus on Fixed Wireless services will continue to increase the margin we generate from our own network.

We'll have completed more than 80% of our five-year rollout by the end of this year, and we'll finish fiscal year '25 with far higher 5G penetration across our biggest ever mobile network.

We have an enormous opportunity to grow our mobile base in key locations of the back of our expanded network – as well as to refine and enhance our brand propositions.

Over time, we expect more customers to consider switching to our brands more often and, to sell both mobile and fixed services to more households.

The strength of our brands and employee engagement are a virtuous circle and we are encouraged by our people's positivity about our improved network proposition.

The sale of EGW fixed also means revitalising our EGW mobile business, both in our Vodafone mobile offering and through MVNO capability.

More digitalisation, service plan simplification and rationalisation of IT applications will continue,

– as will our focus on cost and capital efficiency.

We expect operating cost growth to be flat in real terms in fiscal year '25, while CAPEX will be lower at $900 million, and OPEX will start to fall as a percentage of service revenues.

The point of these KPIs and metrics is to highlight the confidence we have in our capacity to deliver value after a period of significant investment and transformation.

We are bringing a vastly improved network to customers, driving subscriber and revenue growth, accelerating the benefits of IT modernization and business simplification, and we'll continue to refine and enhance our brand propositions.

The strategic actions we have taken over the past two years have transformed our business and made us fit to fight and win.

We plan to go into more detail and also talk longer term at an investor day we intend to hold later in the year, once we have more certainty on the completion timing of the Vocus deal.

Let me now give you an update on our regional network expansion.

We have more than doubled our network coverage, creating a step change in our addressable market. We believe the scale of network growth and transformation, including the acceleration in

5G coverage in recent years is unprecedented in any other market.

As the map illustrates, our increased coverage across Australia positions our brands strongly to grow share in under-penetrated regions.

Today we have roughly 30% mobile market share in Sydney, about 20% in the next six cities, 5-

15% in smaller towns and less than 5% in rural areas. Clearly, if we can increase our share nationally towards Sydney levels, the size of the price for TPG is very large and today there is no reason why this could not happen.

Disclaimer

Customers are excited about having better access to the great value service our brands can offer. In the months since the regional network sharing launch, we have had our highest postpaid connections in six years. Our highest postpaid net apps in more than two years and a

50% year-on-year increase in port-ins from our competitors. TPG and Felix Mobile are recording various strong sales figures too. While across regional areas, we have seen a 35% increase in data traffic.

Many of you will have seen our new marketing campaign on television or on trams and bus shelters. This increase in marketing spend is delivering great results for us so far.

Now turning to the proposed sale of our fibre and EGW fixed business.

The deal is subject to regulatory approval and the ACCC has indicated it will provide the findings of its review on the 27th of March. Meanwhile, separation planning is progressing well, and we are on track to close the transaction with Vocus in the second half of 2025.

To recap, the rationale of the sale has four key components. Firstly, consistent with our commitment to run our networks smarter, this is about exiting assets and operations where we are subscale and replacing them with a partnership that gives us access to a larger network without the requirement for TPG to allocate capital.

The fibre we are selling is primarily a metro fibre access network, substantially overbuilt by the much bigger NBN and Telstra. While the assets are high margin, they are low growth and the opportunities in fibre are in long-distance transmission, an area where we have never played at the scale and where the size of investment required to compete is beyond our scope.

Secondly, the sale of this business will enable us to accelerate and increase the streamlining of the TPG operating structure and cost base. Being leaner and nimbler than the others must be a key competitive differentiator for TPG.

Thirdly, the net proceeds, which will be about $4.7 billion in cash, create enormous optionality as we look to put in place the optimal capital structure to reward existing shareholders and to attract new ones.

But finally, and perhaps more importantly, the deal strengthens our network economics.

Let me explain. The transaction removes a combined $360 million a year in operating costs and

Capex from TPG's business and replaces it with $130 million a year commitment to Vocus under what we call the TAWFA, the Transmission and Wholesale Fibre Access Agreement.

Under the TAWFA, TPG is provided the fibre services required to run our network on ongoing basis, maintaining ownership economics that is without any increased cost as we grow customer numbers or traffic. That creates operating leverage for TPG as we add customers or move them onto higher value, higher data plans.

Importantly, the TAWFA also includes all our inter-capital traffic needs. That means we avoid material costs we would otherwise incur to renew existing inter-capital arrangements. And if we require new or additional services from Vocus, we can also acquire those. We believe this transaction should create substantial value for TPG shareholders and we are excited to move forward subject to the approvals.

• My next slide covers our business simplification program, which has the three objectives: simplifying plants and products.

• increasing of customer experience; and

• modernising IT platforms.

Disclaimer

We are around halfway through and making great progress. Having started out with more than

3,700 plans across mobile and fixed, we now have roughly 1,000 left, and we are on track to remove 750 more this year.

Our longer-term target remains to have about 100 plans in market.

This makes our business more efficient to operate but also makes us much more responsive to customers when we need to make product changes. In the past, our legacy systems prevented us from increasing the use of digital channels. Now we are simplifying and upgrading our capability, and we are getting ready to launch new digital tools and experience this year.

We will soon release the new Vodafone mobile app with revamped digital journeys. Right now, digital mix and post-paid is tracking at more than twice the levels of the same period in fiscal year '24 and across the business, digital sales are tracking higher.

IT platform rationalisation is also progressing as planned. We have reduced total applications by

15% with many of the larger, more complex applications, the first to be consolidated.

We anticipate removing close to 100 additional applications this year, including those that will be decommissioned or transferred as part of the Vocus transaction. Our longer-term target remains fewer than 250 applications to support our business.

The efficiencies we deliver in Capex and Opex from these initiatives are reflected in our targets to reduce Capex to a range of $550 million to $650 million and reduce operating costs by an incremental $100 million in real terms post the completion of the Vocus transaction. We are also confident that making life easier for customers will help us reduce churn and increase market share.

The combination of these strategic initiatives position TPG to win and grow in the coming years and to create value for shareholders over the long term. We will provide a lot more detail at this investor day planned for later in the year, the timing of which is subject to progress with the

Vocus transaction.

At that time, we will also provide full pro forma information for the new TPG for fiscal year '23 and '24 of which to base our aspirations.

For now, I can say my team is focused on the commercial and operational priorities to drive revenue growth, lower costs and create capital efficiency. We are committed to growing our mobile market share, a low Opex-to-service-revenue ratio and growing EBITDA margin. This will enable annual growth in EPS, operating free cash flow and ROIC, as well as attractive dividends. The board is looking at all aspects to optimise value for shareholders and deliver a sustainable profile for TPG.

Before I hand to John, I want to emphasise how proud we are of our people and the way they have represented our company and our customers during a period of unprecedented change.

TPG is truly a value-led organisation, and this gives me and my colleagues on the executive leadership team great confidence in our ability to deliver in the years to come.

John Boniciolli

Thank you, Inaki, and hello to everyone listening.

Today I'll be talking you through some of the drivers of our strong FY24 operating results and providing some context for our financial outlook for FY245 and beyond.

Disclaimer

As covered off by Inaki, 2024 was the year of milestones in the delivery of our strategy to simplify and streamline our business. Our results today and our outlook reflect this work, which has laid the foundations for the future of our company.

Now turning to slide 15, covering mobile performance.

Mobile service revenue growth of 5.4% across the group was another great result. We have delivered 15.3% growth in mobile service revenue since FY22, well ahead of both our main competitors and reflecting our focus on ARPU growth.

Postpaid ARPU is up 13.9% over two years, including a 4.9% increase in FY24 to $48.46.

Prepaid ARPU in FY24 was up 6.1% to $20.07. This is a direct result of our rationalisation of back book plans and introduction of new pricing for most of our in-market plans over the past two years.

Data consumption is up 30% year on year. Changes to our plans are a modest way for us to monetise this increased consumption following our ongoing investment in 5G and other network and security capabilities.

The growth in mobile service revenue has come with a continued focus on costs, which contributed to a strong 7.1% increase in gross margin in FY24. Strong ARPU growth has offset lower momentum in subscriber numbers.

Subscribers were up a modest 99,000 in FY24 with the benefit of the Lyca MVNO contract and strong increase in prepaid, offsetting the reduction in postpaid. The decline in postpaid subscriber numbers includes the impact of a 25% decrease in both international migration and student intake.

Against this headwind, we have seen competitors respond through aggressive handset discounting and we've been very selective about participating in that, so as not to destroy value.

The shutdown of our 3G network has also impacted mobile subscriber numbers in the first half.

Importantly, our improved regional coverage means we can focus on winning a greater share of domestic customers.

Since the MOCN launch, that's exactly what we are seeing, with both net ads and port-ins up materially, as Inaki has explained. The very strong initial customer response to our improved regional coverage gives us confidence that in 2025 we can expect much better subscriber growth.

Turning now to slide 16, fixed broadband.

Strong fixed wireless customer and ARPU growth remains the highlight of our fixed broadband performance. This drives higher AMPU and resilient gross margin despite ongoing challenges in the NBN market.

We maintained our position as Australia's largest fixed wireless provider during the year with growth in subscriber numbers of 41,000 or 18%. Fixed wireless now makes up 13% of all fixed broadband subscribers and we expect this to keep growing towards 20% over time.

Many of the 41,000 new fixed wireless customers transition from TPG Telecom NBN services, a positive outcome for TPG Telecom given the higher AMPU. However, owing to intense competition in NBN, which has increasingly been sold by non-telco players and smaller entrants at very low margins, our total fixed broadband subscribers reduced by 84,000 users during the year. We remain Australia's second-largest distributor of NBN services and we expect to maintain this.

Disclaimer

Pleasingly, as the NBN market moves towards higher speeds and fibre to the premises services, the quality of a TPG Telecom offering is being recognised. We were the leading provider of new NBN Fibre Connect services every month but one in FY24.

I'm pleased to report our retail subscribers on Vision Network grew slightly in the second half.

We are pleased with the 4.7% increase in AMPU for all fixed technologies, driven by subscriber and ARPU growth by on-net customers using fixed wireless and ARPU growth on Vision

Network services.

AMPU for NBN customers was unchanged from the prior year. Gross margin declined less than

1%, a resilient outcome relative to the 2.6% reduction in service revenue.

I'll now turn to slide 17 to discuss operating expense.

Excluding material one-offs, total operating expense for FY24 was $1.225 billion, an increase of

3.6%. Importantly, efficiency initiatives limited second half growth to only 1% and we expect flat growth in real terms in FY25.

As we discussed at the half year results, the outsourcing of the Manila contact centre resulted in the transfer of $40 million of employee costs to other Opex in the year. Excluding this change, employee costs were up $39 million, almost all of which occurred in the first half.

This reflects the capability uplift undertaken in FY23, offset by streamlining of roles across the organisation in August 2024, which resulted in lower employee costs in half two than the first half.

We said the run rate would moderate in the second half, which it did, to growth of 4% and we expect a much flatter employee cost growth in FY25.

Pleasingly, technology expense reduced $5 million. This reflected good cost control, including decommissioning of third-party network infrastructure and some non-recurring third-party spend savings partly offset by increased electricity costs. Excluding the reclassification for Manila, other Opex increased $9 million, largely reflecting the front-ended nature of costs for the new

Manila arrangement, which will deliver efficiencies over time.

To reiterate, at worst, we expect Opex to be flat in real terms for the FY25 full year, that is, no greater than the rate of inflation.

However, we do anticipate some cost growth in the first half due to marketing investment to support our regional mobile network launch and higher electricity costs.

Turning to slide 18 now on EBITDA.

Our EBITDA result reflects robust gross margin performance and slowing Opex growth. The statutory result was $1.712 billion, reflecting the previously announced $250 million non-cash impairment related to the decommissioning of assets, as a result of the regional network-sharing arrangement with Optus.

Excluding the impairment and other material one-offs, EBITDA was up 3.4% to $1.988 billion at the midpoint of our guidance range. The consumer segment delivered a very strong gross margin performance with growth in both mobile and fixed of more than 7% or a combined $162 million driven by ARPU in mobile and on net AMPU in fixed, as I have discussed.

In January 2024, we reduced Vision wholesale pricing to provide stronger differentiation from the NBN. This negatively impacted fixed wholesale margin in EGW and benefited fixed margin in consumer. Consumer fixed gross margin was broadly flat, excluding this impact.

Excluding this Vision change, EGW gross margin was down $9 million due to challenging market conditions and cessation of legacy technology services.

Disclaimer

This masked a strong result in both enterprise and wholesale mobile and in mobile-related services such as IoT and MPN, all of which remain with TPG post the proposed Vocus transaction.

Hardware margin improved materially in FY24 by $15 million reflecting higher fixed device margins and improved credit performance on handset debtors.

Other gross margin was down $22 million reflecting the cessation of revenue we received in

FY23 to sublease spectrum as part of the proposed MOCN with Telstra, which did not go ahead.

The final bar on the chart is operating costs, which we have already covered in detail. I reiterate this grew much more slowly in the second half.

Before we move on, I will comment on half-and-half trends for EBITDA as a whole.

In the first half of 2024 on a guidance basis, we reported a 2.2% increase or $21 million increase on the prior comparative period. In the second half, this improvement more than doubled to $44 million, a 4.6% increase on the prior comparative period. We are exiting the second half in a good place with operating momentum, continued revenue growth particularly in mobile and strong cost control.

However, we expect there will be a half-on-half skew in FY25 with potentially a slight decline in the first half before stronger growth in the second half. This reflects the recognition of costs of the regional sharing arranged with Optus ahead of any new revenue, as well as the expected higher first-half Opex as I noted earlier.

Turning now to slide 19.

Trends in capital expenditure and depreciation and amortisation have stabilised significantly now that we have passed the peak of our network and IT investments. We are looking forward to year-on-year reductions in Capex.

Cash Capex, excluding spectrum, decreased 112 million or 9.9% to $1.014 billion in FY24 and is expected to reduce to $900 million in FY25 and between $550 million to $650 million per annum from FY27 onwards post completion of the Vocus transaction.

Reflecting this moderation in spend, we expect growth in D&A expense to increase only about

1% in FY25, as it did in FY24. We expect cash Capex in FY25 will be skewed to the first half, largely due to the way we manage payment timings.

Turning to cashflow on slide 20 now.

Cashflow is the real highlight of this result and of our outlook over coming years. The waterfall in this slide shows our operating free cashflow growth, excluding material one-offs, up $474 million to $672 million in FY24. This was driven by the following factors in order of size.

The impact of the unwind of legacy handset receivable financing arrangements peaked in FY23, so the impact to working capital in FY24 was $229 million lower.

Cash Capex was $112 million lower, as I have discussed. Other working capital movements were $101 million better, primarily reflecting lower new debtors arising from sales of handset on monthly payment plans.

EBITDA was up $65 million, and lease costs were up $33 million, primarily reflecting increasing leases taken on in FY23. Many of these items will continue to further cash flow growth in FY25 and beyond.

Disclaimer

The handset unwind impact in working capital will be less a further $125 million in FY25, then cease. The working capital impact of growth in handset debtors is likely to be negative in FY25, as we do not expect to see such a reduction in our share of this market. However, we are actively exploring a new handset receivables financing arrangement which would be very positive to cash flow.

Capex will be a further $114 million lower in FY25, then a further $250 to $350 million lower from FY27, reflecting completion of the 5G rollout, completion of our IT modernisation and removal of Capex currently spent on fibre post the Vocus transaction.

Offsetting this, of course, will be the EBITDA reduction arising from the Vocus transaction, albeit this will be partially mitigated by our expectation that other operating costs will reduce by an incremental $100 million post the transaction.

Lease costs are expected to be relatively flat, bar the estimated $52 million increase we have forecast post the Vocus transaction.

Looking beyond operating free cash flow, spectrum payments will be $128 million lower in FY25 while the outlook for bank borrowing costs is improving.

All in all, the outlook for TPG Telecom's cash flow is very positive.

Moving to slide 21 on debt funding.

Our funding situation is quite stable due to our strong cash flow as we wait to determine the optimal capital management settings post completion of the Vocus transaction. In FY24, bank financing costs of 251 million were up on the prior year as expected, reflecting higher market interest rates and slightly higher drawn borrowings.

Gladly, we're expecting lower bank financing costs in FY25 following the RBA's recent cut to the cash rate. Lease interest costs of $127 million were also higher than in FY23, but these have now stabilised.

Looking quickly at our debt stack, we are well-positioned with a net debt-to-EBITDA ratio of 2.32 times on a pre-AASB 16 basis, comfortably below our 3.75 times lending covenant.

We have $2.3 billion of debt maturing in 2026. We are in a good position to make decisions about this refinancing as we progress through 2025. The proposed sale of the fibre and EGW fixed assets create significant capital management optionality, and the treatment of this debt will be part of our decision-making.

With that, I'll hand back to Iñaki.

Inaki Berroeta

Thanks, John. I want to reflect quickly on where TPG has come from and where we are today.

We are in a radically improved position to five years ago when we completed the VHA-TPG merger.

We have an integrated business, rationalised products, a simplified segmental focus, and increasingly distinctive brands. This makes it easier for customers to choose our products and interact with us. That lowers our cost to serve, reduces churn, and improves our capacity to cross sell.

We have access to greater network scale and have replaced future Capex need in areas where we are subscale with a predictable cost profile, enabling operating leverage, higher margins, and increase capital efficiency as we grow.

Disclaimer

We have a scale and coverage in mobile like never before, with a modern 5G network and regional coverage that has created a much larger addressable market. And we are expecting cash proceeds of $4.7 billion from the Vocus transaction, enabling us to access capital management opportunities and establish a stronger growth and lower risk investment proposition.

Our guidance for fiscal year '25 reflects the continued underlying growth in the business with lowering capital intensity and the impact of the regional network sharing arrangement in the first year as we accrue costs prior to revenue growth.

We're expecting EBITDA, excluding material one-offs, to be between $1.95 billion and $2.025 billion. This is the same as the fiscal year '24 guidance range with a midpoint in line with the fiscal year '25 result. The $80 million to $120 million of separation costs we have previously communicated to achieve the fibre and EGW fixed sale will be within material one-offs.

The initial EBITDA impact of the regional sharing deal is in the range of $55 million to $65 million, as we set last April.

There are also some additional impacts to revenue recognition in fiscal year '25 related to a key global internet of things contract in our Enterprise business. We do expect EBITDA growth to be skewed to the second half, reflecting the regional costs and higher first half Opex for marketing and electricity costs. But Opex overall will be flat year on year in real terms.

Our Capex guidance for fiscal year '25 is approximately $900 million, consistent with our update of November 2024 and the efficiencies we are generating.

We also expect a first half skew with Capex higher in the first half. This reduction in Capex, along with a further improvement in working capital and lower spectrum payments, will all contribute to another strong free cash flow result in fiscal year '25.

Thank you. We will now take questions.

Paul Hutton

Our first question is from Eric Choi at Barrenjoey.

Eric Choi

Hey. Thanks, Paul. Thanks for the questions. Could I do one on postpaid subs, one a free cash flow, one on EBITDA guidance? And I might just give it to all at once, Paul, and if you want me to do one-on-one, just stop me.

But just on the subs, I know you're only saying February is the best net-adds month since

December '22, but we only get the net ads by halves. So if we look at the December '22 half, it was plus 60,000, the next best half was plus 20,000. Is it reasonable for us to assume you're pacing somewhere between those two halves, maybe towards the bottom end if we're being conservative?

Second question, just on free cash flow. I think your FY24 free cash flow to equity was $240 million. And then, if I look at slide 10, it feels like you're trying to drop breadcrumbs on how strong future free cash flow could be, say, in FY27 if that finishes. So, if I just take the $240 million today and take all your public information, you add $400 million for a Capex reduction, you add $150 million for spectrum falling out, you add $250 million for a potential net interest reduction, and then you lose $400 million from EGW EBITDA, that still gets you to $600 million to $700 million of equity free cash flow in '27 before any EBITDA growth. Just, John, do you broadly agree it could be a much bigger number, because if so, that has implications for your dividends by then as well.

Disclaimer

And then, just lastly, on '25 EBITDA guidance for John, again, you are guiding to flat year-on- year despite a $60 million drag from MOCN. I know there might be a cost growth, but you said that's a worst-case outcome up. If we assume you execute on cost, then you're solving for a minus $60 million. But if I just annualize the higher postpaid ARPUs and prepaid ARPUs you had in the second half, you're at a $40 million benefit in '25 already. So you really only need to look a little bit from sub-growth FWA and Lyca to get to the midpoint of guidance. You don't really need anything extra beyond those. Thanks so much.

Inaki Berroeta

Thank you, Eric, and good morning. I'm going to pass the first question through Kieren on subscribers, and then I will ask John to answer your questions on free cash flow and guidance.

Okay, Kieren.

Kieren Cooney

Thanks, Eric. Kieren here. Just quick answer. Yes, it would be within that range. And just to clarify, that's total mobile net growth for the group.

John Boniciolli

And Eric, on free cash flow, I understand your math. Your point on Capex to moving to around that $600 million mark is correct, and it's after IT modernization, business simplification, and 5G rollout, and also is assuming you're doing post the Vocus transaction as well to get to that number. And we've previously noted an expected range of the $550 million to $650 million, so I think you've taken $600 million being the midpoint. Your point on spectrum is correct. We incurred about $156 million of spectrum in '24, so that's removed.

Your interest costs, of course, that depends on the math assume on the debt levels at that time, but logically correct. So, you do get to around that $400 million and therefore as a result of that, your $600 million to $700 million pre any other drivers of growth. And then, finally, on your

EBITDA question, I also understand your math on the, assume ARPU trajectory on post and pre, and therefore you are correct that growth is proportionally in the year comes from mobile services revenue growth, which does a heavy lifting across both ARPU and subs.

Eric Choi

Thanks, John. Thanks, Kieren. Thanks, Iñaki.

Paul Hutton

Our next question is from Tom Beadle at Jarden.

Tom Beadle

Hi, guys. Thank you for the opportunity. I've got three as well. Just firstly, just with the outperformance of prepaid in the half, your mix obviously moved unfavourably but that blended

ARPU still moved by about 3% sequentially in the second half. Can you just talk to the factors that drove that, please? I mean, I realise you get the full run rate of price increases that you put through in the first half, but how much did you push back-book pricing, and did you benefit from rationalising the number of plans in the back-book? Did that drive any favourable mix, and just should we be starting to think about this as a blended ARPU rather than just looking at the prepaid and postpaid in their respective silos?

The second question is just actually on the postpaid subscribers. Can you talk to the factors that drove that reduction? For example, did you see any churns just from the rationalisation in plans? Is there any competition? Have you been strategically pushing the prepaid channel harder, for example?

Disclaimer

And just finally, can you just help me bridge Opex from FY24 to '25, please? Obviously, you've got the MOCN costs coming in. Can you just talk to the efficiencies that are coming through and just to what extent inflation is an offset and just any other moving parts that are worth calling out.

Thank you.

Inaki Berroeta

Thank you, Tom. I'm going to ask Kieren to take your question on subscribers, and then I will ask John to take the one on Opex bridge. Thanks.

Kieren Cooney

Thanks, Iñaki, and thank you, Tom. Yeah. The question on prepaid. So first of all, that is where we've seen not just within our business but across the market where there's been a lot of the growth in population.

So, the tier two subscribers have grown I think about three and a half times that of the tier one post-paid market. That's been happening for the last few years. And we've been very careful about the way we compete in that market. We've used our family of brands by TPG, but also

Vodafone and also TPG and also felix. So, using all of our brands in there. Yes, we have grown well in that space, so acknowledging that our growth over the last two years has been above our nearest competitors to that.

Your point around ARPU is a good one that we've been very careful in the way that we've grown there. There've been obviously strong growth in the pre-paid market as well. Your question around how much of it is back book versus front book, it's a combination, is that back-book affects more the post-paid market by the nature of the way the plans work. The question in terms of would we look at a blended ARPU, we don't intend to currently. We don't think there's use there because they are two very different distinct customer groups that have very different needs and different spending patterns.

And then, I think your earlier question was around what we are seeing in the postpaid market and what were the drivers behind some of the population moves. John touched on some of this in the introduction, but what we saw and what we saw in government information is that the centre of population showed that international arrivals slowed by about 25% year-on-year last year. As we know, we are a global brand in Vodafone and that does tend to affect us. We also saw a lot of very rigorous competition in that market in handsets and promotions. That tends to have an effect of diluting ARPU, and you'd recognise that as a result, we were quite disciplined in where we promoted and how we promoted, and as a result, we saw our ARPU continue to perform outside of our competitors and then overall continue to see our margin growth very strongly across the year in multi-years.

John Boniciolli

Tom, thanks for your question on Opex. Just please note that the MOCN costs aren't within

Opex, they're within direct costs and therefore within gross margin, so therefore the bridge becomes a little bit simpler. As you would've seen in our second half, our Opex grew substantially less across all dimensions of Opex. As a result of that and the actions we've taken and our management of costs, we see that Opex being no greater than inflation in '25. Noting of course what I said on the half-one versus half-two split.

Tom Beadle

Great. Thank you very much.

Paul Hutton

Disclaimer

Our next question is from Entcho Raykovski at Evans and Partners.

Entcho Raykovski

Hi, Iñaki. Hi, John. My first question is maybe just to follow up on the postpaid decline in the second half, just to follow up to Tom's question. It just looks like on an underlying basis that postpaid decline was greater in the second half than the first half, given that there was no impact, the 3G shutdown in 2H. And back in August, I think it talked about some improving subscriber trends. My question is, was there perhaps anything more specific in the market later in the half which drove the decline? I mean, you've mentioned the competition and migration trends, but it just feels like those were there in the first half as well. And if anything, it should have been a slightly better outcome in the second half.

I've got a couple of others. I might just hold off and wait for the answer to the first one.

Kieren Cooney

Thanks. For postpaid, actually, it was about even between the two halves, and the fact is we were talking about affected throughout the year.

John Boniciolli

I'll just make one other point. With the pending launch of MOCN that we've spoken about today, it did make a lot of sense for us to maybe go harder in our go-to-market upon launch of MOCN rather than prior.

Entcho Raykovski

Okay. That's probably a useful lead-in to my second question. You've given us some very useful colour around subs at the start of calendar year '25, and I know it's probably quite difficult to split out, but how much do you think has been driven by the promo offers that you've got in market?

And does the reaction of the consumer, does it change your thinking around the use of promo offers going forward?

Inaki Berroeta

You want to take that one, Kieren?

Kieren Cooney

Thanks, Entcho. First of all, I agree that it is hard to split these out, especially over a short time period, but what we would note is that we do promos on a regular basis as our competitors do, but we don't see the uplift that we have seen in the first few weeks of the level. So, I'd suggest it is as always, a chorus of many factors, but I think the big new news to the Australian telecom market was the doubling of our network and I think that's really what we've seen consumers respond to.

Entcho Raykovski

Okay. Great. And just a final one, are you able to provide a little bit more colour on the change the IoT contract in EGW that you noted as part of the guidance? If you're going to be a headwind in '25, in particular, I don't know if you're able to give us the dollar quantum of the headwind?

Jonathan Rutherford

Sure. It's Jonathan here. Thanks for the question. We wouldn't go into this specific details of the contract. Look, it's probably immaterial in the overall guidance, but it is an important reason to

Disclaimer

TPG Telecom - FY24 results third-party transcript - this transcript is prepared by a third party and is provided for information only. Anyone accessing the transcript should undertake with responsibility for assessing the relevancy and accuracy of the content. be there, and we called it out for that purpose. We wouldn't go into specifics of individual contracts, I'm sure you’d appreciate.

Entcho Raykovski

Okay. No, got it. Maybe given you can't answer that one, I'll throw a final one in. You've spoken about the capital management opportunity post the Vocus deal. Do you have a target gearing in mind for the new TPG, assuming the deal goes ahead? What sort of debt load do you think the entity can hold?

Inaki Berroeta

Yeah, thanks for the question. But first, we need to wait until this transaction gets approved. I knew all of you know the ACCC will give the preliminary decision on the 27th of March, and then, of course, the board will assess the different options that we have for those proceeds.

Entcho Raykovski

Okay. Got it. Thank you.

Paul Hutton

The next question is from Kane Hannan, Goldman Sachs.

Kane Hannan

Morning, guys. I suppose just a discussion around TPG's mobile market share in Sydney versus the other regions. Firstly, why do you think the share is so much stronger in Sydney than, say, in the other six cities? Is that mobile coverage, retail footprint, Vodafone being stronger brand in

Sydney? How do you look to address those challenges in the other six markets given the coverage was there, I suppose, without the MOCN?

Inaki Berroeta

Thanks, Kane. Maybe I take that one. Look, I think that the history of the way that the network has been deployed has always given a bit of a reference, I think, on Sydney. And not just

Sydney Metro, but also the areas where Sydney people go. That is just historical. I think that is something that we have seen over the years, and it is something that changes dramatically in the implementation of the MOCN agreement.

That's why even though we have doubled the network nationwide, there are many states where the size of the network is triple. And that is why we see that for a lot of people, not just the ones that live in the region but also the ones that living in the cities are for work or for holidays, accessing those areas, the benefit that we're going to get probably outside of the Sydney region are going to be greater. And that is also why we say that the brand awareness-it's a nationwide brand awareness. Our distribution is strong nationally. This network improvement is really what is going to drive that ability to grow in other places to the level where we are in Sydney.

Kane Hannan

That's helpful, Inaki. Maybe I suppose the mobile trading year to date, are you seeing a noticeable difference in Sydney versus the other regions? Any early signs of success coming through?

Inaki Berroeta

Kieren, do you want to take that ?

Kieren Cooney

Disclaimer

Thank you, Kane. Overall, we're seeing growth right across the country, but it might pick up on some of the points that Inaki mentioned. This isn't just about places where we roll out our new network or our extended network where we're getting the coverage. It's often in the cities, but where the people from those cities go to.

Where we're often seeing a lot of our growth is in the other metropolitan areas. The good news is what we're seeing is a lot of the growth is coming not from second service or from anything like that, but it's from customers choosing to leave the other telcos and join Vodafone. We're seeing our port-ins grow a lot as well.

Kane Hannan

Thanks, Kieren. Just lastly, just the guidance, it's obviously very helpful commentary on the savings of costs. I suppose given those mobile subs and then that trading, there's a reason we think about service revenue picking up a bit into the second half or the ARPU impacts, the Lyca contract impact that maybe offset some of the sub trends.

Inaki Berroeta

That's correct.

Kane Hannan

Awesome, thanks.

Paul Hutton

Thank you. Next question is from Roger Samuel at Jefferies.

Roger Samuel

Hi, morning, guys. Two questions from me, the first one is just on the strong net-adds in

February after the launch of MOCN. I suppose that some of that is due to the marketing campaign. Is there any risk that you may have to ramp up the marketing cost in the second half of '25 if the momentum of the net adds is slowing down? Second question is on the NBN AMPU, which went down a little bit in the second half despite the high ARPU in that area. Is it just a reflection of the roll-off of the NBN focus on fast incentives? Thanks.

Inaki Berroeta

Thanks, Roger. I'm going to ask Kieren to take those two questions.

Kieren Cooney

No problem, thanks, Inaki. Thank you, Roger. On the first question on the marketing spend over the year, look, we won't project the whole view of where we are spending, but we have laid out our marketing, the shape, for the year with the growth in mind and we do recognise that there is a period of announcing it. We only get to launch Doubling the Network once. We're making sure that we'll be heard loud and clear.

Then, from that point on, we look at marketing like any other investment, seeing if we think it can add incremental growth. On the second point in terms of NBN AMPU over the years, as you probably appreciate, it's that AMPU is a better measure to understand the NBN market than

ARPU, which is the relationship between the two. It's not linear. In a lot of markets, what you'd see is ARPU grows with, for example, speed. As you go up higher speeds, you get a higher

ARPU, but that's not the case with AMPU.

With NBN, actually what you see is that as you go up some of the higher speeds, the 100 for example to the 250, actually the AMPU goes down. One of the reasons that we've seen a reduction in AMPU has much to do with the changes in NBN pricing that we see throughout the

Disclaimer

TPG Telecom - FY24 results third-party transcript - this transcript is prepared by a third party and is provided for information only. Anyone accessing the transcript should undertake with responsibility for assessing the relevancy and accuracy of the content. year. You'll remember that NBN has locked in prices every year. It's an unavoidable and uncompressible and increasing cost to our NBN business every year.

Paul Hutton

Thanks, our next question is from Nick Basile at CLSA.

Nick Basile

Morning, Inaki and team. I've got three questions. The first one is on the MOCN. Can you just help us understand your perspective on the impact thus far? Obviously, you would've expected it to be positive, but just in terms of how it's tracking relative to your expectations prior to launch and in terms of momentum, I know it's only been weeks rather than longer than that. Are you seeing continued growth in port-ins or what's the profile of that growth so far?

Then, second question is on the EBITDA guidance. I hear the comments about first half, second half skew in terms of costs, but overall, it sort of still feels like maybe it's a bit conservative in general given the benefit you're going to see from IT transformation. Attached to that question is just on the TAWFA I guess agreement, which I think you've noted. There's an ACCC decision on a month's time.

That would represent upside given the OPEX saving you would get from that agreement to the guidance, i.e., it's not included. Then, the third question, I think you've put in one of the slides in a consumer mobile section just the target around digital sales. Now it's quite a big step up that you're targeting relative to what you've achieved in the past. I just want to explore I guess a bit more detail on the drivers there, thanks.

Inaki Berroeta

Thanks, Nick. Look, on the first question, the results that we are getting are very positive, but are also what we expected. It is a massive upgrade to our mobile proposition. We were expecting a good reaction from customers, and I would say that we are on our expectations. In terms of the EBITDA guidance, whether we are conservative or not, look, it is a guidance. We have quite a few things this year going on for us, including the implementation of the separation work and obviously waiting for the approval of the ACCC. I think that you need to take it for what it is. It is guidance.

Then, in terms of the digital sales target, I'm going to leave Kieren to give you a bit more detail, but in principle we have digital brands that are performing at a very strong level. We then also have brands that are more traditional where we are putting a lot of emphasis with all the transformation work that we're doing to improve the performance in digital and to be able to get not just the customer experience, but also the efficiency in terms of cost to serve. From that perspective, I think that we're quite confident. I don't know, Kieren, if you want to add anything on it.

Kieren Cooney

I can't build much more on what you're saying other than to repeat the fact that when we talk about transformation, when we talk about the simplifying our business it's not just about the systems. It's about the experience that customers have. One of the reasons that it is tougher than we would like it to be for our customers to deal with is there's this complexity and that complexity often shows up as barriers in the digital experience.

One of the things we have been committed to and investing in over the last few years and this year delivering on is a mass simplification of that experience. One of the ways that consumers are going to be able to benefit from that is to have a lot better control and a lot better out of our digital experience. We expect to see that in terms of digital sales and digital service.

Disclaimer

Nick Basile

Thanks. Just a quick follow-up if I can, sorry, the TAWFA, T-A-W-F-A, agreement transmission, assuming that you do get approval from the ACCC, that would represent upside to your guidance, i.e., it's not included in the guidance, correct?

John Boniciolli

All our guidance is done on a status quo basis. We previously disclosed in the announcement of the transactions to regulatory approval the impacts right across the business of EBITDA, cash flows and EBIT. You probably need to look at that in its entirety rather than just focus on the

TAWFA component. As Inaki said earlier, we'll provide more colour on that later this year.

Inaki Berroeta

One thing, Nick, before is because my team here is telling me that maybe I didn't pronounce it very well. It might sound like I said that we were on expectations on MOCN just to clarify to all of you.

Nick Basile

Thank you.

Paul Hutton

Our next question comes from Andrew Gillies from Macquarie.

Andrew Gillies

Thank you all for the opportunity. There's been a bit of discussion around the MOCN results, which sound very strong. Can you maybe provide some colour on any conversations you're having with your partner there, how they're receiving the initial period of the deal, and if there's any incremental commentary you can give?

Then, just additionally if I may, just one more on the OPEX side, obviously it sounds like you're seeing growth in customers largely from metro areas that travel to rural areas. I appreciate the promotional spend will likely be directed by the growth opportunity, but how do you think about ongoing cost to support this customer? Is there something you may need to do in terms of the store footprint and how should I think about that? Thank you.

Inaki Berroeta

Thank you, Andrew. Look, I'm going to take the first one. Then, I am going to ask Kieren to give you colour on your other question. We don't have conversations around commercial performance with any partner or competitor. This is an infrastructure arrangement between two players. We have other infrastructure arrangements with other players in the market, but that doesn't mean that discussions around commercial performance are carried among them.

Kieren?

Kieren Cooney

Thanks, Inaki. On the question in terms of where the growth and if there's any incremental investment required in MOCN in regional areas, I might tie actually in a way back to the comments on the previous questions from Nick around digital. What we know is a lot of our growth customers want to be served. They want to buy, and they want to research via digital.

As we improve that experience, we expect a lot of our growth will be through digital. Also, what

I'd say is we do have infrastructure in terms of stores, partner stores, mass market retailers right throughout Australia. Again, just like we're talking about with marketing, we take a very investment view and a critical view in terms of any investment that we'd need in any other area.

Disclaimer

Andrew Gillies

Perfect, thank you. Then, just one more follow-up if I may, obviously with the changes to MOCN, we get the gain in coverage. How do you think about the opportunity for growth and directing that incremental reinvestment dollar? Do you priorities revenues, subs? How should I think about the returns you're expecting and is the return on the marketing dollar getting better in your view?

Inaki Berroeta

All of the above, I mean at the end of the day we've been quite consistent in the way that we've been driving the business in the last years. It's always a balance making sure that we have a sustainable, healthy business. At the same time, we are creating the enhancements on our proposition to make it more attractive to customers. Probably 25, if you consider what MOCN means as an enhancement to our mobile proposition, this is the single biggest enhancement to a mobile proposition in this market for many, many, many years. That's what we are working on and that's what is going to give us the market share growth that we're envisioning.

Andrew Gillies

Thank you.

Paul Hutton

The next question comes from Brian Han at Morningstar.

Brian Han

Thanks, I just had one. John, you said somewhere that you expect TPG to maintain its NBN subs at current levels. How would that happen? Would it be through a competitive pricing or bundling or some other ways?

John Boniciolli

I think I said we want to maintain our market position as number two. That does mean maintain the base and improve stabilisation of the base. You will have seen that this year versus last year, whilst we declined, sorry, '24 versus '23, whilst we declined, we declined less. That's what

I meant by that comment, stablise the base and continue to hold our market position as second position on NBN in the Australian market.

Brian Han

Understood, but maintaining your current subscriber base, how would that happen?

John Boniciolli

I do accept your broader hypothesis maybe behind that point that the competitive intensity in this market with the non-telco players and the smaller players driving low margin if that's the preface of your question. I accept that the NBN competitive intensity and market conditions are challenging, but I'm not going to go into how we're going to compete in market.

Brian Han

Thank you.

Inaki Berroeta

It's also important to know that for us it's also the households that we serve. That's why also we play in fixed wireless and that plays a role in the way that we're addressing this second position in terms of home broadband.

Disclaimer

Brian Han

Right, and I take it that in regional areas your NBN shares are very, very low just like your mobile.

Inaki Berroeta

Probably not, I would say that that's not the right assessment. In fixed, we have a more homogeneous market share across the country.

Brian Han

Right, okay thank you.

Paul Hutton

The final questions are from Fraser McLeish at MST Marquee.

Fraser McLeish

Hi, guys, thanks. To highlight this result on your last few results, it's been your ARPU growth. I just got a sense from your comments up front that the focus is maybe shifting more to subscriber growth. This is the mobile I'm talking about just if that's the case. Second, just I guess linked is that are you intending to monetise MOCN more through subscribers rather than

ARPU? You're obviously giving your existing customers a lot of additional value. I would've thought there's an ARPU opportunity there, thanks.

Inaki Berroeta

Thank you, Fraser. Look, I think that for us of course ARPU and subscribers are important. I think that it's clear that we've been concentrated on profitability recovery and bringing the value that we provide to the customer in a sustainable way. It's also true that this ARPU has grown on the back of significant enhancements to the proposition. 5G, much more data, and now we add on top of that double the coverage, which means that we can have an ambition to continue doing both.

I think that that's really the way that we monetise the MOCN. The MOCN is an enhancement on the product that our customers are buying. That gives an opportunity basically to enjoy much more of the product than they were before, and we continue to improve our 5G coverage. I think by the end of this year 80% of our metro 5G will be completed. I think that that's why we are quite confident that we can do both things.

Fraser McLeish

Thank you.

Paul Hutton

We have no more questions. We'll now close the call. Thank you very much.

End of transcript