Aussie Broadband Limited (ABB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aussie Broadband Limited H1 FY '26 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brian Maher, CEO. Please go ahead.

Good morning, and welcome to today's call for the Aussie Broadband Group FY '26 Half Year Results. My name is Brian Maher, and I'm the Aussie Broadband's Group CEO, and I'm joined on the call by our CFO, Andy Giles Knopp. Also available on the call today are our 3 group executives, Jonathan Prosser, Aaron O'Keeffe and Michael Omeros, who are present to answer any specific questions you may have. As previously disclosed, Andy will be leaving the business shortly, and I would like to take this opportunity to thank him for his outstanding contribution to Aussie and wish him well, but not too well in his next role. Also, as announced, I welcome our new CFO, Darren Rowland, who has commenced with us today. I look forward to Darren's contribution, and I'm sure many of you will get to meet him in the coming weeks. Before we get into the results for the half, I'd like to acknowledge the Aboriginal and Torres Strait Islanders as the first Australians and for their role as the original communicators, connectors, scientists and carers of the land and waters across Australia. We pay our respects to elders, past and present. We commit to working respectfully to honor ongoing cultural and spiritual connections between the traditional owners of this country and to building an inclusive Australia together. On Page 3 of our deck, you can see today's agenda. We'll start by going through a quick overview of the half before diving into the financials and the performance of our 3 segments. I will then take you through an update on our Look-to-28 ambitions before I conclude with a trading update and a view on our expected full year performance for FY '26. We will then have time for Q&A. Let's turn to Page 4 now for a high-level view of the group. Telco is an ever-evolving sector, and it takes a lot of collective work and energy to gain and maintain the trust and love of our customers. I'm delighted to report that we are continuing to uphold the reputation that has got us here today, and this reputation is recognized by a range of external organizations. Aussie Broadband is the most trusted telco as measured by Roy Morgan. We've held this honor since 2021. We were awarded Canstar Blue's most Satisfied Small Business Customers Award. And on the enterprise front, our security vendor, Fortinet, recently nominated Aussie as their Australian Partner of the Year and their Telco Partner of the Year. We continue to diversify our business across our segments, across our core telco product range and through a multichannel go-to-market approach supported by the exciting announcements we have made over the last 6 months, which I will cover later. We also maintain a structural advantage through our strategic assets. A major initiative for the half is the successful launch of our enhanced Nitrogen platform, which we first used to migrate Symbio's NBN connections onto the Aussie Broadband network in June last year and has since been evolved to enable the migration of More and Tangerine customers over the next half. Finally, the business maintains a strong financial position, thanks to a disciplined management, sustained growth across segments and improved productivity. I'm pleased to announce that the company has declared a fully franked interim ordinary dividend of $0.024 per share. Let's turn to the next section on Page 6 for a recap of the highlights. Half 1 of FY '26 was another exciting period for Aussie Broadband with double-digit growth across all segments. We delivered a strong half of growth across key financial and operational metrics. Underlying EBITDA was up 13.5% on the prior corresponding period, courtesy of continued revenue growth across all 3 segments and supported by benefits of scale and efficiencies. Andy will share more on that later. Our NBN market share continues to grow and was 8.8% in December with a 14% growth in broadband connections over the last 12 months. This was largely due to our successful brand positioning around the new high-speed tiers available under the NBN Accelerate Great program and as we continue to take share from incumbent telcos. We remain a leader in the new high-speed world and expect that we will continue to do well in these tiers as more Australians gradually upgrade and gain access to these new speeds in the coming months and years to come. 69% of our connections are now on speeds of 100 megabits or higher, and we have 43% market share in 2 gig plans. As mentioned, our Nitrogen platform is completed and ready for scale migrations, starting with the transfer of around 290,000 more in Tangerine connections. This will be the largest migration of connections on the NBN network to date, and those connections will provide a material lift to earnings from FY '27. On our Investor Day last April, we communicated that our strategy was to drive our own Aussie Fibre network utilization and increase connections from 1.2 per building towards 3. While we have made progress towards this goal, we have decided to refine our strategy based on our capital allocation guidelines. Moving forward, future fibre investment will focus almost exclusively on less capital-intensive on-net buildings. The existing fibre infrastructure will continue to provide strategic advantage in enabling scalable growth in our core business and where appropriate, providing an alternate product offering to NBN in existing buildings. We have identified that a better use of our capital is to accelerate the replatforming of our core systems, and I will go into that in more detail later in this presentation. Productivity remains a focus, and we saw the benefits of that with a 1.2 percentage point reduction in operating cost to revenue. Over the last 18 months, a range of initiatives have seen a material improvement in the ratio of frontline staff to connections, including a 14% improvement in the last half. We see further opportunities ahead as we modernize our platforms and use contemporary tools to remove the burden of low-value back-office activities from our staff. Lastly, a lot has changed since we talked to you about our Look-to-28 strategy at our Investor Day in April last year. And later, I will discuss our renewed ambitions in the new context. Let's turn now to the operational metrics for the half on Page 7. As mentioned before, our market share of on-net NBN services has climbed by 0.4 points to 8.8%, with group broadband connections growing by 39,000 to 828,000. I look forward to achieving more than 1 million connections by the end of the financial year and then over 1.25 million in the second half of this calendar year following the AGL migration. This would position us as #3 in the market based on the shape of the market today. Mobile services across the group grew by 24,000 to 240,000, which is encouraging progress. As at 31 December, we hosted 8.1 million numbers across our Symbio and NetSIP Tier 1 voice networks and 4.5 billion call minutes across our networks over the first half. Lastly, the Aussie Fibre numbers with 1,317 customers in 1,057 connected buildings being a slight improvement to 1.25 connections per building. I'll now hand you over to Andy, who will take you through the key financial figures for the half on Pages 8 and 9.

Thank you, Brian, and thank you, everyone, for joining the call today. Let's turn to Page 9 for a look at the financial highlights for the half. Half 1 FY '26 was another excellent half for the business on the back of strong organic growth. On a reported basis, revenue grew by 8.4% to $637.8 million. Our underlying EBITDA was up 13.5% to $74.7 million. Importantly, our underlying NPATA was up 24.5% to $31.3 million, and our earnings per share of $0.107 was also up 26.5%. Last, our operating cash flow was 16% up to $57.1 million, and I will talk about that in a few more slides. Let us turn now to the group's underlying P&L on Page 10. The underlying P&L removes the impact of the one-off items. The table also includes the contribution from Origin in half 1 of FY '25. Excluding this impact, revenue grew by 13.5%, underlying EBITDA grew by 27%, and our underlying NPATA grew by 50%. As you will see in the segment slides later, there was impressive double digit in all segments growth underpinned by a 13.7% increase in broadband connections, strong growth in mobile, continued success in winning customers in the business, Enterprise & Government sector and strong growth across data and mobile in Wholesale. Gross margin at 36.3% remains very robust and in line with half 2 of FY '25, albeit down on half 1 of FY '25, and this is despite the competitive market and the significant change created by the NBN's Accelerate Great program. Productivity gains and operational improvements continue to support the strong results. Company headcount reduced over the period as Wholesale made organizational changes and Residential customer service team continued to drive productivity. The relationship of customers to FTE improved by 14% in half 1 on the back of a 26% improvement in FY '25. These reductions have been offset by an investment in technical resources to ensure the delivery of key strategic initiatives. In the reported numbers, there were several one-off items during the half. These relate to the restructuring of the business, costs associated with the business disposal and the $14.8 million impairment of goodwill relating to the sale of Digital Sense Hosting, which we announced today. The company declared a fully franked interim ordinary dividend of $0.024 versus the $0.016 last year, up 50%, noting in the prior year an interim special dividend was also declared. Let's now turn to Page 11 to a simple bridge explaining the underlying EBITDA. In line with the underlying bridge provided for guidance at the FY '25 full year results, I provided a similar view for half 1. Removing the $7 million contribution from Origin in half 1 of last year, the restated EBITDA is $58.8 million. From there, a like-for-like growth of 27% has been achieved, noting that this is at the upper end of our guidance range. The announcement of Buddy disposal led to a natural slowing of trading period since August and marketing expense was lower, resulting in an improvement of $2.5 million. Importantly, in the half -- the first half of FY '26, we incurred $1.9 million of one-off costs, largely relating to additional capacity for our network post accelerate rate to prepare for the significant growth from the More and AGL migrations to ensure that our customers experience the same high-quality network. In our guidance range for FY '26, we indicated that the net impact of More and Tangerine wholesale agreement was expected to be immaterial, which remains the case as a positive contribution is expected in half 2 to offset this impact. There was also a few M&A-related expenses not included as nonrecurring as the transactions hadn't been completed, but these will be reclassified in half 2. Excluding these one-off costs, our underlying EBITDA would have been $76.6 million and up 30% on last year. Let's turn to Page 12 now and look at our cash flow and balance sheet. The cash conversion in the year was 76.5%, but again, there have been several factors that have played into the half. First, we paid a one-off cash incentive of $2.5 million to More as part of the wholesale services agreement. Second, we made advanced payments of $3 million on customer-related hardware supplied to our Business and Enterprise & Government segment recoverable over the contract life. Last, there were upfront payments on nondiscretionary expenses of $5 million, for which we received attractive commercial terms for 3-year commitments. Please note the increase in prepayments on the balance sheet at the 31st of December. I expect the cash conversion to improve for the full year '26 position in line with FY '25. Our net leverage remains comfortably below the 1.75x to 2.5x target ratio at 0.9x. Our net debt position increased from $101.2 million to $139.2 million over the year, which was largely due to the $43 million of excess cash being returned through a share buyback and the special interim dividend in half 2 of FY '25. There are a couple of one-off items in the cash flow worth noting, such as the proceeds from a disposal of an investment and the tax paid on the significant disposal of shares last year. And finally, the refinancing was completed last month. We maintained $195 million redraw facility, which provides greater financial flexibility and which will be used to fund the Nexgen acquisition. Favorable terms will have a positive outcome in half 2. Let's go to our CapEx investment now on Page 13. Compared to half year FY '25, I'm pleased to say that our CapEx came in at $27 million and remains in line with the FY '25 -- sorry, in line with $55 million to $60 million guidance for the full year results. For FY '26, we planned around a very tight list of strategic priorities, including investments required to support More and Tangerine as well as AGL Telco, which has led to a very disciplined CapEx outcome. Investments have been focused on enabling growth in customer capacity as well as uplifting capability platforms like Nitrogen, another platform to enable the migration of MEDION's Australian customer and in ServiceNow underpinning business Enterprise & Government segments. We have invested in property for the regional VIC teams with an amazing facility in Traralgon for our Gippsland teams officially opening next week. And we've invested a further $8 million into Aussie Fibre. There was a material shift from off-net growth to on-net and near net as we drove the utilization and returns, but we've decided to refine that strategy further, and this will be covered a little later by Brian. That's it for the financial highlights for the half. It has been a strong half and sets us up for a positive FY '26 and beyond. But let me talk you through now our segment performance and how it's contributed to those results. Let's start with Residential on Page 15. Residential continued to lead the way for Aussie in the half with a 14.7% increase in revenue and strong margin delivery. That growth was underpinned by an 8% jump in NBN broadband services and 20% growth in connections on the Opticomm network. Mobile continues to be a great opportunity for Aussie as well. The addition of new bundles powered by the 5-year agreement we announced with Optus last April has helped drive our mobile connections to 85,000. That's a 33% jump from the preceding period, and the churn rates remained low at the same time. Our gross margin percentage is marginally ahead of the prior corresponding half despite the customer mix adapting to the new high-speed tiers, higher access costs and our strategic approach to pricing ahead of Accelerate Great. Below the gross margin profitability, the Residential segment also continues to benefit from the increased efficiencies within our customer service team. The most significant event in Residential came from the launch of NBN's new high-speed tiers in September. So let's turn to Page 16 for a little bit more detail. NBN unveiled new high-speed tiers last September, including the addition of multi-gigabit Residential connections for the first time in Australia. As a known leader of high speeds, we were always well placed to take advantage of these new offerings and all eligible Aussie broadband customers upgraded to the new high-speed tiers on day 1. Research from our partner, Sprout Strategy, found that Aussie is leaving the market with the highest customer awareness of the new high speeds, and that shows in our customer base. Our percentage of customers on NBN 100 or higher plan has increased to 69% of all connections, up from 56% in June of 2025. 44% of all customers are now on NBN 500 plan or higher. We also continue to lead the market for those who want the new multi-gigabit offerings with more than 2,700 connections customers today on the NBN 2000 plan. This has more than doubled since September, demonstrating the high demand for the fastest plans. Not all Australians can access the higher tier plans yet, and we continue to work with NBN on the best pathways to upgrade the millions of households still on legacy copper connections. As those households and users gain access to the higher speeds, we are confident that Aussie will continue to gain market share and connections through our positioning as a high-quality provider of high-speed broadband. Let's turn to Business, Enterprise & Government on Page 17. Our Business, Enterprise & Government segment recorded 10.8% revenue growth for the half with a record month for the new business broadband connections in October. Mobile continues to deliver positive momentum for the team with more than 5,200 new services activated since December 2024, whilst the average contract value deal from new customers is 38% higher from half 1 FY '25. One driver of this was the signing of our largest ever E&G deal to date with Bakers Delight as well as securing major clients such as [ Core ] and the John Laing Group. The Business, Enterprise & Government team streamlined their customer project delivery, reducing the average time by 15 days as Aussie continues to grow over the coming year, our brand positioning of superior service quality and our increased market referenceability will drive further growth in our sales pipeline and the average size of those deals. The segment saw a marginal reduction of its gross margin percentage following the repricing of our business products in anticipation of the NBN Accelerate Great program in September and the effect of the changes on broadband speed mix. Let's turn to Page 18 for a look at Wholesale. Our Wholesale business experienced strong growth in data and mobile, which drove revenue up by 12.5%. Mobile SIOs grew by 12.7% in the half and on-net broadband connections increased by 90.5% year-on-year, including the migration of 17,000 Symbio connections in June last year. The gross margin was affected by the product mix as data and mobile growth outpaced voice, along with a strong half of growth in the lower-margin international swaps trading. Of course, one of the highlights of the half was the signing of our largest Wholesale customer to date, the More Telecom in August, and we're excited to continue onboarding more Wholesale partners onto this platform. The team has shown our capability to migrate data connections at scale, and we have a delivery pipeline ahead. And we believe that will provide us a strong outlook for H2 FY '26 and for years to come. Strong segment performance through half 1 and an exciting outlook for each one. I'll hand you back now to Brian to discuss the strategic ambitions.

Thanks, Andy. Looking now to Page 19. As part of our Look-to-28 strategy, we communicated that growth across all segments and countries was a strategic priority. And over the last 12 months, we've made this our primary goal, to ensure we have the foundations to accelerate our growth. Over the last 6 months, we've announced wholesale service agreement with More and Tangerine, the acquisition of AGL Telco and today, the acquisition of Nexgen. These support diversity and continued growth across all the segments, ensuring we have broadened our market reach into strategic sectors like banking and energy, but importantly, deepen our core capability in segments such as SME and Nexgen. These successes are a testament to the entire business. We've established a reputation and delivery capability that has attracted significant market players to want to leverage Aussie's network and customer service capability. They set us up to become the #3 RSP in market by the end of the calendar year. Importantly, they also underpin our confidence in delivering greater value and upgrading the Look-to-28 aspirations. Before I get to that, let me talk you through the key strategic drivers of growth, and let's start with an overview of the wholesale services agreement with More, which we announced back in August. Over the past few months, our team has worked closely with More and Tangerine to deliver enhancements to our proprietary Wholesale platform, Nitrogen to ensure it delivered on our commitments to them and was delivered on time. Today is a big day for both More, Tangerine and Aussie as we enter the pilot stage and some customers from new sales will start to come on to the Aussie Broadband network. The focus will now turn to the migration of More and Tangerine's existing customers onto our network, which will grow our share of the NBN market to more than 1 million connections by June this year. Once the migration is completed, we expect the connections will provide $12 million in annualized EBITDA while being accretive to the underlying EPS on a pro forma basis. At the same time, we announced the sale of our value brand Buddy in August. The final cash consideration for the sale is dependent on the number of customers transferred to Tangerine and some post-transfer adjustments. And with connections sitting at approximately 16,000 as of 20th of February, we expect the consideration to be in the range of $6 million to $7 million. Those migrated Buddy customers will also remain on the Aussie network as part of the agreement. The migration is expected to begin in mid-March and the deal to be completed shortly thereafter. Let's turn to Page 21 to talk about our acquisition of AGL's telco assets and customers. As we announced on February 11, Aussie Broadband has entered into an agreement with AGL that delivers a material step change in connections and earnings for our Residential segment. The agreement consists of the acquisition of AGL Telco, adding a combined 350,000 broadband and mobile services along with 46,000 voice services, a long-term exclusive partnership between Aussie and AGL, where AGL will promote the branded telco products to its energy customer base through bundles. This provides us with an important and strategic channel to the energy market. Aussie will be responsible for delivering its award-winning customer service to these new customers. This deal will deliver around $235 million in revenue and $21 million in underlying EBITDA in the first 12 months post migration and will be EPS accretive in the first year. Aussie has agreed to pay $115 million in equity to AGL under the deal, which will result in around 22 million shares that we expect to issue in June 2026. Another $10 million in ABB shares will be issued in tranches of $2 million each provided net growth hurdles are met. The migration will be finalized by Q2 FY '27. We are truly excited about this long-term partnership with AGL and look forward to working with them and growing AGL Telco connections together. We believe this is another win-win agreement, and we're very excited about what the long-term partnership enables as we collectively reimagine how we can impact the energy telco sector. As part of our ambition, we have a working estimate for AGL Telco connections, inclusive of mobile to grow to 500,000 within 5 years. It's an exciting time for Aussie with these 2 deals bringing scale through existing customer connections that will drive synergies across the network and provide operating leverage. But there's more. Let's turn to Page 22 to talk through the announcements we made this morning. Aussie Broadband has entered into a binding agreement to acquire 100% of Nexgen, a provider of advanced business communication solutions. This deepens our core capabilities, enhances our value proposition to small and medium enterprises and expands our national reach and sales capacity into the SME market. The Nexgen business will add 6,000 SME NBN connections to our numbers and is highly complementary to our existing value proposition in that market. The acquisition will allow us to sell an expanded product set, including an Agentic AI feature that will be targeted at the SME landscape. Nexgen will be EPS accretive and is expected to generate $8.1 million of EBITDA for in Aussie with a contribution of $2.7 million EBITDA in FY '26. We will also benefit from $2 million to $4 million in expected annual cost synergies within 2 years. Revenue synergies are also expected. Aussie is acquiring the business for $44.1 million with an additional payout of $5.9 million, subject to the completion of EBITDA targets for FY '26 or FY '27. The Nexgen co-founders will be remaining with Aussie and have been offered incentives to deliver growth targets. We are also announcing that the company has made the decision to divest its cloud business, Digital Sense Hosting. The decision comes after we conducted a comprehensive strategic review as part of the Look-to-28 strategy, where we realigned the business to focus on core telecommunication services. Aussie Broadband has entered into an agreement with 11:11 systems for them to acquire our cloud business for $18 million, structured into an upfront payment of $14 million and another deferred payment of $4 million. We anticipate a negative EBITDA impact of approximately $2 million in FY '26. There is a one-off noncash impairment to goodwill of $14.8 million, recognizing the challenges in the cloud market for smaller scale players and the tightening margins over the last few years and the future prospects of the business in Aussie's ownership. Cloud customers will be migrated to 11:11 systems over the coming year, and we expect the divestment to complete in March 2026. Now let's take a look at our upgraded strategic aspirations, creating greater value for the future on Page 23. Our overarching ambition, of course, remains the same. We want to change the game and to be the telco people love. We've upgraded our ambitions based upon our confidence from the successes over the last 6 months and adaptations of our strategy within this new context. These better reflect our new scale, opportunity and market position. What we've reflected in this upgrade, the wholesale services agreement with More, our acquisitions of AGL Telco and Nexgen, the divestments of Buddy customers and Digital Sense Hosting and the impact of the ACCC's determination on regulated voice termination rates, which we communicated to the market in December. It also reflects our capital allocation considerations around Aussie Fibre investments and replatforming our core systems. Our upgraded strategic ambitions are as follows. Our revenue ambition has been increased from $1.6 billion to $2 billion, reflecting the expanded base revenue. We aim to continue double-digit growth across all segments, which we simply measure by maintaining Residential at no more than 60% of total revenue, ensuring the business, Enterprise & Government and Wholesale segments keep growing at a similar pace. The acquisition of the AGL customer base increases the pressure on R&MO in the nonresidential segment. We are looking to improve our underlying EBITDA margin to greater than 13.5%, up from 12.5%, reflecting an improvement in efficiency, productivity and simplification, particularly through our replatforming investments, which I'll come to in a moment. We believe we can grow our NBN market share to more than 17% or around 1.5 million connections. Being #3 by the end of the calendar year sets a new baseline for our aspirations. Product of these ambitions is to deliver outstanding returns to shareholders, measured here by a CAGR in EPS of at least 30%. Our strengthened market position and expanded scale provide the foundations to deliver greater value and these upgraded Look-to-28 strategic aspirations are supported by our confidence about the future. Integral to the ambitions is the 5 strategic priorities, which you will be familiar with. We've amended one of them, and that relates to our Aussie Fibre strategy, which I will discuss next on Page 24. Aussie Fibre continues to be one of our most valuable strategic assets. By owning our own fibre, the business saves in backhaul costs while driving operational leverage, enabling us to be competitive in the Wholesale sector. This is a significant ongoing benefit to our bottom line. Last year, we set ourselves a target of improving utilization of Aussie Fibre to 2 to 3 connections per building. We've made modest progress towards this target, having added customers at a faster rate than we connected new buildings, but not at the speed we anticipated. While we're continuing our long-tail strategy of improving the utilization of Aussie Fibre, we've made a decision to redirect future capital allocation for further expansion of the fibre network to near-net buildings. As a result, we will focus on improving utilization within our existing on-net buildings. Those are the buildings where we already have Aussie Fibre connected, and there is no additional infrastructure required to connect a new customer. With this change, we have capacity to accelerate our replatforming work, and so I want to give you a bit more context of this work, which is set out on Page 25. We've previously highlighted that the work had begun on a multiyear program to create new enablement platforms that would empower our Wholesale customers and Aussie to new levels of sustainable long-term growth. Our Nitrogen platform is one piece of that work, but it is not the only investment Aussie is making to strengthen our product suite into the future. We've already begun the next phase of our replatforming journey, which will roll out through incremental value drops over the coming years. This work will strengthen the business by improving the systems that support our network and power our entire product suite across Residential, Business and E&G and Wholesale. Our goals for this body of work are to enable Aussie to launch more products and innovations faster while maintaining simplicity and consistency in delivery for our customers. We're bolstering the experience for our Wholesale customers and by consolidating the number of platforms we use internally, we'll also be improving the experience, capability and efficiency of our business and support systems. This work will also ensure that Aussie is future-proofed by aligning to global best practices and industry standards. In terms of the value of this OSS and BSS investment, we anticipate this to be $30 million over FY '26 to FY '29. It is important to note that this is included in our existing envelope and will not impact our overall planned CapEx spend in coming years. As that work progresses, we estimate that we will see a 30% reduction in maintenance CapEx costs over the next 4 years. Let's turn now to Page 27 for a guidance and trading update for FY '26. Having delivered a strong first half results, another 12,000 net new connections in the quarter to date and with confidence in our outlook for the remainder of the second half, today, we are revising the FY '26 EBITDA guidance. We now expect to land within the upper end of our previous range of $162 million to $167 million, which represents annual growth of between 17% and 21%. Our CapEx guidance for FY '26 remains unchanged at $55 million to $60 million. We have one more slide today before we take your questions. So let's turn to Page 28 for the key takeaways from today. Over a year ago, we unveiled our 3-year ambition under our Look-to-28 strategy, and I'm proud to say that we are well on track to delivering on and overachieving our previous ambitions. The business has continued to deliver results in line with expectations with double-digit growth across all our segments and growth in our broadband connections and market share. We will also continue to focus on unlocking greater efficiencies from our increased scale and productivity initiatives. Our approach to M&A and partnering has unlocked some strong partnerships and future growth opportunities. Our More and Tangerine deal will start to contribute to earnings from FY '27 onwards, and we will also see a material uplift in earnings from the AGL Telco acquisition from the second half of FY '27. Our Business and E&G teams are growing their sales and increasing contract sizes. Our Residential division continues to grow organically off the back of a new high-speed tiers and our Wholesale platforms continue to unlock growth opportunities for Aussie at scale. This has enabled us to upgrade our guidance and longer-term ambitions. All of this leaves Aussie in an incredibly strong position, and we're excited for what's on the horizon. One final thing before I move to Q&A, I just wanted to acknowledge our outgoing director, Graeme Barclay. Graeme leaves the Board today to focus on an Executive Chair opportunity that has presented itself. We thank Graeme for the significant contribution in a short period of time, and we're hopeful of reacquainting in the future. So with that, we're now available to take your questions.

Your first question comes from Benjamin Jones with JPMorgan.

Just the first one on the FY '26 guidance you've provided. I mean if I look at consensus numbers, it does imply a little bit of a step-up on the margin side into the second half. Can you just talk us through some of the moving parts on the margins there?

Yes. I mean it's really the same as what we would have said at the full year. So we've got reasonably good momentum on connections that comes through. We're holding our margins better than we expected from half 1. So therefore, we're positive about that. Productivity will continue to drive through. So again, that's a lever. And I think those are the key things. I mean, those are always the key levers that we talk about. We're sort of -- when we went into the full year at the beginning, there was a lot of uncertainty where we may come through the Accelerate Great and all of the pricing, and now we're feeling much more positive since there. So I think the last thing I'd say is that the momentum in each 3 of the segments, particularly actually Business, Enterprise & Government and Wholesale and the opportunities that we're seeing in the pipeline are obviously something that we're excited about.

Okay. That's helpful. And just second question on the resi business. I think you put in the press the other day, you got 16,000 Buddy subs as at 20th of February. I mean it sort of implies ex Buddy subs, you're adding sort of 24,000, 25,000 for the half. Is this a fair run rate that you'd expect to maintain in the core business going forward? Or is there a scope for that to accelerate once you concentrate on the core business?

We're seeing -- the start of the year -- the start of this calendar year has actually been quite positive for us. It's going reasonably well. So we don't see a slowing down in the growth. There are some opportunities in the market with planned NBN's activity in terms of trying to encourage more people to move on to fibre, that's a positive for us. And we're working with them on how that can play out. So we're reasonably optimistic about our growth prospects going forward. Got it.

And just one final one again on the resi side. Obviously, the market has been very active late last year with the speed [indiscernible] and also with Telstra coming down with the NBN-only plans. I mean any observations that you can share with us on market pricing, how you're seeing your own discounting activity versus the same time last year? And any sort of implications for step up, step down in gross margins and whatnot?

Yes. I mean our observations are probably what you see as well and there's pricing out there that's essentially selling at NBN wholesale pricing in the short term at least. We participate in the promotional activity along with everybody else, probably not to the same degree. And yet we're still delivering the net growth that we are. So we're pretty comfortable that we're still relatively maintaining our growth levels whilst also to a large degree, protecting our margins. So we're pretty comfortable where it's at.

Your next question comes from Entcho Raykovski with E&P.

My first question is just a clarification, and apologies if I've missed this in all the materials, but the negative $2 million impact on EBITDA in FY '26 from the sale of Digital Sense, is that -- does that reflect lost earnings? Or is it also M&A costs? I guess I'm just trying to understand the ongoing impact on Aussie from the sale.

No, that's lost EBITDA from trading. The important part on that, Entcho ,is we touched on in our release is that the longer-term prospects for our cloud business were not as positive as they once were. The acquisition of VMware by Broadcom has changed the industry dynamics. Broadcom's focus is on having large-scale customers, not small-scale customers, and they are pricing smaller players essentially out of the market and in some cases, withdrawing product. So ultimately, the margin from that business would have dissipated over time. So we're actually pretty happy that we've got an outcome here of making a divestment of that business.

Okay. Got it. And just -- I mean, if we to annualize it, is it circa $8 million impact? Is it a bit lower than that, just for our modeling purposes?

That math is accurate, but we would not have experienced $8 million next year.

Yes. Got it. No, appreciate the trend is not positive. Okay. Great. And then secondly, if we consider your updated FY '28 ambitions, particularly for EPS CAGR of more than 30%, which is certainly up there. But I'm just curious whether you foresee this will require further acquisitions to get to that number relative to what you've announced to date? Or do you think you can get there through organic growth?

There are many paths to the goal, Entcho. It could include acquisition, but we also see the possibility for it to be done purely organically as well.

I suppose maybe asking in a different way, sort of when you budget for that, do you have a sort of like do you target half-half acquisition organic? Or is it too difficult to split out?

As I said, there are many parts. So we could follow a number of different parts. It's an ambition. It's not guidance. If you look at the revenue we're adding through the acquisitions and take off the bits we're losing from divestments, if you assume a similar level of CAGR in our core business that we've experienced over the last couple of years, you should find a way to getting there organically, but we don't rule out that we may also acquire to get there as well.

Okay. That's helpful. And just the final one on the subscriber trajectory. I guess if I look at the subs growth, was pretty evenly split between 1Q, 2Q at circa 20,000 broadband connections per quarter. Is that -- I mean, do you see that as a reasonable run rate for the foreseeable future? Or do you think that -- and I suppose I think about that as the foreseeable future prior to AGL because I appreciate that's a step change. And I suppose how do you view the key risks to this number, either upside or downside? Is it churn, the competitive environment?

I think you answered your own question. It's all those things. I mean I think we continue to grow strongly organically in our view. And there are a range of uncertainties in the future and opportunities in the future. So we are comfortable with our current growth trajectory. You obviously make your own assumptions. But I don't think it's unreasonable to assume that we keep going at the current rate.

Your next question comes from Jonathon Higgins with Unified Capital Partners.

Well done on the results today and also a great set of investor presentation materials. So thanks and well done to Heidi on that one on the increase in disclosure. Look, a couple of things for me today. Firstly, maybe just touching on the E&G segment, which we don't sort of speak about too much, but it looks like you're having a pretty active period of TCV. We've seen this in the past. And then obviously, there's a time line to getting the conversion there. Just if you can just talk to us through how that segment is going and when some of that TCV turns up into earnings, please?

Yes. So Aaron, maybe I'll touch a bit more on terms of how it lands and the duration. But I think the largest contract we've won today is Bakers Delight. I think we've only -- we've only started the journey of those coming online. I think there's still quite a few to come. These deals do take 6 to 12 months to fully flush out in terms of revenue landing. But maybe if you want to pick up anything I missed there, Aaron?

Yes, every project is different, unfortunately. So depending on what the technology is that the customer is acquiring depends on how long it takes to deliver the solutions. But Brian is right, between 6 and 12 months. Bakers Delight, we're well on the way there, and we're already partway through that project and billing revenue there, which is good, but still has a long way to go in that project, so. And it's not necessarily a straight line for size of TCV versus complexity as well and time to deliver. It all depends on the technology mix. So you can have some quite small ones take a long time to deliver and you can have quite big ones that deliver quite quickly. So yes, it's pretty positive though.

A couple more for me. Maybe just on the NBN side of things. Obviously, a lot of emphasis in this business. Like looking at a very consistent sort of run rate, good second quarter, year-to-date started well in what looks like a pretty competitive market. Are you sort of surprised this is holding up well? Or is it you just feel like the Aussie value proposition is something that just resonates as the majors start to shed towards the specialty guys?

Yes, John, I think in some ways, it shouldn't be possible what we do, but it is and we keep doing it. So I think our brand reputation, our service levels continue to resonate strongly with consumers. We get a lot of -- quite a lot of boomerang customers who leave for price and then come back because the experience was not enjoyable. And we think that still has a way to run. Equally, we're not complacent about that. Part of our efforts in replatforming and becoming more productive and efficient is that we are conscious that we do need to be as affordable as we can be, and we'll continue to find ways to do that. So yes, it seems to keep going on the same trajectory.

Understand. Last one for me, and then I'll jump back in the queue. Just supporting sort of the question from Entcho in regards to the FY '28 sort of targets, I'm just keen for you probably just to be clear because I think, obviously, we've seen some divestments and some acquisitions and obviously some moving parts on earnings and the like. The $2 billion target, is that clearly something that you're looking at obviously targeting based on what you got in hand because you've obviously already got some acquisitions in that target that you've announced today. Is that what you're referring to in regards to acquisitions or the potential for further to add to that target and beyond, I suppose?

I mean, no. So as I said, it's an ambition, and there are many parts to an ambition. So as I said, if you CAGR existing revenue, you add in More, Tangerine, you add in AGL, you add in Nexgen, you allow for some growth in those businesses as well, you get pretty close to the number we're talking about based on our recent history. But we're not saying that it absolutely will all be done organically. There may be M&A opportunities that help us get there as well in addition to what we've already done, yes.

Your next question comes from Liam Robertson with Jarden.

Look, I might just continue with the FY '28 ambition. I mean, if I've done some quick math, it sort of suggests based on that $2 billion revenue at 13.5% margins, you're targeting circa $270 million. I mean, organically, if I put all the various bits together, the More and Tangerine deal, the AGL deal, your core business, et cetera, I mean, there's a pretty natural path to $230 million to $240 million. I don't want to put words in your mouth, but if we assume achieving the ambition does rely on acquisitions, which I think people are sort of trying to understand today, can you just give us an idea of what types of assets or capabilities you might think will be a good fit to your existing business?

It could come from any of the divisions we're talking about. So it could be bolt-on customer books. It could be similar access to Nexgen that brings some capability. There could be space in Wholesale as well. So there's a range of opportunities, and I wouldn't want to narrow myself right now to what they might be.

Okay. All good. And then just secondly, on the resi segment. I'm conscious in the first half, your marketing spend was only up marginally in absolute dollar terms versus the PCP. Obviously, it looks like the market is getting a bit more competitive. Some of your peers are investing quite hard in market for subscribers. And then conversely, your ARPU margins were really strong in the half. So can you just talk to how you think moving forward, you'll be looking to balance subs growth and margins?

Yes. I might ask Jono to jump in there, but just for my sort of introduction to it is there is a little bit of money spend in that first half, and there was in the prior corresponding period. So that will disappear or largely disappear in the second half of the year. The other important thing is you need to distinguish between marketing spend and promo costs. So promo costs get experienced through the revenue line. So that sort of becomes invisible to the market as opposed to the marketing spend, which is the -- you bring the people to the site and the promo was probably working some over the line. But I'll defer to Jono, who's got more handle on it.

There's lots of different answers to your question, but starting at the kind of highest level, the most important part to our answer is in terms of where we will position in H2, it will all be within what we see as being our current budget range. And so we've been incredibly stringent this half as well as the prior halves in really managing to that outcome, and we will continue to do that as we move into H2. Having said that, we do continue to experiment. And so the important thing for us is being very active in where we see our marketing money in terms of the channels that we try to acquire customers through. We are doing a range of experimentation, particularly in the digital channels to really identify the lowest cost, highest value channels, and this is some very interesting work that we're doing in terms of our movers campaigns and really ensuring that when our current customers seek to move, it's very easy to rejoin. But obviously, when competitor customers are seeking to move that we've become the most obvious choice for them. So key thing is whatever we do, it will be within the allotment that we have to play with, but we're continuing to find ways to make that spend even more productive.

Great. And then maybe just last one. Are you able to confirm what the Symbio EBITDA contribution was in the half? And then just keen to get some color on gross margins between Symbio and the rest of Wholesale. Just conscious in the second half of '25, you'd called out some pricing pressures. So just trying to understand how those trends have continued.

No. We operate a Wholesale division now that incorporates Symbio. We're not disclosing Symbio separately anymore.

Your next question comes from James Wilson with Macquarie.

Just firstly, conscious your existing long-term incentive hurdles have a 3-year EPS growth component already. I was just wondering whether this hurdle will now be adjusted to reflect the raised ambition to a 30% EPS CAGR, effectively incentivizing you to achieve the Look-to-28 ambitions given that they are 3 years away?

That's a matter for the Board. My personal view is I wouldn't be changing retrospective grants of LTIs. What they do with future grants, we'll discuss in the next round.

Okay. And then just on the OSS and BSS investments into '27 and '28. Just wanted to confirm that $55 million to $60 million CapEx number is a go-forward number applying to all of those periods, including those with the step-up?

At this stage, yes.

Your next question comes from Ian Munro with Ord Minnett.

Just firstly, on the E&G business, maybe we obviously read the gross profit growth and revenue growth during the half. Just I guess, interested in the return profile on a blended sort of cash basis, like how you're seeing the performance of E&G and how you're seeing the return profile on incremental fibre builds and fibre deals for us?

So in terms of incremental deals, it depends on what product is that they're -- the product mix that they're buying. If it's heavily data related, then the gross margin will be proportionately lower. If there's more security and managed services involved, it will be higher. So each deal -- our interest on each deal has its own sort of profile. I think it's probably fair to say it's probably more data-led than anything else. In terms of Aussie Fibre, I mean, it's -- I mean, Aussie Fibre delivers 85%, 90% gross margin if we can get an Aussie Fibre link in. But in terms of the proportion of the whole of E&G that is Aussie Fibre, it's relatively small.

And just maybe as a follow-on then. So in terms of the Nexgen acquisition, can you maybe just give us a sense of the network synergies that you're anticipating? Is this a kind of lift and shift onto the Aussie network relative to bringing new capabilities into the group that can scale up a little bit better under Aussie ownership?

So there's about 6,000 NBN tails that are currently on an alternate network, they will be migrated onto the Aussie network. Outside of that, we see it as quite complementary. In terms of Aussie's strengths to date have been in the smaller end of the SME market with single-site operations, maybe up to 5 employees. And then E&G takes over sort of 50 and above. Where we've been a little bit softer is in that 5 to 50-seat range, and that's where Nexgen is really, really strong. So we see that as a really complementary go-to-market strategy. We have a lot of leads. They're very, very good at converting leads, particularly of that work, that group. And so we have a lot of leads that we don't do particularly well on converting that we think we can divert into Nexgen and get a really good return on and get telephony solutions, but also connectivity. So we see some really good opportunities there.

Your next question comes from Evan Karatzas with UBS.

Just keen to talk through these efficiencies you're realizing. I actually said it's a pretty big opportunity for the business. So employee costs were up only 3%. You gave a metric in the Residential slide around the staff-to-customer ratio improving 14%. So I just want to drill down on that a bit more. Probably not expecting you to give me a number there, but can you give us some rough idea of how much opportunity in your view there is to improve that staff-to-customer ratio in Residential?

So we think in terms of how our systems are today, we probably haven't got a great deal more we can get out of it. We think we're pretty close to optimizing that. But we do think there's a lot we can do in the replatforming to deliver efficiencies in the back office and delivering material quicker to our front-end agents so they can solve problems quicker. As you can expect, we're not going to share what we think that might be. But we have lifted across the business our EBITDA margin goal by 1% for FY '28, which gives you sort of a sense of what we think we may be achievable.

Yes. Okay. That's fair enough. Well answered. And then just maybe more from a strategic sense or point of view, keen to hear thoughts, Brian and Jono, just around the thinking with Aussie offering promotional discount pricing through that Jan, Feb period. Correct me if I'm wrong here, but that is a bit unusual for Aussie to be in the market offering promo pricing around that time of year. So just keen to know the strategic drivers of those sort of decisions.

Great question. So we've been experimenting and obviously, I like that word, for the last 3 years with a back-to-work, back-to-school type promotion, which we're calling the summer sale this year. And so this is the third year that we have done this piece of work. What's really important is the relationship that we see between the January, February period, the prior to Christmas, Black Friday trading period and then the end of fiscal year period. And so what we're really looking at is how do we help to shape the market in terms of those large retail events, we see those being 3 big retail events that we're seeking to obviously get incremental volume gain through during the year. But in terms of is it usual for us, it is now usual for us. It's the third year, and we continue to see some really important wins.

Yes. Okay. Well, you can see that with the subs growth of those early months as well.

That is all the time we have for questions today. I'll now hand back to Mr. Brian Maher for closing remarks.

Thank you. Thank you all for joining us today. We're very pleased with our results and really excited about our future with our new partners and hopefully more of those to come. And I wish you all a great day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.