Telstra Group Limited (TLS) Earnings Call Transcript & Summary

Good morning, and welcome to Telstra's Half Year FY '21 Results Presentation. My name is Nathan Burley, Telstra's Head of Investor Relations. I respectfully acknowledge that I am joining today from the lands of the Kulin Nation. On behalf of Telstra, I would like to acknowledge and pay my respects to the traditional custodians of country throughout Australia and recognize their continued connection to land, waters and culture. We pay our respects to their elders, past, present and emerging. This morning, after presentations from our CEO, Andy Penn; and our CFO, Vicki Brady, we'll be taking questions from analysts and investors and then media. I will now hand over to Andy Penn.

Well, thanks very much, Nathan. And good morning, and welcome, everybody, to Telstra's results announcement for the half year ended 31st of December 2020. This morning, I will make some introductory remarks and take you through our overview of our results. Vicki will then step you through the numbers in more detail before we move to Q&A. 2021 is a significant year for Telstra. It represents a turning point for the company in our T22 journey, a turning point in our financial outlook. For the last 4 years, every year, we have had to face the confronting challenge of the financial headwinds, which arise from the transfer of a material part of our business to the nbn. This has meant that we have started each of the last 4 years with our EBITDA going backwards by up to $800 million. This has been occurring in a market where competition has led to material reductions in both fixed and mobile ARPUs as well as technology disruption and significant structural change across the industry. In many ways, it was these dynamics that provoked our T22 strategy that we announced almost 3 years ago. It was these dynamics in conjunction with a conviction about how technology innovation was going to continue to accelerate that led us to understand that we needed to radically transform. Now we are substantially through the T22 program, and it is delivering significant benefits leading to a financial turnaround. And that is why I say 2021 is a significant year for Telstra. And I will demonstrate this in my presentation shortly. In summary, though, today, we are reporting underlying EBITDA for the first half of FY '21 of $3.3 billion. Against this, we're also announcing guidance for the second half of the year of $3.3 billion to $3.6 billion. Now we do not usually provide explicit half year guidance. However, we thought it was helpful to do so this time around to illustrate the turning point that we are at. The turning point is also illustrated by our ambitions for FY '22 and FY '23. Now these are not guidance, but they do demonstrate our aspiration for mid- to high-single-digit growth in underlying EBITDA for FY '22 and for underlying EBITDA to be in the range of $7.5 billion to $8.5 billion in FY '23. This range is important, of course, to support a $0.16 dividend inside our dividend payout ratio. And it's also important to deliver a ROIC of around 8%. We know how important the dividend is to our shareholders. And that is why the Board expects to pay a total dividend for FY '21 of $0.16 per share, including an interim dividend of $0.08 per share. We also know how important the group restructure that we announced in November is to our shareholders. We are therefore committed to progressing this, this year, including the monetization of towers. So you can see, the strategies that we have been deploying are paying off. We are performing well in the market, and our T22 program is delivering. After a decade of disruption following the creation of the nbn and with its rollout now declared complete, we can clearly see the path to underlying growth ahead. Our investment in innovation and technology, in digitization and networks, improving customer experience and being disciplined in our capital management means that Telstra is in a strong position to grow. So with that, now let me turn to the results. Total income from the year (sic) [ half ] decreased 10.4% to $1.2 billion (sic) [ $12 billion ] on a reported and guidance basis. After adjusting for lease accounting on a like-for-like basis, EBITDA decreased 11.7% to $4 billion. Underlying EBITDA on a guidance basis, which excludes one-off nbn income and restructuring costs, decreased 14.2% to $3.3 billion. Excluding the in-year nbn headwind, underlying EBITDA declined by approximately $180 million. And the estimated financial impact of COVID in the half was $170 million. Our underlying EBITDA in the half was consistent with our full year guidance of $6.5 billion to $7 billion. And with our guidance for underlying EBITDA in the second half at $3.3 billion to $3.6 billion, it follows that our guidance range for the full year has narrowed to $6.6 billion to $6.9 billion. Net profit after tax decreased 2.2% to $1.1 billion on a reported basis, while free cash flow was up 88% to $1.9 billion. This was due to working capital improvements related to reduced handset receivables from lower device sales, improved inventory and creditors. The lower device sales follow the ongoing trend of customers holding on to their devices for longer as they have become more expensive as well as from lower store traffic from COVID-related restrictions. This was also the main reason for lower income in the period. The Board has resolved to pay a fully franked interim dividend of $0.08 per share, which will return approximately $950 million to shareholders. And as I have already mentioned, the Board has also confirmed it expects the total dividend for FY '21 to be $0.16 per share. Turning then to the operating highlights for the half. We continued to see strong customer growth in mobiles. We added 80,000 net retail postpaid mobile services, including 58,000 branded and 22,000 from Belong. This is, in fact, the strongest branded performance in several halves, and it reinforces the benefits of our clear leadership in 5G. In Wholesale, we added 163,000 services while we added a further 456,000 IoT services. Importantly, in mobile, we saw our lead indicator, transacting minimum monthly commitment, or TMMC as we refer to it, increase by $3. Fixed had a more challenging half where we lost 53,000 net new retail bundles, including 11,000 from Belong. While we had negative net adds for the first time, encouragingly, bundle and stand-alone ARPU in Consumer and Small Business has stabilized due to our focus on price, higher-speed tiers, new add-ons, improvements to WiFi and the Telstra Smart Modem. In fact, the Smart Modem is now in over 2.2 million homes, almost 80% of our consumer customer base. And it was key to keeping customers connected when they were working and studying from home last year and, of course, increasingly in this year, too. We have also launched our Adaptive Networks product in Enterprise during the period to mitigate downside risk from digital disruption and competition from the nbn and also to support its return to growth, which we have foreshadowed for FY '22. One sector where we have seen digitalization accelerate dramatically is, of course, in health care technologies. And Telstra Health is strategically very well positioned in this growing market, with income up 17% in the half and further improvements in EBITDA. In customer experience, some aspects of our service were impacted during 2020 as a result of workforce capacity challenges. These flowed directly from the COVID-related working restrictions that were in force, particularly overseas. Pleasingly, service levels were recovered in the second half of the calendar year, and Episode NPS improved by 3 points in the half, albeit was down 1 point when compared to the 31st of December 2019. I am conscious of the delays that some customers have experienced in trying to contact us, and I want to apologize for those. I also know that not all aspects of our customer experience are where they need to be, and we need more -- we have more work to do in this regard. However, I am confident that the many initiatives we have taken under our T22 program in simplifying the business and in digitalization will further improve experience as we go forward into the future. Also, notwithstanding these specific challenges, Strategic NPS has improved 5 points in the last 6 months and 11 points in the last 12 months. Finally, on our operating highlights, we have made very strong progress in our productivity program. For the half year, underlying fixed costs were down $201 million, and total operating expenses were down $876 million. This brings the total annualized cost reductions achieved under our productivity program to $2 billion on an annualized basis. And today, we are upgrading our productivity outlook for '21 to $450 million and for the whole program to $2.7 billion. Before I talk more about the progress we have made on our T22 program in the half, let me come back to the point that I made in my introduction about being at a turning point. The progress that we have achieved in our T22 program shows that we are building momentum, and we are building financial momentum. The left-hand side of this slide shows the evolution of underlying EBITDA over the last several halves, with the guidance provided for the second half of FY '21 of $3.3 billion to $3.6 billion. The chart on the right-hand side shows the evolution of our full year underlying EBITDA, including guidance for FY '21, as well as the aspirations I've referred to for mid- to high single-digit growth in FY '22 and to be in the range of $7.5 billion to $8.5 billion in FY '23. Now as I mentioned before, the figures for FY '22 and FY '23 are obviously not guidance. They're aspirations or ambitions, if you like, so there are greater risks and uncertainties associated with them compared to our guidance statements. Nonetheless, the charts clearly demonstrate why I say we're at a turning point. I also want to comment on what sits behind this and draw out some of the key underlying operating metrics that we have been focused on improving. The first is postpaid handheld TMMC, which, as you know, is the leading indicator for ARPU. TMMC increased by around $3 in the first half, and we expect it to increase by a similar amount in the second compared to its prior corresponding period. We are confident therefore that mobile ARPU has reached a turning point and will return to growth in the second half of FY '21. Secondly, Consumer and Small Business fixed bundle ARPUs have stabilized. We expect this to continue into the second half as we focus on building value and achieving a mid-teens nbn resale EBITDA margin by FY '23. And thirdly, as I have mentioned, we have continued to make strong progress against our productivity target, reducing underlying fixed costs by $201 million during the half, with another approximately $250 million expected in the second half and $450 million next year. At the same time, the major headwinds that we have been facing from the migration to the nbn are coming to an end. The in-year nbn headwinds peaked in the second half of the last financial year, they reduced in this half, and they will be substantially less in FY '22. We also expect the COVID impacts to reverse over time. After an estimated $200 million impact in FY '20, we expect a $400 million impact in FY '21. This will be weighted to the second half with an estimated $170 million in the first. So this is why I am optimistic that we are at a turning point financially. And with that, let me now turn back to this year and make some comments on our progress against our T22 strategy and initiatives. Firstly, to say, we are on track to deliver more than 80% of our T22 scorecard metrics. Against the first pillar of T22, we now have more than 7.6 million services on our 20 Consumer and Small Business in-market plans. We also have 2.8 million members signed up to our very successful loyalty program, Telstra Plus, and we are seeing very strong engagement from these customers. For Consumer and Small Business customers, digital sales interactions are up 10 percentage points to 40% compared to FY '20, which itself was already up very strongly on the previous year. Overall digital service interactions now account for more than 70% of all service interactions. Under our T22 strategy, our aspiration had been to reduce the number of calls to our call centers by improving our service by 2/3 by FY '22. With the acceleration to digital, we have already seen this run rate and achieved it more than a year before the end of the program. That means that over time, we will need smaller call centers for these customers. And in fact, many more will work from home. We are on track therefore to have our -- all inbound calls from our Consumer and Small Business customers answered in Australia within the next 18 months. And last week, we closed our call center in Cebu in the Philippines. Today, we are also announcing changes to another important part of our customer strategy with our intention to transition to full ownership for all of our branded retail stores across Australia. As more customers interact with businesses online as a result of COVID, we think now is the right time to bring back ownership to ensure a consistent and integrated customer experience across all of our online channels and entire store network. At the height of COVID last year, in fact, we were able to redeploy frontline staff from Telstra-owned stores to assist customers through our digital channels or via the phone. And it's exactly this type of flexibility that we'll be able to unlock as more retail-branded stores are under Telstra's ownership. Currently, Telstra has more than 60 Telstra-owned and operated stores, with another 166 branded stores, which are run by individual licensees, and a further 104 that are operated by the Vita Group. Vita Group and individual licensees have been notified of the plan, with discussions and transition arrangements expected to progress over the coming months. Importantly, though, we know that in many regional and rural towns, the local Telstra store is a valued part of the community, providing support and connectivity to a range of businesses and industries. And that's not going to change. And neither will our commitment to ensuring current licensee store customers continue to receive the excellent level of service that they have. Turning then to InfraCo. We have continued to make progress in the establishment of InfraCo. It is now a fully operational business function with separate accountabilities and reporting. For InfraCo Towers, we are finalizing the intercompany agreements and are now setting up separate IT systems. We are also undertaking the necessary significant due diligence across the asset classes to ensure that we have fully documented inventories of an acceptable standard to third-party investors. Now one of the reasons that we said for setting up InfraCo was to provide for an increased level of operational and commercial focus on these assets through a dedicated CEO and a management team. And encouragingly, we are starting to see the benefits from this. In the half, total passive income was up 2.3% to $1.3 billion. EBITDA after leases was $904 million for -- at 68% margin. Our new dark fiber products have been very well received by our customers, with more than 20 services now ordered or complete. And we also won 2 significant government contracts for tower services in Tasmania and New South Wales. We have also started simplifying our field infrastructure maintenance, with a goal of reducing from more than 20 vendors to 5 and driving operational efficiencies. On the group restructure that we announced in November, we have commenced detailed consultations with key stakeholders, including government, regulators and the nbn. And we've also appointed advisers and are working with them on a detailed implementation timetable. And we anticipate making a further announcement in March to set out this timetable for the market, including the major steps that we will need to go through to give effect to the restructure. It remains our intention to complete the restructure by the end of the calendar year. On towers, as outlined at our November Investor Day, once established, InfraCo Towers will own and operate the largest mobile tower network in Australia. We have been conducting due -- detailed due diligence and documentation to support launching the monetization process with potential investors in the third quarter of 2021 and with binding offers to be submitted in the fourth quarter. Turning to Pillars 3 and 4. Our workforce continues to change significantly. Since June 2018, when we launched T22, we have reduced 22,000 roles, including 6,000 from our direct workforce and 16,000 from our indirect workforce. Now this does need to be put in the context of a very significant part of our business and its associated work being transferred progressively to the nbn over the last few years. Indeed, nbn today is itself a very significant employer. At the same time, we have recruited more than our planned 1,500 new roles with new skills in new areas such as software engineering, data analytics and cybersecurity. We have also further progressed our journey to introduce agile ways of working. And today, we have around 11,000 people across the business working in Agile, and we anticipate being fully agile right the way across the business by the end of the calendar year. Last year, we announced a pause on our T22 job reductions to give our people as much certainty as possible during the very challenging time we all experienced through COVID. We extended that pause to February this year, which is obviously where we are today. And so last week, we did announce the next wave of proposed organizational changes. With these and subject to appropriate consultations, by June, we expect to be more than 90% of the way through our T22 target to reduce our direct workforce by 8,000 roles and to have completed it by the end of the calendar year. In terms of reductions in indirect head count, it was initially our expectation to reduce by around 25% or 10,000. However, we have already reduced 16,000, and we expect to make further reductions to our indirect workforce due to the significant progress we have made in digitizing the business. The majority of these roles have been offshore. Needless to say, these changes have been difficult for our people on top of the challenges presented by COVID to them personally, particularly as they directly impact members of our team and their families. I'm proud therefore that our employee engagement has remained high with a score of 80, reflecting a concerted leadership effort to support everyone during this time. Also under Pillar 4, we have now exceeded our target of monetizing up to $2 billion of assets to further strengthen our balance sheet. Announcements in the half year included the sale of the Clayton data center, the Pitt Street Exchange in Sydney and the Velocity and South Brisbane fiber networks. We also sold the business of our e-commerce subsidiary, Neto, which we acquired 6 years ago but no longer fits our strategy. And we are currently in the final stages of negotiating contracts for the sale of our remaining stake in Sensis. You will also recall that we restructured Telstra Ventures through a partnership with HarbourVest 2 years ago. That move has paid off with Telstra Ventures performing very strongly. Since the inception of Telstra Ventures, the team has completed 73 investments and achieved 25 liquidity events, which have increased the value of the portfolio substantially. In the past half year alone, some of the portfolio highlights include the BigCommerce, CrowdStrike and Skillz IPOs as well as the Rancher investment and Cumulus Networks' acquisitions. The valuation of investments held by Telstra Ventures is in our accounts recorded in reserves. And we recorded $187 million increase in the valuation of these investments in the half year period. On 5G, we are not just leading in Australia, but we are also among the global leaders. We have expanded our 5G rollout to selected areas in more than 100 cities and towns across Australia, and the network now provides 5G coverage to more than 50% of the population. It is our intention to increase that to 75% by June. In fact, today, we have around 1 million 5G devices connected to the Telstra network, and our average combined 4G and 5G mobile speeds are faster than our competitors. In fact, we recently achieved a world-first 5G peak download speed record on a commercial network using millimeter band wave spectrum of greater than 5 gigabits per second. Not surprisingly, therefore, we continue to also lead the market in the major mobile industry network performance benchmarks, including umlaut where we were ranked #1 for best in test and best in data. Before I close, a few comments on our T22 scorecard. Now as you heard me say earlier, we have delivered or are on track to deliver over 80% of our T22 scorecard metrics. Needless to say, some of the measures, of course, are rated either amber or red, and I want to take a moment to explain why. Firstly, underlying ROIC. As announced at our FY '20 results, we will not achieve our T22 ROIC target of greater than 10% in FY '23. I know that is disappointing, and I want to reassure shareholders that we are pulling all levers available to us to improve that performance. As outlined at our investor briefing in November, our new target is 8%. And with the ambitions I spoke to earlier, we can see our path to achieving this in FY '23. On NPS, we are on track with Strategic NPS, but as I explained earlier, we are slightly behind on our Episode NPS results. The building out of our new technology stacks is also very well progressed. But as in any IT project of the magnitude and scale that this one is, there are, of course, always a few things that right shift. However, the Enterprise stack is now live as are the agent-facing components and mobile products in Consumer and Small Business. Product launches onto the new stack have been accelerating in the first half of this year. And we expect that to continue in the second, enabling us also to accelerate the migration of customers. On active app users, these have grown by more than 400,000 to 4.4 million. It's below we had planned -- where we had planned it to be, but it reflects good progress on FY '20. We also need to build more momentum in the average services per customer. And we are continuing to target increased multiproduct holdings through entertainment, mobile assurance and gaming add-ons. Our announcement last week with Kayo is a key to doing this. Let me summarize. The last 12 months have seen us navigate the profound disruptions from COVID. COVID has also highlighted that connectivity has never been more important. We have seen a huge acceleration in adoption of digital ways of working and living. And these things are also going to be crucial to a fast economic recovery for the country. It is interesting to reflect on how seamlessly Australians were able to move to working from home, how quickly people adopted digital ways of working and living and how we were able to support them with the necessary bandwidth, products and services. None of that happened by accident. It happened for us because in 2016, we knew we would see a further acceleration in the use of technology, so we invested $3 billion to build the networks of the future and completely rebuild our digital environment. It happened for us because in 2018, we launched our T22 strategy to simplify and further digitize the business. And it happened for us because we continue to make excellent progress in implementing this strategy. Those investments are transforming Telstra. We are now less than 18 months from completing T22. We have achieved an extraordinary amount, and Telstra today is a leaner, more responsive and more agile company than it has ever been before. I said in my opening, 2021 is a significant year for Telstra. I know we have more to do, but we have reached an important turning point financially. And we look to the rest of the year with great confidence in our ability to deliver our strategic ambitions. Our priorities for the next 12 months include: firstly, making sure we drive the key operating metrics that I highlighted earlier, which will be instrumental in delivering the financial turnaround; secondly, finishing the job on T22, including the final stages of the digitalization program and the migration of customers at scale to our new technology platforms; thirdly, delivering our group restructuring plans, including the reorganization of the company into 3 separate entities: InfraCo Fixed, InfraCo Towers and ServeCo, as well as the monetization of towers; fourthly, further extending our leadership in 5G and rolling out to 75% of the population by June; and finally, further improving our customer service by bringing our retail experience in-house and onshore. This means meeting our commitment to answer all inbound calls from our Consumer and Small Business customers in Australia within the next 18 months and commencing the process to bring back our licensee stores in-house. And with that, we will have truly transformed Telstra through our T22 program and set the company up for success in the digitally driven and very exciting future that lies ahead. We will have built the capabilities to take advantage of the opportunities this presents. And we will announce how we're going to leverage these and what comes after T22 at our Investor Day in November. Can I close by acknowledging that the progress that we have made is due to the combined efforts of our many dedicated employees? Despite the disruptions and impact on them personally from COVID, every day, they have focused on working for our customers and keeping Australians connected. And for that, I want to sincerely thank them. Thank you. And with that, I will hand over to Vicki before we open for Q&A.

Thanks, Andy. And good morning, everyone, and thank you for joining us. I'd like to begin by recognizing that I am joining you from the land of the Gadigal people of the Eora Nation. I acknowledge their ancient and ongoing connection to this land and their culture. And I welcome any Aboriginal and Torres Strait Islanders joining us today. Turning to the details of our financial performance for first half '21, which you can see on Slide 13. The numbers on the left of this slide are our reported statutory results. The numbers on the right are reported lease-adjusted, which includes depreciation of mobile handset lease expense as OpEx. This provides a like-for-like year-on-year view given the exit of mobile lease plans. It is the view we use when managing the business and which this presentation will focus on. For first half '21, income was $12 billion, down 10.4%. On a reported lease-adjusted basis, EBITDA declined 11.7% to $4 billion. This decline included a $268 million reduction in net one-off nbn receipts and a $297 million increase in restructuring and other guidance adjustments. I'm pleased to say that our underlying EBITDA during the first half was in line with our expectations and our FY '21 guidance. We are also pleased today to be upgrading our free cash flow guidance. Underlying EBITDA was down $550 million or 14.2%. The largest 2 contributors to this decline were an estimated $370 million of in-year nbn headwind and approximately $170 million of estimated impacts related to COVID-19. Our estimate for COVID-19 is based on international roaming declines, delayed cost-out, additional customer support and deferred NAS professional services. If both the in-year nbn headwind and estimated COVID impacts were excluded, underlying EBITDA was broadly flat. Our total operating expenses declined 9.8%, including a $201 million or 6.6% decline in underlying fixed costs. Depreciation and amortization declined 4.6% on a reported lease-adjusted basis. This is consistent with the expected full year decline of around $300 million due to assets associated with nbn completion and legacy IT assets fully depreciating. Net finance costs declined due to lower average borrowing cost, thanks to recent refinancing at lower rates. Income tax expense declined 60% on a low effective tax rate associated with M&A and asset sales as existing capital losses were used to offset capital gains. Excluding these one-off factors, our underlying effective tax rate was close to 30%. Reported NPAT was $1.1 billion, down 2.2%. Looking now at income by product, which you can see on Slide 14, which reflects the new product reporting framework we announced in January. Underlying income declined $1.2 billion or 9.8%. Excluding the in-year nbn headwinds and lower international roaming fees due to travel restrictions, income declined 6.5%. Of this decline, over 2/3 were due to a reduction in hardware. There is detail in the appendix on each product, but I will touch on the most significant points. Mobile income declined $645 million in first half '21. This was largely due to hardware revenue, which has minimal impact on EBITDA, and international roaming declines. Handset and tablet volumes were around 450,000 lower than first half '20. The average price was also lower helped by the higher Australian dollar. The reasons for the decline in volumes versus the PCP were: firstly, impacts of COVID slowing down sales, including foot traffic in retail stores down around 30%; secondly, customers holding handsets for longer; thirdly, higher outright purchases through independent retailers; and finally, a later release date for the iPhone. Of these reasons, impacts of COVID on sales and the later iPhone release drove outcomes materially different to our estimates when we set guidance. We anticipate these impacts to continue in the second half. Profit-generating domestic mobile service revenue, which has been in decline since FY '17, was broadly flat, excluding international roaming declines. In postpaid handheld, net adds remained healthy across all segments. Pleasingly, our lead indicator of postpaid handheld ARPU, transacting minimum monthly commitment or TMMC, continued the positive momentum we have seen since 2019, up by more than $3 in first half '21 versus PCP. We expect a similar increase in second half versus PCP. The sustained increase in TMMC as well as pricing changes are flowing through into ARPU. However, reported postpaid handheld ARPU in first half '21 declined 8.6%, including a decline of around $140 million in international roaming. Excluding this, ARPU declined 3.2%, with uplifts from pricing changes more than offset by the continued downward impacts from: accounting for new plans, which allocate more revenue to hardware; lower out-of-bundle excess voice and data fees; and finally, dilution from a higher mix of Belong customers, despite Belong TMMC and ARPUs growing in first half '21. These impacts on ARPU will continue, but the thing that gives us most confidence in the outlook is the flow-through of pricing changes we are now seeing. In prior periods, ARPU has had a negative drag from pricing trends. This turned positive in first half '21, and we are confident this will flow through even more strongly in second half '21. Turning to other mobile categories. In prepaid handheld, an increase in unique users and voucher value returned the product to growth. Mobile broadband remained broadly stable sequentially, with declines in prepaid offsetting postpaid growth. And our wholesale business achieved strong revenue, SIO and EBITDA growth. In Fixed Consumer and Small Business, our focus is on improving the long-term economics and customer experience. Income declined 7.5% in first half '21, impacted by nbn migration, legacy voice and Foxtel from Telstra declines. However, the decline in income from bundles and data was only 0.6%. This reflects ARPU stabilizing as we hit a turning point, thanks to customer migrations to in-market plans no longer being dilutive. Around 70% of our customers are now on in-market plans, and we are almost 90% through migration of customers within the nbn fixed footprint. We remain focused on increasing ARPU through differentiation, add-ons and plan mix. Turning to Fixed Enterprise, where income declined 6.4%. Fixed Enterprise has 2 main categories: firstly, data and connectivity, where revenue was down 7.2% as we transition from providing virtual private corporate networks to integrating over-the-Internet technologies such as SD-WAN with Telstra fiber or nbn access. Total SIOs declined as copper exits were not fully offset by growth in nbn services. We are now around 65% through the migration of enterprise services to the nbn. Importantly, fiber SIOs were stable and ARPU decline slowed as we focused on retaining and adding higher-bandwidth SIOs. Secondly, NAS, which has been reclassified following the introduction of our new product reporting framework to enhance transparency and align with our strategy. NAS income declined 6%. Single-digit growth in managed services, including security and cloud applications, was insufficient to offset structural declines in calling applications, including ISDN, as well as equipment sales and professional services. The result in Fixed Wholesale is attributable to legacy products, nbn headwinds and commercial works declines. The ongoing portfolio, which accounts for almost half of the revenues and includes passive infrastructure, grew. There is other information on InfraCo consistent with Investor Day included in the appendix. Finally, in other, our health business continued to scale with revenue growing 17%. Turning to our operating expenses, which you can see on Slide 15. We are very pleased to have achieved a significant reduction in costs during first half '21. Total costs declined 9.8%, and underlying costs declined 7.8%. An increase in nbn payments of $136 million was more than offset by the productivity gains we achieved. Other sales costs declined $463 million on lower hardware costs. Underlying fixed costs reduced by $201 million, and we are now tracking to achieve a full year reduction in FY '21 of around $450 million. First half '21 productivity was predominantly enabled by simplification and adoption of digital channels, ongoing focus on vendor cost and increased workforce efficiency. Our proposal to move ahead with job reductions, which we paused until February this year, will deliver a run rate reduction into FY '22. We have now achieved a $2 billion net reduction in underlying fixed costs since 2016. However, to have a world-leading cost base, we have more work to do. Based on our strong progress to date and outlook, we have lifted our net productivity target from $2.5 billion to $2.7 billion by the end of FY '22. Further reductions in FY '22 are expected to be delivered from IT and network infrastructure costs, realizations of benefits from digitization, including product simplification and customer self-service tools, as well as ongoing labor efficiencies. We anticipate that delivery of this new target will get us to the top quartile of global benchmark for full-service telcos by the end of FY '22. With the increased cost target and jobs announcements earlier this week -- this month, we expect around $180 million of restructuring costs in FY '21. Moving to EBITDA by product on Slide 16. Mobile EBITDA declined $127 million versus PCP but would have been broadly flat excluding the international roaming decline. Mobile EBITDA also returned to growth sequentially in first half '21. Our mobile business is clearly building positive momentum. We have strong 5G leadership and differentiation. TMMC is up with a higher proportion of customers choosing plans of $65 or higher. Digital engagement is increasing. 2/3 of mass market postpaid customers are on in-market plans. And our loyalty program continues to scale, and we see value accretion across our multiple brands. These factors give us confidence that mobile EBITDA will grow again sequentially in second half '21. We also expect full year FY '21 growth on a PCP basis and then further growth that will support our FY '22 and FY '23 financial ambitions. Fixed Consumer and Small Business EBITDA declined $230 million. This includes a revenue decline of around $200 million and an increase of around $130 million in network payments to nbn, partially offset by cost reduction. Our nbn reseller EBITDA margin was around 5% in first half '21, and our ambition remains to grow this to mid-teens by FY '23. Our strategy to include this -- to achieve this includes a combination of initiatives, targeting improvements in gross margin, such as speed tier mix and add-on services, along with cost-to-serve reductions and delivery of productivity. Legacy EBITDA has continued to decline with diseconomies of scale. We remain excited by 5G home Internet opportunities to drive future on-net growth, including through millimeter wave spectrum increasing capacity. Turning to Fixed Enterprise. Data and connectivity EBITDA declined 15.4% due to reduced revenue on high-margin products and largely stable costs. Our Adaptive Networks strategy launched during the half is targeted at maximizing long-term economics. NAS EBITDA declined due to reductions in higher-margin legacy calling applications and professional services, along with the announced pause on job reductions and one-off costs negating the benefits of cost reductions. This was partly offset by growth in managed services and cloud applications. We expect NAS EBITDA to be broadly flat versus PCP in second half '21 and then grow in FY '22. We remain committed to achieving mid-teens margins from FY '22. Global EBITDA, excluding one-offs in the PCP and in constant currency, grew 2% as cost initiatives and mix offset the revenue decreases in data and connectivity and NAS. The commitments we've made about the future financial performance of our products are included in a slide in the appendix. Turning to free cash flow, which you can see on Slide 17. Free cash flow after operating lease payments increased close to 90% to $1.9 billion largely due to working capital improvements. The improvement reflects reduced hardware revenue with reduced handset receivables and improved inventory on lower handset volumes and average rate. We have also managed our creditors and receivables position to deliver the favorable outcome. Some of the increase also reflects timing. This means we are tracking ahead of our FY '21 free cash flow guidance range and are lifting the range to between $3.3 billion and $3.7 billion. CapEx is tracking consistent with guidance. M&A disposals in the period included the Pitt Street Exchange property and Telstra's Velocity network. We look forward to participating in April's millimeter wave spectrum auction and note that payment terms include the option for 5 annual installments rather than all payment upfront. Moving to dividends. The Board has resolved to pay an interim dividend for first half '21 of $0.08 per share fully franked, including an ordinary dividend of $0.05 per share and a special dividend of $0.03 per share. The first half '21 ordinary interim dividend represents 125% payout ratio of underlying earnings but is well supported by cash flow. The total interim dividend represents a 60% payout of free cash flow after operating lease payments less net finance costs paid. The Board understands the importance of dividend to our shareholders and remains committed to the objectives of the capital management framework. As stated at last year's AGM, the Board is prepared to temporarily exceed the framework's principle of paying an ordinary dividend of 70% to 90% of underlying earnings in order to maintain the current dividend. The Board stated it would consider the following factors in determining if it continues to do so: first, if our ambition for underlying EBITDA of $7.5 billion to $8.5 billion in FY '23 is achievable; second, if the full year free cash flow dividend payout ratio remains supportive and we retain a strong financial position; and third, if there are any other factors that would make the payment of the dividend at that level imprudent. Based on this criteria, the Board expects to pay an FY '21 fully franked dividend of $0.16 per share. Turning to our capital position, which you can see on Slide 19. Under our T22 strategy, we have monetized over $2 billion in assets, and our balance sheet and liquidity position remains strong. Net debt declined around $700 million in first half '21, and we remain within our comfort ranges for all our credit metrics. We have also updated our capital management framework consistent with the outlook for CapEx provided at the November 2020 Investor Day. Principle 3 now states target CapEx-to-sales ratio of approximately 12% excluding spectrum from FY '23. As discussed at Investor Day, our revised T22 ROIC target is for underlying ROIC of around 8% by FY '23, with a long-term ambition to grow ROIC. Turning now to our revised FY '21 guidance, which you can see, along with the assumptions and conditions upon which we have provided them, on Slide 20. FY '21 income guidance is now $22.6 billion to $23.2 billion, reducing approximately $1.2 billion at the midpoint from prior guidance. The large majority of the change is due to mobile hardware. I spoke earlier to how differently trading conditions have played out in the first half compared to our expectations when we set guidance. Our outlook is also a few hundred million lower in prior -- than prior expectations in global largely due to exchange rate outcomes. These changes have minimal impact on EBITDA. Underlying EBITDA is now expected to be in the range of $3.3 billion to $3.6 billion in second half '21, which compares to $3.3 billion in first half '21. We have therefore narrowed FY '21 underlying EBITDA guidance to be between $6.6 billion and $6.9 billion. Our underlying EBITDA guidance continues to assume an in-year nbn headwind of approximately $700 million. Due to timing of disconnections, we expect to be at the low end of the net nbn one-off range. The estimated COVID-19 impact in FY '21 is unchanged at approximately $400 million. Free cash flow after operating lease payments is now upgraded to $3.3 billion to $3.7 billion, up $450 million at the midpoint. For clarity, any acquisitions from licensees under our strategy announced today to transition to full ownership of branded stores is excluded from guidance free cash flow. To conclude, first half '21 was an inflection point for the financial performance of our business. Our underlying results remain challenged, including from ongoing nbn headwinds, legacy declines and financial impacts of the COVID-19 pandemic. However, our continued focus on T22 is delivering simpler, better outcomes for our customers and greater productivity, enabling us to increase our cost-out targets. Product margin improvement is also imminent and already occurring in mobile. We see clear positive indicators of an improved financial trajectory, which we expect will return us to underlying EBITDA growth in FY '22 and put us on the path to achieving our FY '23 financial ambitions. We therefore look forward with confidence. Finally, I would like to take this opportunity to add my thanks and recognize our dedicated teams right across Telstra. We will now hand over to Nathan to take us through Q&A.

Great. Thanks, Vicki. So we'll now take questions from analysts and investors. Our first question will be from Kane Hannan of Goldman Sachs.

Just 3 questions for me, please. Firstly, just on that mobile subscriber growth in the half. Can you just talk about how you were able to grow your postpaid subs in the half despite putting up pricing when the industry didn't follow? I suppose what that tells you about the sticky nature of your customer base. Secondly, just given the increase in productivity to $2.7 billion, obviously, nice to see. But should -- are we still thinking about that hundreds of millions of dollars of productivity savings in FY '23, '24 that was spoken about at the Investor Day? Or is that a little bit of a pull forward in some of those savings? And then finally, just in terms of the free cash flow outlook, how should we be thinking about the FY '22, '23 EBITDA targets translating into free cash flow? And could you just comment on some of the moving parts that we should be thinking about there?

Thanks very much, Kane. I should mention as well that we've got Michael Ackland, who runs our Consumer and Small Business division; David Burns, who runs our Enterprise division; and Brendon Riley, who's the CEO of InfraCo, on the line as well today. And so I think I'm going to let the team respond to some of the questions. But I'll get Michael maybe to comment on mobiles, Vicki to talk about productivity and free cash flow outlook as well. But my point on mobiles would be I think it just -- it's a function of the continued focus on value and differentiation and 5G leadership. But I don't want to take anything away from Michael. So why don't I give Michael the opportunity to make a comment?

Great. Thanks, Andy, and hopefully, you can hear me. I think your lead-off, Andy, is exactly right. So there was less activity in the market and less movement between carriers, which obviously helped. But the major drive for us was really around cementing that 5G leadership. And we saw that through the iPhone launch. And we've seen that through now where all the major handset vendors are ranging 5G phones almost completely. And I think as Andy mentioned, we've now got 1 million 5G phones on the network. And so we're pretty confident as we move forward now that our coverage is getting to a point where it's a very significant advantage and lead over competitors, and it's a meaningful coverage for many, many customers that is influencing their decision. So it has been strong. I mean I think the other point I would make is we've seen changing dynamics in prepaid with somewhat the removal of travelers and some of the other sort of international student flows that created a lot of noise and excitement in prepaid. But we now have a very strong base of prepaid customers that is growing in both value and unique users as well.

Thanks, Michael. I'll pass over to Vicki. And in the process of doing so, I just did a quick speed test for you, Kane, and just got 800 down and 775 up. So over to you, Vicki.

Thanks, Andy, for that. And thanks, Kane, for your questions. So let me take the last 2 questions. So firstly, on cost-out. Yes, as you said, we have upgraded our cost-out to $2.7 billion by the end of FY '22. What does that mean? We made those broad comments at Investor Day that we would expect future cost-out beyond FY '22. And yes, you remember correctly, I think we did say in the range of hundreds of millions. What we have completed up -- last half is we did complete our update of the global cost benchmarking work. And beyond FY '22, we do still see opportunities. For example, as we complete digitization, we still have the opportunity to decommission future legacy IT systems, and that will take some future costs out of our business as well. So there are still areas beyond FY '22. And so we do believe that cost-out and efficiency and that productivity will continue to play a role in the business beyond FY '22. Then your second question was on free cash flow, how do you think about free cash flow into FY '22? Well, I guess a couple of the key components of that. Firstly, we've been clear about our ambition in terms of underlying EBITDA growth, so that mid- to high single-digit growth. So that's an important factor in thinking about free cash flow. Obviously, we've been pretty clear also around CapEx and how we see that evolving from here through to FY '23. So 2 of the major factors. Obviously, working capital, we've seen a significant shift in that in this half. And I would just say hardware volumes do play a really significant part in that as we've seen in the upgrade to our free cash flow outlook for this year. So working capital is the one obviously will be dependent on what happens with hardware volumes. And obviously, there's always a little bit of timing in that. But Kane, I would probably point you towards our outlook on underlying EBITDA and our comments around CapEx probably give a good basis to start thinking about free cash into FY '22.

But maybe just on the productivity, is it still right to think about hundreds of millions? Or with no sort of comment around what we should be putting in there for '23 and '24?

Look, the comments we made at Investor Day right now are still consistent. Obviously, they're ambitions. And as we come and provide future guidance into FY '22, we can be a little bit clearer, but there's no change in what we said at Investor Day.

Okay. Thanks, Kane. Our next question will be from Eric Choi from UBS.

Good execution against targets so far, so well done. I've got 3 as well. I might go through them all at once. First question is, just what have you assumed in terms of roaming impacts reverting in your FY '22 ambition? My guess is you wouldn't be assuming much. So let's say you do the midpoint of your '22 EBITDA of, say, $7.2 billion, sort of infers getting to $7.5 billion by FY '23. Doesn't seem like much of a stretch given you might have a couple of hundred of roaming coming back, and you've just confirmed there's more cost-out to come. Then obviously, there's no more -- well, not much nbn drags in FY '23. That's kind of the first question. Second question, just on the cost-out upgrade. I guess $200 million of extra cost-out should have lifted your ROIC by about 50 basis points. And it looks like we're still seeing 8%. It might just be rounding, but I guess a 7.5% ROIC implies a $7.5 billion EBITDA, whereas 8% ROIC implies a number above. My question is, have you actually upgraded your internal budgets for that $200 million cost-out upgrade? Or is it just offsetting a weaker outlook elsewhere? And then the third question is on postpaid revenues. We're sort of sequentially down $50 million first half '21 versus second half '20. Can you just help me out with how much of a drag 3 things, out of bundle, roaming and new plan accounting impacts, were? Because my back of the envelope suggests 3 together were easily over $100 million, so your underlying sequential growth was actually positive. And then going into the second half, is it fair to say those sort of roaming and new plan impacts sequentially become not much of a drag anymore? Sorry for the mouthful.

No. Thanks very much, Eric, and firstly, thanks for your kind words of support. That's appreciated. Ordinarily, we wouldn't provide those sort of, I guess, as specific an outlook in relation to EBITDA in FY '22 and FY '23. And I made the point that they're not guidance, just obviously because they're going to be subject to more uncertainties and impacts as we look out into that time. Nonetheless, I felt it was an important moment in time as we've sort of reached this turning point that we do try and lay out a little bit of a road map as to how we potentially get to that $7.5 billion to $8.5 billion because I know just how important that is for shareholders because of -- partly because of how it sort of supports an underlying dividend at $0.16 on our current capital management policy. So I'll hand over to Vicki and see if Vicki wants to involve maybe Michael or David in any of her comments. But she can talk through the -- give some indication what we're doing on -- well, what -- where we sort of see roaming, I guess, I mean, and how we're thinking about that as well as the cost-out and how that benefits. I mean I think the only thing I would say just in relation to ROIC, I know that the market was disappointed when we reduced our ROIC outlook from 10%. And I acknowledge that, and we're pulling every lever. We've set the target at 8%. We can see a path to get there, but I don't want to be sort of overly literal about whether it's precisely 8.2% or 7.9% or whatever the number is. We're clearly focused on getting to around 8%. And given that's at least a couple of years away yet, 2.5 years, I don't want to be sort of too literal on the precise number. But Vicki, with those introductory comments, are you happy to try and tackle Eric's 3 questions?

I sure can. Thanks, Andy. And thanks, Eric, for those questions. So firstly, your first question around assumptions on international roaming in our outlook for FY '22. The comment I would make that mid- to high single-digit growth in underlying EBITDA is an ambition. The comment I'd make is international roaming could have no recovery from what we're seeing now and we'd still be in that range. I won't comment any further on where we sit in that range because obviously, we haven't given guidance yet on FY '22. It is an ambition. And so I would just say -- make that comment, Eric, that maybe is helpful. So no international roaming recovery, and we would still be within that range in how we think about that ambition for FY '22. In terms of the cost-out upgrade, I would just echo Andy's comment, remembering our ROIC target that we talked about at Investor Day is approximately 8%. So to your point, there can be movements -- small movements on that, but it remains approximately 8%. And then I know you had a detailed question on postpaid handheld and the component parts of it. Those things you mentioned around out-of-bundle revenue, the impact of the accounting changes, the Belong dilution. The first comment I'd make, on a PCP basis in the second half, we would expect that to be pretty consistent. Now I know you're asking a sequential question. And I guess if I just look at what we've said today, firstly, we've said that postpaid handheld reported ARPU, we expect to return to growth in the second half. And I'm pretty sure that will mean sequentially growing in terms of postpaid handheld reported ARPU when you look at what second half was last year. So maybe that helps just frame it up. I know you wanted to get into the details of the sequential movements in all of those component parts. But perhaps that helps a little bit, Eric, with those questions.

It does help. Maybe we can take some of it off-line, but appreciate the feedback, Vicki and Andy.

Thanks, Eric. [Operator Instructions] The next question is from Sameer Chopra from Bank of America Merrill Lynch.

I had just 2 questions. One is just on when we think about the sale of the towers business or the divestment of part of the towers business, what's the thinking in terms of capital structure? Do you think that will be -- that the proceeds will be used for debt reduction? Or do you see some way for the proceeds to find their way to shareholders? That's number one. The second question is, again, on the asset sales historically. As these assets are sold and then leased back, how does that change your operating cost structure? Because I presume there's leaseback, which then means that your OpEx starts to go up over time.

Thanks very much, Sameer. Again, I'll get Vicki to add her comments as well. But I mean, on the sale of towers business, I think you can assume that we will look at the full sort of spectrum of options available to us, partly around strengthening the balance sheet, partly around investing in the future and partly around returning value to shareholders as well. And I would be surprised if there wasn't some element of returning some of the proceeds and value to shareholders. We know that would be an important element of this process. We'll obviously talk about more of the specifics of that when we get into the process in the second half of the year. And then on the asset sale and leaseback, I'll refer to Vicki because I know there's probably some complexities in the accounting there as well.

Thanks, Andy, and thanks, Sameer, for that. Just in terms of the asset sales and the leasebacks, firstly, yes, our outlooks obviously factor in those costs from the leasing back of those properties. And Sameer, Andy is right. From an accounting point of view, those lease costs sit below the EBITDA line in D&A now under AASB 16, but all of that is factored in as we think about those ambitions into '22 and '23.

Thanks, Sameer. The next question is from Craig Wong-Pan from CLSA.

First question, just on the Belong postpaid net adds. I mean there was only 22,000 added in the period. Just wondering, that's a lot lower than sort of previous periods; any particular reason for that? And then second question, on the changes to your retail footprint, could you make any comments about what that means for your CapEx or costs?

Thank you. Maybe I'll get Michael Ackland to comment on both of those. Michael?

Yes, thanks, Andy. On the first one on Belong, we removed the $10 price point from market, which represented a significant proportion of net adds in previous periods. And so we're very happy with our Belong net adds, and as Vicki said, as well as the ongoing impact on ARPU from the changes we've made in-market. I might refer, Vicki, back to you on cost and CapEx impacts of the retail announcement, if that's okay.

Yes, absolutely. Thanks, Michael. And thanks, Craig, for that question. So Craig, just to pick up. In terms of the retail footprint changes, we obviously are not talking today about the financial aspects of that because the announcement has been obviously that we're not renewing the licensee agreements and looking at that transition of the stores back in. The things I would call out, though, as you start to turn your mind to it, through that transition, we obviously pay commissions to our channels today for the activity that happens in those stores. That will move across and obviously becomes operating cost for us as we transition store leases and staff to be directly employed by us. And then obviously, the other factor that we will come back and talk more about given we've only just announced it today and there's many discussions and negotiations and things to be worked through, is obviously, there will be cash involved in the buyback of those stores. And so we'll come back and talk more about that at the full year.

Great. Thank you. Our next question is from Entcho Raykovski from Crédit Suisse.

So my 2 questions. Firstly, on TMMC, interested in whether you've seen any significant improvement in TMMC at the end of the first half. I'm just conscious that you're guiding to a $2 increase back in November at the Investor Day. It's now up $3. And then if you can make comments around what you're seeing into the second half so far and whether your expectation of the $3 increase into 2H includes some moderation. I guess what I'm trying to get to is are you being somewhat conservative given there seems to be that acceleration towards the end of the first half? And then my second question is a broader question on industry structure. I mean, Andy, in particular, I'd be interested in your view on whether you think returns in the industry as a whole can improve from here. Obviously, you've got your own ROIC target, but talking about the industry as a whole, or whether you think the nbn means that those -- that much lower returns are likely to persist.

Thanks very much, Entcho. I might refer to Michael and Vicki on the TMMC thing. I think a lot to do with our success in 5G strategy. But Michael and Vicki, do you want to comment on that? And I'll come back and make a comment on the industry structure point.

Sure. Why don't I go first and then Vicki can add detail? I mean I think from a market and a competitive position, we absolutely saw an acceleration in the back half of the second quarter post the iPhone launch, particularly where we saw a strong uptake, as we talked about at Investor Day, that we were expecting around the $65 and above plan with people taking 5G plans. So we saw that continue. As we look into the second half, there were further device launches, such as the Samsung device, and we're seeing continued strong demand around those 5G plans. So I think the strength of the 5G story was definitely an acceleration on that in the second half and obviously, late in that second quarter given the delayed iPhone launch.

Yes. And if I just add, Michael...

Sorry. Entcho's question is are we being conservative with our $3 outlook for the second half.

Do you want me to answer that one, Andy? Or Michael, do you want to...

Yes, please.

Yes? Why don't I talk to that? I think as Michael has highlighted, Entcho, there's no doubt TMMC across can move around month-to-month just dependent on launches of devices and mix of plans. What I would say is in terms of that second half, it is another $3 lift PCP. We are confident in that, and it is consistent with what we're seeing in the early part of this half in trading conditions. So I wouldn't say we're conservative. I think we're confident though that, that -- another $3 increase is reasonable and certainly accords with what we're seeing in early trading for this half.

And just, Entcho, to your comment on industry structure. I mean, obviously it's not just us that's faced the headwind of the migration to the nbn. I mean others in the industry have also faced it as well. It's been more significant for us partly because of our scale, but also, of course, because we were the wholesale provider of fixed broadband services in Australia. So we lose the wholesale business and a very different margin on our retail business compared with the other players typically in the main. It's just a different margin on their retail business. As we've sort of talked about, that is still washing through. For us, the nbn headwind will be -- it's obviously lower this year than last year. It will be quite a bit lower again next year, and there's no reason why it wouldn't sort of follow a similar pattern for the rest of the operators in the market. And of course, Enterprise as well, it's probably coming through at the tail end of the rollout of nbn in terms of the impact relative to perhaps Consumer and Small Business. So I think there'll continue to be pressure on ROICs for the industry as that happens. And then hopefully, from there, certainly we're forecasting that our ROIC will start to improve. That's probably more to do with mobile than it is to do with fixed, although, as you know, we are targeting a mid-teens reseller margin on fixed as well. And so we will see, I think, some improvement in ROIC and I guess others will as well. But I do still think my comments that overall industry economics are challenged remains. And I do think that with the nbn rollout now complete, it is the right time to -- as I've spoken about before, to review the pricing structure because Stephen Rue, I think, and his team have done a good job in terms of -- I want to acknowledge that, in terms of the rollout. And we saw nbn's results, obviously, yesterday. And I think it's important that we get the economics for the whole industry right because it's going to be -- the infrastructure is going to be crucial to, obviously, underpinning the growth in the digital economy for the whole of Australia.

Thank you. Our next question comes from Fraser Mcleish from MST Marquee.

Great. And thanks for the comments on FY '22 sort of aspirations; very helpful. But 2 for me. First, Andy, just on InfraCo monetization. You've obviously got firm commitment on the towers. But after that, I know there's no commitments. But is it fair to say there's a kind of broad aspiration to monetize the other parts of InfraCo? Or is -- or am I reading too much into that at this stage? And then my second one is just maybe for Michael on the 5G, the point you got on 5G, that $65 price point. Neither Optus or Vodafone are charging a premium for 5G, and they're obviously going to kind of narrow that network gap with their coverage. Do you think that $65 price point is sustainable?

Thanks, Fraser. I'll let Michael come back to the $65 price point. They're not narrowing it at the moment. I think we're broadening it, and I think our plans are to continue to lead with our superiority in 5G. So I'm confident that Michael can continue to sustain that for a while anyway. So -- but I'll let him speak specifically on it. On the InfraCo monetization, I mean, obviously as you guys all know, because you're very experienced with these things, that the group restructure is a pretty complex exercise. We'll talk about the steps that we need to go through when we come back and talk a bit more about that in March. So that's our fundamental focus for now on that. With towers, I think towers is following sort of a parallel path, if you like, and that's a little bit more straightforward. So we're confident we can move forward on the monetization there. Suffice to say, we wouldn't be doing this on InfraCo if we weren't looking to try and maximize value for shareholders. And so setting it up in this way really does that, I think gives us the potential to do that as well as create greater transparency and increase optionality. And we've talked about the different types of optionality on that. So without sort of going as far as saying, yes, we're committed to do a monetization initiative on InfraCo Fixed when we set up the restructure, I would say that obviously, we'll be looking at ways in which we then crystallize and maximize that value once we've done that. But we want to go through the steps of actually setting the thing up first because there's quite a bit of complexity in doing that. But Michael, do you want to -- anything you want to add on the 5G, our continued leadership over the rest of the industry and the wonders of the Telstra 5G network and our population coverage and all those great things?

Yes. No, absolutely. And I think I even talked about this at Investor Day, which is that we remain confident that we can continue to demand that premium for the 5G experience. I mean, largely driven about around coverage and as Andy pointed out, the speed experience we've got across both our 4G and 5G networks. So it's one thing to have -- not charge a premium for 5G if you're our competitors, which I think is probably reasonable from their perspective given we're sort of at a -- what will feel like to a consumer an order of magnitude difference in coverage. So I think our target to get to 75% population coverage by the end of the financial year, which we've talked about before, is incredibly significant in terms of doing that. All of that said, though, we do not rest on our laurels there, and we are continuing to work on the network experiences and the other experiences we can give to support that premium. We recognize that continues to be important. But I agree with Andy, I don't think we're -- the gap is yet narrowing, and coverage in mobile networks is absolutely the critical differentiator. If you can't get access to that very fast 5G network, then there's not much point in getting it. So we're focused on it. I think we can maintain it, but we're not resting on our laurels, and we have a pipeline of activity to continue to support that premium.

Great. Thank you. Our next question is from Roger Samuel from Jefferies.

First one is around fixed Enterprise. I'm just concerned that this division keeps on declining over time, and I'm just wondering when it will stabilize. It looks like in data and connectivity, there's still a lot of SIOs on copper. And also on NAS, you mentioned about there's some legacy calling applications. Yes, I'm just wondering when this division will stabilize in terms of EBITDA. Second question is on tax rate, which is lower in the half just passed. And I'm just wondering what's the sort of guidance for the tax rate in the second half? Do you still expect to use any of the capital losses?