Telstra Group Limited (TLS) Earnings Call Transcript & Summary

Good morning, and welcome to Telstra's Full Year 2021 Results Presentation. My name is Nathan Burley, Head of Investor Relations. I respectfully acknowledge that I'm joining today from the lands of the Kulin Nation. And 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 CFO, Vicki Brady, we'll be taking questions from analysts and investors and then media. I will now hand over to Andy Penn.

Thanks very much, Nathan, and good morning, and welcome to Telstra's results announcement for the full year ended 30th of June 2021, a year in which we saw our underlying business return to growth, a year in which we continued to make strong progress against our T22 strategy. This morning, I will make some introductory remarks and take you through an overview of our results. Vicki will then take you through the numbers in more detail before we move to Q&A. Before I start, I wanted to thank you for attending virtually. It's been a trying 18 months for all of us and my thoughts go out to those of you that are in lockdown and those families and businesses that are doing it tough. I sincerely hope your families and yourself are staying safe. Let me turn then to 2021 because 2021 was a significant year for Telstra. It was a crucial milestone in our T22 journey. It represents a turning point in our financial trajectory with second half underlying EBITDA up on the first half, guidance for FY '22 underlying EBITDA in the range of $7 billion to $7.3 billion, representing mid- to high single-digit growth and FY '21 net profit after tax and earnings per share, up 3.4% and 2%, respectively. We have achieved this because we have stayed disciplined, and we have stayed focused on delivering what we said we would deliver. 3 years into what has been one of the largest and most ambitious transformations for telco globally, we are a vastly different company. Since announcing T22, we have radically simplified our business, reducing the number of plans for our Consumer & Small Businesses from 1,800 to 20. We've removed lock-in contracts, we've removed excess data, we've moved -- removed many other fees. The number of calls coming into our contact centers has fallen by more than 2/3. And by the end of this financial year, we expect to answer all calls from these customers in Australia. We're also well progressed on the arrangements to bring our licensee stores back in-house. We've cut our workforce by 1/3, reducing our direct and indirect headcount by more than 25,000 in response to the transfer of a material part of our business to the nbn and from our digitization and efficiency initiatives. We have also exceeded our target to recruit new capabilities in new areas, exciting areas such as software engineering, data analytics, cybersecurity, artificial intelligence with more than 1,500 new hires. We have removed on average more than 4 layers of management. We've delivered cost reductions of $2.3 billion, and we are on track to deliver our T22 productivity target by the end of this financial year of cumulatively $2.7 billion, that's more than 1/3 of our starting cost base. We've repositioned our investment in Foxtel, retaining access to key content for our customers and supporting its turnaround. We have similarly repositioned our investments in Telstra Ventures which delivered a mark-to-market gain for us this year of $300 million. We've improved the performance of our health business. And with Monday's announcement regarding Medical Director, it is now very well strategically positioned for the future. We've also successfully established InfraCo and we are progressing with our corporate restructure. We will continue to focus on opportunities to realize additional value for shareholders on top of the $2.8 billion deal on towers that we announced recently. We have monetized over $2 billion of assets, further strengthening our balance sheet. And in addition to our ordinary dividends, we have returned approximately 75% of the net one-off payments from the nbn to shareholders. And today, we have announced an on-market share buyback returning up to a further $1.35 billion from towers deal that we announced earlier. And we have taken a leadership position on climate change and the environment, and we have been certified carbon neutral since this time last year. We also continue to make progress on our other 2 climate targets to reduce our absolute emissions by at least 50% by 2030 and to enable renewable energy equivalent to 100% of our consumption by 2025. Importantly, through all of this change, we have seen positive movements in the way our customers and the way our employees view us, with Strategic NPS increasing 15 points and employee engagement increasing 4 points. Now it is clear in my mind that initially, we did not respond quickly or significantly enough to the reality of the impact of the nbn on Telstra which, as you know, has a cumulative negative impact on our EBITDA ultimately by the end of the program of at least $3.5 billion per annum. Before T22, we were not focused enough on transforming and improving the core business to mitigate this. We were too -- sorry, we were too dependent on investments outside of the core. But we have addressed this and we have addressed it very clearly with T22 and the T22 program has been a clear success. While we have more to do, and we are determined to finish the job, we will therefore be announcing what comes after T22 and our strategy for the future at an investor briefing, which we're going to hold on the 16th of September. This will be firmly focused on continuing to improve customer experience, driving growth and how we will leverage the foundation and the capabilities that we have built. So with that, now let me turn to the financial results for FY '21. Total income for the year decreased 11.6% to $23.1 billion on a reported basis. Underlying EBITDA on a guidance basis, which excludes one-off nbn income and guidance adjustments, decreased 9.7% to $6.7 billion. Underlying EBITDA increased from $3.3 billion in the first half of the year to $3.4 billion in the second half of the year. Underlying EBITDA included an in-year nbn headwind of $650 million and an estimated $380 million financial impact from COVID. Encouragingly, net profit after tax increased 3.4% to $1.9 billion on a reported basis and earnings per share was up 2% to $0.156 per share. Free cash flow was up 11.6% to a strong $3.8 billion. The Board has resolved to pay a fully-franked final dividend of $0.08 per share, bringing the total dividend for the year to $0.16 per share. And we have also announced today that we will be returning $1.35 billion to shareholders over the coming period through an on-market buyback from the proceeds of the towers deal when it completes. This will bring the total returns to shareholders from activities in FY '21 to $3.25 billion. In terms of the operating highlights for the year. We continued to see strong customer growth in mobiles, albeit there's no doubt that the market has slowed considerably due to COVID. This has included the sharp reversal of net immigration and population growth in Australia, as well as hardware supply shortages that our suppliers have experienced. But notwithstanding that, we have added 101,000 net retail postpaid mobile services, including 67,000 branded and 34,000 from Belong. Our branded performance clearly reinforces the benefit of our leadership in 5G. In wholesale, we added 240,000 services, and we also added 892,000 IoT services. Importantly, in mobiles, we saw our lead indicator, Transacting Minimum Monthly Commitment, or TMMC, increase by more than $3. Our continued focus on building value in mobiles, in fact, resulted in EBITDA growth of $170 million in the year. In Fixed, we lost 69,000 net new retail bundles, including 10,000 adds from Belong. While we did have negative adds though, bundle and stand-alone data ARPU excluding one-offs in Consumer & Small Business did stabilize. We continue to focus on building value in Fixed through our focus on price, higher speed tiers, add-ons, improvements to WiFi and our Smart Modem. In fact, the Smart Modem is now in over 2.3 million homes, and it has been key to keeping customers connected when working and studying from home. Telstra TV at the same time is keeping them entertained. And through it, more customers are watching Foxtel's Kayo and Binge streaming products. Last week, Foxtel reported paid streaming subscribers were up 155% to over 2 million. That exceptional subscriber growth has Foxtel and our investment in Foxtel incredibly well positioned for the future, and it validates our strategy to restructure and retain our investment, giving us continued access to great content for our customers. Telstra Health has had a strong year operationally and strategically. Revenue was up 6% in FY '21, and we're confident Health will see high-teens organic growth in FY '22. COVID has no doubt highlighted the importance of digital health and it's driven growth to key platforms such as virtual health care, electronic and real-time describing. Notwithstanding the strong demand, though, key health care organizations themselves had, as you can imagine, understandably been focused on their own COVID responses. And this has disrupted a number of contracts in our pipeline. This has included electronic medical records and integration opportunities, albeit I'm confident these are just really delays in the process. Also, as you saw earlier this week, we have entered into binding agreements to acquire Medical Director, a key provider of practice management software to GPs in Australia. Now as you would appreciate, GPs obviously play a very central and a very key role in the health care system. In fact, a number of our digital services within Telstra Health already integrate into their practice management systems. This acquisition will enable us to supercharge the digitization of this critical part of the health care system, and it comes on the back of our announced acquisition of specialist billing and clinical coding software company, PowerHealth in June. It was also a very strong year for Telstra Ventures, where on a mark-to-mark basis, as I mentioned before, the value of our investment increased almost $300 million. Telstra Ventures is one of the most successful corporate backed venture firms globally. Not only have our investments given us access to key insights, key technologies and innovation, of the 74 start-ups that Telstra Ventures has invested in, 12 have achieved Unicorn status with a value of more than $1 billion. And of those, 4 have achieved a value of more than $10 billion. That's incredible success for a venture company. In customer experience, Episode NPS improved 9 points in the year and 6 points in the last 6 months. Similarly, Strategic NPS improved 7 points in the year and 2 points in the last 6 months. These improvements to customer experience are evidence that the many initiatives under our T22 program in simplifying our business and digitizing our business are having a very positive impact on customer experience. In fact, customer complaint levels are now at their lowest level since the migration to the nbn began. Now I know that not all aspects of customer experience are yet where we need them to be, and we have more work to do. But I am confident that the initiatives that we've implemented through T22, combined with our decision to have all calls -- inbound calls from our Consumer & Small Business customers answered in Australia and our decision to bring back in-house branded retail stores, these will all deliver further improvements. Finally, on our operating highlights, we have also made very strong progress in our productivity program. For the year, total operating expenses were down $1.8 billion, more than 10% and underlying fixed costs were down $490 million. So it's absolutely clear that we are building financial momentum. If you look at this slide, on the left-hand side, you can see the growth that we have achieved in underlying EBITDA from the first half of the year to the second half of the year. Whilst the chart on the right-hand side of the slide shows the evolution of our full year underlying EBITDA, including guidance for FY '22 of $7 billion to $7.3 billion and the aspiration to be in the range of $7.5 billion to $8.5 billion in FY '23. As you know, we communicated the $7.5 billion and $8.5 billion range as that required to support a $0.16 dividend under our dividend policy because we know how important the dividend is to the shareholders. Now we plan to update the market with how we articulate our financial aspirations in conjunction with our strategy briefing in a few weeks. However, to be clear, we are not changing our outlook. We continue to aspire to be in this range. I just want to note that our 8% ROIC target is in the bottom half. I'm also required to point out that these statements for FY '23 are not guidance, they are aspirations or ambitions, which means there are operating risks and uncertainties associated with them compared to our normal guidance statements. Nonetheless, the point is the charts clearly demonstrate why I say we're at a turning point. Now while there are many things that support that trajectory, support that turning point and support underlying EBITDA, there are 3 in particular that I want to call out is important. Firstly, mobile services revenue. Through our continued focus on building value, we achieved mobile services revenue growth of 3.7% in the second half of the year or 5.2% when you exclude international roaming. This was the first period of growth of services revenue in 4 years, and we expect further growth in the current financial year FY '22. Secondly, and as I've already mentioned, we continue to make strong progress on our productivity program, reducing underlying fixed costs by $490 million in FY '21 with another approximately $430 million expected in FY '22. And thirdly, the major headwinds that we have been facing from the nbn migration are coming to an end. The in-year nbn headwinds peaked in the second half of FY '20, they've reduced in FY '21, and they will be substantially less again in FY '22 with the majority occurring between now and the end of the calendar year. With that, let me turn back to this year and comment on our progress with T22. We have now completed or are on track to complete around 80% of our T22 scorecard metrics. We now have 8.8 million services on our 20 new simplified Consumer & Small Business plans. We have 3.5 million customers signed up to our rewards program, Telstra Plus, and we're seeing very strong engagement from these customers. In fact, the NPS for customers who are also members of Telstra Plus is 20 points higher than customers that are not. We've rationalized a number of enterprise active products by more than half, and we have launched new Adaptive Networks and Adaptive Mobility products for our enterprise customers to provide more flexibility and support and a return to growth. For Consumer & Small Business customers, digital sales interactions are up 9 percentage points to 39% and almost 3/4 of all service interactions that our customers have with us are now done digitally. Under our T22 strategy, our aspiration had been to reduce the number of calls to our contact centers by at least 2/3 by the end of the current financial year FY '22. With the acceleration to digital, we have achieved this aspiration 1 year early. And we're also on track with the transition to full ownership of Telstra-branded licensee stores and we have reached agreement with most of the licensees. We have also met our T22 target to reduce our direct workforce by 8,000, excluding hires due to the COVID workforce restrictions. And whilst we have completed our T22 reductions, I should say, we remain a large organization that operates in a very dynamic environment. And of course, there will always be workforce challenges at Telstra as we work to improve customer experience, the nbn transition is finalized, technology continues to automate and digitize part of our business. We have further progressed our journey to introduce agile ways of working. And today, we have around 17,000 people across the business working in Agile. We have a proud history of building Australia and even the world's leading mobile networks, and we're continuing that with 5G. Now our competitors like to talk up their 5G networks. But let me tell you, they are just not in the same league. Our 5G network is now more than twice the size of our next nearest competitor. Let me say that again, our 5G network is now more than twice the size of our next nearest competitor. We cover more than 75% of the population and our customers know this coverage matters because we have more than 1.6 million 5G devices already connected to. And importantly, whilst we continue to roll out 5G, customers will, of course, use both 4G and 5G as they travel around, which is why the combined average speeds is the most important metric. And on this measure, Telstra's network outperforms all of its competitors for both download and upload. The 1,000 megahertz of 26 gigahertz spectrum that we acquired at auction earlier this year gives us a tenfold increase in capacity in hotspots. This is significant as we ramp up the rollout of millimeter wave beyond the 5 major capital cities and more compatible devices are released. In regional Australia, we've announced almost $0.5 billion of additional investment in our networks to ensure we maintain our competitive advantage. And more importantly, we continue to maintain and improve connectivity for regional customers. I'm pleased, therefore, with the Minister's decision to not follow the ACCC's advice in relation to the low band spectrum auction that is later this year. This was an incredibly important decision for our customers in regional Australia, particularly as we move to close 3G and to focus on 4G and 5G. Not surprisingly, therefore, we continue to lead the market in the major mobile industry network performance benchmarks in the year, including umlaut, where we ranked #1 for best in test and best in data. Turning to infrastructure. Telstra InfraCo has now completed its first full year as a fully operational business function. InfraCo Fixed passive income increased 0.9% to around $2.2 billion and InfraCo Towers income increased 4.3% to $340 million. The part sale of our Towers business announced in June and which we expect to complete in this quarter reinforces the value of our infrastructure assets and our strategy. The final outcome of the transaction, a valuation of Telstra InfraCo Towers at $5.9 billion, representing an FY '21 pro forma EV to EBITDA after leasing multiple of 28x clearly demonstrates this. We've also continued to make progress to implement the proposed legal restructure that we announced in November of last year. This includes working closely with our partners, our people and stakeholders to navigate the range of commercial, regulatory and operational requirements and approvals. Now as you would appreciate, the proposed restructure is very complex. It involves the creation of separate subsidiaries, including InfraCo Fixed, InfraCo Towers, ServeCo and Telstra International under a holding company. And we expect the restructure to be undertaken by way of a scheme of arrangement as we have previously advised. Now it was our intention to seek shareholder approval for the scheme at this year's AGM. However, we now aim to do so at a separate meeting, a separate general meeting before the end of the year. Let me also comment on the recent announcement confirming we are in discussions regarding Digicel. As we said in our ASX statement, the discussions are incomplete and it's not certain the transaction will proceed. But given the nature of these transactions, I'm not able to say more at this stage other than to confirm that any transaction will have to meet certain financial parameters. And those financial parameters include Telstra's financial investment being the minor economic proportion of the overall transaction with all other capital being sourced on a nonrecourse basis. Telstra would own Digicel with appropriate risk protections and consolidate it in our financial results. Digicel Pacific is a commercially attractive asset. It enjoys a strong market position in South Pacific region. It generated EBITDA of USD 235 million in calendar 2020 with a strong margin, and it has an extensive telecommunications network. But also, let me strongly reiterate the comments that you heard from the Chairman, which is that we will only proceed with the transaction if it is in the interest of our shareholders. Turning then to our T22 scorecard. There are 2 things that you will notice on the scorecard. Firstly, with a year to go on T22, there are more ticks than dots. And secondly, there are 3x as many greens than ambers and reds. In the period, we completed 6 measures to bring the total completed to date to more than half. There are some measures rated amber and red, and I want to take a moment to explain why. Firstly, underlying ROIC. Our target is to achieve around 8%. And with the financial ambitions I spoke to earlier, we can see our path to doing so in FY '23. The building of our new technology stacks is very well progressing and is delivering great benefits. But as you can imagine, with any IT projects of this scale, there are, of course, a few timings that have shifted. Active My Telstra app users have grown by more than 0.5 million in the last 2 years to 4.5 million. This is below where we had planned it to be, but it reflects the good progress that active users across Consumer & Small Business digital platforms have in fact grown to 6.5 million. We need to build more momentum in average services per customer, and we're continuing to target increased multiproduct holdings through entertainment, leveraging the benefits from Foxtel, mobile assurance and the gaming add-ons. We are behind where we wanted to be on achieving top quartile cost metrics for a full-service telco despite the fact that we've made incredible progress on productivity. On this measure, we set ourselves a very ambitious target 3 years ago. We have since achieved $2.3 billion of underlying cost out. We have increased our overall cost-out ambition to $2.7 billion, and we have delivered on our commitment to reduce total costs in every year since 2019. This incredibly strong progress on cost has improved our benchmarking position substantially, and we expect to further improvement in FY '22. However, we do expect to finish FY '22 just outside the top quartile given that our global peers are also improving more than we had originally planned. Similarly, on labor cost to sales, although again, we have achieved our T22 cost reductions and the great improvements that I've mentioned, this metric has been impacted by the lower hardware revenue, which I mentioned earlier as a consequence of the slower hardware sales and slower supply chains from telecommunications hardware. Our employee engagement did fall a few points this year. However, we are incredibly pleased to remain with a very high score of 78, consistent with other high-performing companies through a period of great uncertainty and challenge and relentless change for our people. Now if I was to summarize FY '21 into a single sentence, it would be, we stayed disciplined on the execution of our T22 strategy through very uncertain times. Our hard work is paying off and the turnaround is here. We are earning the trust of our customers, including by removing pain points and raising the bar on doing business responsibly. Our networks remain Australia's biggest and Australia's best. Agile is transforming how we work. And combined with our hybrid working model, it's helping our people to feel supported and perform at their best, notwithstanding COVID-related restrictions. I said in my opening that 2021 was a significant year for Telstra. We have reached an important turning point financially, and we look forward to 2022 with great confidence in our ability to deliver our strategic ambitions. In this final year of T22, we will be continuing to improve our customer experience, including for regional customers; completing our digitization program, including remaining focused on simplification and migration of our customers to the new technology stack and the benefits it delivers; completing our group restructure, further operationalizing Telstra InfraCo and driving value from our passive assets; further extending our leadership in 5G, including the 5G stand-alone core; continuing to grow core connectivity and services and accelerating growth of our exciting new businesses; and finally, and importantly, delivering on our financial commitments to our shareholders. Delivering these priorities is key to us finishing the T22 job and setting up for what comes next. We have done the hard transformational work. We have built the capabilities to take advantage of the opportunities ahead. And as I said in my introduction, I'm excited to announce that we will be communicating what comes after T22 and our strategy for the future at an Investor Day scheduled for the 16th of September. Can I close by acknowledging that the progress that we have made is only due to the combined efforts of our many dedicated employees. Telstra is an amazing organization with amazing people. Despite the disruptions, the impact of COVID on them personally, every day our people are focused on working for our customers, keeping Australians connected. And for that, I want to sincerely thank you. Thank you. And with that, I will hand over to Vicki before we open for Q&A.

Thanks, Andy. Good morning, and thank you for joining us. I'd like to begin by recognizing that I'm joining you from the land of the Darramuragal people. 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. This morning, I'll go through our full year results and highlight some important trends in the second half, which illustrate the momentum we've built towards underlying growth. I will also discuss expenses, free cash flow, dividends, capital and FY '22 guidance. Turning to our FY '21 performance on Slide 11. The numbers on the left are our statutory results. The numbers on the right are reported lease-adjusted, which include depreciation of mobile handset lease expense as OpEx. This provides a like-for-like year-on-year view given our exit of mobile lease plans. This is the view we use when managing the business and which today's presentation will focus on. Pleasingly, FY '21 is the last year this adjustment will be required. For FY '21, income was $23.1 billion, down 11.6%. Total operating expenses declined 10.2% and including a $490 million or 8.1% decline in underlying fixed costs. On a reported lease-adjusted basis, EBITDA declined 11.5% to $7.4 billion. This included a $734 million reduction in net one-off nbn receipts and a $487 million positive movement in guidance adjustments due to an impairment in FY '20 and gains on sale in FY '21. Underlying EBITDA for the year was in line with our FY '21 guidance, declining 9.7% or $720 million. This included an estimated $650 million of in-year nbn headwind and approximately $180 million of negative year-on-year impacts related to COVID-19. At our half year results in February, we committed to growing underlying EBITDA half-on-half. And I am pleased to say, we've achieved this. Depreciation and amortization declined 8.1% or $397 million on a reported lease-adjusted basis due to assets associated with nbn completion and legacy IT assets fully depreciating. We would expect around $100 million of further decline in FY '22 in the ordinary course. However, given our shift to hybrid working, we will continue to assess our property requirements and may exit some leases early. This may have a short-term negative impact on D&A but should result in financial benefits over time. Net finance costs declined due to both our reduction of net debt and lower average borrowing costs. We expect this trend to continue in FY '22. Income tax expense declined 44% as we have used some capital losses to offset material profit on asset sales during FY '21. Excluding one-offs, our effective tax rate was close to 30%. Reported NPAT grew 3.4% to $1.9 billion. Looking now at income by product on Slide 12. Underlying income declined $2.25 billion or 9.3%. This decline was around 3%, excluding in-year nbn headwinds, lower international roaming due to travel restrictions and a reduction in low-margin revenue. For example, although mobile income declined $820 million, this was largely due to $750 million decline in hardware revenue as handset and tablet volumes fell due to lower foot traffic in our stores, customers holding handsets for longer and higher outright purchases through independent retailers. Fixed Consumer & Small Business income remained impacted by nbn migration, legacy voice decline, Foxtel from Telstra decline and remediation credits. Fixed Enterprise declined due to competition and technology disruption in data and connectivity as well as a legacy calling and equipment decline not being offset by cloud and NextGen services growth in NAS. The decline in Fixed Wholesale is attributable to legacy products, nbn headwinds and commercial works. We saw growth in recurring nbn DA, which represents government-backed contracts indexed to inflation with an average of 26 years remaining for use of our InfraCo Fixed assets. Other revenue grew. This includes Health revenue growing 6% in FY '21. We are confident Health will see at least high teens organic revenue growth in FY '22. Turning to EBITDA. Our full year underlying EBITDA declined $720 million, reflecting ongoing nbn headwinds, legacy declines and the financial impacts of COVID-19. In FY '21, mobile EBITDA grew by $170 million. This was driven by benefits from transitioning our customers off subsidy and lease plans,and ongoing productivity, despite around $200 million of decline in international roaming revenue. As expected and in line with migration to nbn and legacy decline, all fixed products decreased. I will address mobile and fixed products shortly in more detail. Global EBITDA was largely flat in constant currency and excluding one-offs in the prior period as initiatives to reduce costs were offset by revenue declines. Nbn recurring grew. Other declined, largely due to nonoperating accounting adjustments. Despite declines there has been a significant improvement in the trajectory of the business during the year. The second half has clear indicators of momentum, especially in our mobile business. This is further illustrated on Slide 14. Here, you can see the trend in our underlying EBITDA by half. As you can see in the dark blue boxes at the top of the graph, between first half FY '20 and first half FY '21, underlying EBITDA declined $551 million. However, between second half FY '20 and second half FY '21, this moderated to $169 million decline. Looking sequentially, the light blue arrows show that we have gone from a $210 million decline between second half FY '20 and first half FY '21 to achieving growth of $41 million in the second half. This momentum is a result of improved product trajectory that includes Mobile growth and Fixed Consumer & Small Business stabilizing as well as ongoing productivity and reducing nbn headwinds. I'll now take you through the key product trends. Firstly, looking at mobile. We've delivered on all our FY '21 mobile market commitments and now have clear momentum, which is flowing through to the financials. Let me take you through 4 important aspects of this. Firstly, top left, you can see mobile service revenue, a key driver of mobile profitability, which has returned to growth. In the second half of the year, service revenue, excluding international roaming, grew 5.2%, up from 0.7% in the first half. We have added 101,000 postpaid handheld customers, including 34,000 Belong SIOs and a strong contribution from Enterprise. This increase is despite a decline in Australia's population, a trend which is expected to continue to impact industry growth. In addition, 75% of mass market postpaid customers are on new simplified plans, providing pricing flexibility. Secondly, top right, you can see mobile EBITDA, which grew an impressive $297 million in the second half versus PCP as service revenue growth flows through to earnings. Thirdly, bottom left, you can see postpaid handheld ARPU, which grew 1.3% in the second half compared to the same period last year. Our lead indicator of postpaid handheld ARPU, Transacting Minimum Monthly Commitment, or TMMC, has now grown by more than $5 since FY '19. We can see this increase and pricing changes are flowing through to ARPU. However, the growth in reported postpaid handheld ARPU was somewhat offset by 4 negative impacts. Firstly, international roaming decline; secondly, accounting changes, including new plans, which allocate more revenue to hardware and a shift from full revenue recognition for some add-ons to commission; thirdly, lower out-of-bundle excess voice and data fees; and finally, dilution from a higher mix of Belong customers. If these negative impacts are excluded, postpaid handheld ARPU would have been in the high single digits. By segment, we achieved strong consumer postpaid ARPU growth in the second half of 7.5% on PCP. This was offset by Small Business and Enterprise declines. Encouragingly, on a sequential basis, Small Business ARPU grew and Enterprise ARPU flattened, giving us confidence that both segments will follow Consumer to growth in FY '22. With TMMC being accretive to ARPU and pricing changes continuing to flow through, we expect to report a postpaid handheld ARPU growth in FY '22. This is despite the identified negative impacts I just mentioned, except for roaming, continuing to drag. Fourth, on the bottom right, you can see that prepaid handheld performance was strong with FY '21 revenue growing 4.7%. This was due to a 95,000 increase in unique users and higher ARPU. Finally, in other mobile categories. Mobile broadband declined 4.4%, mainly due to higher out-of-bundle enterprise revenue in the PCP and a reduction in prepaid, and wholesale grew revenue 21% with net adds of 240,000 and largely flat ARPU. These factors give us confidence that mobile EBITDA growth will continue thanks to a combination of service revenue, the final benefits of migrating customers off subsidy and lease plans and ongoing productivity. Turning now to our fixed portfolio. We've not achieved the same momentum in fixed as we have in mobile. Products within the fixed portfolio are at different stages. However, in all fixed products, we can see an inflection point as we address challenges head on. We have now absorbed around 90% or around $3.2 billion of net negative recurring headwind from the nbn migration. We are further through this headwind in Consumer & Small Business than Enterprise. This means that in Fixed Consumer & Small Business, we have reached an inflection point with the nbn driven decline now substantially complete. The rate of decline has reduced in the second half of FY '21 and is stabilizing sequentially. We expect this to continue in FY '22 before EBITDA begins to grow in FY '23. In FY '21, bundle and data connections declined 69,000, and we saw higher churn as customers continue to migrate to the nbn. We now have less than 150,000 services to migrate to the nbn in FY '22, less than half the volume of FY '21. Our churn on nbn is lower than legacy giving us confidence of trends improving in FY '22. ARPU has bottomed and is now expected to grow. The decline in this period was due to remediation credits and other one-offs. TMMC was accretive to ARPU, and 85% of mass market customers are now on simplified plans. We remain focused on increasing ARPU through planned mix and add-ons while maintaining our premium through differentiation. We have increased the percentage of customers on more profitable higher speed plans with 6% of customers now on plans of 100 megabits per second or greater. And we have well over 1 million carrier billed streaming and Foxtel from Telstra Services. Digitization represents an opportunity to deliver a step change in both customer experience and productivity. We are seeing these benefits in mobile and expect similar benefits to follow in mass market fixed as further digitization capabilities are enabled. In FY '21, we also launched 5G Home Internet and we remain excited by the opportunities to drive on-net growth. Our nbn reseller EBITDA margin in FY '21 was around 5%. Despite challenges, we maintain our ambition to reach mid-teens nbn resale margin in FY '23. Turning to Fixed Enterprise. In data and connectivity, we are seeing -- seeking to stabilize the portfolio and position it for growth by FY '24. As we transition from virtual private networks to integrating over-the-Internet technologies such as SD-WAN with Telstra Fibre or nbn access. During the year, we successfully re-signed key customers, which helped maintain our T-Fibre SIOs and increased network capacity for future services growth. Total SIOs declined as lower value copper connections were impacted by consolidation and nbn migration. While ARPU compression continued to occur, we made material progress in modernizing the product portfolio with Adaptive Networks, which has been well received by customers. In FY '22, we will have an increased focus on leveraging our extensive fiber footprint, complemented by reselling nbn and continued investment in capabilities. This is expected to deliver a lower rate of decline in FY '22. Disappointingly, NAS income and EBITDA did not grow at the rate we expected in FY '21, given the larger-than-anticipated decline in high-margin legacy calling apps and underperformance in professional services. We're confident that the workforce changes we put in place, which temporarily disrupted our execution, have set us up for future benefit. We remain focused on executing our NAS NextGen strategy, targeting growth in strategic areas, including cloud, IoT, security, managed and professional services. We expect to achieve mid-teens NAS EBITDA margins in FY '22. The significant restructuring initiatives we undertook in late FY '21 will support our commitment to deliver overall Enterprise revenue and EBITDA growth in FY '22 across mobile, fixed and international. Turning to Fixed Wholesale where you can see that 55% of the portfolio is now ongoing revenue. Our outlook for this product has not changed. We are targeting to maintain around $350 million of EBITDA per annum from FY '23 once the portfolio stabilizes and returns to growth. Turning to our operating expenses, which you can see on Slide 17. We are pleased to have achieved a significant reduction in costs during FY '21. Total costs declined 10.2% and underlying costs declined 9.3%. An increase in nbn payments of $244 million was more than offset by the productivity gains we achieved. Other sales costs declined $862 million due to lower hardware costs. Underlying fixed costs reduced by $490 million as our T22 strategy continued to deliver productivity and simpler, better outcomes for our customers. This means since FY '16 we have delivered $2.3 billion of cumulative cost reductions, and we are confident we can deliver our $2.7 billion target by the end of FY '22. We continue to target top quartile cost metrics for our full-service telco. We expect to finish FY '22 just outside the top quartile given our peers are improving more than we had originally anticipated. Cost reductions in FY '22 are expected to be delivered from digitization benefits, including product simplification and customer self-service tools, reductions in IT and network costs as well as ongoing vendor optimization and labor efficiencies. Turning to free cash flow, which you can see on Slide 18. We are very pleased with the improvement we have delivered in free cash flow. Free cash flow after operating lease payments increased 11.6% to $3.8 billion, slightly above the top end of guidance. This was due to working capital improvements more than offsetting lower EBITDA. Working capital improvement reflects reduced receivables from lower sales, including lower handset and roaming revenue. In addition, focused initiatives were delivered, resulting in improved collections performance in both Enterprise and Consumer & Small Business. In FY '21, we also purchased 1 gigahertz of millimeter wave spectrum for $277 million with payment terms spread over 5 annual installments. We expect to receive $2.8 billion of net proceeds from the sale of 49% of InfraCo Towers in Q1 of FY '22. We're very pleased with the transaction announced in June, which valued the business at $5.9 billion or 28x EBITDA after leases. We will return up to $1.35 billion of these net proceeds through an on-market buyback expected to commence in mid-September. Moving to dividends. The Board has resolved to pay a final dividend for FY '21 of $0.08 per share fully franked, including an ordinary dividend of $0.05 and a special dividend of $0.03. This brings the total FY '21 dividend to $0.16 per share. The total FY '21 ordinary dividend represents 103% payout ratio of underlying earnings and is well supported by cash flow. The FY '21 dividend represents a 59% payout of free cash flow after operating lease payments less net finance costs paid. Consistent with our commitment to return in the order of 75% of net one-off nbn receipts, we have returned 74% of receipts received life to date since FY '18. Turning to our capital position, which you can see on Slide 20. We reduced net debt by $1.5 billion in FY '21, and we remain within our comfort ranges for all our credit metrics. We remain committed to our capital management framework, including balance sheet efficiency and settings consistent with an A band credit rating. We successfully completed our T22 $2 billion asset sale program and announced an up to $1.35 billion buyback from the towers sale proceeds, reinforcing this commitment. Our target for underlying ROIC is around 8% by FY '23 with a long-term ambition to grow ROIC. Turning now to FY '22 guidance, which you can see along with the assumptions and conditions upon which we have provided them on Slide 21. Our underlying EBITDA FY '22 guidance implies mid-single-digit growth or around $450 million at the midpoint. This guidance is despite remaining in-year nbn headwinds of approximately $350 million in FY '22. It also includes around $50 million of noncash accounting headwind from insourcing our Telstra-branded retail stores and no return of international mobile roaming. Pleasingly, in FY '22, we maintain a strong outlook on free cash flow, supported by further improvement in working capital despite our expectation that one-off nbn DA EBITDA will reduce by over $550 million. Proceeds from the InfraCo Towers sale, M&A and payments to acquire licensees under our strategy to transition to full ownership of our branded stores are excluded from guidance free cash flow. To conclude, FY '21 was an inflection point for the financial performance of our business. In the second half, you can clearly see strong momentum, leading to sequential growth in underlying EBITDA. We have confidence this momentum will continue, thanks to ongoing mobile growth, continued delivery of our productivity program, solid free cash flow, including sustained improvement in working capital and a strong balance sheet. We will continue driving the performance and recognition of our world-class infrastructure assets, as we illustrated through our agreement to sell 49% of our towers business. In FY '22, we expect to revise our disclosures to further elevate InfraCo Fixed and Towers, giving more focus and clarity on their performance. We are also focused on diversifying our growth across other verticals, including in energy. Telstra Health is well positioned, and we are excited by the inorganic growth, including from the recently announced acquisitions of Medical Director and PowerHealth. By staying disciplined and focused on delivering our strategy, we've put the business on course for growth in FY '22 and on track to meet our FY '23 ambitions. We look forward to talking more about our growth outlook at our September Investor Day. Finally, I would like to take this opportunity to add my thanks and recognize our dedicated teams right across Telstra. I'll now hand over to Nathan to take us through Q&A.

Thanks, Vicki. We'll now start a Q&A beginning with investors and analysts. Now in addition to Andy and Vicki, also on the call today are Michael Ackland, Group Executive, Consumer & Small Business; David Burns, Group Executive Enterprise; and Brendon Riley, CEO, Telstra InfraCo. Our first question today is from Kane Hannan from Goldman Sachs.

Nathan, just 3 from me, please. Just firstly, Andy, on those FY '23 aspirations. I think back in February, you indicated that the top half of that range is probably a bit out of reach for Telstra. So just wondering, following this mobile results, some of the price changes from your competitors, whether that comment still stands? Secondly, just on the mobile margin in the second half at 41%. And if we look out over the next few years as well, roaming recovering, some of these pricing trends still going north, do you see scope to expand that towards the mid-40s number? Or how do we think about what a sustainable or potential mobile margin is? And then finally, just that free cash flow guidance into '22. Can you just give us a bit more color around what's obviously a very strong cash result next year? I suppose what the working capital benefits are?

Thanks very much, Kane. And thanks for hooking in. Let me just sort of comment on the first one, and then I'll hand over to Vicki just to talk about mobiles and free cash flow and she may involve Michael Ackland in that as well. But on the outlook, you might recall that the $7.5 billion to $8.5 billion we communicated -- I'm trying to remember when it was now, I think it was at least a couple of years ago, as being the range that would be required effectively to support a dividend of $0.16 over the longer term. And the reason that range is quite a wide range is obviously not only is underlying EBITDA important, but there's a number of other factors below the EBITDA line that go to net profit after tax. And so when we communicated that -- it was, as I said, at least a couple of years ago, I think, and then it was also -- we're still looking out a couple of years as well. So it's a long time into the future. And in my comments today, I made the point that our ROIC target, which is 8% is in the bottom half of that range. So Kane, that's where our aspiration and ambition is. And if we can do that, we will be able to deliver a -- that performance we need for an underlying $0.16. And what I should say is nothing has changed. We haven't changed our outlook in any regard. We still have the same outlook. We're still committed to do that. We're just conscious that that's quite a wide range, which is why we also said that come September when we talk about the next phase of our strategy, we'll articulate our financial ambitions in conjunction with that as well. So thanks, Kane. And I'll hand over to Vicki to talk on mobile margins and free cash flow.

Thanks, Andy. And thanks, Kane, for those questions. Just on mobile margin. Well, firstly, second half of '21, we're certainly pleased to have mobile EBITDA margins back in the low 40s. So it's obviously a great place to be. As I talked about for FY '22, we're expecting further service revenue growth and mobile EBITDA growth. And as you said, longer run, there's lots of factors to play out, but certainly pleased with where the EBITDA margin is in second half and we remain positive on mobile into FY '22 and many things to play out beyond FY '22. But obviously, mobile, a critical part of underpinning the growth in '22 and our longer-run ambitions as well. Just on free cash flow, yes, we're really pleased with our free cash flow result for FY '21. We did have significant improvement in working capital. The major driver of that was in receivables where we saw, both in terms of handset receivables, improvement, but also really targeted initiatives in collections in Enterprise and Consumer & Small Business, which helped really deliver that working capital benefit. As we look to FY '22, we do expect sustained working capital benefit, so some further benefit. And again, it largely sits in the receivables space. There is a number of pieces that play a role. We are very focused on ensuring we manage working capital with great discipline. And so, yes, our guidance includes that sustained improvement in working capital, largely coming from, as I said, the receivables side as well.

Great. Our next question is from Entcho Raykovski from Credit Suisse.

Maybe if I can follow up on those free cash flow comments. Interested in your perspective on whether the dividend policy is appropriate given free cash flow is tracking so far ahead of NPAT. I know that's a question you've been asked before, but it seems like it is well ahead. So would be interested in any updated thoughts you might have on that issue. Just secondly, around the postpaid net adds that were up 21,000 for the half, which is obviously still growing but a slowdown from the 80,000 in the first half. So do you have any concern around this slowdown? Especially you may have seen Optus just this morning reported that they've added 85,000 in the first half. So they're tracking a little bit better. So any concern around the slowdown and what are your expectations into FY '22? And then finally, I can throw a last one in there, Digicel. I appreciate there may be only so much you can say. But are there any return hurdles you can talk about that you need to meet in order for the transaction to work? And I mean is there a concern about expansion into a region which has likely seen a pretty significant COVID impact?

Thanks very much, Entcho. Look, on the dividend policy, our focus really has been to ensure we're on the right trajectory to sustain that $0.16 dividend for shareholders out to FY '23. And we talked a bit about that. We -- in terms of the payout ratios, we're outside of our current payout ratios. And we've been pointing to free cash flow, though, as an underlying indicator of the strength of the balance sheet and our ability to do so. So our primary focus right now is to continue to focus on -- or to continue the trajectory to the $0.16 dividend. The Board hasn't made any further decisions or made any further sort of comments in relation to dividend policy. So that's really just a matter that we'll obviously continue to, I'm sure, discuss. And if we have any updates, we'll provide them when we do. On the postpaid trajectory, I'll get maybe, again, excuse me, Vicki and Michael Ackland to comment. I mean, the one thing I would say is I don't think our postpaid handheld numbers are exactly comparable with Optus. I think they've got a few other things in there, which we report separately, but I'll -- they're more across that than I am, but I'll let them comment on it. But what I would say is that we have clearly been focused on driving value in our mobiles business, which as we said we would. And as a consequence, as you heard from Vicki, there's a $290 million improvement in underlying mobile EBITDA in the second half and a good growth in services revenue. There's no doubt that the markets slowed down overall just in terms of level of net activity that I pointed to. Population is going to -- population growth has gone negative first time in, I think, nearly 100 years. That obviously has an impact on the margin. And we have seen some slowdown in hardware or some supply issues in hardware, but I'll let Vicki and Michael will talk further about that. On Digicel, you're right. And so I can't really say anything further other than maybe make the comments that it is subject to meeting key financial metrics as well as downside risk protection. And ultimately, as the Chairman said, we're only going to proceed with something if it's in the interest of shareholders. And at this stage, those discussions are incomplete. So I can't really say anymore at the moment. But Vicki and Michael, I'm not sure who want to comment on the postpaid performance.

Yes. Thanks, Andy. Why don't I make a couple of comments, and then I'll hand over to Michael about the market dynamics. So Entcho, the thing I would say so, yes, absolutely, you can see postpaid net add second half lower than first half. As Andy said, we have been very focused at getting mobile back to growth in terms of service revenue and EBITDA and really pleased with that focus on generating value overall in the mobile business. It is paying off, and we've had a very consistent strategy on that over a number of years now. The thing I would point out in the second half, in particular, and Michael might want to comment more, some of the price increases that went into our existing customer bases at the lower end of our plans. We did anticipate some churn as you do those price increases, and you can see that with a small lift in our churn in the second half in mobile postpaid. So that has certainly played out in the half. But as I said, really focused on generating value and growth in mobile and service revenue and EBITDA, which you can see strongly in the second half. I'll hand over to Michael.

Thanks, Vicki. I think you and Andy covered everything pretty well there. I think that the combination of the rolling retail closures over the course of the year and also in the second half of the year has definitely had an impact. The price rises early in the second half did lift our churn a bit as planned. We've seen that come back to normal levels now. And we remain committed to delivering value, getting differentiated value in the market for 5G and it has been a subdued market. But no, no, we're not concerned around that second half slow growth, and it's consistent with our strategy to drive for value and we'll continue to do so.

Great. Thank you. Our next question is from Eric Choi from Barrenjoey.

First one, just on the SMB and enterprise ARPUs. It feels like they might have been declining high single digit in the second half. So just interested in how much of that was sort of general price deflation versus, say, roaming or any significant recontracting events. And I guess given that latest momentum, are you still comfortable there's enough juice in mobile, I guess, for you to achieve your FY '22 ambition for total Enterprise to get back to growth? So that's the first. And then just on the second, I guess, on the TMMCs. There's still 25% of your base to transfer onto the new plans. So I guess, can we safely assume first half '22 TMMC growth is still positive but maybe just at a nominally lower rate given you're comping that [ 330 ] TMMC growth in the PCP? And then just the last question. In the presentation, Vicki, you highlighted the pricing flexibility in the new mobile plans. And if I think about the industry cost base post your towers sales that they're becoming increasingly CPI linked with the site leases and then you've got underlying wage inflation as well. So just wondering how you think about the scope for retail pricing to sort of grow in line with CPI along with that cost base?

Thanks, Eric, and thanks for hooking in. It sounds like they're all for you, Vicki.

Thanks, Andy, and thanks, Eric. It might be a combination of myself and Michael, I suspect on some of them. But just in terms of -- yes, I did give a little bit of information just so you could understand what's going on in the segments in mobile postpaid. And so yes, as I said, we could see small business ARPU sequentially growing, and we saw Enterprise stabilize. And so again, just reinforcing, we expect in FY '22 that those 2 segments in postpaid handheld ARPU will follow Consumer to growth. And so we're confident about that. In terms of Enterprise overall returning to EBITDA growth. You can obviously see in our FY '21 results, Enterprise EBITDA declined around $360 million. In terms of getting it back to growth, yes, mobile plays a part. However, the decisions we've taken in the second half in Enterprise that David has implemented on the cost and restructuring side, along with allocation of productivity benefits from across the group, they absolutely play a big part in the return to growth as does NAS. So that focus on our NextGen strategy in those strategic areas play also an important role as we look to returning it to growth. So we remain confident of the ability to return the Enterprise business as a total portfolio across mobile, fixed and international to growth in FY '22. Just on TMMC and the customers still to transition. I might get Michael to comment in a minute a bit more, but -- he can talk a little bit more about that in detail. But I would just say in terms of TMMC, it is accretive to ARPU, and we do expect TMMC to grow again in FY '22. And then around pricing flexibility. Yes, as you know, Eric, it's a big change by moving our customers onto our new simplifying plans. We no longer have a back book. So any pricing changes we make flow through immediately. In terms of the question about, will we do price rises indexed to inflation? Certainly a question we've had before. We look at many other industries and approaches. And it's something we will take into account as we think about future pricing changes in our mobile portfolio. But I might jump across to Michael to talk a little bit about the 25% of the base you were asking about. So Michael, over to you.

Thanks, Vicki. And I think, once again, the summary is pretty good. So we expect as we go through the rest of that base that we'll see a little bit further TMMC lift more in the first half. But as you said, at a lower level, but still positive and still TMMC accretive to underlying ARPU. I would agree, I think that having the no back book model that we've put in place and as that rolls through the rest of the base, we will get into a position where we can think about how we might index prices or do other things with prices. But I think the really important thing is this no back book does give us flexibility. It also means that our customers are always on the latest plans and no one gets left behind, which I think is also an incredibly important position to be in and there has been a lot of hard work to get us to where we are. Thanks.

Thanks, Michael. Our next question is from Lucy Huang from Bank of America.

I just have 3 questions. So firstly, just in relation to EBITDA guidance, have you factored any further COVID headwinds moving into FY '22 given borders are unlikely to open? And then just secondly, in relation to Enterprise, I think you mentioned you're seeing some competition from competing technologies such as over-the-Internet with SD-WAN. Just wondering if you anticipate there to be a needed step up in CapEx just to stem off some of this disruptive technological competition moving forward? And then just thirdly, if you can provide us some color around the revenue contribution from Medical Director and PowerHealth, that would be great.

Sorry, Lucy, just before -- could you repeat that last one, the what contribution from PowerHealth and Medical Director?

Sorry, the revenue and EBITDA contribution. Yes.

Revenue. Yes, good. Thanks. Okay. Cool. On the EBITDA headwinds, I'll get Vicki to comment. I think, obviously, probably the most significant one is just continued softness in -- more than softness, but complete sort of reduction in international roaming. On Medical Director and PowerHealth, I'll make a strategic comment. And Vicki, I don't how much we've provided in terms of revenue and EBITDA contributions and what we can say. But look, I mean, from a strategic point of view, as I said in my address, digital health has always been important. But just the last 12 to 18 months is obviously just reinforced how critically important it is. Telstra Health is actually now the largest electronic health company in the country. We employ more than 1,200 -- this is before these acquisitions, and it's growing strongly. As I said, the revenue was a bit softer where we wanted it to be this year, but that was because we had a bunch of things in pipeline, which is why -- and then of course, all those health organizations for whom -- we were looking at those contracts, obviously got completely distracted onto COVID. We're confident. Actually, what COVID has done is to reinforce the importance of those contracts, they haven't gone away, which is why we're confident of that quite strong growth in FY '22. And MedicalDirector is just such a crucially strategic asset. It just sits at the apex of the whole health care system because it's your GP, and that's where you go to get your pathology referrals, where you go to get your consultant referrals, where you go to get your prescriptions. And they're all of the things that we're linking, so that's really important. But I don't know how much we're able to say on revenue and EBITDA, both on that and on PowerHealth. But with that said, why don't I hand to Vicki to add any comment, small comments on EBITDA -- your first question around EBITDA headwinds. We'll maybe get David to comment on your question around consequences of SD-WAN and the acceleration towards that as a technology. And then also, Vicki, if there is anything -- more color we've got on health, and I'll let you share that.

Okay. Thanks, Andy, and thanks, Lucy, for the questions. Just on PowerHealth and MedicalDirector, obviously, MedicalDirector is still subject to completion. So I won't go into the detail of the financials for each at the moment. But broadly, both -- we're very positive about both acquisitions, as Andy just spoke about, both generating EBITDA, generating cash, earnings accretive. So financially, we're pleased with those acquisitions as well as the strategic side. We are going to come back and talk more about health down the track. It is a question, again we get quite a bit. And so providing a bit more transparency around the health business and financial performance is something that we'll come back and do. Just in terms of COVID impacts. So if you think about FY '21, we had overall $380 million of EMEA impact from COVID. That was made up broadly $200 million of roaming; about $100 million of cost out that we were -- we made the decision to delay during the midst of COVID; and then finally, customer-related support. So as we look at FY '22, there's really no more roaming to lose. So there's no additional headwind on roaming. On cost, we've proceeded with the decisions we made. And so those delays on cost reductions are no longer there. We will see the benefits of decisions and restructuring and those cost benefits flow into FY '22. And they support our net $430 million of additional cost out. And we have -- we've not allowed additional amounts for customer support packages in FY '22. So overall, we're not predicting COVID-19 impacts in the same way as we've seen in '21 and '20. So just to answer that question. And then I will hand over to David onto EBIT, just on the CapEx component of that. Obviously, our CapEx guidance is based on a plan that assumes support for all our key strategic initiatives, including in the enterprise space. So I'm comfortable we've got the CapEx in plan needed to support the enterprise business. But I'll hand over to David for some more comments on Enterprise.

Thanks, Vicki. Just to add some color around the question of SD-WAN, I think there's 2 or 3 things that are really important milestones that we've executed in '21. One is the release of our adaptive network offerings -- there are some mobility offerings as well, but an adaptive network around our fixed network offerings. That, to me, strengthens, firstly, our TFiber options, our Telstra fiber options in the marketplace in our presence. It secondly includes strong presence of nbn enterprise ethernet offerings in that environment. And so we're more strongly a multi-network organization today than we were yesterday. And to enter into the SD-WAN marketplace and be successful in that, quite frankly, you need to have a strong multi-network managed services offering around that in our Telstra Purple or NAS environment. And we're continuing to invest and harden that environment. That's not capital-intensive. So again, all those pieces fitting together, I think we're responding well to that. There are a couple of incident -- customer events in the first half of '21, which were highly competitive and not the outcomes we were looking for. And I think since first half of '21, we've actually competed really well in market with that. So I'm excited about what SD-WAN offers, and I'm excited about how we are ready to respond to that. And as Vicki has just said, I think that's within the normal balance of our capital environment. So thank you.

Excellent. The next question is from Tom Beadle from UBS.

I'll just ask 2. Just firstly, on guidance. I'm trying to bridge that $450 million gap from FY '21 to FY '22 EBITDA, at the midpoint of your range obviously. But could you just give some more color into the underlying assumptions in that? There's obviously that $350 million nbn drag. You've got the $430 million of cost savings. So that leaves you with about sort of $200 million to $500 million of other growth in there. I realize there's a growth in mobile, and I'd estimate about every dollar of your postpaid ARPU growth is worth roughly $100 million. So how much ARPU growth are you assuming in that? And also, is there anything else worth highlighting? Second question is on M&A. Telstra Health obviously made those acquisitions and there's a potential investment here in Digicel as well. Does this represent a changing attitude to M&A? And you're obviously most likely to generate higher cash flow than earnings for a number of years now. So could we expect that you might use that excess cash flow to undertake M&A rather than pay down debt? And also, to what extent are you prepared to actually take on more debt if the right opportunity comes up?

Thanks very much. Tom, I'll let Vicki comment on the guidance. I mean, you've already sort of called out, obviously, the productivity, mobiles, the nbn headwind sort of softening or reducing, which is obviously all part of it as well as Telstra 3 we're just talking about is improving as well. So there's a few things there. But I'll get Vicki just to look deeper there. On M&A, no, I wouldn't say there's been a change of strategy in any sense. We are obviously open to acquisition opportunities where they can add value or where they meet certain criteria, and particularly whether it's strategic as the MedicalDirector one is. There's no doubt on health that when I became the CEO, I felt that we needed to consolidate what we had acquired and really sort of focus the strategy on health. And that absolutely led to a concentration on organic and doing it. And the team has just done an amazingly outstanding job. And as a consequence, I think we're in a super, super position. And some time probably over the next -- within this financial year, we'll do a bit more of a deep dive for the market on Telstra Health because I think it's a really exciting business and a great place. And this MedicalDirector acquisition is something that is very, very strategic. So that's sort of, in a sense, it's been a consequence of just when -- we can determine when MedicalDirector is going to come to market, but it happened to be now. So there's no real change strategically. As I said in relation to Digicel is that were that transaction to proceed, our investment would be the minor part of the overall financing of that, and I mean the real minor part of it, albeit we would own the asset and consolidate its financials, if that's what occurs and then with the rest of the financing being provided on a nonrecourse basis. So in terms of -- so I don't -- you shouldn't take it as any sort of signal of a change of strategy on M&A. We'll continue to look at M&A opportunities as and when they arise. I mean, obviously doing anything in core telco is challenging because of our scale from a competition regulatory point of view. But we continue to look at opportunities in Telstra Purple, in services, in another parts of our business as well. And then, Vicki, as I took part of the guidance question to you, so you might just want to comment on the balance sheet and the question around debt, et cetera.

Yes. Thanks, Andy, for that. And I think on the balance sheet, we're incredibly pleased with where we sit at the end of FY '21. We obviously had a clear focus in T22 to retain that balance sheet strength and flexibility. And obviously, our free cash flow, being as strong as it is, has allowed us to pay down debt of $1.5 billion. So it's put us in a good position, but as Andy said, there's no change in stance there. And we remain committed to our capital management framework around the A band settings. So I won't add any more to that. Just in terms of the $450 million of underlying EBITDA growth at the midpoint of guidance, Tom, I think you've hit on a number of the key themes. I would always start with mobile. Mobile is obviously critical, and you can see the strong EBITDA growth in the second half of '21. So we are expecting both service revenue and EBITDA growth. And that EBITDA growth will be supported by the service revenue and also the final benefits of customers transitioning of subsidy and lease plans, combined with some of those cost productivity benefits flowing in. Because you're right, cost-out plays into the entire portfolio and is critical as well. The couple of things I would add, you think about that nbn headwind, and I know you mentioned it, we're about 90% of the way through that. And particularly for fixed consumer and small business, the stabilization, that continuing to stabilize is important. So it has been a big drag on the business from the fixed consumer and small business portfolio. So that is a key piece. And then the final piece I would say is an area I commented on early, which is about Telstra Enterprise return to growth in FY '22 in terms of its total portfolio of mobile, fixed and international. So they would be the key pieces I would think about as you're thinking about that outlook for our underlying EBITDA growth in FY '22.

Great. Thanks, Vicki. Our next question is from Roger Samuel from Jefferies.

I've got 2 questions. First one, just on the nbn reseller EBITDA margin. So Vicki mentioned that it was around 5% in FY '21. Can you share with us what the margin was for nbn in the second half '21? And how would you be able to get to mid-teens by FY '23? Is it going to be driven by cost out, whether it's fixed, wireless rollout or price increases? And my second question is just regarding your FY '22 guidance. Obviously, cost out played a part there. But are you concerned at all with cost inflation, given how difficult it is to get good talent? And also the cost may get -- your cost because may be going out as well?

Thanks very much, Roger. Thanks for the questions. On -- I'll get Vicki to comment on the fixed nbn reseller margins. But suffice to say, we need to pull all of the levers that you referenced. It's obviously a big stretch for us to get to that mid-teens aspiration by 2023 from where we are today. So we're going to have to pull all of the levers and some. But I'll get Vicki to talk through that. On the cost out, no, we're not concerned. I mean I think you made some really relevant points around inflation. And, obviously, the war for talent. So they are pressures. But the way we look at our cost and productivity program -- and we're pretty -- I think we've got this down to a pretty good arc now, is that going into the year, we're already carrying in quite a bit of momentum from decisions that we've already implemented -- made and implemented, and we always go into the year with a pretty good eye on how we solution any of the additional productivity that we need to deliver our commitment, which is $430 million for this year. And in fact, we obviously overachieved in FY '21, and I think we pretty much have consistently through the program. So I'm pretty confident we've got our arms around that. But Vicki, over to you.

Yes. Thanks, Andy, for that. And Roger, yes, in terms of nbn resale margin, just looking at FY '21, pretty consistent through the year around that 5% EBITDA margin on nbn resale. So no stark differences first half, second half. Just in terms of the mid-teens, it is an ambitious target and we remain committed to it. As Andy said, it is going to involve pulling all of the levers. So on the revenue side, we're pleased with the progress on customers adopting and taking up higher speed plans. Profitability is better on those higher speed plans. And customers are looking to take advantage of those higher speeds, so there's still opportunity there. We're also still focused on add-ons that are valuable to customers. That's an important component as well on the revenue side. On the cost side, there's still benefits to come as we keep digitizing our fixed customers across to the new digital stack. So moving them across to that more simplified environment. It's also helpful for us on the cost side, takes out some costs at the back office side of our business. Obviously, productivity overall across the company, which Andy just referenced, is important to delivering that as well. And then, as I flagged, we're in a long way through the nbn migration now, with about 150,000 services left to migrate, less than half of what we've done in FY '21. And so obviously, cost comes with that process of migrating customers as well. So there are a number of things. We've got to be pulling all those levers, and I can assure you inside the business, there is a lot of focus and many initiatives underway to support that ambition that we've got. So that would be my comments. Thanks, Roger.

Thanks, Vicki. Our next question is from Fraser Mcleish from MST.

Well done on that mobile performance. Great to see it back to growth. Just, yes, I think I've got 3 as well. Just firstly, on InfraCo Fixed and further asset monetizations. Just what are some of the, I guess, possible barriers to do further monetizations there? Maybe operational and I guess approvals I'm thinking of. Second one, just on the spectrum auctions up later in the year, Andy, should we think about that as the likely cost being sort of similar to $700 million or -- spectrum or to some of the higher bands. And I think you currently have that through the P&L, the cost as apparatus license. Can you -- if you could give us an idea of what that cost is, that would be helpful. And then finally, just picking on the D&A guidance you've given, I think you said minus $100 million next year. We're not previously talking about minus $200 million to $300 million, and that does leave D&A still miles above CapEx. Should we still be expecting that D&A to trend down to CapEx over time?

Yes. Look, thanks very much, Fraser. Thanks for joining. I'll make a couple of comments and then on the InfraCo point. But then I'll also invite Brendon to talk about some of the operational steps that need to be put in place to take advantage of any opportunities there. On the spectrum auctions, I can't comment on what you should expect, for governance reasons in relation to that auction. So I don't think I can add anything there. I'll ask Vicki to comment in terms of from an accounting point of view and then, Vicki, on the D&A guidance. But just firstly, on the monetization of InfraCo Fixed, I think the first point to make is that we're clearly very committed to our strategy to set up our infrastructure businesses as a stand-alone business unit for the reasons that we mentioned. There were 3 reasons that we gave when we launched T22 that haven't changed. And I think we've demonstrated we're delivering on each of them. And particularly with the towers deal recently, that obviously just validates that, that strategy is the right strategy. InfraCo Fixed and setting that up is far more complicated and a much bigger exercise than on the tower side for a whole range of different reasons, not least of all because, actually, the economics of our fixed business are actually 6x the scale of our towers business. So it's obviously much bigger. And then there's more complexities associated with because, obviously, the contracts and the relationships with nbn and other key customers and there's regulatory considerations. So we're working through all of those. And as I mentioned, we still anticipate that, that will be given effect through a scheme of arrangement. But ultimately, the final complexities of that will determine that, and we'll talk further about it in the coming weeks or rather certainly no later than the strategy update on the 16th of September. So I might -- that's -- but what I should say -- sorry, in addition to that, I was going to comment is, obviously, we're doing that to create optionality, to create more shareholder value. So that's absolutely the intention behind that. But I might hand over to Brendon just to talk about what's involved from an operational point of view, having sort of gone through the towers exercise. And we've done a lot of work on the fixed side, but as I said, it's a big project. And then maybe Brendon can hand to Vicki to pick up those other points.

Yes. Thanks very much, Andy. Yes, Fraser, thanks for the question. Yes, the towers process was, I think, a great learning experience. And I think there's a couple of things. One, we did have a huge amount of the base work done. So when that offer came in from the future fund of Morrison & Co, we were able to respond, I think, pretty quickly and definitively. And to Andy's point, the amount of work that is going to be required to put ourselves in a similar position with the fixed assets, given it's multi-asset, given it's a $1.5 billion EBITDA business versus a couple of hundred million dollar EBITDA business means it's a lot more complex. But I think in terms of building out all of the data side of it, property is a really big one. All of the commercial contracts and arrangements that we have with third parties, all of the commercial arrangements we put in place with Telstra. So that's where we've got a huge amount of work to do ahead of us. But we're going to take the same approach that we did with towers, we're going to start that work and put ourselves in a position where we can be ready. Obviously, one of the differences with the portfolio is nbn is a major customer. The government has obviously a point of view on the assets. So we just need to make sure that we are doing all the right consultations and partnership work with nbn and the government. We probably prioritize some of the activities around towers ahead of the other assets. So we could be ready for monetization. So I think we've made good progress on fiber, good progress on DUCs. We've seen some new product releases in the data center space in the last week or so. On the fixed network sites, the old DUC exchanges, that's probably where we've got more work to do in the year ahead. But I'll pass back to you, Nathan.

I might just jump in, Brendon, and just answer the last couple of questions.

Sorry.

No, no problems. So a little bit different in a virtual environment. So Fraser, just your question, I think you were asking about the accounting treatment of the apparatus license. Can I just confirm, is that what you are after? Is there any different treatment, was that the question?