Telstra Group Limited (TLS) Earnings Call Transcript & Summary

Well, good afternoon, again. I am Nic McKechnie, Communications Executive at Telstra, and I have the pleasure of being your emcee for this scheme meeting relating to Telstra's proposed corporate restructure. I would like to begin by respectfully acknowledging that I am joining today from the lands of the Gadigal people of the Eora 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 contribution in connection to land, waters and culture. We pay our respects to their elders past, present and emerging. Well, welcome back to shareholders who joined us for our AGM earlier today, and welcome to everyone joining us online from wherever you may be. This is a hybrid meeting, as I mentioned earlier, with shareholders joining us in person online and by phone. For those of you in the room here, you'll have been given a card when you registered for this meeting. Orange cards are for shareholders who may speak and vote. Purple cards are for shareholders who may speak but not vote. You will need your card to ask a question or to reenter the meeting. A slide is up behind me now, which explains how to vote. If you have any queries about how to vote, please speak with one of the staff in our room or in the shareholder registration area outside, and they'll be happy to assist you. The procedure of how to ask a question here in the room is now being shown on the screen. And for those shareholders joining us online today, on your screen, you'll see our virtual meetings guide. This contains all of the information you need to know about how to vote and how to ask questions. You can also call the help number shown on your screen if you are having any difficulties. In terms of how we'll manage shareholder questions, we'll deal with questions from the floor first here, then move to online questions followed by phone questions. I'll read the online questions to the Chairman as they have been written by our shareholders. For shareholders joining us online, the online platform is now open, and I would encourage you to submit any questions that you have on the restructure now. With all of those procedural matters out of the way, I'll hand over to your Chairman, John Mullen.

Thanks very much, Nic. So as we mentioned earlier, there's one other resolution to be considered today which seeks shareholder approval of the proposed scheme of arrangement. This resolution is being shown on the screen now, and further information is provided in the notice scheme meeting and the scheme booklet itself. Nic outlined at the start of the meeting how you can vote and ask a question. And just a reminder that if you have any difficulty using the online platform or the phone system, please check our virtual meeting guide on our website or call the help number shown at the top of your screen. Ms. Emma Jones of Link Market Services Limited, Telstra's share registrar, is acting as a returning officer in relation to this poll. Results will be available later and can be obtained by visiting the ASX or on our website. We've received proxies from over 12,000 shareholders and direct votes from almost another 12,000 shareholders. Proxy and direct voting position is being shown on your screen now. The 4 numbers include proxies received and available to be voted by the Chairman of the meeting. As indicated in the scheme booklet, I intend to vote all available proxies in favor of the scheme. So I'll now take questions from the floor. I believe there are a few. Good afternoon again, shareholders. So thanks very much for coming back together after the AGM, both in the room and online, and I hope you've had a chance to get something to eat in the break. It's a pleasure to welcome you to this scheme meeting, where we are seeking approval from shareholders on the scheme of arrangement, which is the next step in our proposed corporate restructure. A quorum is present, and I formally declare the meeting open. The notice of scheme meeting was distributed with the scheme booklet and sets out the resolution to be considered today, and I propose to take that notice as read. A vote on the scheme resolution is only -- is the only item of business on today's agenda, and voting on the scheme resolution will be conducted by poll and that poll is now open. Instructions on how to participate in the poll were distributed earlier, but assistance is available to any time should you need it. I'm pleased to again be joined on stage by all of my fellow Board members; Company Secretary, Sue Laver; Chief Financial Officer, Michael Ackland. Sarah Lowe, from our auditors, Ernst & Young, is also here again along with the senior management team. The corporate restructure was a key component of our T22 strategy and is also a key component of our T25 strategy announced last year. That's an important next step in our drive to increase transparency of our infrastructure assets and to improve management focus on our infrastructure and customer businesses. And consequently, provides us with more flexibility to create additional value for you, shareholders. It also recognizes that the world has changed significantly on the back of the pandemic. This is expected to accelerate digitization in the home, the workplace, and economies more broadly and reinforces the importance and value of the telecommunications infrastructure and connectivity that enables digitization. Delivering on our strategy, including the investments we've made in digitization and networks together with the benefits that will flow from the restructure, positions us well to capitalize on these changes. The restructure involves the establishment of the Telstra Group Limited as the head entity of the Telstra Group and the movement of entities assets and liabilities within the Telstra Group. It is an internal legal reorganization only and will not in itself result in any immediate change to the underlying assets or business activities of the Telstra Group. They will provide us with more options and potential to realize additional value for Telstra shareholders from our infrastructure assets. And importantly, if the scheme is approved, there will be no change to the level of your shareholding, and you will receive one Telstra Group Limited share for each of your existing Telstra shares, unless you are an ineligible foreign shareholder. Telstra Group Limited shares will have the same dividend and voting rights as Telstra shares. As you would have seen in the scheme booklet, the independent expert that assessed the scheme, Grant Samuel, concluded that the scheme is in the best interest of Telstra's shareholders. Telstra directors will all be voting their Telstra shares in favor of the scheme and unanimously recommend you do the same. This recommendation is based on our detailed assessment of the potential advantages and disadvantages of the scheme set out in the scheme booklet you will have received. I'll briefly summarize those advantages and disadvantages now. Firstly, increased transparency of the assets of our customer and infrastructure businesses allowing management to drive performance and efficiencies while also providing a clearer picture for shareholders and potential investors to value the business, increased focus on our customer infrastructure businesses through separate management teams with business-specific strategies supported by dedicated risk teams under a group-wide risk management and compliance framework. We will do this while limiting disruption to the Telstra Group's businesses, including its arrangements with nbn. This heightened stand-alone focus is expected to deliver value to Telstra shareholders over time and greater flexibility and optionality to realize value from the Telstra Group's fixed infrastructure assets over time and potential to take advantage of opportunities that may arise to create value for Telstra shareholders. The disadvantages of the scheme. Overall, we do not think there are any material disadvantages from what is being proposed. But as explained in the scheme booklet, there are a few costs and risks associated with the proposal. Those costs are the one-off cost of the Telstra Group that are expected to arise if the scheme is implemented. Those costs, excluding stamp duty, are not considered to be material to the Telstra Group. The overall one-off costs associated with the scheme, most of which have already been incurred or will be incurred regardless of whether the scheme is implemented, are expected to be $126 million, excluding stamp duty and comprise incremental IT systems and process costs, adviser fees, the cost of the independent expert and costs associated with the scheme meeting and ongoing additional costs for the Telstra group that might not otherwise arise. There will mainly be incremental costs in connection with the administration of the new corporate structure and, in aggregate, are not material to the Telstra Group. The risks associated with implementation of the restructure are summarized in the frequently asked questions, A.15 in the scheme booklet and are outlined in more detail on Section 2.9 of the scheme booklet. Next step. Should shareholder approval be obtained today, there are a number of next steps and key dates. Firstly, the scheme needs to be approved by the court to become effective. This approval will be sought at the second court hearing, which we expect to be held on 19 October 2022. If that approval is received, the last day of trading in Telstra shares on the ASX will be on the 20th of October with the new Telstra Group shares commencing trading on a deferred settlement basis the next day on the 21st of October. Eligible shareholders will receive their new Telstra Group Limited shares on the top hat implementation date, which is expected to be the 31st of October 2022, and the shares will commence trading on a normal basis the next day on 1st of November. The final component of the scheme is expected to be implemented on the 1st of January 2023. That's the component that will help separate our infrastructure and customer businesses into separate subsidiaries. However, that component will not result in any change to the number of shares you hold. From a sequencing perspective, implementation of that component is accounting later so that the various transfers occurring in connection with the restructure occur in the correct order. With that, I will now turn to the formal business of the meeting. You can see why you need a new Chairman now. So now I do turn to questions. I don't need to again do it. Yes. Fantastic. Okay. So we will move to questions, please, from the room to start with.

I don't think we have any there. And okay, I think I might move to online. I know we've got a couple of quite technical ones coming in. I'll do my best to answer higher-level issues, but Lyndall, if you would be so, very kind of Group General Counsel will be able to answer anything complicated.

We do have one from the floor.

We do. Okay. Thank you.

Chairman, I would like to introduce [indiscernible].

John, just for clarification. The idea of this has always been -- it's my understanding, to create shareholder value. So down the track, if Telstra wanted to float, for argument's sake, the health business, we could do it if this is done, correct?

The general principle is, yes, to increase focus on particularly the infrastructure assets of the business and also allow us whether we want to bring external shareholders in or float, as you say, any of the pillars. We could now do that, which we couldn't do before.

Correct. So just in relation to the shares that are held by all the people here, does that mean on the new -- if this is approved, do they get a 1 for 1? Or do they get -- if they hold 500, they get 500 in the new...

They get exactly the same. One for one. There will be no change. Their shares, for all intents and purposes, are exactly the same shares afterwards as they were before. They're just now in a different company and not a holding company. It doesn't change anything. It doesn't change any of your entitlements, share price, dividends or anything.

And just one final question. In relation to the DRP, is it the Board's intention to maintain the DRP?

Yes, it is, and the DRP will be reinstituted on the new shares as soon as that's practical.

Thank you, John.

Any others? Very good. I think we're good, Nic.

Okay. Great. All right. We'll move to online questions. First question is from Stephen Mayne. Does the current DRP really need to be terminated as part of this process? Why can't the current instructions be grandfathered into a new scheme? How many of our 1.25 million shareholders are currently registered for the DRP? And is it true that as of October 20, when the scheme becomes effective, we won't have any shareholders registered for a DRP?

No. My understanding is that's not the case. The DRP isn't terminated and shareholder elections are grandfathered and will apply under the DRP program that will operate in the new company, the same as it did before in the old.

Okay. Thank you. Next question from Stephen Mayne. When AMP sold its Life business for $3 billion, Australian Law did not require it to seek shareholder approval. Same when Suncorp recently announced a proposed $4.9 billion of its banking division to ANZ. Does the Chair agree that Australia's shareholder approval regime is bizarre and inconsistent when we regularly don't get a vote on material transactions, but an internal restructure like this requires a vote that is a waste of everyone's time and money?

Well, it's not a waste of everyone's time and money. It's actually a very good move to increase shareholder value, and it is a sufficiently substantial reorganization of the company that we do require shareholder approval.

Question from Gavin Smith. Is there any net financial gain to the Telstra and shareholder within fin year 2022, 2023 or 2023, '24 by this conclusion?

No. As we said before, it will change nothing. If in the future, we decide to monetize 1 of the 4 pillars, while bringing in another shareholder in, whatever, that will be a decision that's taken at the time, and that will obviously have impacts on shareholder value. We wouldn't be doing it. But from one year to the next, as you just said, no, no impact.

Thanks, John. Question from [ Teresa Calero ]. Will this scheme restructure open Telstra's assets to be used by our competitors? And how is this a good thing for we shareholders? Will this reduce one of our competitive advantages, i.e., our technology?

Again, it changes absolutely nothing. Our assets and our businesses continue to trade exactly the same every day as they did before. It doesn't involve competitors or access to -- competitors' access to any of our network. It's purely a legal restructure.

Thanks, John. A question from Stephen Mayne. If Telstra had attempted to legally implement this restructure by way of contract without using a scheme of arrangement, the courts and a shareholder vote, who would have litigated against us to prevent that from happening? Can you cite any examples of other listed companies, which have gone through such an expensive process for what is an internal restructure that impacts no third parties in a material way?

Look, we obviously looked at all the possible ways of doing this. And there are as you say, a number of different variants. We felt after a lot of debate, a lot of internal and external advice that this was the most effective way of doing it. And we also felt it important that something of this size and significance did come to shareholders for a vote. Therefore, the scheme arrangement was the approach that we consider to be the best in the circumstances.

Another one from Stephen Mayne, John. What is so different about the Victorian stamp duty regime that even with exemptions for what is an internal restructure with no assets changing hands, we are still going to be up for at least $18 million in additional stamp duty liabilities payable to the Victorian government? In what way are all the other states different in their approach to Victoria when it comes to stamp duty?

Well, all the states are different. That's unfortunately got nothing to do with Telstra and there's not in our power to control or influence the laws of the laws, and we have to comply with the state stamp duty rules as they are today.

Thanks, John. Another question from Gavin Smith. Why would I have not received today's important information by mail by now if I reside within a city of Western Australia? That being before today's vote. Did Telstra's mailing occur sufficiently early enough for this important decision? Is the Board aware of any other shareholders with this issue? I'm attempting to read the online information supplied now within the last 20 minutes.