TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the TPG Telecom HY '21 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Trent Czinner. Please go ahead.

Thank you, and good morning, everyone, and welcome to the TPG Telecom results briefing for the 6 months ended 30 June 2021. I'm Trent Czinner, Group Executive, Legal and External Affairs, and Company Secretary. I would like to acknowledge the traditional custodians of the lands on which we are all dialing in from today, which for me are the Cammeraygal people of the Eora Nation here in North Sydney. I pay my respects to elders past, present and emerging and extend that respect to all aboriginal and Torres Strait Islander peoples on this call today. For this briefing, we have a presentation by our CEO and Managing Director, Iñaki Berroeta, covering our performance and financial headlines for the first half. Our CFO, Stephen Banfield, will present details of the financials, and Iñaki will return to outline our priorities for the second half. There will then be an opportunity for questions. Acknowledging the strict lockdowns in New South Wales, Iñaki, Steve and I are in the TPG board room, wearing masks as required and following COVID safe protocols by distancing, and I can confirm we are all fully vaccinated. I'll now hand over to Iñaki.

Thank you, Trent. Good morning, everyone, and thank you for joining us today for our first half 2021 financial year results briefing. During the half, we completed our post-merger integration phase. This was an important milestone. We also made good progress against our strategic growth priorities as we shape our company for the future. In particular, I would like to highlight our progress rolling out a [ current ] 5G network, which will give us a competitive advantage in terms of flexibility, scalability and cost. I'm pleased to report that through this effort, we are on track to exceed our initial 5-year rollout targets for 2021. As outlined on Slide 4, on our investor presentation, we are reporting a solid first half performance, resulting in the TPG Telecom Board declaring an interim dividend of $0.08 per share. This is supported by the delivery of substantial merger synergies and a strong commercial management. With the headwinds from ongoing border closures, NBN margin erosion, the new RBS levy and that we are continuing to recover from the merger delay on 5G vendor restrictions, conditions remains challenging for the group but we are managing this well, and the result is pleasing. The group's reported revenue was $2.63 billion for the half year, a 3% decrease from the same period last year on a pro forma basis. EBITDA for the half was $886 million, a decrease of 3% on a pro forma basis. On our synergies program, we finished the half slightly ahead of schedule with $38 million realized out of our projected $70 million in cost synergies for the full year. We also took benefit from current market conditions to refinance the group's total debt of $5.25 billion with improved margins and maturity terms. In terms of our strategic priorities to drive growth. We have had a strong start in bringing more customers onto our own infrastructure while maintaining a strong NBN market share. On the consumer side of the business, we saw continued growth in fixed broadband with 2.2 million subscribers, up 1% for the half, while net subscribers -- on-net subscribers increased by 12%, and this includes a tripling of home wireless subscribers for the 6 months. There has also been encouraging progress in enterprise and government with a strong revenue growth in our Fast Fibre products and NBN products. This has partially offset the decline in the total corporate segment revenue, mainly driven by a decrease in the revenue from fixed voice and other legacy products. Returning to mobile subscriber growth remains a key area of focus with new plans and promotional activity across our 3 major mobile brands, Vodafone, TPG and iiNet. We are confident that recent improved trends will continue as COVID-related outflow of temporary residence flattens and especially as we see our 5G network reaches scale over the coming months. Moving on to operational highlights, Slide 5. Our focus remains on the 3 biggest areas of opportunity for our business, on-net, households and enterprise, to maximize the significant potential from our broadband infrastructure and new business unit headed by Craig Levy has been established. During the half, we have launched 5G home wireless and expanded 4G home wireless to iiNet and Internet brands -- internal brands. Following a strong start in the first half, we continue to see rapid growth with 17,000 home wireless net adds in the first 6 weeks of the second half. This has been boosted by the launch of home wireless under the TPG brand just last month. During this half, we have made key investments in our on-net fixed infrastructure, commencing a high-speed upgrade program on our HFC and VDSL networks, and we are focusing on customer growth on our Fibre to the Basement network. In the consumer aspect, we continue the development of capabilities to maximize the value of our brands, including refreshing our suite of mobile plans to drive sales as well as cross-sell activities to our fixed space. Strong inroads have been made in enterprise with the group signing a number of major contracts. This includes Qantas and NAB. This is a reflection of our strong full service offering to companies of all sizes. During this half, we saw a 24% increase in our Fast Fibre products, Fibre400, Fibre1000 as more businesses demand super data connectivity for their operations. As I touched on earlier, our 5G mobile rollout plans for 2021 are well advanced and will exceed our initial targets. With the implementation of our stand-alone 5G network, we were working towards 85% population coverage in the top 6 cities by the end of this year. We are now on track to expand our target to 4 additional regions, the Gold Coast, Sunshine Coast, NSW Central Coast and Wollongong. 5G is already available in more than 700 servers, and we now have more than 750,000 5G devices on our network. We also recently acquired 26 gigahertz millimeter wave spectrum nationwide and through an agreement with Dense Air, we will strengthen our mid-band 5G spectrum across the major cities. These acquisitions will boost performance and capacity for mobile and home wireless. On the organizational side, we were pleased to welcome Kieren Cooney and Jonathan Rutherford as key commercial executive appointments during the half. We also harmonized the corporate employee experience across our Australian operations with consolidated payroll systems, new payment contracts and aligned benefits. We are also commit to becoming a more sustainable and responsible business. In March, we published our first sustainability report, and we will follow by launching our sustainability strategy soon. As part of this journey, we have committed to powering our Australian operations by 100% renewable electricity by 2025. On to Slide 6 now. And as I outlined earlier, we have realized $38 million of our targeted $70 million in cost synergies for the full year 2021. These were delivered through the migration of iiNet customers onto our own mobile network, the optimization of our mobile network backhaul and transit arrangements, including the build of new dark fiber links to an additional 700 mobile sites and other operating cost efficiencies. We continue to work on cost synergies realization, building to a target, as explained in our last annual result, of $125 million to $150 million by 2023. During the next wave of our synergy program, we will drive more OpEx savings from further integration inside the different functional areas and operations across the business consolidation of more of our property assets, including offices and data centers, IT system evolution and decommissioning of legacy systems, streamlining our technology support and operational model and other reductions in third-party spend across the group. On to Slide 7 now, and we are delivering an advanced 5G network. Unlike our competitors, our legacy network equipment is being removed and replaced when we upgrade each 5G site. While this is a more [ arduous ] task at the outset, it gives us a more modern asset for the long term. The full equipment upgrade on each site enables flexibility for future 5G spectrum deployment and reduces future upgrade and maintenance costs, also putting us ahead in our fully virtualized network core. It gives us greater agility to enable new technologies, devices and capabilities, including edge computing and private networks. The deployment of 5G stand-alone core will result in a big band coverage activity later this year. This will instantly triple our 5G coverage, reaching 85% of population in those 10 cities and regions I outlined earlier. To fast track our 5-year rollout, we are using an innovative factory assembly approach. In an Australian first, we are preassembling more than 400 5G sites, meaning, we can roll out 5G faster, safer, more sustainably and also more cost effectively. Our 5G deployment program is set to deliver over 100 sites in August alone and will accelerate. By the end of 2021, we will have deployed 5G on over 1,000 sites, and we will continue to deploy at this rate through 2023. Our spectrum portfolio is the strongest it has ever been and boost further with our recent 5G spectrum acquisitions. This will allow us to provide an excellent experience for mobile and home wireless customers, especially in Brisbane, Adelaide, Perth and Canberra, where we will have industry-leading C-band holdings. On Slide 8, last month, we marked 12 months since the implementation of the merger. Our teams are now fully integrated and operating as one. Mergers are a multiyear journey, and we have now completed the post-merger integration phase. To highlight a few of the key achievements from Slide 8. We brought together the 2 entities under a unified leadership team, integrated functions, define our culture and values and increase our commitment to sustainability. We have enhanced product set across our brands, driving a stronger competition. We have established our home wireless strategy, began NBN customer migrations and achieved early rapid growth. And we have started to consolidate our networks and business operations, completing the integration of our small cells and the first phase of our mobile backhaul fiber rollout as we are continuing to deploy more of the group's spectrum assets. We have also vacated more than 6,000 square meters of office space. Significant ground work has been laid that will allow us to accelerate value creation, unlocking more benefits of the merger. On Slide 9, to summarize the first 6 months of 2021. The group has achieved a solid earnings results. With the first phase of our merger journey complete, our 5G network and synergy program on track, a strong start on our home wireless strategy and improving subscriber trends, we are now in a stronger position to realize the group's growth potential. I will now hand over to Steve to go through the financial results in more detail.

Thanks, Iñaki. Good morning, everyone. I'll start with the summary results on Slide 12. Firstly, I'll remind everyone that the merger became effective for accounting purposes from 26th of June last year, which means that HY '20 comparatives in the accounts only include 4 days' contribution from TPG Corporation compared to a full 6 months in '21. This explains the significant increases in reported revenue and EBITDA in HY '21. And the reason why reported NPAT and EPS showed a decline in HY '21 is because HY '20 included a one-off $226 million accounting credits to income tax expense. So in order to facilitate a more meaningful comparison of the group's performance with the prior year, we've also provided pro forma results for HY '20, which are designed to simulate what the group's results would have been if the merger had been effective throughout HY '20. On that basis, you can see that group revenue was down by 3%, which is $82 million in HY '21. EBITDA was down by 3%, which is $32 million, and net profit after tax was down by 6% or $8 million. Operating free cash flow was greatly improved in HY '21 as the prior year was materially impacted by spectrum payments. Turning to Slide 13. You can see that $82 million decline in revenue comprises of $151 million decrease in service revenue, partially offset by a $68 million increase in revenue from handset sales. And there's more detail on revenue composition in a few slides' time. There's also a slide coming up which sets out the key drivers of the $32 million decrease in EBITDA. But before we go there, I'd just like to make a few other observations on this slide. First, as you may recall, we divested of the Tech2 business from the start of HY '21. Tech2 contributed $31 million of revenue in HY '20. So that represents a substantial component of the revenue decline, although it only had a minimal impact on EBITDA. The next observation is that the $22 million handset gross profit in HY '21 is actually a bit of an anomaly. You can see it was $19 million higher than HY '20. Now this includes a $14 million temporary P&L benefit in HY '21, arising from the timing of sales of handset receivables. Handset receivables arise from the fact that the company sells mobile handsets to customers who typically pay for the handsets' installments in over 24 to 36 months. The company routinely sells these receivables but sales that would ordinarily have occurred in the second quarter of the year have set into the second half and therefore, so did the associated costs. So this temporary P&L benefit also has an associated temporary adverse cash flow impact in HY '21, which you'll see on the cash flow side shortly. So both the P&L benefit and the cash flow shortfall will reverse in the second half of the year. I'd also like to draw attention to the decrease in overhead in HY '21 by $63 million or $49 million, excluding the impact of the Tech2 divestments. As a percentage of service revenue, this represents a decrease from 18.3% to 16.7%. And this strong OpEx result has gone a long way to offsetting some of the headwinds faced in the period. You can see that depreciation and amortization decreased in the period, as did net financing costs. We've shown separately the $80 million amortization of acquired customer base intangible. This is a noncash accounting expense arising from merger acquisition accounting. And as is customary, we add this back to arrive at an underlying NPAT, which we believe is a better representation of the underlying performance. Slide 14 shows a simple bridge between the HY '20 pro forma and HY '21 EBITDA, and I'll quickly talk through each of the principal drivers of the movement. Firstly, NBN headwinds, which you can see were $25 million. We indicated back in February that we expected these to be approximately $60 million for the full year. So they are a little less to date than anticipated, mainly due to the slowdown in DSL (sic) [ ADSL ] to NBN migration as a result of the problems NBN Co's had with its temporary inability to deliver new connections in the HFC areas of its network. A reminder that what these headwinds reflect is the margin erosion that arises from the forced migration of DSL service on to the NBN with the high wholesale costs charged by the NBN making NBN services much less profitable for the group to deliver the DSL service they are replacing. Over the past 6 years, we've had to migrate over 1.5 million DSL customers onto the NBN, incurring approximately $400 million of these headwinds. And now we announced only 73,000 DSL subscribers remaining, so we are really nearing the end of these headwinds. Compared to HY '20, we had on average 237,000 fewer DSL subscribers in HY '21, and the average GP contribution for providing an NBN service in the period was $16 per month lower for a DSL service, which multiplies out to $23 million gross profit reduction. The other $2 million is from the group's fixed voice customers migrating to NBN services. Mobile gross profit in HY '21 was $62 million lower than HY '20, which was driven by a lower customer base, which continued to decline in HY '21 but a significantly reduced rate of decline compared to last year. Reduced numbers of international visitors and temporary visa holders due to COVID continued to be a major driver of the each customer number declines. The impact of COVID-related travel restrictions on roaming and visitor revenue, which impacted the whole of HY '21 compared to only roughly 3 months in HY '20, also caused the $11 million decline in mobile gross profit in HY '21 relative to HY '20. Moving on to the RBS levy. For the 1st of January this year, the group's on-net high-speed broadband services started incurring this new RBS levy. This is the federal government's new tax on companies investing in broadband infrastructure, which is expected to cost the group approximately $11 million in 2021, and hence the $5 million in HY -- in the half year that you can see in the bridge. Corporate segment gross profit from fixed services was $11 million lower in HY '21 than HY '20, driven primarily by declines in legacy copper-based services and from revenues from customers in COVID-impacted sectors, offsetting growth in on-net fiber and NBN enterprise ethernet services. Moving on to OpEx synergies. In the February 2021 investor presentation, the group advised that we expected to realize operating cost savings arising from merger synergies in 2021 of approximately $70 million. In HY '21, $38 million of operating cost synergies were realized, comprising savings from migrating iiNet mobile customers onto the group's network, optimizing network backhaul and transit arrangements, streamlining other operating expenditure and eliminating certain duplicated costs. As I mentioned on the previous slide, a temporary delay of sales of handset receivables from 1H '21 into 2H '21 has resulted in the $14 million benefit to HY '21 EBITDA due to the avoidance of the associated sales costs. And as I said, this is a timing matter only and a compensating higher volume of handset receivable sales in the second half is expected to have the effect of reversing with P&L benefits and increasing operating cash flow. Finally, we saw other EBITDA growth of $19 million relative to HY '20 was primarily driven by other operating cost savings, device margin and consumer broadband growth. Moving now to Slide 15, which sets out the results by segment. Despite the NBN headwinds and decline in high-margin mobile revenue, Consumer segment EBITDA margin remained flat due to cost savings offsetting the gross profit pressures. The Corporate segment, which includes enterprise and government and wholesale, continued to generate strong EBITDA margin of over 50%, and this increased again slightly despite the small revenue decline. Slide 16 sets out the composition of the revenue movement for each segment. As explained earlier, the increase in revenue from handset sales is mainly due to the impact that lockdowns had in HY '20. Postpaid and prepaid mobile revenue decreases were driven by mobile subscriber declines and ARPU movements, which we'll cover on the next couple of slides, while fixed broadband revenue increased by $25 million, driven by subscriber growth. Regarding other service revenue. $31 million of the $43 million decline is due to the divestment of Tech2, with the balance being primarily related to legacy home phone services. In the Corporate segment, mobile and fixed voice were also down slightly as with data and Internet. Now the majority of the $17 million decline in data and Internet came from wholesale as opposed to enterprise and government, and netted off within these declines were $11 million of growth in Fibre400 and Fibre1000 services, an increase of 24%, but $15 million of growth in business-grade NBN services. So solid growth in our strategic products, but these were offset in the period by declines in legacy services and in the wholesale of consumer-grade NBN. Slide 17 shows movement in mobile subscribers with postpaid and prepaid down by 60,000 and 68,000, respectively. On the right, you can see that the declines have been slowing quarter-on-quarter. A point of note regarding categorizations within the charts on this slide is that TPG, iiNet and felix are all prepaid services. and hence are included within prepaid in these charts, even though they are monthly subscription services. And another important point is that all TPG and iiNet mobile subscribers are included within these charts in all periods regardless of whether they were on the group's network on those at the time. So for example, in the June 2020 call, there were approximately 110,000 TPG and iiNet subscribers that were on the Optus network under an NBN arrangement. That number was down to only 29,000 as of the 30th of June 2021, reflecting the successful migration exercise that has been undertaken and which has generated strong merger synergies in HY '21. Slide 18 shows the growth in fixed broadband subscribers, which were up by 27,000 in the past 6 months. This comprised a 48,000 increase in NBN subscribers as we maintained our market share in NBN approximately 24%; a 42,000 decline in ADSL, which left us with just 73,000 ADSL subscribers remaining at 30th of June; and finally, a 17,000 increase in on-net subscribers. This took us up to 154,000 on-net subscribers, a 12% increase in the period. And as Iñaki mentioned earlier, we're pleased to say that in the first 6 weeks of the second half of this year, on-net subscribers have already increased by a further 17,000, boosted by the launch in July of fixed wireless under the TPG brand. Regarding ARPU on Slide 19. We've broken out some components of our mobile ARPU. So firstly, the impact of international roaming on postpaid, which contributed $2.60 per subscriber in the second half of 2019, prior to the COVID pandemic, and only $0.40 in HY '21. So that on its own is an $80 million annualized revenue impact. We've also shown the component that relates to incoming interconnect revenue. You see this has dropped by $1 in HY '21. This is a result of the change in the mobile termination interconnect rate from January, which had no profit impact as it is offset by lower outgoing interconnect costs. Excluding these movements, postpaid ARPU was $1 lower in 1H '21 and in the second half of 2020. Prepaid ARPU, excluding interconnect, was flat. NBN ARPU also flat, with on-net broadband ARPU down slightly. Turning to cash flow. Just like in the P&L, the reported numbers for HY '20 only include 4 days of TPG Corporation. We've also provided pro forma numbers here for HY '20 for more meaningful comparison. Operating cash flow for HY '21 of $567 million was $319 million lower than EBITDA for the period due to an adverse movement in working capital in the period. As mentioned earlier, this is primarily driven just by the timing of handset receivable sales which is reflected both in the $14 million P&L benefit we saw earlier and the $222 million increase in trading on the receivable in the balance sheet. An increase in inventories and decrease in trade payables account for the rest of the gap between operating cash flow and EBITDA. We expect this negative gap to largely reverse in the second half of the year. The $22 million mobile spectrum payment in HY '21 represents the first of 5 equal annual installments for the 26 gigahertz millimeter wave spectrum acquired at auction in April. A $59 million increase in CapEx relative to pro forma HY '20 reflects an acceleration of the group's 5G network upgrade, along with continued investment in the expansion of the group's fiber network and IT systems development. I pointed out earlier a decrease in interest expense in the P&L. The reason why debt financing payment to the cash flow statements have actually increased in HY '21 is just down to the timing of interest payments but also the fact that approximately $5 million of one-off fees were paid in the period for the amendment and extension of our group bank debt facilities, which is a segue into Slide 21, where we mention over to the right the fact that the entire $5.25 billion of debt facilities were refinanced during the half year on improved pricing terms and with the maturity date extended by a further 12 months. At 30th of June 2021, net debt was $4.38 billion, slightly up in the period because of the cash flow timing issue but still down from the $4.56 billion on completion of the merger. Headwind between net debt and our borrowing facilities limit was $868 million at 30th of June. The final slide for me is just confirmation of the interim dividend declared by the Board of $0.08 per share payable on the 13th of October to shareholders on the register on the 15th of September. And this represents a 7% increase on the maiden dividend at the end of 2020. I'll now hand back to Iñaki.

Thanks, Steve. On Slide 24, looking ahead to the second half and beyond. Now that we have built strong foundation, we will leverage our scale, infrastructure and capability to drive long-term growth. We brought together a company which has 7.5 million mobile and fixed services across a family of strong and much loved products. The customer experience continues to be an important focus, and we have been recognized for our mobile network performance, TPG and iiNet, NBN products and low TIO complaints across our major brands. Our position in fixed broadband continues to strengthen, and we are building on our on-net strategy to move customers onto our own infrastructure to deliver better service and create more value. And with a strong full service proposition, we are leveraging our fiber and mobile network to better serve the enterprise business and government segment. Our strategy is supported by a valuable portfolio of network and property assets, which is outlined on Slide 25. Over the past 13 months, we have been integrating the multiple infrastructure assets of the group, including mobile towers, macros and small cells, fiber and data center assets formed by the premerger Vodafone and TPG business. One of the most significant assets in our mobile network of 5,800 sites, and 1,200 of them are owned by TPG Telecom. These 1,200 are all macro sites, predominantly in metro areas with a high [ capacity ] ratio. In light of a strong demand for telecommunication assets, we have commenced a review to obtain a preliminary market assessment as we look at ways to maximize shareholder value. Summing up on Slide 26. In the second half, we will continue to focus on key growth opportunities of on-net, enterprise and households. This will be enabled by our 5G network which is on track to reach scale in 10 of the country's largest cities and regions by the end of this year. And our growth will continue to be supported by our $70 million cost synergies program for 2021. In closing, I would like to thank our people for working together to support our customers every day, often in challenging circumstances due to COVID lockdowns. A special thanks to our retail and contact center teams who are on the frontline serving our customers. And of course, thank you to our shareholders for their continued support.

Thank you, Iñaki. I'll now hand back to the operator so we can invite analysts and media on the call to ask any questions.

[Operator Instructions] The first question today comes from Tom Beadle from UBS.

I just had 3, if possible, please. Just firstly, on the fixed wireless launch. It looks like there's encouraging early signs there. But can you talk to the economics of the product, particularly around the gross margins? It looks like as though they're priced at $55. And so while you're saving $45 or so that you're paying NBN Co each month, it seems to me that ARPU ex GST is about $15 below your NBN ARPU. So is it fair to say that the gross margin uplift might be somewhere around $30 at the current price today rather than the $42 implied by your comments at your last result? And also, how many of these customers that you've added in the last few weeks are on trials or promotions? Just secondly, on mobile. You recently increased your prices and obviously followed your competitors there. But was there anything specific that gave you confidence to do that given your postpaid mobile customers still fell in the half? And how has this impacted your new customer acquisition post the changes? And then just finally on the towers. I realize you've only just announced a review into them, but could you just maybe talk through the options that you're looking at for these assets? And also, could you possibly, in the future, look to monetize any of your other assets? I'm thinking things like into capital fiber, for example.

Okay. Maybe...

Tom, thanks for those questions. I'll deal with the first one regarding fixed wireless. Your observations were correct. I think the important thing to understand is the price points you're referring to are for our 4G fixed wireless. And we also sort of launched 5G fixed wireless, which is a higher ARPU. In relation to the recent sign-ups, I think you asked a question about how many of these are on promotion. I think we have a 1 month free promotion on the TPG brand. So that's available. I think I answered your question.

The margin, the GP.

Yes. With regard -- I think I've answered the question in relation to the GP, confirming that Tom's observations on that are correct but that's on 4G, and 5G will have higher ARPU.

In terms of the mobile. Look, we have seen ARPU inflow around $3.5 higher than our ARPU. There are a lot of movements in ARPU in the market. And I think that I made my comment already on this. There are a number of components there, including the way that the different players in the market are using own channels and other channels, and that does have an impact on that. But from what we have done, we are quite happy. And in terms of the performance, we are also happy with what we are seeing this service in a couple of months since we've done it. So we see that this has not affected our inflow other than the impact of COVID, of course. But in that sense, we think that is delivering the ARPU, that inflow that we were looking for. And I think that we still remain very competitive in the market. In terms of towers. Look, currently, we're just looking at towers, just to clarify because I've seen a few comments around our tower assets. So we operate around 5,800 towers in total, plus the small cells, so the 5,800 would be -- so that includes some of the small cells that we operate. 1,200 of these are macro sites that we own. I think In the past, we may have reported a lower number because we were referring to towers on the ground. But if you look at macro, including towers that are on rooftops, our number is 1,200. That is the object of analysis that we are doing currently.

The next question comes from Kane Hannan from Goldman Sachs.

Maybe firstly, just that story that's running in the AFR at the moment. Iñaki, just talking about promotional activity to win mobile customers. Can just give us a bit of background around what that story is about? Secondly, just looking into the second half of the year. Do you think your business has enough momentum in it today with that better ARPU, some of these enterprise contracts to return to sequential EBITDA growth? And then finally, just around those big corporate deals and the NAV that you've obviously spoken about. How do we think about those contracts impacting your mobile business next year and whether that's a decretive or accretive sort of ARPU impact?

I'm not familiar with the AFR article. Maybe you can explain a bit more what was that about?

Quoting you guys talking about return to promotional activity in mobile space to win customers across the 3 major brands, Voda, TPG and iiNet. I can't work out the source, but that's just what the headline they're running is.

Yes, I don't think this is anything beyond what we are doing. So we are actually increasing our -- as we roll out the 5G network, we are increasing our activity and that, of course, is not just related to the Vodafone brand, but we are also doing quite a bit of work on the iiNet and TPG brands around mobile. We also are working on felix, which is a brand that we launched last year. Felix is also increasing the commercial activity. We're getting about roughly between 2,000 and 3,000 net adds from felix on a monthly basis. So that's probably what the article is referring to. In terms of H2 momentum. I'm actually looking at a number of trends that I think are good for us. One of them is, like I said, the ARPU inflow. The other one is the fact that we see a flattening impact of customers just leaving the market because of COVID. So the amount of temporary residents leaving the market is flattening. And the other thing that I see on H2 is significant momentum built around our fixed wireless and also enterprise. So I think that this is a bit the way that we look at H2. We continue to work hard on synergies, which is a program that we've put a lot of emphasis as well and that is going very well on track. So from that point of view, I think that I'm quite optimistic about H2.

The next question comes from Lucy Huang from Bank of America.

I've just got 3 questions. So firstly, in relation to fixed wireless, so as we said, we're seeing pretty good early take up. Just wondering what are your medium-term aspirations in terms of fixed wireless penetration. Secondly, with the NBN migration soon coming to an end. Just wondering, do you have any thoughts on potentially raising prices now that the land grab is potentially coming to an end? And then just thirdly, how should we be thinking about underlying CapEx moving into the second half?

Yes. Okay. So in terms of fixed wireless. I mean we have just started the fixed wireless across all brands. So TPG brand was launched just last month. We see significant uptake. Most of our current fixed wireless sales and migrations are 4G fixed wireless products, which is, let's say, replacing some of the NBN products' speeds, but we are also looking at the 5G progression. So I think that our future, in essence, is to optimize the portfolio of our products on the technology that is, let's say, more cost effective at the same time that we are able to deliver better speeds and better service to the customer. On 5G fixed wireless, we see a good opportunity for increased ARPU. And of course, 4G wireless is mostly a product that increases our margin on the existing base. And in terms of the growth. Well, we see that there's still a lot of opportunity. We do have roughly 1/3 of our customers on speeds of 25 and 12 and that would be a very -- let's say, that is a part of the base that can be addressed easily with the 4G product. And then on top of that, we have the opportunity of 5G, especially on those areas where the NBN is having challenges to deliver speeds because of the technology they use. In terms of future pricing, I don't comment on that. I don't think that's related to whether NBN migration is over or not, to be honest. So I would not comment. And then on CapEx, I'm going to ask Steve to answer that question.

Sure. Thanks for that. Lucy, I mean, we've been very consistent about CapEx since the merger, where we said that the combined CapEx profile of the 2 separate entities was in the $700 million to $800 million range. And you see in this half, our fixed asset additions were just under $350 million. Our CapEx cash flow was around about $400 million. So very much consistent on an annualized basis with what we've said ever since the merger. But we expect our CapEx profile to remain at, importantly, excluding spectrum. So no change there.

The next question comes from Roger Samuel from Jefferies.

I've got 2 questions. You mentioned about the 1,200 owned macro site. That's a lot higher than what I thought. Do you include the Optus eJV Towers in that number as well? Or is it just the pure TPG and the macro plus some rooftops? That's the first one -- and also, can you share with us any tenancy ratio on those macro sites? And second one is on your tax losses. Do you expect to be able to utilize your tax losses in the next few years? So you'll recognize the full 30% tax expense in the P&L, but you pay very little cash tax?

Let me answer in terms of the towers. So these 1,200 towers are owned by us. We do have other tenants in those towers. High tenancy ratio, I would say, versus market. You have to think that our 1,200 macros that we own, roughly 90% are metro. So that is the composition, and that's also what drives probably higher tenancy ratio than what you have seen in other things. And yes, like just to confirm, these are owned by us. So we operate, like I said, 5,800 sites, which are many of them just passive towers that we are -- in our equipment. Some of them are part of a joint venture. And the 1,200 sites that we own, also, some of them we will have as part of a joint venture but they are ours.

Roger, regarding the tax losses. You have to test at the end of every financial year whether you satisfy the rules to be able to use the carryforward tax losses. And so at this time, we satisfy the rules to utilize those losses, and we expect to -- we expect that to be the case at the end of the financial year. But -- yes, so you can only test it at that point in time. So you're correct that the -- because we recognized last year, we brought carryforward tax losses onto the balance sheet as an asset. That means that we have -- in our P&L in this reporting period, we have a tax expense in the income statements, pretty close to 30% of our profit before tax. But you've seen there is -- the tax payments are close to 0 other than the $4 million that was paid in relation to premerger.

Okay. And just to clarify. The 1,200 sites that you mentioned before, that excludes the 400-plus small cells, yes?

Yes, absolutely. Small cells are not macro.

Yes, yes, understood. Yes. Just want to clarify.

The next question comes from Nick Harris from Morgans.

Just a couple from me. First one, on the mobile side of things. Are you able to give us an idea of how much of your mobile customer base is uncontracted? I'm trying to get a bit of a feel for price rises, how long they take to flow through. First question. Second one was just on the 4G, 5G fixed wireless. Do you need to separately recontract every customer onto a fixed wireless connection? Or can you selectively swap out existing fixed line customers if you can give them a better service and a better price? And then just my last question was just seasonality. I appreciate there's many moving parts. But if we just look at the pro forma numbers last year, I think 51% of your EBITDA fell in the first half. Is there any reason to think that seasonality should be different this year?

So the mobile base in contract, look, that is a hard question to be because a lot of our customers will be on a handset financing. So it is tricky to say it's not really a mobile contract, but you can assume that is more than 50% of the base will be in such a model. So it is some level of, let's say, commitment by the customer around the financing of handset. So that's probably the way to look at it.

Nick, your question regarding fixed wireless. I think what you're getting at is no, we can't just decide to move our customers off of an NBN service on to fixed wireless. That's not what we do. We are reaching out to our customers with very compelling offers to invite them to move across to fixed wireless. Your third question was about EBITDA seasonality. There's no significant seasonality impacting our results. So yes, no real difference to the first half or prior years in the regard.

And Steve, good luck in the next chapter. I think you've done a great job over many years. So I wish you well.

Thank you, Nick.

The next question comes from Entcho Raykovski from Credit Suisse.

So my first question is on mobile. Looking at the ARPU, I mean you provided us with good breakdown of the impact of roaming and interconnect. But even after we exclude those roaming and interconnect revenues, postpaid ARPU was lower in 1H '21 after a sequential increase in 2H '20. Can you specifically talk to what drove that decline, especially given that reverse trend in the prior half? So it's my first question. Second one, probably more straightforward. Can you talk to the difference in yield between in-ground towers and rooftop towers? Is there a significant difference? Obviously, maybe material for our analysis given that it looks like some 500 of those 1,200 that are in-ground towers, and I'm basing that on your prior disclosure in the scheme book. And just finally, on the enterprise contract wins that you've mentioned, NAB, Qantas. Were they primarily on your own infrastructure? Or have you won a lot of that business as an NBN reseller? Those are my three.

Yes. Let me start with the towers. So there is actually not much difference between a rooftop and a tower on the ground. There are, let's say, differences around whether there are exclusive rights or not, I'm getting a bit technical there. But for the most of it, our rooftops are exclusive rights. So for that reason, you're looking at very similar in terms of yields with the -- and you can even think that some of the rooftops have more opportunity because of the space being a bit bigger than what you would get on a tower. But you can consider them pretty similar. And I think that when people are talking about towers in general, they usually include both things. We didn't on the scheme book. Don't know why, but we just didn't. But we just talk about towers that were on the ground. The other question is around ARPU look. So I think on ARPU, the things that have impacted us are things that you mentioned. I think that in the market, there is quite a bit of ARPU movement lately. I think that is important to get a bit perspective of where the ARPUs were coming and what was happening. In our case, our ARPU movements are organic. And then the other thing that I think is important is that we maintain a [ plus 3 majority ] of sales through our direct channels. We haven't really shifted much activity to indirect channels. And that is something that, depending on how you are looking at ARPU and how you are doing the accounting of that change, it may have some impact. So I think that's something that needs to be looked with a bit of perspective. So yes, look, I think our ARPU trend is for the most have to do with the impact of COVID, and of course, the interconnect. And we see now very good trends in terms of incoming ARPU. In terms of the Qantas you asked. So Qantas will provide mobile and fixed. On mobile, of course, on our network, and fixed is a combination of some of the, let's say, products that are available in the market. But we are also supplying some of the connection with our own fiber, and we are also building fiber for them as well. So it's a combination of everything but we continue with a strong fiber build.