TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

This is Bruce Song speaking from the TPG Telecom Investor Relations team. Welcome to the presentation of our results for the full year ended 31st December 2022. TPG Telecom acknowledges the traditional custodians of country throughout Australia and the land on which we and our communities live, work and connect. We pay our respects to the elders, past, present and emerging. Our CEO, Iñaki Berroeta, will begin today's presentation with the results highlights and business update. Our CFO, Grant Dempsey will then go present our financial performance in more detail before Iñaki closes off the presentation with a summary of our strategy and outlook. Other members of the executive leadership team are also here for Q&A.

Thank you, Bruce, and good morning to everyone. 2022 was a solid year for TPG. We grew service revenue and EBITDA, delivered key simplifications and transformation projects and return to subscriber growth in our mobile business. We added 300,000 new mobile subscribers as the impacts of Covid and international visitors and students return, and we are now implementing a pricing refresh across our Vodafone postpaid customer base. In consumer broadband, our subscriber numbers were steady as we took actions to support profitability and reprice our NBN plans. Our enterprise business delivered customer wins with a total contract value of $150 million, driven by strong demand for our on-net fast fiber product. We delivered our target merger cost synergies, helping to offset ongoing inflationary pressures. Our solid financial performance enabled a 9% increase in fully franked dividends for the year, including the declaration today of a final dividend of $0.09 per share. Transformation remains a key focus as we continue to simplify customer offering and modernize IT systems to compete more effectively. Our 5G rollout has progressed strongly with another 1,000-plus sites added in 2022. Our total 5G network footprint is now more than 2,000 sites. Our tower asset sale in July enabled us to strengthen our balance sheet and a strategic review to support the growth of our Vision Network business is underway. Today, we are providing earnings guidance for the first time. We expect EBITDA of between $1.85 billion and $1.95 billion in 2023, excluding material one-offs and transformation costs. With growth in our mobile business, strong gains in enterprise and a sharper focus on executing transformation we're in great position for the years ahead. I will now take a deeper dive into some of the highlights of 2022, starting with mobile. We recorded a strong rebound in customer growth over the year with a net addition of 300,000 new customers and incremental gains in market share. Our products and offerings continue to be recognized for the great value and service they deliver winning numerous awards. Vodafone continued to be the key growth engine, adding more than 170,000 new customers. Our smaller brands, such as Felix, Lebara and Kogan also experienced strong growth, adding more than 100,000 new subscribers. TPG and INET also posted gains in their mobile customer base. Overall, we end 2022 with 5.28 million mobile customers, up 6% over the year. Now turning to ARPU. In postpaid, the contribution from international roaming increased from $0.40 in the second half of 2021 to $2.20 in the second half of 2022. Roaming was at approximately 85% of pre-pandemic levels in the second half, and we expect a near full recovery through 2020. Postpaid ARPU was up 3.1% from a year earlier. Excluding the impact of new intercarrier MMS access fees, postpaid ARPU was up 5.5%, while prepaid ARPU was up 2.2% in a very competitive market. We expect postpaid ARPU to continue to improve over the rest of 2023 as we complete our pricing refresh, which I will talk about in more detail in the next slide. In January this year, we simplified postpaid plans for new Vodafone customers. This reviews the number of plants to free, making it easier for customers to match their pricing and data needs. Last week, we began notifying existing Vodafone postpaid customers of planned changes to align with these new simplified plans. The monthly plan fee on most of our existing postpaid mobile plants will increase by $5. This is consistent with the need to offset rising costs from inflation and target a fair return on capital for shareholders. The increase will also help provide more value for our customers by supporting ongoing capital investments in our products, services and network capability. We expect this plan refresh to affect 70% to 80% of the existing Vodafone postpaid base of 2.9 million customers and to be completed by the second half of calendar year 2023. Increasing prices is not a decision that we take lightly, and this is the first time Vodafone has done so for its existing postpaid mobile customers in more than 10 years. Being price competitive remains key to our ambition to be Australia's best telco. Now moving on to our fixed broadband business. Over the past year, we focused on improving margin through target price increases across our MBM base and increased migration to on-net fixed wireless services. We adjusted prices on our 12, 25 and 50 megabit per second NBN retail plans for the TPG and IN brands and exceeded our growth target in fixed wireless to finish the year with 171,000 subscribers. The chart on the left shows how the combination of these initiatives helped us grow average margin per user by 8% from the prior corresponding period. Rising NBN wholesale cost and new non-telco operators entrants such as banks and energy companies present some pressures, but we continue to mitigate these impacts while targeting customers with fixed wireless and other on-net products. Our Enterprise business had a great year for a new customer growth. We delivered double-digit growth in our on-net fast fiber product offering and added total contract value of $150 million spread over an average contract life of 3 years. Our ambition to reach $1 billion of enterprise and government revenue remains, but the ACCC decision not to authorize our proposed regional selling arrangement with Telstra mines, this is not likely to occur by 2025. We continue to build solid foundation in our wholesale business with the relaunch of our wholesale residential access business as vision network. We also launched a new NVMe platform to help small mobile providers compete more effectively. As we have communicated previously, our margins across enterprise, government and wholesale will continue to be impacted as we consolidate legacy products, simplify our offerings and technology platforms. Approximately $88 million or 70% of the segment's revenue come from legacy products in the second half of 2022. This will continue to roll off in coming years. Despite these headwinds on legacy products, the enterprise government and wholesale segment has returned to growth, and we will continue to grow our customer base through our leading connectivity product offering. The relaunch of Vision network coincide broadly with the completion of the functional separation from our retail business and our announcement of a strategic review to support its growth. Vision Network is our stand-alone wholesale residential access business. It delivers Superfast and super competitive broadband services to retail service providers across the footprint of more than 400,000 premises. During 2022, we rolled out gigabyte-capable GFAS technology across most of vision fiber-to-the-building network. We have received strong interest from a range of parties interested in investing in vision as part of the ongoing strategic review process. We are very confident of the future of this business as market demand for superfast broadband increases. There is significant value to unlock whether under TPG's ownership or an alternative structure. Moving on to our mobile network. Our 5G network now covers more than 96% of the Australian population across the nation's 10 largest cities. 2022 was another year of a strong network growth with 1,040 new 5G sites, taking the total number of 5G sites to 2055. We will continue rolling out 5G upgrades at this rate until 2025. I -- this has been a great achievement by the team against the backdrop of supply and labor constraints. As you are aware, in December, the policy choose not to authorize our proposed regional network sharing agreement with Telstra. This was a disappointing outcome for us and for the many customers and businesses in regional Australia who support the proposal. We are continuing to fight for the interest of regional consumers and are challenging the ACCC decision in the Australian Competition Tribunal with an outcome expected in late June 2023. We remain committed to bringing greater mobile competition and choice and believe network sharing will pay a key role in the future. Infrastructure sharing will allow more mobile operators to offer the products and services in regional areas. It will deliver greater choice to regional communities and drive price and product competition. The proposed sharing arrangement with Telstra is the best way to deliver those benefits, and we put TPG Telecom and its family of brands on a close coverage footprint with Telstra and Optus. Cybersecurity and resilience are always top priorities for TPG and were brought into sharper focus in 2022 by the significant attacks against Optus and others. This highlighted the importance of ongoing need to invest in and modernize IT infrastructure to protect customers and continuity of operations. Like any organization, we are not immune. This is why we continually review our cyber defense and make the necessary investments to keep up with evolving threats. We are also working hard to give our customers safe from the constant deluge of scams. In 2022, we blocked more than 440 million scam text messages and more than 50 million scams. 2022 was also an important year for our sustainability commitments. We established greenhouse gas emissions reduction targets and commit to a 95% reduction in Scope 1 and 2 emissions. We also commit to a 30% reduction in Scope 3 emissions by 2030 and to reach net 0 by 2050. Verification of these targets by the science-based target initiative is expected later this year. We are planning to incorporate sustainability linked features in our upcoming debt refinancing. We also published our first climate risk report under the TCFD framework this year. In addition, we became a signatory of the 44 vision, enhancing our commitment to gender diversity. Before handing over to Grant, let me share with you how proud I am of the values and culture of this business. As an industry, the role we play in helping communities to connect during challenging times has been demonstrated during the pandemic. Baribenas life has returned to something like normal in Australia, other countries continue to be affected by war or natural disasters. The nation on here, Ukraine, Iran, Tonga and Pakistan are all examples of territories deeply affected during 2022. And sadly, Syria and Turkey have already been affected in 2023. We -- we were pleased we could move quickly on its occasion to provide free calls and held local Australians connected with family and friends in these regions. Such contributions are important to our people who embody the spirit of TPG. I will now hand over to Grant.

Thank you, Iñaki, and good morning, all. We entered 2022 with negative momentum, reflecting continued volatility from the pandemic, the ongoing margin squeeze from NBN and the significant merger integration workload. However, during the year, we saw the return of positive underlying momentum as those headwinds eased. 2022 financial performance reflected these shifts in momentum, creating somewhat a tale of 2 halves. Annual service revenue growth of 1.5%, while modest, was reasonably broad-based and trended higher in the second half. OpEx, excluding one-off restructuring costs were broadly flat. -- statutory EBITDA of $2.135 billion was bolstered by the $402 million gain on the tower asset sale, for which we received net cash proceeds of $892 million in July. Excluding the tower sale gain and restructuring costs, we delivered EBITDA of $1.793 billion, an increase of 3.8% over 2021. Net profit after tax, excluding the tower sale gain and customer amortization was broadly unchanged at $222 million. Capital expenditure, excluding spectrum of $961 million was slightly below our guidance of $1 billion to $1.05 billion. Operating free cash flow was impacted by temporary working capital movements, which I will discuss in some more detail shortly. The solid underlying cash generation supporting the significant investment we are currently making in our business. Adjusted net PAT, the metric we use for our dividend calculation was up 10.6% in 2022, enabling a 9% uplift in annual dividends to $0.18 per share. Turning now to the Consumer segment, where a return to service revenue growth supported a 2.1% increase in gross margin to $2.09 billion. Growth in both mobile and fixed wireless contributed strongly in the second half, reflecting successful execution of a number of growth initiatives as well as improved overall operating conditions. Lower telco costs were driven by improvements in network efficiencies and lower intercarrier access fees, which decreased broadly in line with the reduction in incoming into carryout revenue. NBN costs are considerably higher for the full year stabilized somewhat in the second half, supported by the migration of customers to fixed wireless. Handset, accessories and hardware margin remains a challenging area, with high device and logistic costs in a highly competitive promotions led market. Our planned refresh across postpaid is in part a response to broad inflationary cost pressures and significant capital investments in our network and customer offerings. Our enterprise government and wholesale segment also grew in 2022, delivering a modestly higher gross margin of $724 million despite the continued impact of legacy products rolling off. Growth was driven by our on-net fast fiber and MPN enterprise Ethernet offerings. As with the Consumer segment, we delivered efficiencies in telco costs despite higher NBN wholesale costs. The margin impact of legacy products rolling off of $53 million for the year. Given the high margins of many of these legacy products, this will remain a headwind over the coming years as we consolidate our technology and offerings and as customers upgrade to in-market solutions. This slide looks at cost in totality across the business since merger, illustrating that recurring costs are below 2020 levels despite significant cost pressures from energy, handsets and general inflation. This is due to both our strong cost management culture and the delivery of $140 million of cost synergies from the merger. The company initially targeted $125 million to $150 million of synergies by the end of 2023. Delivery of full year earlier is a great outcome and creates a strong base from which we can continue our transformation and build on our position as a low-cost operator. I'll now turn to our balance sheet, which is also in a much stronger position. The chart on the left contrasts our total external financing position at the time of the merger with that of the end of 2022. Over that time, we have reduced net bank debt by almost $1 billion to $3.69 billion and more than halved a use of handset receivables financing to $543 million. This is a result of the strong underlying cash generation of our operating business and the proceeds from the tower asset sale received last July. Taking into account the increases in leases arising from that transaction, we have reduced total external financing of $712 million, while us at the same time, paying $613 million of dividends to our shareholders since merger. Despite our strengthened position, like everyone, we are exposed to rising interest rates. The chart on the top right of the slide shows the movements in debt balances, interest rates and financing costs for 2022 and provide some commentary on the outlook for this coming year. We currently expect bank debt increased by about $200 million to $300 million in 2023 as we continue to unwind the handset receivables financial position in order to optimize our overall funding costs. Prevailing interest rates have continued to rise and our all-in interest rate is likely to end up around 5% for the quarter. We do not anticipate any material changes in lease balances in 2023. Our lease financing costs will be higher as we cycle the full year of the new tower leases that came into effect from July. -- coming months, we intend to refinance the bank debt, which is due to mature in 2024. This creates an opportunity for us to improve the diversity and tenor of our borrowings and to look to adopt some sustainably linked financing elements. Cash flow performance was generally robust in the year, albeit there were significant one-off negative working capital movements. There were 2 key drivers. Firstly, the change in our approach to financing handset payment plans; and secondly, the buildup of inventory due to supply chain pressures. On handsets, we have changed to use bank debt to fund this activity driven by our increased balance sheet capacity, lower overall cost and easier execution. We plan to continue this in the short term, but we'll always assess the most effective and efficient way to fund our growth. The $265 million cash outflow in 2022 relating to no longer factoring receivables is accounted as a negative working capital within cash flow from operations. However, the corresponding cash inflow and financing those receivables with drawn debt is accounted in cash flow from financing activities. Hence, we have shown the operating free cash flow adjusted for this working capital movement. As previously noted, there is an overall cost saving in our financing activities and funding these receivables on our balance sheet. The other working capital movement of $217 million largely reflected higher inventory levels driven by inconsistent supply chains, a trend that appears to be common across the sector. In the longer term, we expect operating free cash flow to be strong as working capital movements normalize and CapEx reduces after we deliver on our accelerated network and IT transformation programs. Adjusting for these long-term trends would result in a pro forma conversion ratio of around 40% to 45% from EBITDA through operating free cash flow as defined here -- as noted, CapEx for 2022, excluding spectrum of $961 million was slightly below our guided level of $1 billion to $1.05 billion. Our elevated CapEx program reflects the swap out of Huawei equipment and the upgrade of our mobile sites to 5G as well as significant investment in IT modernization and simplification. The projects will continue for the next few years, so we expect CapEx to remain around the $1 billion per annum level until the middle of the decade. Thereafter, we expect CapEx, excluding spectrum to be in the order of 13% to 15% of service revenue or around $700 million to $800 million -- the final dividend has increased to $0.09 per share, take the total annual dividend to $0.18 per share and 9.1% year-on-year increase. To finish, I will recap the capital allocation framework we introduced at our Investor Day in June last year. Our recurring capital management priorities remain focused on investing to sustain our critical assets, maintain a strong balance sheet and support an annual dividend to shareholders. As I have set out, we have strengthened our balance sheet with a reduction of more than $700 million of external financing since the merger, whilst at the same time, distributing over $600 million of fully franked dividends. We're also focused on levers to maximize value, the ongoing investment in transformation and growth of the business and the reshaping of the portfolio where it makes sense. The sale of the tower asset was a great outcome for the business in 2022, and our ongoing review of Vision Network also has the potential to unlock material value. I will now hand back to Iñaki.

Thank you, Grant. I will now take a few minutes to talk about our strategic focus and outlook for 2023. In June last year, we talked about our inaugural Investor Day about our ambition to be Australia's best telco for our customers, our shareholders, our people and the community. We are focused on this aspiration guided by our 3 key principles of integrate and simplify Winner Smart and maximize our potential. At the Investor Day, we talked through our 10 key strategic initiatives. I'm pleased with the progress we made in 2022. We continue to work on the development of these programs and long-term targets, and we anticipate sharing more detail of these targets over the course of the year. I'm particularly pleased with the return to positive momentum we are seeing in mobile revenue and with the progress we have made on profitability in fixed. We are beginning to make real progress in the transformation of the business. We are streamlining customer platforms, payment gateways and IT systems, investing in our network and managing our portfolio to strengthen our balance sheet. We are building on the strong foundations of integration and cost synergies established since the PHA TPG merger as we continue to transform our product offerings, platforms and systems. We have a strong portfolio of brands, all of which are playing a role in our growth, but some streamlining is logical over time as we look to make things simpler for our customers. We have made good progress simplifying our products and offerings, but we still have too many and create too much complexity, both for our customers and for our systems. IT systems simplification has begun, but we need to accelerate to ensure that we have the flexibility and agility to respond to customer needs and maintain an efficient cost base. Delivering on these priorities will provide us with enormous potential to leverage the cost advantage that is part of our DNA and deliver increased capital efficiency. This is an ambitious but necessary program of work, and we look forward to talking about it more in the year ahead. Now finally, to our outlook for 2023. Like I said before, we are providing guidance for the first time, recognizing the solid foundation we have put in place since completing the merger and the return of more normal market conditions in the height of the pandemic. We are well positioned to execute on our strategic initiatives to continue to grow and to deliver improving returns for shareholders. Assuming no material change in operating conditions, we expect EBITDA for 2023 to between $1.85 billion and $1.95 billion, excluding material one-offs and transformation costs. Our CapEx guidance of approximately $1 billion, excluding spectrum is unchanged. As Grant has explained, higher interest rates mean financing costs will continue to rise despite ongoing deleveraging. Now before we go into the questions, I would like to thank all the dedicated people at TPG Telecom, who worked to achieve our strategic goals while also making our organization a great place to work. And now we will take questions.

[Operator Instructions] Our first question comes from Eric Choi from Barrenjoey.

The first one is just on FY '23 guidance. And I guess you're guiding to a $50 million to $150 million increase in group EBITDA next year. and we can work out postpaid price increases drive $50 million of that. So, my question is, can I just confirm the other major pieces are subscriber growth on the positive side and maybe fixed cost escalation on the negative side? And I ask because if those are the -- those 3 are the main moving parts now, it sort of provides better confidence that earnings may be back to growth now. That's the first. Second one, just on interest, we can work out net interest could increase by about $100 million to $290 million next year. Just for free cash flow, though, are you expecting roughly the same step-up in cash net interest and lease repayments. And then the third one, just on vision. I'm just wondering if there's anything that might complicate that sales process. And I'm asking because of what's happened to some of the other transactions in the space. Specifically, I'm wondering if you guys have enough losses to offset any tax and even you did disentangle the system from the rest of TPG and that's before you get to any loss of strategic benefits. So sorry about that.

Thanks, Eric, it's Grant here. I'll take most of those all good questions. So, I think, yes, on guidance, I think the fact that we're giving guidance reflects great confidence in sort of the underlying growth of the business coming out of the pandemic, as you said in the first half this year. The range is, as you said, $100 million is largely around -- there's still some -- a little bit of uncertainty left in the macro market. And obviously, we are putting some price refresh through, which is now at an speech the first time in 10 years. So, there is some uncertainty about that as well in terms of the competitive market, which is a very competitive market still. In terms of the other drivers, you're right, that are the 2 major drivers in terms of subscriber growth underlying and obviously, the cumulative effect of that. In terms of inflationary pressures in our cost base, look, it's there. It's not greater than it was this year. It's relatively small in the scheme of the overall cost base. And at some stage, I think we are expecting some sort of pressure to ease. But all of those factors sort of at this stage, require us to have sort of a wider range in guidance. I hope that would carry throughout the course of the year. In terms of impact on top interest, your calculations are seem about right in terms of the information we've given you and really cash does pretty much mirror the P&L impact. So, I think in a material sense, that's a reasonable assumption to make. And on vision, look, we will we'll continue to be cautious about what we say on vision. It's a bit strategic review we're going through. We do think there's value to be unlocked. It doesn't necessarily mean the sale decisions to be made at all on that. We're going through a process to understand how best to do that. And it's not simple as you pointed out, but it's certainly -- there's nothing that's stopping us looking at all options at this stage. And over the next 2 or 3 months, we'll update the market as we get more information.

Our next question comes from Darren Leung from Macquarie.

I have 3 as well, please. Just one on that consumer gross margin waterfall chart, please. So, if we compare this chart 6 months ago, it looks like the last 6 months to December when you had a seasonal level of success in terms of converting NBN customers instead of what was previously greenfield customers. So, I'm curious just a little bit of color as to what's accelerated change customer take up. And that's question one. Question 2 is just a bit more color around the remaining your 30% of the mobile customer base that isn't transitioning to the new plan structure? Any detail here? Is it enterprise? Or is it systems that we should think about -- and then the third one was pretty mechanical. But is that $50 million of one-off restructuring costs. If my memory shares me correctly, I thought these are largely complete as of the end of 2022? I mean so I'm curious as the bottles costs are given the success you've had in terms of the synergies achieved so far?

Thank you, Darren. Let me start in the consumer margin growth. Look, I think the fixed ones has definitely helped us on that. Fixed wireless, we had a couple of years of quite intense commercial activity. We have reached like we announced today, 171,000. So that's roughly almost reaching half of the -- our estimate capacity for the network. So, I think that now it becomes a bit more of a business as usual for us. probably not so intense promotional activity, but the product remains highly attractive for customers in terms of the price point and the performance. So, we think that we still will continue to have good numbers there improving our NBN margins like also the price changes that we made late in the year yesterday. I mean the last in October. This is not just about the delivery of synergies or immediate synergies on the cost side, which we have done. But it's also around the [ simplificing ] a lot of the IT systems and processes. And at the end of the day, I mean, this is a work that will probably continue for next year and probably the following year as well. It also has to do with reinforcing our infrastructure. So, there's a lot of activity that we've done in '22, but we are not done with it, and this will continue to consolidate a lot of the different infrastructures and system platforms that we have from the merger. And I'm going to let...

Yes. And I'll just add to that before I hand over to Darren. I think just firstly, we did talk through last year that they would continue this year at a similar level. The one-off OpEx costs that, as Iñaki says, this is more about the planning for the next phase. -- they'll continue to decline in terms of OpEx cost. As we move into execution, we've also got in our CapEx plan, which again we talked about last year and reinforcing this year the CapEx expenditure relating to the transformation fuel sets long term and revised the skill sets in to help us execute the simplification process. Thank you Darren so, probably just before I jump on to the transition on the growth margin -- on the margin growth, Sean, before that comes to bear in these results. One was that a greater proportion of our fixed wireless space and now on 5G, whereas in the previous year, they are on 4G and 5G is a higher margin. And the second thing is, as Iñaki talked about, we are now at a point in our fixed wireless space where we can consider it more that business as usual and what that means is a smaller proportion of that base is on promotional pricing, which is, by definition, lower margin. On price rise and the customers that are not included in the price rise, there's a whole series of different types of customers, as you point out, some are in the enterprise market. Some are in the consumer market but are on hardship plans. Some are on nontraditional let, et cetera plan. So, they are our nonmainstream plans that were not included in the price raise.

Maybe just to clarify on the fixed wireless piece, and obviously, it sounds like it's progressing well, maybe an indicator on the FY '23 guidance? Like what's in the assumption at the midpoint for fixed wireless subscribers?

Thanks, Darren. We are not going to give any guidance or numbers this year.

Our next question comes from Lucy Huang from UBS.

I've got 3 questions as well. So, my first question is around bundling. So, I think in the past, you've mentioned the opportunity in the bundling strategy. Just wondering if you can give us an update on how that's going in terms of driving either more fixed or mobile customer subscriptions. Also secondly, with the repricing refresh in postpaid, just wondering if you can give us some color or thoughts into kind of pre-paid. Are there any plans over time to look at refreshing the pricing there as well? And then just thirdly, with the working capital movement. Just wondering if we can expect some of those negative movements to fully unwind coming into FY '23.

Thank you, Lucy. Look, in terms of future pricing, we don't talk about our plans on future prices. So, we're happy to discuss around what we have already announced in the market in terms of our intentions on prepaid, we will not discuss that. I'm going to ask Kieren to talk a little bit about bundling and what we have been doing there as well as then I'll pass on to Grant around capital management.

Online cross-sell or convergence remains central to our strategy at the heart of when the company has merged. We've seen strong growth both on traditionally mobile customer bases picking up fixed such as Vodafone, pick and fix and fixed wireless products and our fixed, more traditionally fixed mobile base fixed bases such as PPG, taking up mobile. One of the key things that Iñaki talked about and Grant talked about as we move into our transformation in the next stage, our ability to unlock a lot of that growth through an increase in our system simplification and our data capabilities. So, at the moment, we are confident we're comfortable with the growth that we've got, but we still acknowledge there's a lot more work to do.

Yes. I think on working capital, good question. So, there's 2 parts to it. The first part is a handset receivable financing, which, to be honest, I see more as a financing decision, not a working capital view. But obviously, from the accounting and the cash flow balances, we flow through working capital. We've made the call and we've been doing this for a while now. I think we've talked about it last year that the best form right now financing that is actually on balance sheet. It's not only just a cost thing, although it is cheaper, just the complexity and the risk transfer that market has changed from what it was back at merger. So, at this stage, our plans are to continue that. So, we're always looking for other opportunities. This is a better way finances we will. But at this stage, I suspect we've talked about having just over $500 million less. You can expect those similar trends over the next couple of years for that to unwind. In terms of the other working capital movements, probably Half of it is due to growth in the business, which I think is the normal working capital has been from a cash conversion point of view, I think half of it sort of one-offs. Now whether those one-offs reverse quickly or not, I don't know because they're one-offs that are driven by supply chain consistency we still do exist. But I certainly -- I don't think will be repeated and they could well reverse this year as well. So, if you actually adjust for both those sort of a pure operating cash flow metric is sort of in the mid-90s, not the operating free cash flow, but into a pure operating cash flow. We're in the mid-90s conversion from EBITDA, which is a very strong underlying cash.

Our next question comes from Kane Hannan from Goldman Sachs.

I've got 3 well. Firstly, just can you just give us a sense of how quickly you're moving on those back book price rises during this half. Just hoping to get a sense of what the delta is sort of in FY '23 versus FY '24 from that reprice. Secondly, just remind me, the handset receivable unwind, does that have any impact on your handset margins and sort of EBITDA this year? And then finally, just that $1 billion enterprise revenue target, you appreciate mock-on delays uphead your control. But just helpful if you could ramp a few numbers around what you're expecting from regional mobiles. If the [indiscernible] get the green line in June this year, when you think you'd be able to hit that $1 billion revenue is that 2026 sort of number.

Thank you, Kane I think on the first one, look, we have basically giving you the starting point is last week, we'll probably see the impact of this more on the second half of the year of this growth. And like we said, we'll probably reach about 70%, 80% of our postpaid. I think that, of course, we need to be vigilant of market conditions. But in principle, I think that the estimates that you are making around half year is probably correct. In terms of the handset receivable, of course, it does have a benefit on our EBITDA because we are reducing the cost from our operation. And on the last one, like I said before, we maintained our ambition. I think that a lot of that has to do with the growth that we have on Superfast fiber, and we have talked about that, and that is something that remains. And we also have some very strong wins on the segment. So, we are very comfortable on the way that the fixed side of the business is evolving, where there are some headwinds on the legacy products, we do see a strong growth on our core business. And the mobile side is more of a timing issue, and I think that we will have to wait for the Tribunal. But definitely, we see a huge opportunity to leverage of increased coverage on our enterprise business model.

Our next question comes from Harry Saunders from Evans & Partners.

Just firstly, going back to the mobile price rises just wondering if you can give an idea of the potential ARPU impact from the back book price rise and perhaps sort of before after your expected spend down to lower plans. And then so what is the percentage of total mobile subs, including non-Vodafone there? So that's the first question. And just on fixed while continues progress in the half. I appreciate you're pulling back on the sort of promotional activity. But can you give the current idea of the sort of run rate there? And then also just what's happening with the Vision network subs, which didn't move in the half? Also just then on the ACCC decision for [ Marcin ]. Just wondering, depending on the appeal outcome, what your strategy is and alternatives if the appeal is unsuccessful, would you look at some sort of roaming agreements. And then just finally, on the debt refinancing in 2024, what sort of fixed rate percentage could you be targeting? And any sort of improvement in cost of debt versus the taxes quite...

Thank you, Harry. Let me just on the ARPU impact we're doing -- we said that it's on average a $5 ratio you can make your own calculations on that. In terms of how customers are going to take a look at the end of the day, we continue to provide great money in the market. We have done some serious investment on our mobile products and customers are perceiving that. So, I think that we are well positioned to reflect that incremental value that we are providing through this minor price increase. So that's pretty much the way we see it. I mean, we'll have to monitor market conditions. But in principle, that's the proposition that we have. In terms of fixed wireless, like I said before, we have good run rate, but we are not going to provide any numbers for next year. This becomes like era we're saying becomes more of a business as usual. We did want to ramp up these days early in the last couple of years. And I think that now we are in a different situation where the product is already performing well, and we have a decent customer base, so we will continue as it because there are some things to be defined in the market or on NBN pricing, et cetera. So, for the time being, we continue to bid on this price and position it as a good entry point for broadband market. In terms of the AWC, our thinking is that there is a lot of public benefit on what we are doing with immediate implementation. We are confident in the sense of this being a very competitive arrangement for regional Australia. And for that reason, we are concentrated on getting this a decision in June on our favor, and we're not really thinking on alternative options at this stage. Refinancing Yes, so on the refinancing, look, obviously, we're going up to market, focused on the 3 normal things you do refinancing tenant diversity and margins. So, the actual interest rate is in the left of the macro environment, but we're very confident. We've got very supportive lenders and very interested parties. So that's just -- those 3 will be weighed up as we went through the RFP...

Can I just ask one follow-up. Just wondering if you could give an idea of what the EBITDA tailwind from the move from handset receivables financing in 2023?

No, it's not -- again, obviously, our guidance there. We've been unwinding these since merger. So, if you think we are around about $265 million this year, we go land a similar amount over the 1.5 year 4. So, it's -- and I suspect we're going to depend on how much round wind this year will work through. So, it's there, but it's not significant. It's not noticeable in the overall scheme of things. So obviously, we've made an assumption in our guidance got a fairly decent range in it, but it's not one of the driving factors.

Our next question comes from Entcho Raykovski from Credit Suisse.

To my first question, what it's been asked in different ways, so I haven't covered as well. I'm just interested really specifically the likely impact on the churn from the postpaid price increase in January and as you reprice the back book? And obviously, if you take into account the competitive environment, I don't know if you can give us any specific numbers, but we successfully factoring in a significant churn increase that you put through the new pricing? And perhaps if you can also start on that answer about what was the benefit in the second half to your postpaid subs on the Optus Data bridge? I'm sure you've got a good sense based on [ Poplin ] data. And I don't know if you can split out what was the ouster benefit versus your underlying growth. That's the first one. Second question, given the monetization process, the vision network, what are your thoughts around how any proceeds are going to be applied as you're primarily looking at debt reduction to offset the impact of handset financing. And then fairly the submission to the C in relation to the NBN. I think that makes it pretty clear you don't agree with the proposed FAU. I guess, I'm interesting in what we think is the life-event than the current form of the SA has adopted and how you see it impacting NNAs costs in if you don't go ahead in this current...

Thank you, Entcho. Look, in terms of the -- your question of churn, we do see good churn levels currently. I think that as we are entering to more normal market situations with the return of international business, we see that reflection. So, I think that's the reality. And on the price refresh, I think it's basically the same as I said before, we are still providing great value to the customers. And for that reason, we think that we continue to maintain a very strong proposition in the market. We monitor what will happen, but we do think that there is now a very different situation in this market where -- all operators are under strong investment cycles. We have new technology, providing much more value to customers, faster speeds, more allowances in data at the same time that we face significant inflation. So, we do think that this is something that is very justifiable, and we don't think that this is going to generate any unusual type of churn. In terms of your question around how much did we benefit from the Optus cyber attack, I think that it's clear that there was a high churn event for Optus and that probably benefit everyone. I wouldn't be able to tell you what is the number that will benefit from on -- as a result. On the vision, I'm going to let Grant take that one. And before I'm going to -- just on the MBNA, we have put comments on our ideas around the current proposal. We do think that ultimately, ARPU growth on different products needs to be accompanied by some incremental value provided. So, we have said that making the NBN50 more expensive year-on-year without adding any type of incremental speeds. So incremental quality is something that we don't think is good for the market. And we think that, that will end up becoming more pressure into consumers to access pretty basic broadband. So that's a bit our idea. And in terms of what's going to be the outcome, I really don't know. I mean that we'll have to wait for the different parties to agree on what is a sensible SAU for the future Grant, maybe you want to take the addition question?

Sure. And I'm going to give a fairly more answer, unfortunately, about Page 25, we'll apply our capital allocation framework with any proceeds that we get, which is really a combination of we're really investing quite strongly in the business right now for good reasons. Obviously, we want to sustain a really strong balance sheet, continue to pay dividend and look for growth opportunities. So, we'll weigh out any proceeds we happen to get out of a strategic review if it goes that way. It may not go that way, but if it does go that way and we get some cash, we'll apply it on the framework that we have.

Our next question comes from Brian Han from Morningstar.

Just a couple from me. On enterprising and government, what percentage of that non-legacy revenue base do you think is recurring? And what's the average duration of those recurring nonlegacy contracts? And secondly, how much of the EBITDA last year if it was from roaming? And how much more to go to return to those pre-COVID levels? And finally, if I can just ask this, I know this is small in the grand scheme of things, but the comparable underlying EBITDA a year ago, why has it changed to 1,727 from 1731.

Thank you, Brian. I'm going to ask Jonathan to go through the enterprise and government question. He can give you a better view of our legacy recovering.

Thanks Iñaki, Thanks, Brian. So, the first thing is the main item, which is nonrecurring, is the handset revenue, which you can see we've split out on Slide 2 of the presentation. the handsets the predominant nonrecurring item. Outside of the legacy contracts, the vast majority of tea revenue is recurring service revenue. The average situation of contracts slightly different based on product lines. If you look at our fixed business, typically a 2- to 3-year contract length on the mobile business, typically up to [indiscernible]contract length. One of the attractions of convergence to was we're able to secure longer-term contracts on mobile when we convert you with tax. I hope that gives you the detail you're looking for Brian.

Yes, Brian. On the EBITDA, we said that on the second half, we were up to 85% of the contribution of pre-covid-- but I'm going to let Kieren maybe add bit more color into that.

Thank you, Brian. It turns out an ARPU for us and pre-pandemic, our roaming ARPU was about $2.19. A year ago, at the end of last year, it was about $0.40. So that's where there was a big gap in our ARPU. So we're seeing only about 15% of the opportunity from roaming at the half year, it reached about $1.20. So, we were getting closer to half of the roaming. We're now sitting as Iñaki said, about $2.20 associated with roaming, so about 85%. So, we've seen a steady increase, and we expect that to certainly increase further through the year.

And then on the EBITDA change, good pickup for last year. And in the accounts, you'll see we have restated we've made a voluntary accounting policy change on government grants, which is about $7 million or $8 million. And basically, that reapply that now against CapEx instead of into revenue, and we've changed that this year. Therefore, we've restated last year as well. It's just a view that it's more appropriate for us the way we get these government grants, they're done largely to deliver a program. So, we've just decided to make that voluntary change to the accounting policy.

Our next question comes from Roger Samuel from Jefferies.

Just got 2 questions. First one, on your fixed business, obviously, you try to offset the declining sub from NBN with fixed wireless. But are you kind of holding back the growth in NBN because you're still waiting for the proposed -- so to be finalized? Or can we see a situation where your Indian subs will start to grow over time? Second question is on tax. So, this time, fourth full year, you recognized $6 million in tax expense. But in the half year, you had tax benefit. Can you explain what happened in the second half of '22 and what should we expect for tax going forward?

Thank you, Roger. I'm going to -- just on the NPA before I pass on to Grant -- the transition of customers from NBN to fixed wireless is something that we've done proactively. So, it's not that we do fixed wireless a sequent sequence of NBN reduction is that we are migrating customers from NBN to fixed wireless because it provides better margin, and we still provide a better service to our customers. So that is what explains the decline of NBN base while we are still sustaining our broadband customer base. Grant.

Yes, on the tax, just a time effect for second half in terms of the tower asset sale, we had agreed the deal just before year-end, we did settle to July. So, we recognized a tax benefit for losses a couple of losses we hadn't recognized at that stage, but they were obviously certain. So, we recognize that in the P&L balance sheet in the half year, and we've used those tax losses in the second half. So that's what flows through both the balance sheet and the tax expense going forward will just be back to normal.

Okay. And just going back to the first question. I mean do you still push the NBN products from now on? Or are you just going to keep migrating people to fixed votes?

No, I think that the strategy is to, like I said, to continue to manage the margin of our fixed broadband business when we maintain our position and -- but we are still doing sign significant commercial activity on MPM. We do think that there is a place for all the products, I think that we are using probably a smart use of our technology to improve the margins while we offer more choices to customers. So that's really the strategy. There are a number of products that we continue to market on NBN, including enterprise, which we are still, I think, the #1 provider of enterprise offered. So, I think that there is a place for both, and we have the privilege of being used -- being able to use our own infrastructure where it makes more sense.

Our next question comes from Nick Harris from Morgans.

Just 2 questions from me. Just obviously the price -- sorry, the postpaid price rise in January of this year. Just trying to ask the same question in a slightly different way. Did you get a meaningful increase in churn when you push that through? I know it's only early days, but curious churn or spinning down. What do you think the value gap that you have versus your competitors is big enough that it didn't really change much at all? And then the second question was just to ask Grant, could you please repeat what you said, I think, on Page 22, something about medium-term EBITDA to ops free cash flow conversion, just so I've got that right.

Thank you Ian, . I'm going to let Kieren answer the first question because I probably didn't explain myself for a gain and then ran will go to your question.

On the peso in January, we increased the prices for new customers. And last week, we began the notification of the prices to existing customers. So, from January through to now, what it's -- it's been a very vibrant market that's been happening or we still maintain, we think, a leading proposition in the market when you look at the value equation of providing our customers. So, we are really comfortable with the trading results we've had through that period. It's very early days. Clearly, it's only a few days in since the notification to our existing base. But it's not something we did lightly, as [indiscernible] mentioned, it's the first time in the decade. So, we're very careful to make sure that the offering we're providing to our customers, we felt we're still market leading, and we are heading into that now.

So, on Page 22, we have what we define as operating free cash flow. We use it for our RAM report. And so that operating cash flow, take our CapEx and lease payments and interest. So, with that definition, what I was calling out is if you exclude the handset receivable financing, which will unwound and we that to normalize both the CapEx to the sort of long-term guidance we've given and some of those higher inventory, which were one-offs this year, which I talked about. You're in the sort of 40% to 45% conversion from free cash flow after CapEx after lease payments, which is very consistent with industry participants. In that definition. Obviously, you go to just operating free cash flow. I think I also called out that for 2022, if you exclude asset receivables and your accounts sort of half the other capital working movements is a one-off. You're in the sort of mid-90s as an operating cash flow conversion ratio, which I think if we keep growing in a growth mode, that's a very strong, reasonable cash conversion.

Our last question comes from Ian Martin from New Street Research.

Iñaki, I'm interested in your view on the move or the interest shown by the cloud service providers in the telco sector, I mean, they're quite well capitalized. And you've probably seen AWS' announcement of local zones in Kirtan I think Adelaide and Brisbane on the target as well. And interesting to see the focus has bought a private LTE player. So that's -- I just wonder how you see that in terms of growth versus new competition, if you like, in the enterprise and government sector. And secondly, those same cloud service providers seem keen to play a role in core network services, and I think you've had some success with new entrants in overseas markets. So again, if you I'd love to hear your views in terms of whether you -- how you see that playing out in terms of opportunity versus competitive threat?

Yes. Thank you, Ian. Look, we actually see this as an opportunity. And in fact, we are working closely with AWS on several fronts. In terms of -- I think that IP scalers are definitely bringing huge computing power, huge storage. You also need you also need a low latency that the networks provide. So, we really see that as an opportunity to collaborate, and that's really where we are exploring. In terms of our network before I go into the mobile virtual private networks, in terms of our network -- we have done a significant work around the digitalization of the core network, which means that our core network for the most of it, it is already operating in a virtualized environment. We're doing that on our private cloud. And definitely, there are opportunities in the future to move this to a public cloud. But for the time being, we are more concentrated on the virtualization, which is really what gives the flexibility is really what allows us to be able to be more -- age implement things quicker. And then for the time being, like I said, the economics still done on are not the trigger for us to go into a public cloud. We are more comfortable on our private cloud. But that's something that is always the option, and we'll see how this develops. And in terms of mobile private networks, that is something that we are doing in-house. We do have access to significant resources in that front through some of our strategic shareholders, you know that we've done already a number of -- I think we already announced the mobile virtual private network with [ Gamcor ] and we are working on some other prospects. So, it is something that we would do internally. We haven't seen the need to any type of acquisition to provide that product.

There are no more questions on the call. This concludes our call. Thank you for listening. You may now disconnect.