TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

Good morning, everyone. My name is Trent Czinner, and I'm the Group Executive Legal and External Affairs and Company Secretary for TPG Telecom. I'll be assisting with procedural matters for today's meeting. I'd like to begin by acknowledging the Gadigal people of the Eora Nation, the traditional custodians of the land on which we meet today. I pay my respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples joining us today. We acknowledge the contributions of indigenous Australians and the rich history and diversity of this land. I will provide shareholders with information about how to vote and how to ask questions prior to resolutions being presented to the meeting. I would now like to ask TPG Telecom's Chairman, Mr. Kin Ning Fok, to formally open the meeting.

Good morning, ladies and gentlemen. I am Kin Ning Fok, the Chairman of TPG Telecom. It is my pleasure to welcome you to TPG Telecom's Annual General Meeting for 2023. TPG is pleased to be holding an in-person AGM this year after 2 years of virtual meetings. This is the first in-person AGM since the merger of Vodafone Hutchison Australia and former TPG Telecom. And we thank you for coming along today. I also welcome shareholders and guests who are viewing the AGM via our live webcast. It is now past upon the time of 10:00 a.m., and I have confirmation that the meeting is properly constituted, a quorum is present and the proxies have been inspected and all -- [ this valid roster ] has been accepted. I therefore declare the meeting open. Before proceeding with the business of the meeting, I would like to introduce my fellow director. Seated on the panel table from my left to right are Jack Teoh; Tony, Mr. Tony Moffatt; Frank Sixt; and Dr. Helen Nugent. And then to my right is Iñaki Berroeta, our CEO and Managing Director; Arlene Tansey. Unfortunately, Robert Millner is unable to join the meeting today and sends his sincere apologies to shareholders. Robert has recorded a message to the shareholders in relation to his reelection today and that we will play during that item of business. Serpil Timuray and Pierre Klotz could not be here in present today, and they both join us remotely, as you can see on the screen beside me. I also welcome Serpil and Pierre. I also welcome other members of TPG executive team who are here today. Trent, who has already addressed the meeting and our other executive members sitting in the front row are Grant Dempsey, Group CFO; Vanessa Hicks, Group Executive People Experience; Kieren Cooney, Group Executive Consumer; Jonathan Rutherford, Group Executive Enterprise, Government and Wholesale; and Giovanni Chiarelli, the Group Technology Officer; and Ana Bordeianu, Group Executive, Customer Operations and Shared Services. Mark Dow from Pricewaterhouse and other TPG Telecom external auditors and the representative from our legal advisers are also in attendance. The agenda for today's meeting is as follows. First, I will present my address. I will then invite Iñaki to present to the meeting. Trent will explain the meeting procedures. We will then proceed with the formal business with the 6 resolutions to be put to the meeting while answering questions from the shareholders. Gemma Coyle, our representative from Computershare will then conduct a poll once all resolutions has been presented to the meeting. My address and Iñaki's address and presentations has been launched with the ASX prior to the AGM commencing. Good morning. It is my pleasure to join you in person for TPG Telecom's 2023 annual general meetings. I would like to start by thanking you, our shareholders and your continued support of TPG Telecom. In 2022 financial year was a positive one for company, reflecting improved market and operating conditions following the impact of the COVID pandemic in prior years. We experienced a strong return to growth to mobile subscriber numbers and improvement in profitability in the fixed broadband business and continues to invest in and simplify our business. The TPG Telecom Group returned growth in key financial metrics. Deliveries total service revenues of $4.439 billion and EBITDA of $2.135 billion, including the proceeds from the sale of our passive tower and rooftop assets in July 2022. Excluding this gain, the impact of the restructuring costs, EBITDA was $1.793 billion, up 3.8% on 2021. The group ended the year with an additional 300,000 mobile subscribers, taking our total service in operation across mobile and fixed to around 7.5 million. We also enjoyed strong new business growth in enterprise and government customers. The successful sale of tower assets strengthened our balance sheet and enabled us to reduce net borrowings. We also declared that dividends for the year of $0.18 per share, up 9% on 2021. It was also an important year for our sustainability efforts. We set long-term emissions reduction targets in line with the science-based target initiative to reach net zero emission across our value chain by 2050. We aim to power our Australian operation with 100% renewable electricity by 2025. We extended -- our gender diversity commitment became a signatory to 40:40 Vision and achieved an uplift in female representative -- representation in leadership roles across our Australian workforce. However, there were also challenges in 2022. Australian government agencies, companies and specified industries, sectors, including telecom communications were directly targeted and affected by an increase of cyberattacks throughout the year. Like other organization, TPG Telecom is not immune from such attacks and continues to work closely with our cybersecurity partners and governance agencies to have robust and secure system and processes. Significant investments continue to be made to strengthen TPG Telecom and secure and protect consumer -- customer data from unauthorized-use assets and disclosure. In December 2022, we were disappointed with the ACCC's decision not to authorize our proposed regional network sharing arrangement with Telstra. We have challenged this decision in Australian Competition Tribunal and remain committed to fighting for the interest of consumers and our shareholders. In closing, 2022 was a very positive year for TPG Telecom, and we have entered 2023 in a strengthened financial position. I thank my fellow directors, our CEO and executive team, the people of TPG Telecom and, of course, you, our shareholders, whose continued support is being -- is helping create more value and connections in Australia's telecommunication sector. I will ask our CEO, Iñaki Berroeta to address the meeting.

Thank you, Chairman. I'd like to begin by acknowledging and thanking all our shareholders and customers for the continued support of TPG Telecom. Three years of COVID restrictions has not allowed us to meet in person before, so it really is pleasing to see all of you here today. I would also like to thank the dedicated people of TPG Telecom both in Australia and abroad who continue to achieve our strategic goals while also making our organization a great place to work. As the Chairman has said, 2022 was a year in which TPG Telecom realized an important shift in momentum. We returned to growth in both subscriber numbers and revenue and continue key simplification and transformation projects. We recorded a strong rebound in mobile customer growth, adding 300,000 new subscribers as the restrictions of COVID eased and international visitors and students returned to Australia. While the rate of growth has moderated as year-on-year conditions begin to normalize, positive momentum in our mobile business has continued year-to-date. We delivered an increase in the average revenue per user in mobile in 2022 and in 2023, had begun to execute the simplification of our postpaid mobile plans, delivering more data to customers while also responding to inflationary pressures through some price increases. In fixed broadband, we have continued to focus on improving profitability. The fixed broadband market remains highly competitive, increasingly from non-telco entrants while the industry continues to be challenged by the impact of consistent and sustained increase in wholesale costs from the NBN. Our fixed wireless service is a great value alternative to the NBN. Uptake accelerated in 2022, with our subscriber base more than doubling to 171,000 customers. Fixed wireless subscribers growth has continued in 2023 to date, at a slower rate than was the case in 2022. A combination of this fixed wireless growth and target price increases for NBN services help us increase average margin per user in fixed by 8%. Our enterprise government and wholesale business unit also experienced strong new customer growth throughout the year. We delivered double-digit growth in our on-net fast fiber product offering another $150 million of new contract wins spread over an average contract life of 3 years. Our wholesale business also had a significant year. We relaunched our wholesale residential access business servicing, approximately 400,000 residential premises through Australia as the Vision Network. We also made it easier for small-scale mobile providers to compete in market through the launch of mobile virtual network enabler services. Across the business, we are continuing to execute against our strategic priorities. We delivered $140 million of cost synergies from the merger of Vodafone Hutchison Australia and TPG. We accelerated key simplification and modernization programs across our customer operations and technology systems. We upgraded more than 1,000 sites to 5G across our mobile network, taking our total 5G network footprint to more than 2,000 sites across Australia. The tower asset sale completed in July 2022 enabled us to strengthen our balance sheet. And for the first time, we provided earnings guidance for the year ahead. As the Chairman has noted, the ACCC decision, in December 2022, not to authorize our proposed regional network sharing arrangement with Telstra was disappointing. This was a missed opportunity to bring greater choice and connectivity to the many customers and businesses in regional Australia. We are currently challenging the ACCC decision in the Australian Competition Tribunal, which its decision due on or before the 21st of June of 2023. We remain committed to bringing greater mobile competition and choice to regional Australia and consider the network sharing will play a key role. Another of our priorities is the strategic review of our stand-alone wholesale residential access business, Vision Network. This business will play a key role in the delivery of superfast broadband services to Australian homes and has exciting growth prospects. The strategic review process is ongoing. We have received a strong interest from a range of parties wanting to invest in Vision, and we will update shareholders as and when the process progresses. Over the next few years, transformation of our products, services and systems will play a big role in fulfilling our ambition to become Australia's best telco. We have a strong portfolio of brands but streamlining is necessary as we make things simpler for our customers and improve the value and services we deliver. The moving complexity is crucial and we are accelerating the simplification of our IT platforms to ensure we have the flexibility and agility to respond to customer needs while reducing risk and maintaining an efficient cost base. Delivering on these priorities will enhance our potential to build up our inherent advantage as a low-cost operator and deliver greater capital efficiency. Over the past few years, we have worked hard to establish the solid foundation we need to achieve the potential of TPG Telecom, deliver improving returns to shareholders and become Australia's best telco. At our 2022 full year results in February, we provided earnings guidance for the first time. We confirm our guidance to achieve EBITDA of between $1.85 billion and $1.95 billion in 2023, excluding material one-offs and transformation costs. Thank you again for joining us here today. I will now hand over to Trent to explain the procedures for today's AGM.

Thank you, Iñaki. Ladies and gentlemen, the Notice of Meeting and notice and access letter was distributed to shareholders and is proposed that the Notice of Meeting be taken as read. When you registered this morning, you will have received either a blue, yellow or white registration card. For attendees with blue cards, this card entitles you to vote and ask questions today. For attendees with yellow cards, this card entitles you to ask questions, but this is a nonvoting card. For attendees with white cards, this is a visitor card and does not entitle you to vote or ask questions today. If you have not received your card or you do not have the correct colored card, please see Computershare at the registration area outside of the room. In accordance with the company's constitution and governance best practice and as set out in the Notice of Meeting, the Chairman has determined that voting on each of the resolutions will be conducted by a poll. The results of the poll will be released to the ASX and will be available on the company's website as soon as possible after the meeting. Voting on each of the resolutions will commence when the Chairman opens the poll after all resolutions have been presented to the meeting and will be facilitated by Gemma Coyle, our representative from our share registry Computershare. Before the poll is opened, the proxies for and against each resolution will be displayed on the screen. These figures are at the closing time for receipt of proxies, which was 10 a.m. Sydney time on Tuesday, 2 May 2023. As set out in the Notice of Meeting, the Chairman will vote all directed proxies in accordance with the directions provided by shareholders and will vote all open proxies in favor of all resolutions. This includes proxy votes held by the Chairman, which will be voted in favor of Item 2 on the adoption of the remuneration report and Item 6, grant of equity to the CEO and Managing Director, unless specifically directed otherwise. We welcome your questions today. Shareholders and proxies with blue or yellow registration cards may ask questions during the meeting. All shareholders will be given a reasonable opportunity to ask questions, and we request that you limit questions to 2 at a time. If you would like to ask a question, please proceed to the microphone located here in the aisle. When you ask your question, please show your blue or yellow card and introduce yourself or ask a representative from Computershare to introduce you. The Chairman will either answer your question or pass it to the most appropriate person. Questions not related to the business of the AGM, the management of the company or those that are ruled out of order -- sorry, those that are out of order may be ruled out. We will endeavor to answer all questions. I will now pass you back to the Chairman.

Thank you, Trent. We will now move to the formal business of the meeting. The first item of business is the receipt of and consideration of the December 31, 2022 financial report for the company and the reports of the directors and the auditors. No vote is required on this item of business. A copy of the annual report was released on the ASX, has been made available on the company's website and was sent to those shareholders who request a copy. I will take the financial statement and annual reports as received. I now welcome any questions on the room regarding this item or management of the company more generally.

My name is Fiona Balzer, and I'm representing the Australian Shareholders' Association today. I hold proxies for 50 shareholders and around 290,000 shares. Mr. Chair, my question is, what impact will the decision on network sharing with Telstra have on the financial forecast provided?

Okay. Thank you. I think I request the CEO, Iñaki to answer this question.

Yes. Thank you for the question. First, the guidance that we have provided is prior to any impact from this arrangement. And it also doesn't include any material one-offs that we will take in the case of the implementation of the network-sharing deal. Once the Tribunal makes the decision, we will probably evaluate if there is any changes to that forecast, and we will communicate in that way.

Peter Gregory is my name, a shareholder, a long-term shareholder. I have 2 related questions that I'd like to ask. Firstly, do you have an update on the FY '22 Scope 3 emissions that was referred to in the annual report as not available at the time? And my second question I ask, I note your commitment to power our Australian operations with 100% renewable electricity by 2025, and congratulate you on that commitment. But as most Australian companies are making similar statements with targets -- with similar targets that range up to target dates up to 2030, it's likely for supply and demand reasons that renewable energy will become more expensive. To protect against this, do we have any sources of renewable energy that TPG own? Or are there long-term supply arrangements in place to protect against price increases? In asking this, I note that our major competitor, in mitigating their risk, has purchased wind and solar producing -- electricity producing facilities to account for about 31% of their energy needs.

So Iñaki, do you want to take this one?

Yes. Thank you very much for the question, and I'll try to answer. So first, the target of 95% reduction in absolute Scope 1 and 2 emissions by 2030 will be achieved via powering all our operations through 100% renewable electricity. In terms of the investments that you were asking, purchasing of renewable electricity itself, so either directly via certificates, will obviously be a cost item. We -- I don't have that figure with me, but we can get back with that number. And then in terms of the Scope 3, the target of 30% reduction by 2030 will also -- will mainly be enabled by the decarbonization of the electricity grid at large as well as by other suppliers and counter-parties in our value chain. So as such, the direct cost of Scope 3 emissions reduction are likely to be relatively small in terms of the impact. And then I think that also we need to take into account some of the expenditure on our internal capability and resources from third-party suppliers to support the achievement of all these targets.

Fiona Balzer again. I'm just wondering if Mr. Berroeta could give an idea of the capital expenditure associated with meeting those targets that Peter Gregory just asked about, please?

Yes. I think that that is the numbers that I can probably -- I don't have those numbers with me, but we can inform of those numbers.