TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

Good morning, everyone. This is Paul Hutton from the TPG Telecom Investor Relations team. Thank you for joining us for the presentation of our 2026 half year results. We acknowledge the traditional custodians of country throughout Australia and the lands on which we and our communities live, work and connect. We pay our respects to their elders, past and present. This morning, Inaki will present our results, highlights and business update. John will then present a detailed review of our financial performance. Inaki will then discuss our outlook before we open for Q&A.

Thanks, Paul, and good morning, everyone. We have made a good start to 2026 and expect to build on this foundation. This reflects the work we have done to sharpen our customers' proposition, expand our network reach and simplify the business, giving us confidence in both near-term momentum and longer-term value creation. Our enhanced network is driving market share growth in mobile and strong ARPUs with record levels of customer consideration and satisfaction. We are using data and AI enable insights to better understand network experience and customer needs prioritize the areas where improvements can have the greatest impact for our customers. Our strong growth in wholesale MVNO is proved that the market is recognizing the strength of our network offering. We delivered a strong mobile trading performance again, outperforming the market in total mobile subscriber growth. This was driven mostly by momentum in our digital first and MVNO brands, while also achieving the strongest postpaid subscriber performance in the market. Combined with solid ARPU growth, this drove a 4.2% increase in mobile gross margin in the half. We expect ARPU growth to accelerate in the second half following recent planned refreshes. Cash flow continues to improve due to higher earnings, lower CapEx and the changes we made last year to reduce borrowings. This benefits both ROIC and dividends. We have increased our interim dividend by $0.01 per share to $0.10 per share. The first half positions TPG to deliver further shareholder value through the remainder of 2026 and the years ahead. Consistent operational and commercial execution is leading to the consistent delivery of financial results. Our strong performance in the first half was again led by our mobile business and disciplined cost management. Mobile service revenue increased 3.1% in the half. We expect a stronger ARPU performance to support further growth in the second half following recent planned refreshes. EBITDA rose 4.5% on the first half 2025 pro forma results. We expect second half EBITDA to be higher than the first half in absolute terms, consistent with our normal business seasonality. ROIC and underlying EPS both increased materially, reflecting our operating performance and improved capital structure. Mobile delivered a strong result as we continue to provide products that customers want across a differentiated multi-brand portfolio. Total subscriber growth was 64,000 in the half, with postpaid and total subscriber growth outperforming our competitors. With more new subscriber additions than the other MNOs together, proof that our digital first subscription brands are positioned where customer demand is growing and that our MVNO strategy is delivering real tangible results. This momentum is contributing further market share growth, building on an increase of close to 1% since the start of the MOCN. During the half, we entered a partnership with 3 new MVNOs said mobile is now fully operational, while the migrations of space stock and operator of the mobile brand are taking place in the second half. ARPU is growing across all products and is expected to accelerate through the second half following our recent plan refreshes, which included both front book and back book plans. Now turning to home broadband. The NBN market remains challenging, but the target initiatives we have made in recent months to address churn are beginning to pay off. We are seeing evidence of stronger retention and improved customer experience. Subscriber numbers in NBN were down in the half, but the rate of decline slowed compared with both halves in 2025. We expect a further improvement in the trend in the second half, having recorded a stronger performance in July and the beginning of August. AI and advanced analytics are part of the solution, helping us identify customers at risk of churn earlier, personalized retention offers and improved service outcomes before issues escalate. In fixed wireless, we have seen a return to subscriber growth in the second quarter since the launch of the 5G stand-alone services, which has increased our addressable market by 15%. We are also seeing an increase of the portion of the NBN base on the lower churn, higher speed tiers. Since December 2025, we have seen an increase of 24 percentage points in NBN customers on NBN100 or faster plans, growing to 56%. We have also seen a sit of fixed wireless customers from 4G to 5G. We expect these trends and growing fixed wireless subscriber numbers in the second half to drive a stronger AMPU over time. The next slide shows service revenue and gross margin for both mobile and home broadband. The trend in mobile remains strong with growth more than offsetting higher regional sharing costs from a full 6 months of operation and rollout of more 5G sites. Home Broadband continues to reflect more challenging conditions amid a declining total NBN market. Gross margin growth was greater than service revenue growth in aggregate and we expect that to remain the case over time. To reiterate, we expect continued subscriber growth and accelerating second half ARPU growth to drive mobile gross margin. and we expect subscriber numbers in NBN and a return to growth in the higher-margin fixed wireless business to drive home broadband. As we noted at the Investor Day, our strategic framework now has 5 pillars with the addition of embody customer first people always. We continue to deliver against all 5 pillars of the strategy, and we are optimistic about the coming months and years. Network sharing is delivering better experience for our customers and efficiency for shareholders. The mobile market will benefit from further network sharing, especially as we look ahead to the 6-year rollout. Recent outages highlight the essential nature of the services telco provide and the importance of a framework that enables resilience and redundancy. Greater network sharing could be part of the solution, while also delivering lower industry costs and increased network performance that will benefit customers. Another opportunity is the emergence of LEO sats. This is a complementary technology to terrestrial networks that can support existing mobile coverage in remote areas and further reduce coverage gaps. The recent ACCC announcement of an inquiry into mobile services and issues such as domestic roaming and network access is an opportunity for improved industry settings. We will bring our challenger spirit and customer-first culture to this process. I'll now hand over to John to take you through the financials in detail.

Thank you, Inaki, and good morning, everyone. It was a strong first half performance. I'm particularly pleased with EBITDA growth, supported by strong mobile performance and effective cost control and our stronger cash generation. My first slide shows positive trends across our key financial metrics. For 2026, we compare our results with the 2025 pro forma result from the prior corresponding period. This shows 2025 as if the new commercial agreements we focus had been in place for the full period, providing the most relevant baseline for comparison with 2026. This highlights the benefits coming through from the structural changes we have made, resulting in improving earnings quality, stronger margins and better cash conversion. Service revenue increased 0.5% in the half led by mobile, which increased 3.1% and has been sustainably strong for several years now. As I said at Investor Day, we expect gross margin growth to continue to exceed service revenue growth. We delivered gross margin growth of 2.9% in the first half resulting from continued strong mobile performance and the nonbiometric nature of our infrastructure sharing arrangements with both Optus and Vocus with indirect costs. This is despite an extra month of the regional MOCN with Optus in the period compared with the first half of 2025 and the growth, as expected, in those costs due to the 5G rollout. Also, as flagged at the Investor Day, EBITDA growth was greater than gross margin growth due to disciplined operating cost control. As we look across other operating metrics, the trend in underlying NPATA, EPS, dividends and ROIC were all positive. This reflects work we have undertaken specifically through a combination of running our network smarter, including through infrastructure sharing, growing mobile service revenue through distinctive brands, operating cost efficiency from business simplification and significantly improving our balance sheet settings. Finally, cash flow outcomes in the year were again strong. I'll touch more on these shortly. My next slide is a profit summary. There are a few points to highlight that I didn't cover in the previous slide. Hardware margin improved as we delivered operational efficiency despite lower industry volumes. Operating costs around halfway down the table were basically flat at $508 million. This is a very strong outcome against inflation of 3.6%. Turning to depreciation and amortization, the modest benefit against the prior year pro forma results largely reflects a onetime noncash adjustment to amortization of intangibles. We now expect the FY '26 total depreciation and amortization to be relatively flat to FY '25 on a pro forma basis. Net financing costs have reduced substantially from FY '25 because bank borrowings are now materially lower. For the full year, we anticipate total net financing costs pro forma for the new leases for fiber access to more than $100 million lower than FY '25. We are now a net taxpayer having utilized historic revenue losses against the gain on last year's Vocus transaction. I expect a go-forward tax rate of approximately 30%. Now turning to cash flow, where momentum is very positive. Cash flow from operating activities was broadly neutral as the initiation of tax payments offset the increase in EBITDA, and our positive working capital movement was a touch lower. Operating free cash flow was up more than 60%, reflecting the benefit of lower CapEx as our investment cycle mediates, offset marginally by minor increases in lease costs. Free cash flow to equity was $93 million, an increase of $108 million, reflecting a substantial repayment of bank borrowings last year. At the '25 result, I said we expected that on a reported basis in FY '26. EBITDA growth and lower bank borrowing costs would offset the absence of 7 months of cash flow from discontinued operations and the impact of a full year of the new Vocus arrangements. This was, of course, excluding the material nonrecurring cash benefits in FY '25 of the Voca star proceeds and the initiation of the handset receivables financing program and excluding separation costs. We are very confident of achieving this outcome for the full year. The business is now generating materially higher recurring cash flow, and we expect this trajectory to continue due to the growth in mobile service revenue, cost control, lower CapEx and much lower borrowing costs. I will now cover operating costs. Delivering a real reduction in cost is not easy in a high inflation environment, but the simplification of our business is creating sustainable efficiencies. Looking at where the savings were created in the first half, technology costs increased by around $11 million, mainly due to higher costs from software licenses, electricity and network rental. Employee costs increased around $1 million as business simplification benefits largely offset wage increases. Other costs reduced $8 million. This is another strong performance against our objective to deliver $100 million of operating cost efficiencies before inflation by FY '29. At $46 million achieved to date since the start of FY '25 we have already delivered almost half the target. We expect FY '26 to be broadly flat on FY '25 in nominal terms. I am very pleased with our track record and operating costs. We are targeting and delivering structural cost reductions, not just short-term restraint and supporting operating leverage as the business grows. AI is a practical enabler of further productivity in areas such as customer care, network operations, software development and internal process automation. Our focus is on using AI responsibly to improve speed, quality, capacity and efficiency while maintaining strong governance and human oversight. Now turning to CapEx and depreciation and amortization. We issued CapEx guidance on an additions basis. The top chart on this page shows the difference between this and cash CapEx with the 2025 figures on the comparable pro forma basis. Half year additions was $277 million, which we expect to increase to about $750 million for the full year. From FY '27 onwards, our targeted CapEx range remains $550 million to $650 million. As we have previously mentioned, we expect to be at the upper end of that range in FY '27 itself. This reduction reflects the lowering capital intensity of the business, now we have passed the peak of the 5G upgrade and IT modernization. First half D&A charges were all broadly as expected, except for the onetime benefit in intangibles of $10 million. FY '26 D&A is now expected to be in line with the FY '25 pro forma of $1.28 billion slightly lower than I said at the FY '25 result. My final slide covers dividends and borrowings. The declaration of an increase in the interim dividend to $0.10 per share reflects the strengthening of our financial position. Debt servicing costs are lower, so there is more cash available to shareholders. We have pooled franking back slightly to 25% to ensure we have a sustainable level of franking on this increased dividend. In the first half of 2026, we also made progress in deleveraging, reducing debt-to-EBITDA to about 2.9x and on the basis that S&P measures, down from about 3.0x at the end of 2025. We expect to make further improvements to this ratio reducing it much closer to our target of below 2.75x by the end of the year. Last month, we kicked off the refinancing process of our bank debt maturing in July 2028. Through this refinancing, we intend to derisk our position further, extending the duration of our debt and reduce the concentration of maturities. We continue to expect to reduce leverage further in coming years and to pay higher dividends as profit and cash flow grow. Thank you. I will now hand back to Inaki.

Thanks, John. This slide sets out our drivers of shareholder value and shows how we are tracking against our key commitments. Progress was strong in the first half of 2026, and we are confident of delivering further progress both for the remainder of this year and beyond. Our enhanced customer propositions are driving continued mobile service revenue growth, and we are getting continued operating leverage with higher margins and return of capital as we deliver cost discipline and capital efficiency. This makes the outlook for cash flow and dividends very positive. Our formal guidance for the year is unchanged. We continue to expect EBITDA to be between $1.665 billion and $1.735 billion, representing growth of just under 4% on a pro forma basis at the midpoint of $1.7 billion. This implies an improved second half, which I'm confident we can deliver. We continue to guide for CapEx on an additions basis of $750 million. Thank you, and we will now take questions.[Audio Gap]

The exact amount of dividends. But what I will say is this: one, we updated our dividend policy in August of last year. And that was to a progressive dividend. And to be really clear on that, is to grow our dividends over time in line with earnings and cash flow growth. That earning and cash flow growth is absolutely coming through, and I think that's very apparent in our results. The confidence and the outlook interim dividend of $0.10 per share. The second point I would make is given with your point on just on FY '26, firstly, cash -- if you take the midpoint of guidance, and you note that we said cash CapEx is going to be broadly in line in '26 versus '25 then we're already at $40 million to $50 million of free cash flow in FY '26. You add to that, I'm going to talk on a CapEx additions basis, CapEx drops from on an addition basis to $750 to $650. And that will have a cash CapEx benefit combined with whatever you are assuming earnings growth then the cash outlook looks quite strong. And it keeps our confidence on that aggressive dividend policy and hence our confidence on having tension to grow dividends over time in line with earnings and cash growth.

Awesome. And can I do 1 final 1 for in more longer term. So if I make an observation you've been doing this a long time even before TPG and back in the Vodafone days when there were mobile pricing was going on, I made the observation you stayed very rational and sensible with pricing. The reason why I bring that up is now questioning in the longer term, if satellite players come in, does that bring irrationality in the mobile market. So I'm just wondering, Inaki, can you just talk to a scenario if Vodafone were to partner with or MVNO with a satellite player. Do you think this is a positive or negative outcome for Vodafone ARPU? Or do you think about it more in terms of delta to your mobile service revenues?

Thanks, Eric. Look, I mean, in principle, we are positive about this technology. The way we see the technology is very simple. So this is the potential to cover geographical areas that in the past were not able to be covered with the terrestrial network. And we think that this is a change in terms of that coverage as a differentiator. And also, we think that this is a change that is for the good for us. In terms of the rationale, I mean we are rational regardless of the technology. So this has nothing to do with whether there are shifts in the technology available to us, and we do think that this is a critical service, is a very valuable service is also very affordable, but also we need to make sure that we are able to maintain the sustainability of PPE and the service that we provide to our customers. So regardless of the arrangements that we will look for with the different options that we will have in the future around this I think that at the core, we remain like you said, a rational company. Thanks, Eric.

Our next question comes from Entcho Raykovski from Partners.

So my first question is related. And I mean you've clearly outperformed the market from a subscriber perspective in the first half, so it's a very good performance. But I'm just conscious that mobile service revenue growth of 3.1% tracked slightly below Telstra. I mean I had them at 4.1% and then Optus was startup in the mid-3s. So any concern that your mobile service revenue growth is lagging slightly? Or is there perhaps a further pricing opportunity? And how do you think about balancing versus ARPU subs growth. And I mean that probably goes towards some of your comments around ARPU growth accelerating into the second, but maybe as part of that, Anthony, if you can talk through how you see the subscriber trajectory flowing through into the December half?

Yes. Thanks, Entcho. Look, I think that before I did to James Gully to talk live about what we have done in the plan refreshes. I think that first thing to consider is we is consistently for many, many reports been increasing our on our customer numbers and I always say that the balance of those 2 are not always the same, but also there are cycles around the timing of those planned refreshes. And I think that this is something that needs to be taken into consideration, and it's not the same for everyone. In the same way that it's not the same the mixes of customers. I think that you need to look this more in a longer time frame and look a bit about the trajectory -- and definitely, what we mentioned around the timing of our plant routes has quite a lot to do that comparative over the last 6 months. James, do you want to add something about what have we done.

Just to build on what Yaki said, we have the timing of our plan refresh probably include some of those numbers. And in the second half, we are seeing forecasting anyway an acceleration of our ARPU growth and service revenue growth on the back of that. If you look at the timing of the planned refreshes that we have undertaken our postpaid front book and a significant portion of our back book change in July and into August of this year. So that benefit will flow through in the second half. We did our prepaid plan refresh of middle of half in the first half, the full benefit of that in the second half. We've also recently, as on Wednesday updated our front book and back book for Helix. So the low and reading plants and moving up by $5. And then on top of that, we'll are communicating to our CPG mobile customers about some price changes on the low-end plans on TPG as well. So the combination of all of those, we would see an acceleration of ARPU in the second half, still maintaining some momentum in net adds, but certainly, the balance base a little bit more after we can -- he said it kind of moves a little bit between those 2. But that's the way we see the outlook for the second half, Entcho.

That's good color. And then my second question is around home broadband. Can you talk a little bit more about the dynamic, which is driving the better July, August performance? I guess apart from fixed wireless, you've been pretty clear on what you're doing there. And is it broadly because you've kept pricing flat on some of the NBN products that 100 and 500 products? And how does margin. Having said that, you've obviously guided to AMPU improvement in -- thank you.

I think that I'm going to let again take about that and everything that we've been doing around churn management through AI and other things that we'll be doing around all our broadband proposition, James.

Yes, sure. We have been working very hard on our churn across our NBN customer base as the #2 provider in the country, managing that pretty competitive market. is our top priority, and we feel like we're making very big inroads in that pace. So well, the market dynamic in July, you get a lot of crises being passed through that stimulated a lot of churn in the market. But we certainly navigated this year with a far better outcome than we have in other years. you are correct that we didn't increase the prices of some of our propositions such as NBN 100, but actually that was pretty common across the market. So we weren't alone on that and just the nature of the NBN pricing pressure really allowed some of us just to absorb that. So the underlying benefit is coming from churn, which, as Inaki mentioned earlier on, is really by identifying proactively customers and their experience on our network and being able to manage that customer proactively instead of reactively and lowering our churn volume. So we're really happy with the progress that we're making there and expect to continue having navigated what is a tricky period as those price changes go through the customer base.

Okay. Great. And for my last one, you sort of touched on this in the presentation, but I don't know if you're able to provide a broader view on the ACCC's mobile service inquiry. I mean, specifically, do you see regional roaming as essential, particularly in the context of the MOCN deal you have in place with Optus.

Look, I think that the first thing is that we have welcomed this inquiry. And we've been public on that. We do think there is an opportunity to look at how the sector can deliver more coverage, stronger competition and also resilience. So from that perspective, we think is the right thing to do. Probably the key policy question is how the current market settings are going to continue to deliver the best areas to consumers, especially in those areas where infrastructure competition might be limited or a monopoly. And I think that this is really the context of where we see the inquiry. So whether it adds or not, we are in a very different market from the first inquiry, which was done back in 2016, I believe, for 2017, the things are changing. LEO sats are coming, but that's why we do think that it's the right time to look at it. And probably this inquiry not only looking at the domestic roaming implementation itself by looking at the whole telco market and the current policy and also the way that the policy that is being set around satellites, what's the impact that's going to have, I think, is positive.

Our next question is from Liam Robertson.

My first question is just on OpEx. Obviously, a really good outcome in the half. I think you've now delivered almost half of the $100 million operating cost efficiencies that you're expecting to deliver by FY '29. So I guess my question is, are you ahead of your own expectations on the FY '21 time line, would we potentially face some upside risk to that?

Look, yes, look, fair to say we are ahead as we look back on the last 8 months. However, in many respects, it's started DNA in this organization in terms of doing more with less, which is really is part of the DNA, how we look at our cost outlook, so we always are looking at further productivity. We are now dramatically simpler business. So what I say we are ahead maybe of where we thought we'd be 18 months ago on our cost. We're pleased with it, and we'll continue to do the head of lifting on that. and we'll continue to manage our costs very, very tightly. So I guess I'm sure we are a little bit ahead of that when we first made that commitment at the $100 million. We're pleased with that, and we'll continue to manage our costs very, very tightly.

And then just secondly, on CapEx. just the comments around the $100 million step down into FY '27. I know you're suggesting the 5G upgrades complete. But if I compare that commentary to some of your competitors, I guess they're talking about incremental investment over the next 12 months around 5G stand-alone. So can you just help us contextualize those comments, please?

Yes. Look, Liam, I think the best for that is -- the different players in the markets are on different cycle. And I think I'm going to ask Giovanni give view of where we are on our core network but also on the round network investment for CapEx. Giovanni?

Thank you, Inaki. So in terms of our cycle, we were early investors on the 5G stand-alone. We have been the first network in country and 1 of the first the world to have a 5G stand-alone deployed. So it on in 2021. So that was much earlier than competitors here in the market. so we have already asked that mark. Our 5G modernization is concluding in the next 2 years in terms of revenue and transmission in the way so about in favor of node technology. So this is the remaining part. So in essence, we are already beyond the peak of the investments in 5G, and that's the main reason why we see the step down in the next year together with the fact that most of the investments in the IT and digital transformations are also behind us by now.

Our next question comes from Lucy Huang at UBS.

I've got 3 questions as well. Just firstly, if I can get some trends in enterprise mobile, given that's a very strategic focus at the Investor Day? And how much growth did we see in the first half from enterprise contributing to the number? And in the context of the back book mobile pricing refresh? Are we seeing price rises as well in enterprise or what proportion will be sent from the price increase?

Thanks, Lucy. I think that Jonathan will be able to answer that one then.

Yes. Thanks, Lucy. Let me start with your second question first. It will help give context to your overall question issues, do enterprise customers get back on price rises look to different segments in enterprise. Some customers are contracted, some sit on month-to-month on a long-term contract. Clearly, we have a rational approach to pricing and enterprise, very similar to consumer. So some of the base will be receiving price rises and others will go through a natural contract refresh. In terms of growth in H1, I think we have H1. We're very pleased. You'll remember at the Investor Day, we talked about growing government and growing in enterprise segments. We've kind of done what we said we'd do, and I think we're very pleased with our growth trajectory. We don't split the number without into enterprise consumer postpaid, but we're on plan and we're very happy.

And then just on the MVNO side, I guess we came in a little bit softer relative to your guidance on net add in June negates a timing issue and 2 to 3 partners on, should we expect them to come through into the second half?