Telstra Corporation Ltd

ASX:TLS

Earnings Call Transcript 2023-Q2

[Vicki Brady, Chief Executive Officer]

Good morning and welcome to Telstra’s Results Announcement for the Half Year Ended 31 December, 2022 and my first results as CEO. I am joining today from the lands of the Kulin nation. On behalf of Telstra, I would like to acknowledge and pay my respects to the traditional custodians of country throughout Australia and recognize their continued connection to land, waters and culture. We pay our respects to their elders past, present and emerging. For those of you that are regulars at our results presentation, we are taking a slightly different approach to previous years. I will make some brief comments on our key highlights, Michael will then take you through the financials in detail, after which I will summarize our progress against T25 and reinforce our FY ‘23 key focus areas. We will then take questions from analysts, investors and media.

Before I hand to Michael, you will see that our financials for the half show strong and continued growth with positive momentum across our key indicators. Importantly, we saw growth in the first half in both our reported and underlying results. This momentum is also reflected in the progress we have made in the first 6 months of delivery against our T25 strategy. I will speak to this in more detail when I take you through our T2 achievements.

Focusing on the key highlights, total income was up 6.4% and EBITDA increased 11.4% driven by momentum from our mobiles business and support from the acquisition of Digicel Pacific. Excluding Digicel, underlying EBITDA increased 6.8%. This flowed through to a 25.7% increase in net profit after-tax. Reported earnings per share increased 27.1%. It was also pleasing that our Episode NPS increased by 4 points. We are a growing business with a lot to be excited about in our future and our T25 strategy provides a clear roadmap to get us there.

Our core mobiles business continues to be central to this growth and perform very strongly. Endorsing our strategy to lead the industry on network experience and bold decisions on planned simplification, I do want to be clear upfront that while our momentum is good, we are just at the start of our return to growth. We are also a multifaceted business and there are specific elements of the business where we cannot be complacent and others that need to see improvement. Cost-out is an area where we remain disciplined, particularly considering the external economic environment. We are also very focused on addressing the disruption in our enterprise business, which continues to prove challenging. We will talk to these challenges in a bit more detail through the presentation. Overall, we remain committed to achieving our T25 ambitions, including growth in underlying EBITDA and earnings per share.

On the back of our continued growth, the Board resolved to pay a fully franked interim dividend of $0.085 per share, representing a 6.3% increase on the prior corresponding period and in line with the second half of last financial year. The interim dividend is consistent with our policy to maximize the fully franked dividend and seek to grow it over time.

I will now hand over to Michael to go through the numbers in detail.

[Michael Ackland, Chief Financial Officer]

Thanks, Vicki. It is great to be presenting Telstra’s results for the first time. While our momentum is good, we are just at the start of our return to growth. I will step you through the high level results before getting into some detail.

Starting with our income statement on Slide 6, which clearly demonstrates our growth. For first half ‘23, income was up $11.6 billion – was $11.6 billion, up 6.4%. EBITDA was $3.9 billion, up 11.4% from ongoing mobile led organic growth and M&A including our acquisition of Digicel Pacific. EBIT was $1.6 billion, up 25.4%. Net financing costs increased 5.9% reflecting higher debt levels following the acquisition of Digicel Pacific and higher borrowing costs given exposure to floating rates. Tax increased 40% on higher profit before tax and one-off associated with M&A in the first half of ‘22. We expect the effective tax rate to be around 30% for financial year ‘23. EPS was up 27% to $0.075 reflecting higher earnings, lower average shares on issue following our buyback in FY ‘22, as well as higher minority interest following the 49% sale of Amplitel last financial year.

Looking at product performance on Slide 7, we saw strong growth in mobile and international partly offset by fixed enterprise decline. Mobile benefited from growth in service revenue, partly due to higher international roaming, while international growth mostly came from the Digicel Pacific acquisition.

I will now step you through our key products starting with mobile on Slide 8. In mobile, we achieved continued growth in revenue, EBITDA and SIOs from the successful execution of our strategy. On the top left, you can see mobile service revenue up 9.3%. All segments and sub-products including MBB, IoT and wholesale grew. Growth was supported by international roaming lifting by around $100 million to approximately 70% of pre-COVID levels and a one-off – and our $42 million one-off in prepaid from product migration. Excluding these, service revenue grew 5.3% driven by volume and value in line with our mid single-digit CAGR ambition.

In postpaid handheld, we added net 68,000 SIOs, while prepaid handheld unique users increased 137,000 SIOs. We estimate the cyber incident at Optus also impacted our first half ‘23 net adds in the order of positive low to mid tens of thousands split across C&SB enterprise, postpaid and prepaid and wholesale. Port-ins from Optus have now largely normalized. Postpaid ARPU shown on the bottom left hand chart grew 4.5%. This was from higher roaming and around 3.5 months of benefit from consumer and small business price increases in line with CPI implemented in the half. Partly offsetting this was an enterprise COVID-related messaging benefit in the prior corresponding period. Prepaid also achieved exceptional performance supported by incoming travelers and ARPU growth through increased data usage and migration to new simplified plans.

In fixed C&SB, we delivered on growing EBITDA in line with our commitment. nbn reseller margin was up to 7% from 4% in the prior corresponding period, with 3.7% ARPU growth achieved from price rises. We also saw continued evolution of plan mix as customers choose the plans that suit them. We continue to migrate our customers to our new digital stack, which is delivering better customer outcomes.

First half’23 episode NPS improved 19 points on sales and activation, with new stack 24 points above legacy. Proactive fault identification, resolution and better agent tools to resolve queries have delivered a PCP improvement of over 6 points to NPS.

On-net fixed wireless also continues to scale. While in SMB and the mid-market, we have gained traction in nbn reseller. However, there remain challenges. We are focused on evolving our customer propositions and our multi-brand strategy to support stabilizing SIOs and longer term sustainable growth. Going forward, we are targeting greater than 8% nbn reseller margins in FY ‘23 and mid-teens in FY ‘25. While we continue to drive efficiencies achieving these ambitious targets sustainably will require us to stabilize volume performance. We are also focused on reducing cost and improving on-net losses through the rationalization of our legacy voice ADSL and transmission networks as well as continuing to optimize field service costs as the remaining customers numbers decline.

Turning to fixed enterprise on Slide 10, which is made up of data and connectivity and network applications and services. DAC revenue declined 14.4% in line with the previous half as it remained impacted by ongoing distribution from technology change and competition. We’ve been repricing our plans and proactively targeting customers at risk of churn resulting in renewals at lower rates and ARPU compression. Going forward, we will continue simplifying products and IT platforms targeting improved customer experience and lower cost to connect and serve through automation.

Our focus is on retention and we expect further ARPU declines as we proactively target the base as well as customers who have previously churned. We have also implemented a new customer care approach for high risk mid-market and business customers. This has resulted in the improvement in Telstra Fiber SIO trajectory, including lower churn and positive net adds late in the second quarter. In NAS, revenue grew 2%, reflecting growth from cloud, security, and the ViaSat contract and acquisitions offset by headwinds in calling products due to fixed legacy – due to fixed legacy and lower exits, product exits and lower usage. Faster decline in legacy calling is the reason we are below our mid single-digit revenue and growth ambition.

With revenue recognition linked to milestone timing, the business remains seasonal. Our focus is on continuing to build deep strategic relationships with hyperscalers and extending our industry expertise with specific partners, applications and software in our go-to-market strategy. Overall, while our ambition is to grow total domestic enterprise across T25, including mobile, this will be a significant challenge in FY ‘23 given the level of first half decline. We are focused on five areas: ongoing momentum in mobility, strong second half NAS performance consistent with normal seasonality, limiting the level of calling decline, retaining fiber SIOs and managing cost.

Turning to international on Slide 11, following the acquisition of Digicel Pacific, international now represents around 10% of our EBITDA. International, excluding Digicel Pacific, grew 9.3% in Australian dollars or 7% in constant currency. Pleasingly, Digicel Pacific is performing well with core mobile and SIO growth in all markets. Revenue and EBITDA are up 7% and 9% respectively versus pro forma at constant currency. Note that following the implementation of our corporate restructure from the second half of ‘23, international reporting will include internal revenue with group eliminations increasing an equivalent amount. The restructure will also create additional internal revenue and costs.

Turning to infrastructure on Slide 12, while reported revenue and EBITDA grew 3.6% and 2.7% respectively, core excess growth for ducts, fiber and network sites was above this level. nbn commercial works declined in line with contract expiry partly offset by an increase in legacy network disposals. Core access grew from both internal and nbn recurring revenue growth. The latter grew 4.8% supported by CPI indexing and a further 7.3% price increase was applied from 1 January 2023. The EBITDA result also reflected incremental investments in strategic infrastructure projects, power and maintenance cost.\

As we think about InfraCo Fixed, it’s important to understand there are a range of asset classes, each with different investment models. Ducts, represents most of the earnings and the value. It is very high quality low CapEx with difficult to replace assets and long-term predictable earnings. Long-haul fiber we are investing in and we review it – we view it as a growth business. Access fiber is about leveraging the existing footprint. And finally, fixed network sites provide opportunities, especially in large retro and metro sites. But outside of these areas, we are giving significant focus to how we reduce cost. Vicki will talk further about InfraCo Fixed.

Turning to our operating expenses, which you can see on Slide 13, total operating expenses increased 4.2%. Excluding one-offs, restructuring and M&A transaction costs, underlying costs increased 6.8%. We have updated the split of our underlying cost including more in fixed costs core. Telstra Health and recent M&A activity, including Digicel Pacific, are included in fixed cost other. A bridge from our prior disclosure is shown in the detailed financials included in the presentation.

Our productivity program is measured as the absolute reduction in fixed cost core. Fixed costs core increased $110 million as productivity was offset by wage and non-labor cost inflation on the first half ‘22 cost base of $3.2 billion, around $70 million increase from insourcing of retail stores and onshoring of contact centers, $22 million in higher energy costs, which was neutralized at EBITDA from power purchase agreements, around $20 million of high travel costs, and $15 million in foreign exchange headwinds and international. The net increase in fixed costs core was broadly as expected and we continue to expect modest reduction in FY ‘23. A reduction in our Q2 costs compared to Q1 gives us confidence in achieving this. However, we expect inflationary pressure in the second half to continue.

We are committed to cost reduction and to our previously stated net reduction ambition of $500 million by FY ‘25. This ambition is significantly bolder than when we set it. Achieving this ambition is in part dependent on the external environment, which has changed significantly since it was first announced. I reiterate that we are absolutely committed to achieving our T25 EBITDA and EPS growth ambitions. I want to be very clear that we will not take our foot off the pedal on ensuring delivery of cost-out and operational efficiencies. This includes off the back of B2B and B2C digitization, getting off legacy systems and reducing legacy IT costs, delivering cost-out across all customer episodes and value chains and through decommissioning legacy infrastructure. Beyond fixed costs, were very focused on efficiency in all other areas of our spend, including sales costs, CapEx, leases, including property and finance costs.

Slide 14 is an update on the implications of inflation, including mitigants we have put in place. Our sales costs, especially in the other category, are seeing some inflationary pressure. However, these costs are largely passed through. Within fixed costs, the biggest bucket is labor. We have seen absolute cost growth through insourcing of stores and onshoring with wage inflation in line with expectations. On energy, costs are expected to be broadly flat after adjusting for power purchase agreements in FY ‘23 and FY ‘24. We continue to expect gross energy costs to increase by around $50 million in FY ‘23, which is offset at an EBITDA level by power purchase agreements and then to be broadly flat in FY ‘24 with the large majority of usage contracted.

Service contracts and agreements are areas we are seeing inflationary pressure, including professional and corporate services, IT, field, fuel and transport. We have mitigated cost growth through existing contracts, putting services out to tender, working with suppliers to adjust the way we do business, and reviewing our licensing requirements. Importantly, we also have revenue levers and continue to make changes to prices across our portfolio. For example, in mobile, around 65% of postpaid mobile handheld customers are on C&SB plans with an option to review prices annually against CPI in July. For some enterprise postpaid mobile handheld customers, prices increased around $3 per month, taking effect from December. This calendar year, we have communicated further base management in Belong and mobile broadband. In addition, our nbn recurring revenues of around $1 billion per annum are indexed to CPI.

Turning to free cash flow on Slide 15. Our first half ‘23 free cash flow was $1 billion on a guidance basis. This is consistent with common first half second half seasonality in our cash flow. The decline versus the prior corresponding period was principally due to working capital movement. Working capital increased $451 million in the first half from increased inventory on normal seasonality, the impact of insourcing our stores and some normalization given prior period supply constraints and payables movement which was impacted by timing and lower accruals. Pleasingly, we continue to see year-on-year improvement in our receivables metrics, including day sales outstanding, aged debt and bad debt. The working capital movement in the first half of ‘23 was largely timing related. And as implied by our guidance, we expect to reverse the working capital build up in the second half. The CapEx increase in the first half of ‘23 was associated with Digicel Pacific and strategic CapEx. M&A in the period included outflow of Australian dollars $2.4 billion for the Digicel Pacific acquisition and earn-out funded by $1.1 billion of non-recourse debt and $9.9 billion of equity-like securities issued to the Export Finance Australia and $0.4 billion of Telstra equity.

Turning to our capital position on Slide 16. In the first half of ‘23, net debt increased by $2.2 billion from 30 June 2022 largely due to funding the Digicel Pacific acquisition and normal seasonality of free cash flow. We remain within our comfort ranges for all credit metrics with debt servicing at 1.9x. Underlying ROIC improved to 7.5% to just above our cost of capital illustrating we remain in recovery mode.

Now turning to FY ‘23 guidance which can be seen on Slide 17, you can see the ranges along with the assumptions and the conditions on which we have provided them. There are no changes except that we now expect to be at the bottom end of income guidance for two main reasons. Firstly, mobile hardware revenue, which despite growing 12% on higher volumes and increased accessories and wearable sales was below expectations, with customers continuing to hold handsets for longer and more purchasing from external parties and secondly, fixed revenue across C&SB and enterprise being below expectations.

Finally, to summarize, our business continues to deliver high quality mobile-led organic growth. We are well placed in the current environment and we remain disciplined and focused on creating value. Finally, I would like to express my thanks to the Telstra team for their ongoing passion to deliver value for customers, the community and our shareholders.

I will now hand back to Vicki.

[Vicki Brady, Chief Executive Officer]

Thank you, Michael. So as you can say from that detailed breakdown, overall, we have positive momentum driven by continued growth in mobiles with some challenges in fixed. These challenges are especially important given the current economic uncertainty, with inflation particularly proving challenging for most businesses. Michael talked you through the impacts and our responses in detail. However, I wanted to reinforce the point that while inflation is impacting cost, we continue to have cost mitigants and revenue levers and remain committed to our FY ‘25 $500 million cost-out, underlying EBITDA, and earnings per share ambitions. I also understand the current economic climate creates challenges for our customers. The changes we have made in recent years to remove locking contracts and move to a multi-brand strategy mean we can continue to provide customers with flexibility and options to ensure they can choose plans they can afford. This is very much front of mind for me.

Turning now to our T25 strategy, T25 is a strategy that leverages the foundation and capabilities we have built over the last few years. I am absolutely confident it is the right strategy. But naturally, it maybe necessary to make adjustments to it at times to deliver customer experience improvements, new growth opportunities and fundamentally shift the way Australians feel about us. It has the four pillars shown on the slide: an exceptional customer experience, leading network and technology solutions, sustained growth and value, and the place you want to work. T25 is about sustainably – about growing sustainably by doing the right thing by our customers, our people, our shareholders, and by Australia. It’s an ambitious strategy built around our customers and recognizes that providing them great connectivity is only half the customer experience equation. We have to make doing business with us an exceptional experience too.

We took great steps forwards on this through T22, including bringing calls back to Australia and our stores in-house. And continuing this work is my number one priority. I know that if we get the customer experience right, then we will be well on our way to delivering our growth and reputation measures. A large part of this is delivering on what we say we will deliver for customers getting it done right first time. I am pleased with our progress on customer complaint numbers, which have dropped to record lows and our episode NPS results, which have seen historic highs. In a digital world, it also means doing what we can to help protect our customers against scams and cybercrime. We have led the industry on blocking scams and malicious contact reaching our customers. We have also taken steps to improve the way we collect and retain customer data. The job here is never done. And my goal is to ensure we remain a leader in cybersecurity, data collection and retention improvements.

Despite our good progress on customer experience, there is still more we need to do. Our work to digitize, simplify and upgrade our legacy systems is transforming our customer service, but has been disruptive for our people and customers. So it is critical we finish the job as quickly as possible. We must accelerate the move away from our legacy systems as it will help us deliver on our customer experience ambitions, along with making us a more efficient business.

When it comes to future areas of growth, connectivity is the starting point. It’s why leading on networks and technology solutions is one of our strategic pillars. Our opportunity is to leverage these capabilities alongside our customer relationships and our strategic partnerships with global and local players to deliver technology solutions in key industry verticals. Our joint venture with Quantium announced during the half, will not only help us provide advanced data and AI services to key verticals, it will also help contribute to our own digital ambitions under T25, to deliver improved products and experiences to our customers.

We are also already beginning to see a new wave of industry digitization enabled by connected technologies, particularly in sectors like healthcare and agriculture. Telstra Health is a good example. It continues to grow and is on track to achieve its ambition of being a $500 million revenue business by FY ‘25.

Turning now to our early progress on T25 by strategic pillar, you can see on the Slide, the progress we have made in the first 6 months of T25. And I will call out some of the key achievements. As I said, we continue to make good progress on the customer experience pillar. Episode NPS improved 4 points. Customer complaints reduced by more than one-third and Telstra Plus members grew to 4.8 million. Against network leadership, we are on track to meet all our commitments by FY ‘25. We have the largest 5G network. Our 5G population coverage has reached over 81% and is on track for our FY ‘23 target of 85%. We are currently leading the majority of key mobile and fixed network surveys for coverage and speed. In the half, our Australian mobile network was again awarded Best in Test by umlaut and we again lead on Ookla’s speed test from July to December 2022.

Against the growth and value pillar, in the first half, we have delivered growth in underlying EBITDA and EPS. With underlying ROIC at 7.5%, we are on track to achieve around 8% in FY ‘23. Against the place you want to work pillar, our employee engagement score was 79. This result ranks us near the top companies globally, however, below our 90th percentile target. We are focused on continuing to improve employee engagement. This positive progress is reflected on our T25 scorecard, which demonstrates we are on track to deliver the majority of our T25 metrics. Through T22, we held ourselves to account on our regional targets and we will continue to do that through T25. There are a number of metrics we have rated as amber, where work has commenced, but early progress is below where we want it to be to achieve the FY ‘25 target. We remain committed to accelerating and delivering on these targets.

On our intercity fiber project, construction has commenced and we are seeing strong interest from hyperscalers other operators, satellite providers and national enterprises. You may recall, we announced a change to the original scope of the project last year to stage our rollout to focus on the highest priority routes, which explains its rating on the scorecard. This nation-building project will provide a critical injection of capacity into key intercity routes and is the only national project of its type that is funded and where construction has commenced.

Turning now to our key focus areas for FY ‘23, my number one strategic priority is improving the customer experience. This is paramount and a key enabler of our growth ambitions. The accelerated move away from our legacy systems I mentioned earlier will support us achieving this goal. I also wanted to reinforce the specific areas we see as key to maintaining our financial momentum and delivering sustainable growth for shareholders. As I do, I will also comment briefly on relevant industry matters.

Our first focus area is mobile and delivering continued profitable growth. First half mobiles performance was strong and we are focused on continued sustainable revenue growth, underpinned by our multi-brand strategy, network leadership and delivering new network experiences to our customers. Part of this is also looking at innovative ways to improve the experiences we provide our customers, responding to the ever-increasing demand for data and managing our spectrum assets efficiently. To that end, the decision by the ACCC not to grant authorization for our landmark MOCN agreement with TPG Telecom was disappointing. The agreement would provide an innovative solution delivering better connectivity for our customers as well as greater coverage for TPG, things I know regional customers really value. The appeal process is underway with a result expected to be handed down in June this year.

The second focus area is improving overall fixed C&SB performance. This includes further increases in off-net margins and improving the experience for our C&SB copper customers. We have spoken about our focus on cost and obviously, nbn wholesale prices, is a large part of this in C&SB. The recently submitted nbn SAU makes some steps in the right direction. However, if it was to be accepted in its current form, it would leave us with little choice but to take immediate steps in response. In line with our previous commentary, this could mean price increases on our most popular plans. We will continue to advocate for better service standards and sustainable wholesale pricing on behalf of our customers through the ACCC process.

The third focus area is improving fixed enterprise performance and profitability. This includes delivering scaled propositions to meet enterprise customer needs and winning in fiber, whilst driving further growth in NAS. Michael outlined where the challenges and opportunities lie for us in fixed enterprise, so I won’t repeat that.

Lastly, before I conclude, let me update you on where we are at with InfraCo. Following shareholder approval for our restructure in October, we completed the separation and transfer of assets into subsidiary groups on 1 January. This is an important milestone and allows us to focus our attention on the commercial and operating aspects of ensuring we are maximizing long-term value in the InfraCo business for Telstra’s shareholders. I have spoken before about the benefits and opportunities that are being identified across InfraCo through operating it as a standalone business. In the short-term, our focus is on increasing utilization and efficiency of the InfraCo asset suite, ensuring that the ongoing commercial arrangements between InfraCo and Telstra support growth across both businesses; and seeking areas to grow through investment and partnership. Our Viasat and Intercity Fiber projects are recent examples of this. While we believe there are potential value realization options, we will be measured and deliberate as we consider them through 2023 and ensure that in any future decisions we may make we capture and retain long-term value for shareholders from these unique and valuable assets.

With that, let me close out my first results presentation as the CEO of Telstra. I am excited to be leading this highly capable team and proud that in the half, we achieved strong growth, successfully transitioned to our T25 strategy, made good early progress on that strategy, and finalized our legal restructure. Our outlook for 2023 is strong. This year we will gain growth momentum and continue to lift our customer experience through T25. I would like to close by acknowledging the progress we have made is due to the combined efforts of the many dedicated Telstra employees. Thank you for all that you do and all you will do this year to serve our customers and each other. Together, we will create an even better Telstra for our people, for our customers, for our shareholders and for our communities.

I will now hand over to Nathan Burley, Head of Investor Relations to take us through Q&A.

[Nathan Burley, Head, Investor Relations]

Thank you, Vicki. So we will now start with some questions and answers first from investors and analysts, after which we will have a time for media to ask questions. Our first question today comes from Eric Choi from Barrenjoey. Go ahead, Eric.

[Eric Choi, Barrenjoey]

Thanks, Nathan and congrats Vicki and Michael on your first results as CEO and CFO. I have got a few. My first one would be you have reconfirmed the $500 million long-term cost-out target, which is pretty admirable given FX and inflation pressures. My question is, if you were to achieve that $500 million stretch target, are we actually in a better spot to achieve T25 than before, just given obviously, this July, you are going to be putting up prices by CPI and those nbn payments are going to be going up by CPI. And obviously, CPI is at 7 now versus the 3 when you first set those T25 targets?

[Vicki Brady, Chief Executive Officer]

Thanks. Yes, that would be great Eric. Why do not you give us all your questions and then we can go through the each of them?

[Eric Choi, Barrenjoey]

Got it. Thanks, Vicki. Well, the second one is just on mobile net adds, I guess still a pretty good net add result from you this half, but we didn’t see it accelerate, despite obviously tailwinds from the Optus data breach. And I reckon you can probably surmise from the industry commentary that TPG and Optus net adds won’t accelerate this half either. So I am just wondering if you have got a view on what’s kind of driving that market plateauing or slowdown in net adds and if we can take anything from the U.S., because as you would know, as they put up prices, you have sort of seen consumer net adds slow as well. So I wonder if those price increases are starting to have an impact on the market? And then just the third one, got to ask one on InfraCo. And I think previously, we have sent it out questions to you around whether you would do a transaction and when? This time, I wanted to ask, how much? And my thinking is, most of us, I guess, value InfraCo Fixed, probably $15 billion plus. And if you guys kind of sort let’s say a little bit less than half from that, you would get $7 billion to $8 billion or more of prices. And I am just wondering, besides buybacks, are there enough sort of options to deploy that capital? And if not, does that sort of influence how big of a transaction you would want to do? Thanks a lot.

[Vicki Brady, Chief Executive Officer]

Okay. Thanks, Eric and good to have you on first with your three questions. I know you dial in early to get in first. So let’s – I might make comments on each of them and then I’ll go to Michael, because I’m sure he will also want to add some perspective. So, why don’t I start at the top? So yes, we have retained our ambition on the $500 million net cost-out target under T25. We are very much aware that, as Michael spoke to, when we first set that target, inflation was at a very different level. So it is a much bolder target now. But I will be perfectly honest. We did not think in this environment that taking the foot off cost out was the right move. So, we are absolutely focused on that ambition. And I think Michael covered in a bit of detail those areas that are going to be critical to us achieving that cost-out. And I know as you said, there is a bunch of assumptions that are different from when we started T25. And to be honest, there is lots of forecasts. I know you will be close to them. I keep reading them as well in what will play out over ‘24 and ‘25. So there are a lot of things moving in the external environment right now.

And so our focus is absolutely on delivering and executing our strategy, putting ourselves in the best possible place and of course, been in a position to make sure we can navigate through that external environment in the best possible way. So look, as I said, committed to the cost out. I know it’s bolder and we will focus on those areas that we have spoken out over many times before. So, the acceleration of legacy is critical so we can get those legacy IT costs out getting then that efficiency across our customer episodes is critical and that automation which improves experience, but also makes us more efficient. And also our legacy fixed infrastructure work underway and getting really stuck in to making sure we are getting the cost improvements there.

The second thing around mobile net adds. Look, I won’t make comments on broader market at the moment. We haven’t seen all of the results yet. But I can certainly comment on what we’ve seen in the half. So there’s no doubt, in this half, we did put the price increase through in our mobile postpaid business for our consumer and small business customers. And as we would expect, as we put price increases through yes, you do see that have some impact for customers. Some customers will choose to move to other brands. They may choose to move to prepaid. It was all within what we expected. But absolutely, that is part of what played out, particularly in the first quarter of our first half of the year. So as I said, I won’t comment on the market, but that’s certainly what we’re seeing as those price increases flow through.

On InfraCo, again, just to reinforce, we absolutely have not made any decisions on monetization of InfraCo Fixed. Through the course of this year, 2023, we are going to be very measured and deliberate as we consider all the possible options. And as you’ve spoken to, this is a significant business. And part of that consideration, of course, will be what delivers the best long-run outcomes for Telstra shareholders. What we would do with those proceeds. Obviously, the magnitude of those proceeds will be an important consideration, but as we have demonstrated in the past, when we’re thinking about returning proceeds to our shareholders, we will be very disciplined. We’ll apply our capital management framework. And as you’ve seen in the past, for example, under the Amplitel transaction, there was obviously a significant part of those proceeds that were used as a share buyback. So there are lots of things to consider, Eric, in terms of considering those options through the course of 2023. Michael, I might just go to you and see if you want to add some additional commentary.

[Michael Ackland, Chief Financial Officer]

Thanks, Vicki and thanks, Eric. I think Vicki covered it very well. I mean I think on the cost side. I would reiterate, it’s a significantly bolder ambition than when we set it. We are focused on all of those areas Vicki talked about as well as legacy infrastructure decommissioning is increasingly important across the business. But it remains our ambition. We remain committed to it, and we do think it’s incredibly important that we remain focused on cost given everything in the external environment and what we need to deliver. On the mobile markets and what’s going on with postpaid subs. There was not – there was a movement in that period also between postpaid handheld subs and MBB subs in enterprise, which depressed our net adds a little bit. But I think overall, there was some additional churn in the first quarter but well within what we had expected and planned for. And I think we’re fairly happy where things are. And there’s no doubt there was a bit of tailwind from Optus in that period during the second quarter as well. But that’s now largely normalized.

[Nathan Burley, Head, Investor Relations]

Thanks, Michael. I should have mentioned earlier that David Burns, Group Executive from Enterprise is also on the call this morning. We’ll go to our next question, which is from Entcho Raykovski from Credit Suisse.

[Entcho Raykovski, Credit Suisse]

Thanks, Michael. Hi, Vicki. Hi, Michael. Hi, David. I’ve got just a follow-up on mobile around CPI-based price increases, which you have now some broadly built into plans. What does – are you – that ability what you’re seeing in the market at the moment? Does it give you confidence that you can put through CPI type price increases middle of the year? I mean is there anything which sort of concerns you behavior about that operators, is that supportive? If you can comment on that, that would be quite helpful, particularly given where CPI is running, presumably, that would be a bigger price increase than the one you put through last year. Secondly, I’ve also got a question in for InfraCo Fixed. I know it was quite interested that Michael spoke to all the different ranges to the range of asset classes. So given that sort of detail that you provided, are you considering splitting these out in any monetization option or would your preferred option to monetize as one? It just seems like you’re quite pointed in detailing each one of those asset classes. And then final question, in DAC, you’ve obviously been reaching out to customers trying to minimize churn. How far are you through that process, reaching out to the customer base? And are you finding that any customers that previously there are actually coming back. So are you winning customers that way or is that proving difficult task?

[Vicki Brady, Chief Executive Officer]

Thanks, Entcho. So let me – I’ll make some brief comments, and then I’ll hand to Michael, and I’ll get David to jump in as well, particularly on the questions around DAC. So just on the first 1 in terms of CPI-based increases, yes, we’ve built that into our plans. And just to be really clear for everyone on the call, we will take a very transparent and the same approach that we took last year. So come April, May, we will weigh up and look at where CPI is at. We’ve been very clear that we will use the 12-month CPI at the end of March as the basis to consider. Obviously, in amongst that, there are many considerations that we will work through. And our absolute commitment is to be transparent and clear and give our customers good notice of what changes, if any, we make. In terms of broadly what’s happening in the market, again, obviously, I can comment on our strategy. We are very focused, as we have spoken about our returns are still on a path to recovery. So it headed towards our target this year of around 8% ROIC. My observations would be, we’re seeing a lot of operators across the market looking at that and making sure we can make the investments we need to deliver the quality of experience as customers expect and here in Australia. With international travel back, it certainly reminds you that our mobile networks in here in Australia are high quality from a very competitive market.

So it is important we get those balances right so we can deliver the right level of network and technology to customers and obviously then get the right level of returns to be able to provide dividends to our shareholders. So I think the market at the moment, we’re still seeing – certainly, we’re focused on that recovery and making sure that we get returns up to the levels that are required – and I would – my observation would be we’re seeing pretty consistent view of that across the industry. In terms of InfraCo Fixed, yes, Michael did talk a bit today about those asset classes. And that’s really consistent with where we started when we started our T22 journey, part of operating InfraCo as a standalone business.

We spoke about that transparency because these were assets and businesses that sat inside Telstra that weren’t well understood. And as Michael spoke to, those asset classes have some different dynamics and characteristics. And so we think it’s important to continue to be very transparent around what sits within InfraCo and where those different parts of the business are at. Look, as I said, in terms of 2023, we will consider a range of options. As I said, no decisions have been made. As you can imagine, there are lots of variations that we can think through and we’ll certainly be weighing up as we look at the InfraCo business and what we think is in the best long-term interest of our shareholders.

On DAC, I might hand over to Michael, so if he wants to make any comments. Look, DAC, yes, we are proactively going to our customers, Michael and David can talk more about that. But it is absolutely our goal to make sure we retain our data and connectivity customers. It’s a key foundation in our enterprise business. It’s important also into our NAS business. So that relationship on connectivity is important. So we have a very strong focus right now on making sure we’re retaining our data and connectivity customers and seeing some good signs and momentum in that retention. But why don’t I hand to Michael and then across to David.

[Michael Ackland, Chief Financial Officer]

Yes. Thanks, Vicki, and thanks Entcho. And I won’t go further into the mobile pricing discussion. I think Vicki handled that well. I think on InfraCo, I think what we’re doing as a business is we’re focusing on how we operate those businesses better and drive value and growth through the operation of those businesses, enhancing our go-to-market, improving data and information around the assets to maximize value, building out our Intercity Fiber and driving growth there, recovery of copper and other assets and being leaders in safety maintenance to improve the quality of those assets and obviously getting both our cost base, right? So it’s important for us to make sure and we wanted to provide that transparency that we are operating those different areas of the business and going after where the market is with those businesses and what we need to do to drive value. So I think that’s really important. From a debt perspective, I think David would be great to get him to talk about what is going on with customers and how far through we are. But we are seeing those signs and we are very focused on retention, particularly around – on our T-Fiber base and retaining those relationships with customers is critical. And so while you’ll see in our reported results, you’ll still see that SIO decline. A lot of that is driven by the legacy SIOs and David and his team and their focus on retention of fiber and also in nbn reselling, I think, is really critical. So maybe, David, if you wanted to touch on that and we are up to.

[David Burns, Group Executive, Enterprise]

Thanks, Michael. Thanks, Entcho. So as Michael and Vicki have pointed out, retention of the customers, particularly on the T-Fiber is our number one focus. We do recognize that our plans over history and those customers who have been on those plans for a while are above what is a reasonable market rate. And so we are actively bringing those customers onto in-market plans. A few comments of progression as an enterprise organization, which is very relevant to DAC. You would have heard and seen in other events such as Vantage about how we’ve aligned ourselves by industries and segments. That’s incredibly important because it now allows us to put products and offerings and routes to market in a very different way to those segments. That’s a real step forward for us. And in those segments, they’re quite different, Entcho. So if you think of our large government customers, they are a bit like the Sydney Harbor Bridge, they’re on a regular cycle of 2 to 3 years, and we repeat those. So whilst – most of those are – the vast majority of those are on in-market plans, and you can see some of that in the first half impacts, They will come up again. Even if we renegotiated them 1.5 years ago or a year ago, they will come up again in the next 12 months quite often. It’s in that mid-market and business segment, the thousands and thousands of customers of ours where we’ve taken a very proactive approach to go to those customers as opposed to waiting for those customers to come to us. And we’ve put together some offerings with bundles to those segments. And so in those large volume segments, we’re a bit under halfway through. So we’ve still got a fair way to go of that.

And Michael alluded that there is probably three halves of ARPU compression still to come in this business, and that’s what we would see going forward. And so our actions are showing the outcomes we’re looking for. Michael again highlighted that if you look on a sequential basis, the SIOs in the T-Fiber space decline is slowing. And in fact, I know we don’t publish on a monthly basis. So I’ll just kind of make some comments. But if you look from July to December, that’s quite a very healthy and a very positive turnaround from negative net adds to positive net adds. And so we can see the very encouraging signs and returns from those customers, the active plays and offerings that we have in market and the responses to those in market, but it is hand-to-hand combat. This is a very, very competitive market segment with some very competitive offers. And again, as Vicki highlighted, it’s an important foundation, particularly to our NAS or Telstra Purple business as we brand it to our customers. It’s an incredible foundation – incredibly important foundation for our business. So retaining those SIOs is important. So less than halfway through, we think we’ve got three halves still have work to do to get those customers onto a Telstra end market plan, which will be at a small premium to market, but we’ve got to face into that ARPU compression over that period of time. Thanks, Entcho, and I’ll hand it back to Nathan.

[Nathan Burley, Head, Investor Relations]

Thanks, David. Our next question is from Darren Leung from Macquarie.

[Darren Leung, Macquarie]

Good morning, guys. Thanks for the opportunity. I have three as well, please. I might start with just on the group level FY ‘23 guidance. Obviously, we’re going down to the low end of revenue guidance. Can you give us a view as to what are the clear knowns and why you’ve retained upper end of the $25 billion guidance? And I suppose what can go right to get towards the $25 billion, please? Should I ask you all my questions altogether or?

[Nathan Burley, Head, Investor Relations]

Yes.

[Vicki Brady, Chief Executive Officer]

Yes, that would be great.

[Darren Leung, Macquarie]

Yes. Second question was just on the working capital piece, most a bit of a drag in the first half. And I appreciate there’s a bit of seasonality in here, but I can just to break out that $700 million change between payables and inventory and the receivables fees. And then I tend to understand how receivables are strong, just given the state of the consumer at the moment. And then the third one, I might have another go with the mobile piece. So obviously, there has been a lot of questions around the churn side, but any color you can provide for us in terms of the split between customers on the back of the Optus churn pace versus any losses on the back of the price increases, please?

[Vicki Brady, Chief Executive Officer]

And Darren, sorry, I missed just in your first question around guidance. I heard a bit about income at the low end. Was there a second part to that? Sorry, I may have missed it.

[Darren Leung, Macquarie]

Yes. I’m just keen to understand the drivers as to how we get towards the upper end, please?

[Vicki Brady, Chief Executive Officer]

Got it. Okay. Thank you for that. So I’m going to definitely leave – Michael can take you through the working capital movements in – and talk more to that. Just in terms of guidance. So yes, we’re reaffirming guidance. The only change, just to clarify, is we’re just saying low end of income guidance, so still inside our guidance ranges. And as Michael spoke to that’s driven by – we have seen mobile hardware volumes increase, PCP, however, not at the levels we anticipated. And then obviously, we’ve seen our fixed business across C&SB and data and connectivity, not quite at the levels we would have anticipated. So those things have contributed to that lower end of guidance. Look, in terms of the guidance ranges, particularly if I look at underlying EBITDA, it’s a pretty tight range. And as you know, our business has a lot of different parts to it, so there’ll always be pluses and minuses. And you can probably guess we get a little bit better on some of those areas, then that can move the range. But we’re not tightening the range at all today but absolutely reaffirming that we’ll be inside our guidance ranges.

I might just jump to your third one quickly. So in terms of mobile and what’s going on in churn, as we spoke about, if we look at the half in the first quarter, we absolutely had the pricing changes flowing through those churn impacts were as we anticipated. They are inside the guardrails we expected for churn and then in the second half as – in the second part of the half, the second quarter as Michael spoke to, we saw the impacts from the Optus breach, and that was – we estimate in the range of sort of low to mid-tens of thousands, and that was right across our mobile business. And so they are the dynamics that are going on in the half, but as you can see, still positive net postpaid handheld overall growth in the half for us, which we’re pleased to see, particularly with strong mobile service revenue growth as well. So Michael, I might hand to you for any other comments, but particularly the working capital piece.

[Michael Ackland, Chief Financial Officer]

Yes, thanks. So, on working capital, as we’ve obviously seen increase versus prior period on mobile handset sales, which has meant customer deferred debt. We’ve seen a buildup in receivables but also in inventory. So inventory has finished the half at probably higher than we would have expected a little bit because of the in-sourcing of the stores has led to a buildup in inventory. We hold more inventory now that we own the stores as well as lower income. So we expect all of that to work through in the second half and release that working capital. In terms of the quality of the receivables, we don’t have any concerns there in terms of all of the metrics on bad debt on those sales outstanding. We’re all – actually, we’re seeing a lot of those metrics improve, and we’re seeing improvement in the quality of those receivables. So, no real concerns there, but yes, a buildup, a high level of inventory than we would have otherwise expected, which will unwind over the second half.

[Nathan Burley, Head, Investor Relations]

Our next question is from Kane Hannan from Goldman Sachs. Go ahead, Kane.

[Kane Hannan, Goldman Sachs]

Good morning, guys there as well. Just earnings guidance, given the momentum in that business, mobiles, you have higher pricing for a full period in those enterprise changes. NAS is obviously sequentially stronger in the second half and those improvement in the cost performance, is there any reason why we wouldn’t be thinking you are tracking towards the top end of your earnings guidance given that’s second half skew? Secondly, on the free cash flow guidance, I mean are we still thinking about the midpoint of that as your best guess. I would have thought you had some benefit coming through from the lower mobile hardware sales that you are acknowledging in the revenue guidance? And then lastly, just in terms of the InfraCo separation, should we be thinking about that $300 million stamp duty payment coming through this calendar year or did you guys end up with buying for stamp duty relief?

[Vicki Brady, Chief Executive Officer]

Thanks, Kane. So let me – I’ll talk to each of them, and then I’m sure Michael will want to add comments as well. So in terms of overall guidance, as I said, our underlying EBITDA range is pretty tight at $200 million. We did reduce it again this year. And we’re not giving any further indication. We’re confident we’ll be in that range. And as I spoke to before, Kane, there are a lot of elements of this business. As we’ve seen in the half, mobile performed strongly. We weren’t quite where we expected to be in data and connectivity and the C&SB fixed businesses. So there’s always going to be ups and downs. And so if everything obviously goes in our favor, then that will put us in a better position. But overall, no change to our guidance range on underlying EBITDA.

In terms of free cash flow, again, we’ve got that range out there. We’re not narrowing the range today. And as Michael has spoken to, working capital can move and we’ve seen that. It was in – pretty much in line with expectations. And so no change in terms of that range on free cash flow for the second half. And then on InfraCo to answer your question very directly, yes, in line with the scheme booklet, we did apply for stamp duty relief, the corporate reconstruction relief. That application has been submitted. And as we work through 2023, Kane, I’m sure, as you can appreciate, there are many different options and different structures we will think about as part of that. But yes, we absolutely in accordance with the scheme booklet we have applied for corporate reconstruction relief on the stamp duty. So I might hand over to Michael for any other comments.

[Michael Ackland, Chief Financial Officer]

Yes. Thanks, Vicki. And it’s versus plan we are absolutely seeing, when mobile hardware comes in a bit lower, it does reduce what we would have expected to build up for customer deferred debt, but there are pluses and minuses across our cash flow forecast and there can be reasonable size swings based on timing of payments. So we’re holding with our guidance, but you’re right to call out mobile hardware income being lower does reduce that buildup of customer deferred debt versus what we would have otherwise expected, but we still believe we are within guidance.

[Kane Hannan, Goldman Sachs]

But maybe on the NAS for the second half, I mean, are there contract milestones that might – we should be thinking about as you have typically seen or is there any reason why the NAS business wouldn’t have a strong second half margin that we should be thinking about?

[Michael Ackland, Chief Financial Officer]

Well, we absolutely expect NAS to have a strong second half typical with seasonality. You are absolutely right, it’s milestone driven. We have a very strong pipeline and we expect a really strong recovery in NAS in the second half versus the first half, which is what we typically see. So I think you should be thinking about that. I don’t know whether David, do you want to add any more color on the pipeline for NAS for the second half?

[David Burns, Group Executive, Enterprise]

Look, Michael, I think you have genuinely covered it. I’m expecting the headwinds of calling up still to maintain. But to your point, key contracts, which as you appreciate can’t name them, do deliver and have milestones in the second half and the pipeline of the second half and the pipeline of larger deals which won’t make a huge impact to second half but will help us on our long-term ‘24/25 objectives in our NAS business is as strong as it’s ever been. So I think, Kane, what your– what history has shown is reasonably fair.

[Kane Hannan, Goldman Sachs]

Thanks, guys.

[Nathan Burley, Head, Investor Relations]

Our next question is from Lucy Huang from UBS. Go ahead, Lucy.

[Lucy Huang, UBS]

Thanks, Nathan and good morning Vicki, Michael and David. I’ve got three questions as well. So just firstly, on the mobile business, just wondering if you can give us some color into early trading in January and February, particularly how is mobile subscriber momentum tracking? Are we starting to see some benefits coming through from the international migration or kind of further share gains in the market? And then just secondly, on kind of prepaid ARPUs, I think you guys flagged a $42 million one-off revenue benefit. Just wondering what did this relate to and should this continue into the second half? And then just my last question around nbn reseller margins, I am still aiming for kind of mid-teens by 2025. I guess what do you think will be the primary lever given the nbn SAU I think we are not getting the outcome yet on cost reductions there. So is it going to be mainly through price increases or do you think there is actually a lot more scope to pull on cost to drive that margin improvement? Thanks.

[Vicki Brady, Chief Executive Officer]

Thanks, Lucy, for that. And so let me make a few comments and then hand over to Michael. So just in terms of early trade, I don’t think there is any real updates to make on that for January and February, Michael might want to make some comments, but it’s been pleasing to see borders reopen and obviously, inbound visitors to the country and people are able to migrate in. So, it’s good to have those trends return. In terms of prepaid, yes, we did have a one-off in the period. It was the $42 million you mentioned and that was related to, as we migrated plans for customers into our new environment. So that was a one-off. Michael can speak more to his expectation on it, but I would very much see that as a one-off in the half, which is why we did call that out. But even taking that out of the picture, really pleased with our prepaid performance, the business continues to be performing strongly with good UU growth and also good ARPU growth even allowing for the one-off. So, pleased with the prepaid performance.

And then on nbn reseller margins, when we set that ambition to get to the mid-teens by FY ‘25, we always said it was based on where we anticipated nbn pricing to head. So our focus is very much on what are the things we can do on the revenue side. So things like plan mix, we still sit with around 10% of our nbn customers on 100 meg plus plans. And so there is still opportunity for customers who are looking for those higher speeds to improve mix. We continue to focus on other add-ons to our customers that are valuable to them. So the WiFi guarantee things of that nature, they are important on the revenue side. And yes, absolutely, there’s more to do on the cost side. And that’s critically important, again, in that migration of customers of our legacy systems into our new digital environment. As Michael referenced, as he spoke, we are seeing some really good improvements both in the experience, and that also is flowing through to better cost in terms of being able to serve those customers in a lower cost environment as well. So those things will all play a part. But Michael, I might see if you wanted to make any further comments.

[Michael Ackland, Chief Financial Officer]

Yes. Why don’t I pick up on prepaid ARPU and prepaid ARPU has been really pleasing. If I just, for a moment, ignore the $42 million one-off, we’ve seen ongoing increases in data usage in ARPU, which is really the underlying – data usage in prepaid, which is really the underlying driver of that ARPU, which I think is very positive as people are using the product more. In terms of the $42 million, it is a one-off. It is – we’re coming very close to the end of our completing the migration of our customers from a whole range of old prepaid products onto the new simplified plans and also onto the new system. And this is a release of unearned revenue as we go through that process. There will be some more, but this was the – I’d consider this a one-off and not build it into ongoing forecast. On nbn, I agree with Vicki. I mean I think the one point to note, our lift as we look from first half ‘22 to first half ‘23 was driven by ARPU lift. And historically, we’ve seen further mix changes. We didn’t see those mix changes impact ARPU as much this time. But we do expect when we look at where we are in the market, we still track quite a way behind the market in terms of the mix of plans on the 100 speed and above. So we see considerable further upside there to drive margin in that product.

[Nathan Burley, Head, Investor Relations]

Great. Thank you, Lucy. Our next question is from Roger Samuel from Jefferies. Go ahead, Roger.

[Roger Samuel, Jefferies]

Hi, thanks. I have got three questions as well. Firstly, just on postpaid mobile, Optus or Singtel just reported showing that they lost about 65,000 customers in postpaid in the last quarter because of cyber attack. So, 65,000 customers that they lost versus the 68,000 that you added during the half, it looks like the benefit that you get from them is pretty muted. I am just wondering if that’s mainly because of the price increases that you mentioned before and the impact on customer churn or is there something else? Second question is on NBN. So, you have migrated the customers to a new technology stack, but the SIO still declined in the half. And I am just wondering why that is the case? Was it because of intense competition and you put up prices? So, what’s happening there? And thirdly, on InfraCo Fixed, I think you incurred about $126 million in one-off costs to separate the businesses. What does it appear on the accounts, is it on the InfraCo Fixed EBITDA, or is it in a one-off cost? Thank you.

[Vicki Brady, Chief Executive Officer]

Thanks Roger for that. So, yes, we haven’t seen the Singtel numbers because we have been in here this morning preparing for results. So obviously, we will have a look at that later on today. But again, I would just say yet, as we spoke to in the first part of the half, we did have the price increases flowing through, and as I said, we did have some churn inside what we anticipated, but that definitely played out in the first quarter. And as we spoke to, our estimate, it’s always – it is an estimate of what we think we net gained out of the Optus cyber breach and that’s at, as Michael spoke to sort of in that low to mid-tens of thousands. So overall, we are pleased with our overall postpaid handheld net add performance in the half. So, there are a number of dynamics at play there. In terms of NBN and where we are sitting in terms of SIOs, again, as Michael reinforced when he spoke to the numbers, it is important that we do stabilize SIOs. And yes, absolutely, in this half, we have also been very focused on ensuring we can deliver in a sustainable way, and that has meant some price increases flowing through. It’s fair to say that it is a competitive market, and there are some newer players in the market that are – they are competing hard, and they are winning some share in market. And so our focus is absolutely on continuing to deliver the right margins in our NBN resale business, so we can deliver at the level of quality that our customers expect from us, but also stabilizing that SIO loss as well. On InfraCo, I might let Michael can handle that question in terms of where the $126 million shows up, so Michael, over to you.

[Michael Ackland, Chief Financial Officer]

Yes, sure. I mean that one, I will cover off. It is in one-off costs, both this period and in prior periods as well. It’s not in the InfraCo Fixed cost base. On the NBN SIO decline, the one that I would call out is we did make some pricing changes across both the Belong base and also Belong in market plans, which did lead to a bit of a reversal in momentum on Belong side. But as Vicki said, we remain focused on ensuring that we are delivering and moving towards our NBN reseller margin. So, it was both our price changes as well as Vicki mentioned, the intense competition.

[Nathan Burley, Head, Investor Relations]

Excellent. Thank you. Our next question is from Brian Han from Morningstar. Brian?

[Brian Han, Morningstar]

Thanks Nathan. I will just ask two questions since you guys must be getting tired of us. Firstly, just looking at F ‘23, given the $110 million increase in fixed cost core in the first half. Can you elaborate on how Telstra can reduce that whole cost line for the full year? And second question is Vicki, you mentioned that there may be some refinements or adjustments to the T25 strategy. Can you please give some broad indications as to what those may be and any implications on service or cost levels? Thanks.

[Vicki Brady, Chief Executive Officer]

Absolutely. Thanks Brian for that. I will take your second question, and then I will hand across it to Michael, who can talk in more detail around fixed cost core. So yes, when I spoke to our T25 strategy, I am absolutely confident it is the right strategy for us to achieve our ambitions. But as you would expect, it’s a dynamic environment and things do change. And so at times, I may make some of those decisions to make sure we have got our priorities right in order to deliver on that ambition and that strategy. And just one example, I spoke a little bit about how important it is that we get off legacy and get our customers fully into our new digital environment, so making sure we are accelerating that work. It’s a good example where I am confident that’s going to deliver better customer outcomes, and it’s going to be an important lever in delivering on our cost ambitions as well. So, I am not flagging any major strategic changes, Brian, but it is important. It’s a dynamic environment. T25, absolutely, the right strategy. And as I said, there may be at points, some of that prioritization, the levers we choose to pull on harder or where we might refocus, that’s what I was referring to when I spoke about that. So, why don’t I hand over to Michael to talk about fixed cost core?

[Michael Ackland, Chief Financial Officer]

Yes, absolutely. So, if you think about the way what drove our increase – the $110 million increase in fixed cost core versus prior corresponding period, as we talked about, obviously, there is labor and non-labor inflation flowing through. But there is specifically the in-sourcing of the stores and the on-shoring of the call centers flowing through as well as a little bit of travel. Sequentially, that’s – we started on the in-sourcing of the stores and onshore of call centers through the second half of FY ‘22. So, as we go to the second half, that is a little bit of an easier comp. We also are seeing in terms of our run rate through Q2. Our run rate through Q2 is now at the level – was at the level we needed it to be in the second half to achieve that reduction on full year. So, it is really a little bit of there was – we have managed to get to that run rate now as we run into the second half. So, we are feeling reasonably confident we will deliver that overall reduction because the lift – the majority of the lift in the first half was around those very deliberate decisions. As well as, as I talked about the lift in energy costs, which will continue into the second half and that bounce back of travel versus the first half FY ‘22.

[Nathan Burley, Head, Investor Relations]

Thank you. Our next question is from Harry Saunders from Evans & Partners. Harry?

[Harry Saunders, Evans & Partners]

Hi Vicki and Michael. Thanks for taking my questions. Firstly, just on the ACCC decision, the MOCN, I am just wondering, would you consider an alternative driving style agreement with TPG, if the MOCN appeal outcome is unfavorable. And secondly, just wondering if you give a bit of color on that home wireless, so you mentioned some revenue growth, perhaps before you start to provide sub numbers there? And then just thirdly, could you comment on the run rate currently sort of in mobile net adds in the last month or so given the Optus impact now sort of largely over? And just perhaps checking if the one-off prepaid impact is being reflected in the prepaid ARPU figure that you provided?

[Vicki Brady, Chief Executive Officer]

Thanks Harry for that. So, just on the ACCC, MOCN decision, it’s obviously going through the appeal process at the moment, and we expect a decision around June this year. Look, I think it’s too early to talk about alternatives. We are appealing it. So, we will wait and see where that decision lands in June, but we are absolutely committed. We think there are innovative ways. It is going to be important to get the outcomes for regional Australia and also to get the right level of returns to sustain investment, I think innovative sharing arrangements as we have demonstrated under the MOCN deal, I think will be important in the future of delivering great mobile services into the country. So too early, I think to speculate on what we might or might not do. Let’s see the outcome of that appeal process. In terms of home wireless, I might get Michael to talk a little bit more about that. As we said, just in terms of things normalizing post the Optus cyber breach, yes, we have seen things largely normalize there. And then finally, yes, in our prepaid ARPU, I will get Michael to 100% confirm. But yes, the $42 million one-off does flow through. And so I think we have called that out pretty clearly in the detailed numbers. But Michael, why don’t you jump in and comment?

[Michael Ackland, Chief Financial Officer]

Yes. Thanks, Vicki. The $42 million is absolutely in the prepaid ARPU, so as you look forward, you need to adjust that out for an underlying figure as you forecast forward for prepaid. On home wireless, we continue to build momentum, but our strategy remains the same, which is that we are focused on home wireless where it makes sense, where it’s a better outcome for customers, and that’s how our strategy will continue.

[Nathan Burley, Head, Investor Relations]

Excellent. Our next question is from Rod Sleath from Rimor. Go ahead, Rod.

[Rod Sleath, Rimor]

Hi guys. Thanks very much for taking my questions. So many have obviously already been asked and I am going to apologize, because I am going to come back to a couple of points that have been spoken about somewhat. Firstly, I just wanted to come back to the question on alternatives with regard to TPG. But I just want to ask the question in a slightly different way, because obviously, the sticking point, which makes it something that has to be approved by the ACCC or via appeal, is the access to the spectrum. Is regional capacity, an issue for you in the context of taking on sort of further wholesale sales to NBNOs? Do you need additional spectrum to be able to do what you want to do in the regions? That’s the first question. And the second question is also coming back to something you have already spoken about. And that is the SIOs in predominantly NBN was just reasonably consistently now, you have been losing SIOs. And in this half, it’s been both in Belong and in the Telstra brand. And I think you made the comment earlier, a few times that you need to get volume stabilization. But at the same time, you also need to be moving ARPU upwards. And it’s just seems like the evidence at the moment is suggesting that in the current competitive environment that is actually unbelievably difficult to do the prices go up and you lose SIO. So, I was just wondering are you having to think about perhaps changing the offerings that you have in NBN, perhaps offering less inclusions in a slightly lower price, etcetera? And then the third question was actually just on the other division, which I sort of look at, and feel that in the future, the ultimate the long-term earnings, they are predominantly going to be from Telstra healthcare. Given that’s close to a breakeven EBITDA, that business is presumably still in investment phase, is it reasonable to expect that we should be seeing reasonable cash and EBITDA returns coming from the other area in the medium-term?

[Vicki Brady, Chief Executive Officer]

Thanks Rob for those questions. So, let me – I will get Michael to deal with the SIO question on NBN. So, let me talk a little bit about your first and your third questions. So, just on the first question, look, you are right and important part of the deal that we proposed with TPG was spectrum. We think the efficient use of spectrum is incredibly important. And so TPG under that deal would have spectrum that wouldn’t be used. And so it gave us a way to use that spectrum efficiently and bring customers onto our network in that sharing zone in a very efficient way, and deliver better overall customer outcomes. Now, obviously, if the deal does not get approved through the appeal process, we have been there delivering for regional Australia for a very long time. And we are an operator that does invest and is there supporting regional Australia. Our network today covers about a million square kilometers more than our nearest competitor. And so the spectrum would be a great addition through the proposed deal. But obviously, if it doesn’t get approved, we have been there delivering for regional Australia for a long time, and we will continue to do that. In terms of other, and talking about Telstra Health, Telstra Health is an incredibly exciting business. And so, yes, we have got a clear ambition to get it to be a $500 million revenue business by FY ‘25. And you are right, it is in that high growth phase at the moment. We did make a couple of important acquisitions last year to add to that business. The organic business is growing. We have got those new acquisitions that are also performing well. So, as we look out medium-term, absolutely we would see it as another driver in our business to be delivering revenue and EBITDA benefits to our longer run and medium-term growth ambitions. So, I think the way you are thinking about that is spot on. Why don’t I go to you Michael on NBN size?

[Michael Ackland, Chief Financial Officer]

Yes, sure. And I think it’s a fair comment on where we have been on NBN SIOs and particularly as you mentioned, we made some changes to prices in Belong. And so that that was part of the reason we had a negative net add position there. We remain – I think we remain committed that delivering a quality and home experience is incredibly important. And we have invested, as we said in our inclusions, and particularly the inclusion of the modem. But there is no doubt we face significant challenges. And we have had now a number of hubs, as you pointed out, where we have not been able to reverse that side a client and so we are looking at what we can do to continue to evolve the proposition continue to improve the experience as we are doing with our migration to the new digital stack. But ultimately we need to be delivering a product that can deliver reasonable returns and our sort of objective on reasonable is mid-teens by 2025. So, we are balancing all of those things up. But absolutely, no doubt, we are continuing to review the proposition, continuing to listen to what customers are saying they need, and that they want and that they value. And we will continue to evolve our propositions to meet those needs.

[Nathan Burley, Head, Investor Relations]

Excellent, and will so turn to a type of media Q&A. So, I will just invite any media on the call to register your questions. And with that, we will go to the last investor and analysts question from Ian Martin from New Street Research. Ian?

[Ian Martin, New Street Research]

Thanks for that. Yes. Just wondering if you can comment on some of the recent announcements we have seen in private LTE networks. AWS announcing the local zone in Perth and I think Adelaide is coming up, looks like they are targeting the mining sector, which Telstra has traditionally been dominant in. And then a week or so ago, we had Vocus buying Challenge Networks. So, it looks like there is a quite a new incursion in infrastructure competition in that market that Telstra is traditionally dominated. Can you give us your thoughts on that?

[Vicki Brady, Chief Executive Officer]

Yes. Thanks Ian and good to have you on a whole different topic from the ones we have been on today, so thanks for that. So, there is a lot going on. I think this is an incredibly exciting area. And they are all spaces that we are active in, where we have made some acquisitions as well over the last little while. And I will get David to jump in, in just a second, because this is right in the sweet spot of where David is focused and where he is taking the enterprise business, particularly with that focus around industry verticals. And mining, mining is a great example of that. And I would point out yes, I mean AWS has made some announcements recently. They are an important partner of ours. We partnered very closely with them. And so I think there is a lot happening in this space. And it really demonstrates how important infrastructure investment is to underpin the ability for these industries to really reap the benefits of digitization. And obviously, we are a big investor in infrastructure into city fiber. Investment is a key foundational investment that’s going to inject more capacity into the country. And so we are excited. Yes, it’s a fast moving environment and there is lots of people in it. But I think that really demonstrates that this is an exciting area where there is more value to be created. But David, why don’t I get you to jump in and talk a little bit more on what’s going on in your world in enterprise?

[David Burns, Group Executive, Enterprise]

Thanks Vicki and thanks Ian. So yes, as you mentioned, AWS have announced two of their local zones, Perth, Brisbane, and potentially to be Adelaide, I am not sure that I have heard that confirm, but you might have Michael – Ian sorry. But again, we would be positive about that. Telstra is – and through our go to market brand, which we call Telstra Purple, that tech services business provision of hyperscaler solutions, and Azure and AWS are our two largest partners and providers. And in fact, we have our own practices around that and we have, in fact more people skilled in those areas than many or most in the country. And putting that together with our network offerings is actually key to our strategy. And aligning that to our industries is also key. I mentioned earlier industries of how we put propositions together is incredibly important. The mining industry, the construction industry, the energy industry are three of ours that we put together in one group actually and very focused around that. And its where we are driving the value up the stack if you like. And we do that in combination of some acquisitions we have made, so we have made two acquisitions around IoT and in fact, industrial automation, in particular around IoT, Aqura and Alliance. And a third acquisition we recently made around Epicon, who can bring all that to data management together into decision making forums, and decision making processes faster, better, cheaper for our customers has been incredibly important. So, when we put the hyperscaler solutions, the investments that they are making, which we totally welcome in places like Perth, Brisbane, and to be Adelaide, and we put them together with our investments that we have made acquisitions into these specialist organizations that allow us to penetrate into those industries and up their value stacks greater than we have ever been before. So, we are doing more in water companies. We are doing more in energy companies. And we are doing more in mining companies than we have ever done before. And in fact, I am very excited about the pipeline and placement of those opportunities. And I think there is much more for us to talk about, perhaps at the end of the half in those areas. And so it’s a positive thing from an enterprise perspective and I think from a Telstra perspective.

[Nathan Burley, Head, Investor Relations]

Great. Thank you, David. Thank you, Ian. We will soon move to media Q&A. But before I do that, I will just hand over to Vicki to close the investor and analyst question time.

[Vicki Brady, Chief Executive Officer]

Thanks Nathan. I just wanted to say a big thank you to all the investors and analysts that have joined us this morning. It’s been our great pleasure to share our results for the first half. And as I said, it’s great to see our business continuing to deliver that strong growth and look forward to engaging over the coming weeks as you digest our results. And thanks again for joining us today.

[Nathan Burley, Head, Investor Relations]

Thank you. We go down to your destination.

[Video Presentation]

[Nic McKechnie, Group Executive, Communications]

Well, good morning everyone. I am Nic McKechnie, Communications Executive at Telstra and welcome to the media portion of today’s half year results. I have a few questions. And but don’t forget, if you do want to register, please do so now for the Q&A for media. First question comes from Dave Swann. Dave, good morning.

[Unidentified Analyst]

Thanks for having me for the time and congrats on the on the results as well. A couple of sort of caller questions, I know Mike and Vicki, you talked about Optus, thousands of customers joining Telstra following their data breach. And you have launched an ad as well highlighting your own cyber capabilities. Wanted to ask what did Telstra do in the wake of the Optus breach, making sure your own systems to safeguarded, for example, any extra reviews of your defenses or anything like that. And wanted to ask you, Vicki, it’s your first results, obviously, as CEO, what’s been the biggest challenge or surprise for you since taking on this job?

[Vicki Brady, Chief Executive Officer]

Thanks Dave and great to have you on the line. So, firstly, yes, I mean any breach, so just to be clear, if we see major breaches in Australia or around the world from a cyber point of view, and the Optus breach was no different. We are always looking for learnings, because I think when it comes to cybersecurity, it is 24/7. And it’s a job that’s never done. So, we take the learnings out of any breach of that sort of magnitude that’s happening around the world, the things we are focused on, naturally our cyber defenses. We do have very deep capabilities within Telstra. But as I said, we can never be complacent because this world is moving so fast. So, yes, through any of those learnings, we will always be making sure that our defenses are strong in terms of defending and protecting our network, our customers and our customer data and information. In the wake of the Optus breach, one of the areas we have focused on is absolutely the data we collect and retain. And we have already taken some steps there to make sure that we are absolute we got to comply with all of our obligations and laws around retention of data. But making sure where we can make changes that make sense that are in the best interests of our customers. We have done that, for example, the holding of the ID scans that we take when a customer joins us when we have got to verify their ID, we have reduced the time we hold those scans from 2 years down to six months now. So, that’s the sort of work that we are really some of the learnings we have taken out of the Optus cyber breach. But as I said, it’s an area you can never be complacent in. In terms of stepping into my new role, yes, almost six months now in the chair of CEO, and I have got to say it has been an incredible six months. It’s been exciting. It’s been intense. Yes, it’s challenging. I think with any new job. When you step into it, I would say it’s doing things the first time in the new role. And if I take today as an example, yes, I have done results before sitting in the CFO chair. But this is the first time I have delivered results sitting in the CEO chair. And Dave, if I am honest, preparing for investor and analyst questions, we usually have a good idea, but obviously, this is a bit of a new world for me, so engaging and getting to have a broader conversation. So, there are some of the exciting and new things that come with this role.

[Unidentified Analyst]

Thanks.

[Nic McKechnie, Group Executive, Communications]

Thanks Dave. Okay, next question from Zoe Samios [ph] from Fairfax. Hi, Zoe.

[Unidentified Analyst]

Good morning and thank you very much for speaking with me. I just got just a couple of questions for me to Vicki. I apologize, by the way, this was on the call, I am juggling a few results this morning. But are you able to talk to whether you think mobile and broadband prices can stay where they are at the moment, or if you think they are likely to go up? And secondly, just on the deal, that’s under appeal between Telstra and TPG? Obviously, there is a few formalities there. But is there anything you are able to say around your confidence in getting that passed, or being successful in that appeal?

[Vicki Brady, Chief Executive Officer]

Thanks Zoe and no problem. I know you are juggling, lots of people reporting today. So, just in terms of mobile and broadband prices, so we have been very clear, we obviously brought into the market last year to a number of our plans to be really transparent and clear with customers that we would do an annual price review. And so in the first part of the half results that we have just reported, we did see those price changes flowing through. And so we will take the same very transparent approach. And the way we will approach that come April, May, we will undertake our pricing review, we do take into account where CPI is at for the 12 months to the end of March, that will be in the consideration. And as I said, it’s not a decision we have made yet, that will be something that we consider. We are very conscious, and it is front of mind for me that our customers are feeling the cost of living pressures. And so it’s so important that changes we made in recent years, to get rid of locking contracts, to really leverage our multi brand strategies so that our customers have choices, they can choose the plans and the brands that give them absolutely the ability to match what they can afford. So, those things are going to be incredibly important. So, no decisions made yet. And that will be how we work through that come April-May timeframe. And again, our commitment is absolutely to be very transparent and upfront and clear on any of those decisions that we make. In terms of our proposed deal with TPG, our network sharing deal that is under appeal at the moment, we are expecting a decision around June this year. Obviously, where that lands, that’s going to be up to the tribunal to decide. But we think it is an innovative deal that importantly, would improve experiences in regional Australia for our customers. And we would also obviously give TPG much greater reach into regional Australia. So, we think it’s an innovative deal. That is a really commercial way to be able to share network infrastructure into regional Australia. And so yes, we will wait and see where the appeal decision lands.

[Unidentified Analyst]

Okay. Thank you.

[Nic McKechnie, Group Executive, Communications]

Thanks Zoe. Thanks. Next up we have got Simon Dux from CommsDay. Hi, Simon.

[Simon Dux, CommsDay]

Hi there. Good morning Vicki and very strong set of results as well. I have got a couple of questions as well. The first one as you guys are the biggest RSP in the land. I want to get your thoughts on nbn fiber connect product, we are seeing fairly slow take up at the moment. Obviously, in your plans, you have only got 10% at the moment on 100 meg and there is an aspiration to kick that one up. You are looking to improve your margins as well. So, I would like to get your thoughts on where you see fiber connect fitting into Telstra and how active you are going to be on pushing that out this year. Second question, nbn, yesterday in their results, increased business revenues quite strongly up 11%. I would like to get your thoughts on how much that’s impacting DAC business in Telstra? And final question is around, essentially today’s results, how much of the results do you think are a vindication of elements you set up in T22?

[Vicki Brady, Chief Executive Officer]

Thanks Simon for that. So, just starting with your first question around fiber connect from nbn. So yes, I mean it’s exciting to see that investment and building out more fiber. Absolutely for us, we will make sure we have got a really clear and smooth experience for our customers. So obviously, being able to support that to make sure our IT systems are set up. And we have got our channels to market, able to make that a really smooth experience for those customers that choose it. Remembering at the moment, obviously consumers are experiencing cost of living challenges, we know there will be segments of customers, and we are excited by that being able to provide them where they choose to take that option. And as you rightly point out, we sit with about 10% of our nbn customers on 100 meg plus plans that is lower than where the overall average is, so absolutely for a segment of customers, that’s going to be important. And so yes, we look forward to being able to support that smooth transition for customers who do want to take advantage of fiber connect. In terms of nbn’s results, I have only had a very quick read of them. As you can imagine my focus last night and today has been absolutely preparing for our results. I did say as you mentioned, they had strong business revenue growth. And as we have talked about today, our data and connectivity business, yes, it’s absolutely still feeling the effects of competition in that space. We are also however, nbn, resale is an important part of our enterprise business, so we have the option of our Telstra fiber, and also reselling nbn fiber as well. So, yes, we are still seeing the effects of that. And we also see opportunity in being able to resell nbn fiber also. And then today’s results, yes, your last question was around, absolutely I think today’s results absolutely show and demonstrate that the change that was delivered under T22 was absolutely the right areas to focus on. And we are seeing the benefits of that flowing through into our first half results.

[Nic McKechnie, Group Executive, Communications]

Okay. Thanks Simon. Next question from Joseph Lam from The Australian. Good morning, Joseph.

[Joseph Lam, The Australian]

Good day, Vicki. So, a couple of questions around mobile. So, the results say that income is expected to be at the bottom end of guidance due to mobile hardware and fixed product revenues being lower than expected. Can you share what the expected revenue for mobile hardware was and how Telstra would seek to improve that for the rest of the financial year? Another question, so Michael Ackland, in his speech said customers are holding on to handsets for longer, as well as purchasing from external parties. Do you know how long roughly Telstra customers are holding on to their handsets for is the reason they purchased from external parties to do with pricing and just Telstra have a plan to get people to be able purchase handsets from it instead of external parties? Thank you.

[Vicki Brady, Chief Executive Officer]

Thanks Joseph for that. So, yes, just in terms of we are still inside our guidance ranges. So, we have reaffirmed that as part of our half year results, we did indicate on income, we would expect to be at the lower end of that guidance range and you are spot on the two components, they were mobile hardware and fixed business, just in terms of mobile hardware. So, we have seen growth in mobile hardware when we compare to the prior corresponding periods. So, it’s up about 12%. We had anticipated more growth than that. And that’s because we have customers coming off their device repayment plans for both 24-month plans and 36-month plans at the moment. So, we had anticipated that to be a little bit higher. As Michael did speak to yes, we are absolutely seeing customers choose to hold on to devices a little bit longer. I think broadly at the moment, obviously averages, I think we are sitting at around 3 years is sort of that average renewal cycle. It obviously varies, there are some customers that are very eager to renew and others that hold on to devices much longer. But I think on average, we are seeing about 3 years at the moment. In terms of where people buy their devices from, look, we give customers the choice to buy devices through us, and they can choose to repay for that retail price of the device over a deferred repayment. Yes, we see customers choosing to buy and lots of other retailers. And we think that choice is important. And so we are pleased with where we are tracking in terms of the number of customers choosing to buy devices through us. And that’s been a trend we have seen over the last few years in terms of people choosing to buy from other retailers as well. So, no concerns from us on that.

[Joseph Lam, The Australian]

Great. Thank you very much.

[Nic McKechnie, Group Executive, Communications]

Thanks Joseph. Next question from Lucas Baird from The AFR. Hi, Lucas.

[Lucas Baird, The AFR]

Hi guys. Thanks for taking the questions. The first one on InfraCo Fixed, should we just assume that’s not going to happen this year and has move on for 2024. And then on nbn, I mean, what specifically worries you about the SAU? And can you just reflect on Stephen Rue’s comments yesterday that they don’t want to move any further on providing any more wholesale cost relief. And then the third one was just, is Telstra considering any more cost-cutting measures going forward on top of the $500 million in T25? Or can we offset most inflationary pressures by passing on the increased cost to customers?

[Vicki Brady, Chief Executive Officer]

Thanks Lucas for that. So, just don’t InfraCo Fixed, I know it’s one we get a lot of questions on. And to be really clear, we have made no decisions on InfraCo Fixed in terms of any sort of transaction there. What we have been very clear on is these are really unique and valuable assets. And so the course – through the course of 2023, we will be very deliberate and measured as we work through possible options. And what will guide us is what’s in the best long-term interest for Telstra shareholders, so that’s exactly where we are at. So, we will work through that – through the course of 2023. In terms of nbn, and the current nbn SAU, so the first thing I would say is there are some steps in the right direction. And I absolutely appreciate that nbn and Stephen, they have got guardrails, they have got to operate within and deliver. What we have been strongly advocating for on behalf of customers is, firstly, service standards. We haven’t seen improvements in service standards under the currently submitted SAU. They are pretty consistent with where they were 2 years ago. And we know for our customers, they rely heavily on their nbn service. And so lifting those service standards is something we will continue to advocate for. And the second thing that we have been advocating for is not to see the price increase on that 50-20 plan. We have around half our customers on those plans, and particularly in the current environment where people are feeling the pressures from cost of living increases. We are advocating that we would suggest that there should not be a price increase on that 50-20 plan. Again, I appreciate nbn has got to operate and figure out how they operate within their guardrails. But that’s what we are advocating from a customer standpoint. In terms of our $500 million cost-out ambition under T25. There is no change to that ambition. That’s an ambition that we are still aiming to achieve. Obviously, it’s a bolder ambition today, when we set that ambition, inflation was not running where it is right now. But we know in this current environment, we have got to keep driving efficiency in our business and so accelerating that move of our legacy IT systems into our new digital environment is absolutely critical. So, we remain committed to that $500 million cost-out ambition.

[Lucas Baird, The AFR]

Cool. If I if I could just follow-up on InfraCo. Just a second, considering throughout 2023, do you expect to come to a final decision on what to do with it in this calendar year, or do you think that’s a bit more far out?

[Vicki Brady, Chief Executive Officer]

Well, as I have said, this is a really important one. It’s one we don’t want to rush on, we need to really think through what’s in the best long-term interests of Telstra shareholders. So, as I said, we will consider through the year and we will provide updates as we make progress and we will come back to it at that point, Lucas.

[Lucas Baird, The AFR]

Right. Thanks guys.

[Nic McKechnie, Group Executive, Communications]

Great. Thanks Lucas. Next question from Eric Johnston from The Australian. Hi, Eric.

[Eric Johnston, The Australian]

Yes. Thanks for taking my question. Just again, on the sort of the inflation issue, I am trying to get a sense of what you see at Telstra, where are the pressures coming from in terms of pricing increases in your business? Is it the supply chain issues sort of working their way through? Are they more domestic issues, energy and so on? Just some color around that?

[Vicki Brady, Chief Executive Officer]

Yes. Thanks Eric. Look, I think like most businesses, where we are seeing pressure from inflation across a wide range of parts of our business, no doubt energy is one part of that. We spoke to today, we would expect that extra energy or power costs this year to be in the order of $50 million on the cost line. We do however have power purchase agreements in place that help offset that largely at EBITDA. We are certainly seeing most suppliers to our business, whether domestic or international, of course they are feeling cost pressures. So, we are seeing that as well. And we have spoken to today we do have cost mitigates. We will need to consider obviously, where we look to pass on those prices. For example, if I look at mobile hardware, where we see prices lifting there, they pass through in terms of the recommended retail price that we offer to customers. So yes, we are seeing inflation play its part. Right at this stage, we do have some mitigates. And we are very focused on making sure we are pulling the levers we have got to be able to navigate this period and deliver the right outcomes for our customers and for our shareholders.

[Eric Johnston, The Australian]

Okay. Thanks.

[Nic McKechnie, Group Executive, Communications]

Thanks Eric. I think that is the last question we have from the media today. So, we might wrap there. Thanks, everyone for joining. Appreciate your time, and we will see you next time. Cheers.