1 July 2021

Office of the Company Secretary

Level 41

The Manager

242 Exhibition Street

MELBOURNE VIC 3000

Singapore Exchange

AUSTRALIA

Securities Trading Limited

General Enquiries 03 8647 4838

2 Shenton Way

Facsimile 03 9650 0989

#02-00 SGX Centre 1

companysecretary@team.telstra.com

Singapore 068804

Investor Relations

Tel: 1800 880 679

investor.relations@team.telstra.com

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra sells 49 per cent of Towers business - briefing transcript

I attach a copy of the transcript from the briefing held yesterday in relation to Telstra's sale of 49 per cent of its Towers business, for release to the market.

Authorised for lodgement by:

Sue Laver

Company Secretary

Telstra Corporation Limited ACN 051 775 556 ABN 33 051 775 556

Telstra TowerCo announcement, 30 June 2021 - Transcript

Nathan Burley:

Good morning and welcome to this call to discuss Telstra's InfraCo Towers

transaction announced this morning. My name is Nathan Burley, Head of

Investor Relations, and I respectfully acknowledge that I am joining today from

the lands of the Kulin Nation, and on behalf of Telstra I would like to pay my

respects to the traditional custodians of country throughout Australia, and

recognise their continued connection to land, waters and culture. We pay our

respects to Elders past, present and emerging.

On the call today are Telstra's CEO, Andy Penn, CFO, Vicki Brady, Telstra

InfraCo CEO Brendon Riley, and Group Treasurer and Head of Corporate

Finance, Guy Wylie. Andy, Vicki and Brendon will first make some opening

comments on today's announcement, and we will then be taking questions from

analysts, investors and then the media.

I'll hand over to Andy Penn.

Andrew Penn:

Well, thanks very much Nathan, and thanks everybody for joining us today,

because it's an exciting day for us; end of the financial year, but also exciting

to be able to announce this very significant milestone in our T22 strategy with

the partnership led by the Future Fund and Commonwealth Superannuation

Corporation, Sunsuper, and managed by Morrison to acquire a strategic

investment in our towers business, Telstra InfraCo Towers. And so we're

incredibly excited to be able to share that with you this morning.

The transaction values Telstra InfraCo Towers at $5.9 billion, and we expect

to receive net cash proceeds after transaction costs for the 49% interest that the

consortium will be taking of $2.8 billion at completion. Importantly, we will

retain a 51% majority ownership of InfraCo Towers, and will continue to own

the active parts of the network, to ensure that we continue to maintain our

network leadership coverage and network superiority.

Now, when we announced the potential monetisation of InfraCo Towers, I was

clear that we would preserve our strategic differentiation in mobiles, and

protect our network leadership, and I am very pleased, therefore, to be able to

announce this transaction absolutely achieves that, whilst ensuring that we're

able to deliver very significant value for shareholders.

We were approached by the consortium earlier this year as they recognised the

value of these assets, and provided a compelling rationale for us to progress

this transaction, which as you know we were looking to do potentially in the

second half of the year. So I'm very, very pleased that we've been able to

accelerate that and bring value to shareholders even sooner than we had

previously anticipated.

So we will brief the market in terms of how we will utilise the proceeds at our

full year results announcement. We will be investing $75 million to provide

additional coverage and capacity, and continue to improve network experience

in regional and rural Australia, but we will intend to return approximately 50%

of the proceeds to shareholders. And we'll provide further details of how we

will do that in conjunction with our full year results in August.

1

Telstra TowerCo announcement, 30 June 2021 - Transcript

And I think that I just really wanted to finish by saying this is an incredibly

exciting transaction. And it is a further endorsement that our T22 strategy is

delivering. When we announced T22 back in 2018, I said that one of the things

that we would be doing would be setting up our infrastructure assets as a

separate standalone business unit. That's exactly what we've been doing. And

we said we would do it to maximise value for shareholders and to provide

opportunities to continue to grow and develop those businesses. And that's

exactly what's happening, and under the leadership of Brendon Riley, so we're

incredibly excited.

This is a very, very important milestone. I think it's a great outcome for all

stakeholders. We're delighted with the quality of theconsortium that we'll be

working with led by the Future Fund. And as I say, I think it's a tremendous

endorsement that our T22 strategy is absolutely delivering.

So with that said, I might hand over to Vicki to run through some of the

financials, and then we'll also hear from Brendon Riley.

Vicki Brady:

Thanks Andy, and thank you to everyone for joining us today, final day of the

financial year. As Andy just said, the transaction values Telstra InfraCo Towers

at $5.9 billion, representing an FY21 pro forma EV to EBITDA after leases

multiple of 28x.

We're pleased with how the valuation benchmarks to other Towers

transactions, particularly given we're confident we can maintain Telstra's

mobile network leadership. We've also sold a minority interest when

comparable deals at this level generally have involved a majority or 100% sale,

and the Towers entity will have no debt.

Just to recap on net proceeds after transaction costs of $2.8 billion at

completion. Completion is expected in the first quarter of FY22. And we will

apply the net proceeds consistent with our Capital Management Framework.

Net cash currently expected to be used firstly, as Andy just mentioned, $75

million from the proceeds to further enhance connectivity in regional Australia.

We then expect to return 50% of net proceeds to shareholders. We anticipate

providing further details about the manner in which we will return those

proceeds, including via share buyback in FY22, at our full year results in

August. The remainder of the proceeds will be used for debt reduction to ensure

we maintain balance sheet strength and flexibility. The level of debt reduction

is important to deliver a broadly neutral credit outcome, given the long term

Tower access obligations created by the transaction.

From an accounting perspective, Telstra will consolidate InfraCo Towers given

our 51% ownership. The Telstra consolidated balance sheet will reflect the

proceeds received and a non-controlling interest recognised in Group equity.

As I mentioned earlier, InfraCo Towers will not hold any debt. Debt raised by

the consortium for the acquisition will be held at the minority investor level,

and not consolidated onto Telstra's balance sheet.

The long term Tower access obligations between Telstra and Telstra InfraCo

2

Telstra TowerCo announcement, 30 June 2021 - Transcript

Towers creates an intra-group liability, which is eliminated on consolidation.

This transaction and use of proceeds are expected to be accretive to earnings

per share, and free cash flow per share.

I'll now hand over to Brendon Riley for him to make some comments.

Brendon Riley:

Yes, thanks very much, Vicki and Andy. Look, Telstra InfraCo Towers are

some of the most strategic infrastructure assets in the industry and across the

nation. And I think the valuation and the outcome today is a proof point of that,

and also a proof point of all the foundational work that we've been diligently

doing over the past couple of years. And I know many of you have been waiting

for this monetisation event to come.

Importantly, Telstra is our biggest customer. And we're absolutely committed

to delivering on all of our commitments for Telstra to continue to lead in market

and achieve all of the objectives it wants to achieve out of this agreement.

While InfraCo Towers is already delivering growth and efficiencies, I believe

the new agreement will help us sustain our market leadership with new

investment in infrastructure and services. We're very focused on providing best

in class customer service and solutions to the entire industry, and importantly,

leveraging new technology to improve our speed and efficiency.

We welcome the relationship with our new consortium partners, including the

experience and disciplines which Morrison & Co will bring as managers. And

I've been very impressed with the Morrison & Co team in the weeks that we've

been able to work with them.

We intend to launch a new brand for InfraCo Towers in the weeks ahead, which

reflects the announcement and the long term intent of the business, so we'll

look forward to updating you on that.

As mentioned in the release, Jon Lipton will be the CEO of the new entity. Jon

has been our InfraCo Towers executive since inception. I'll be chairing a six

person Board, which will include executives from Telstra, Morrison & Co, and

the Future Fund.

There are no closing conditions, and we're confident of driving a rapid close

process, including the creation of all required entities and structures by the end

of the first quarter of the financial year.

I'll pass back to Nathan.

Nathan Burley:

Thanks, Brendon. We are now going to open for questions. Just a reminder, if

you do want to register a question, press star one, and star two to cancel. But

I'll open up for our first question, which is from Kane Hannan from Goldman

Sachs. Go ahead Kane.

Kane Hannan:

Morning. thanks Nathan and good morning guys. Just three from me please,

just some quick ones. Just firstly on that comment around accretive earnings

and free cash flow per share. Just confirming, is that expected year one, and

any more sense of the quantum of your expectations?

3

Telstra TowerCo announcement, 30 June 2021 - Transcript

Secondly, just on capital returns, can you just step us through how you will

approach the decision around on-market versus off-market buybacks, and how

much you will think about timing of that buyback, and whether you'd need to

see a 14% discount to progress the off-market?

And then finally, just interested whether there's been any high level discussions

with the consortia regarding your other infrastructure assets? Cheers.

Andrew Penn:

Thanks very much, Kane. I might just take the last one first, and then ask Vicki

to comment on the accretion, and the thought process on capital returns. Look,

the short answer is today we're focusing on towers. We're very, very pleased

with the consortium. I think it's super high quality. And we're very, very happy

with the partnership.

And one of the things that I think they've brought to this process is a deep

empathy and understanding about the importance of our network leadership,

and how they can work with us to make sure that we can capitalise on growing

the value of the towers business, and continuing to enhance our network

leadership. And that's been incredibly important and helpful for us in selecting

them as a partner.

We're obviously going through the process, as you know, putting in place the

broader corporate restructure, which we are aiming to get done by the end of

the calendar year. But we haven't progressed any further discussions in relation

to other aspects of our infrastructure assets at this point in time. But it's

obviously something that's ahead of us. And we'll talk to the market in due

course on that. But no, just super happy with the Future Fund and the

consortium as a partner.

But Vicki, do you want to take the questions on the impact on earnings and

capital returns?

Vicki Brady:

Yeah, absolutely. And thanks, Kane for those questions. So firstly, on this

being accretive, obviously, well, as we think it through, there's two

components. So there'll be the debt reduction that I mentioned. So obviously,

reduction in interest paid. And the second piece as we work through the best

way to return money to shareholders, factoring in a likely equity return, then

yes, we would expect accretion from year one. In terms of that level, obviously,

there's still quite a bit to be worked through that we'll come back to at the full

year results in August. But at the moment, expectation is probably in the low

single digits in terms of accretion.

Just on the second point around capital returns, as I just said, there's quite a bit

to work through between now and results time, mid-August. And as you'd be

aware, from a franking credits point of view, at the half we sat with around

$138 million in our franking credit balance, obviously dividends and tax paid

through the six months. So we're in a different position to several years ago.

So they're all of the considerations we're working through Kane. And that's

why we'll come back, as I said, at results at 12 August and give a more detailed

update on what that will look like.

4

This is an excerpt of the original content. To continue reading it, access the original document here.

Attachments

  • Original document
  • Permalink

Disclaimer

Telstra Corporation Limited published this content on 01 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 July 2021 09:26:06 UTC.