TELSTRA GROUP LIMITED - Investor Presentation 2017

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2 November 2017

The Manager

Market Announcements Office Australian Securities Exchange 4[th] Floor, 20 Bridge Street SYDNEY NSW 2000

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

General Enquiries 03 8647 4838 Facsimile 03 8600 9800

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra Investor Day 2017

In accordance with the Listing Rules, I attach the presentations and CEO’s and CFO’s speeches to be delivered at Telstra’s Investor Day on Thursday 2 November 2017, for release to the market.

A transcript of the event will be lodged with the ASX when available.

Yours faithfully

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Damien Coleman Company Secretary

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

2/11/2017

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Disclaimer

These presentations include certain forward-looking statements that are based on information and assumptions known to date and are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Telstra, which may cause actual results to differ materially from those expressed in the statements contained in these presentations. For example, the factors that are likely to affect the results of Telstra include general economic conditions in Australia; exchange rates; competition in the markets in which Telstra will operate; the inherent regulatory risks in the businesses of Telstra; the substantial technological changes taking place in the telecommunications industry; and the continuing growth in the data, internet, mobile and other telecommunications markets where Telstra will operate. A number of these factors are described in “Our material risks” section of our Operating and Financial Review (OFR) which is set out in Telstra’s financial results for the year ended 30 June 2017 which was lodged with the ASX on 17 August 2017, and also included in our 2017 Annual Report which was released on 1 September 2017, and are available on Telstra’s Investor Centre website www.telstra.com/investor.

These presentations are not intended to (nor do they) constitute an offer or invitation by or on behalf of Telstra, its subsidiaries, or any other person to subscribe for, purchase or otherwise deal in any debt instrument or other securities, nor are they intended to be used for the purpose of or in connection with offers or invitations to subscribe for, purchase or otherwise deal in any debt instruments or other securities.

All forward-looking figures in this presentation are unaudited and based on A-IFRS. Certain figures may be subject to rounding differences.

All market share information in this presentation is based on management estimates based on internally available information unless otherwise indicated.

All amounts are in Australian Dollars unless otherwise stated.

nbn™, nbn co and other nbn™ logos and brands are trade marks of nbn co limited and used under licence.

The Spectrum device, and ™ are Trade marks of Telstra Corporation Limited and ® Registered trade marks of Telstra Corporation Limited. Other trade marks are the property of their respective owners.

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Telstra has capitalised on previous moments of disruption

		We benchmarked ourselves against 16 telco peers on dimensions of	We benchmarked ourselves against 16 telco peers on dimensions of	market position, market performance, and levels of investment	market position, market performance, and levels of investment	market position, market performance, and levels of investment
			Our Peer Ranking		Result	Peer Group Average
		Market position Mobile Market share1	#3		~54%	~39%
		Market EBITDA Margin*	#1		~41%	~33%
		Performance *Mobile ARPU (USD)2**	#9		~$31.6	~$29.1
		Capex *Capex/Sales3**	#7		~16%	~16%
		investment *FCF/Sales4**	#1		~25%	~18%
		& returns
		*ROIC5**	#2		~16%	~10%
		Source: Company filings, broker research, BoAML Global Wireless Matrix, GSMA, Factset and Ovum		2.	ARPU includes cellular M2M
		Note: Global peer group: AT&T, BCE (Bell), BT Group, Deutsche Telekom, NTT Docomo, Orange, Rogers,		3.	Capex and sales not adjusted for spectrum or M&A spend
		Singtel, Swisscom, Telecom Italia, Telefonica, Telenor, Telia, T-Mobile	US, Verizon and Vodafone	4.	FCF calculated as EBITDA less capex over sales
		Telstra reported on a continuing operations basis, with the exception of capex/sales, which are reported on a		5.	ROIC is equal to NOPAT / average invested capital; NOPAT calculated as EBIT * (1 - effective tax
		continuing and discontinued operations basis			rate), average invested capital calculated as net debt + shareholders equity averaged between the
		* Three year average (2015-2017) based on annual figures calendarised to June year-end, or estimates			current and preceding fiscal year
		1. Mobile Market share (SIOs) as at end of calendar year 2016

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Four key trends affecting the connectivity value chain

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1 Changing consumer 2 Intensifying 3 Ecosystem 4 Technological
behaviour market dynamics value shift developments
• Rising demand and reliance • Network differentiation • Significant growth • 5G era is a critical
on connectivity narrowing expected in content, IoT, opportunity for Telcos to
and software move beyond connectivity
• Rising standards for • Competition driving to
customer experience (e.g. convergence and bundling • Growth in the global • Data & Analytics are
self-service, best-of-breed telecom market has becoming table stakes
offerings) • Global software players stagnated in recent years
widening service offering • IoT is gaining momentum
• Increased usages on IP and investing in their own
platforms (e.g. WhatsApp, networks • eSIM: both an opportunity
WeChat) and a challenge
• Continued regulatory
uncertainty • Telcos face new entrants
through alternative
networks, and unlicensed
spectrum
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Global market growth has mainly come from emerging markets, with developed markets stagnating

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Global Telecom Market Size ( USD Bn)
Emerging [1] Developed [2] CAGR
+1.7% 2008-2016
Total market
CAGR 1,253 1,265 1,297 1,328 1,359 1,372 1,386 1,405 1,435
369 396 418 442 470 496 507 516 545 +5.0%
884 869 880 886 889 876 880 889 890 +0.1%
2008 09 10 11 12 13 14 15 2016
1 Emerging includes Latin America, MENA, SSA, Emerging Asia Pacific; 2 Developed markets include North America, Developed Asia Pacific, Western Europe and
Central and Eastern Europe
Source: Analysys Mason
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OTT company revenue growth has accelerated since 2007, while telco revenues have remained flat

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CAGR
Combined sales revenue indexed to 2007Enterprise value (EV) indexed to 2010 2007-2016 Companies included
Telco group OTT group
10 9.3x
+28%
7.9x
8
6.6x
5.7x
6
4.9x
3.7x
4
2.5x
1.7x
2 1.0 1.3x 1.1x 1.1x 1.1x 1.1x 1.1x 1.1x 1.2x 1.2x +2%
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: company filling, annual report, factset
Note: based on restated, calendarised sales revenue, converted into USD based on constant exchange rate consistent with benchmark exercise on page 2.
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BYO plans are an example of a hotly contested battle fought with increased data and inclusions

2013 BYO $50 2015 BYO $50 2017 BYO $49 Calls $600 $1000 Unlimited Data 1GB 2.5GB 10GB Extra inclusions N/A Free 6 month presto or 12 Free live, data-free AFL, month NRL digital pass or NRL and Netball on mobile 12 month AFL live pass Free WiFi with Telstra Air Free 6 months apple music Free 200GB with OneDrive Mobile Network % cost reduction 45% reduction (vs. 2013) 49% reduction (vs. 2015) Page 21 Source: Telstra Analysis

The industry needs to capitalise on the shift to 5G and everything connected as it has with prior technology inflections

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Age of Automation and
Connected life
Age of Digital Transformation
Artificial Intelligence
Age of first commercial Data & Analytics Big Data
computer Cloud
Smart devices M2M/IoT, connected car
Enablers
Software
Computing Power
Connectivity 2G era 3G era 4G era 5G era
1970 1980 1990 2000 2010 2020 2030
Page 22 Source: GSMA
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Beyond our core there are multiple trends to support new growth

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Data & Analytics IoT 5G connectivity
Addressable market ($B) [1] Addressable market ($B) [2] Telco addressable market ($B) [3]
10 10 10
7.5
6.6
5.6
24% p.a.
5 5 5
32% p.a.
78% p.a.
From FY19
1.7
1
0
0 0 0
2016 2023 2016 2023 2016 2026
Roll-out at scale
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Sources: 1) BCG, TeBIT 2016 Executive Report: Drilling for Digital Gold (2016), Telstra analysis 2) ABI Research, IDC, Telstra analysis; 3) Ericsson 5G telco operator revenue forecasts as
at October 2017. New 5G ICT revenue forecast to be ~ 36.5B AUD of which Telco operators forecast to have access to up to $17.2B AUD; around $5.6bn is attributable to connectivity and
infrastructure (note the rest of the opportunity is excluded here to avoid duplication with IoT and Data & Analytics)
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Beyond our core there are multiple trends to support new growth

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IoT
Addressable market ($B) [2]
$6.6
Services
Applications
32%
CAGR
Platform
Network
$1.0
Things
FY16 FY23
Sources: 1) BCG, TeBIT 2016 Executive Report: Drilling for Digital Gold (2016), Telstra analysis 2) ABI Research, IDC, Telstra analysis; 3) Ericsson 5G telco operator revenue forecasts as
at October 2017. New 5G ICT revenue forecast to be ~ 36.5B AUD of which Telco operators forecast to have access to up to $17.2B AUD; around $5.6bn is attributable to connectivity and
infrastructure (note the rest of the opportunity is excluded here to avoid duplication with IoT and Data & Analytics)
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How are others responding to value shifts and technology developments?

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Invest in
IoT / M2M • Develops solutions through partnerships, research • Acquired Fleetmatics and Telogis to develop
centres and open platforms Telematics business
Invest in
Big Data • Developed Flux Vision, a geo-analytics platform • Formed JV with China Unicom to bring ‘Smart
to turn its mobile data into location insights for Steps’ product to China.
government and enterprise customers
Invest in
Media and • Verizon has ~10% stake in total display revenue, • Acquired DirecTV in 2014, which enabled
Content making it the third biggest player after Facebook and expansion to Latin America, and subscriber
Google. growth; in process of acquiring Time Warner
Page 25 Source: Telstra analysis, Factset, company filing
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Telcos will look different in the future

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Current telco portfolio mix FY17 - % EV Hypothetical telco portfolio view FY25 - % EV
Content and
digital business
Other Services IoT and Platforms
connectivity
Software,
applications &
services
Data & IP Mobile Consumer
connectivity
Enterprise
connectivity
Fixed
• Connectivity makes up majority of value in a telco • By 2025, a hypothetical portfolio could have significantly
portfolio today higher contributions from software, platforms and content
Page 26 Source: Telstra Analysis
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Telstra Enterprise

Brendon Riley, Group Executive

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We have intensified our focus on the Enterprise segment and continue to transform our business model

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Evolution of Telstra Enterprise 2011 - 2017
Global Enterprise Telstra Enterprise
& Services Formed Formed
Products &
Solutions
Defence
Telstra Enterprise
& Government
Network Applications
& Services
Telstra Global
Premier Business
Telstra Software &
Telstra Ventures
2011 2012 2013 2014 2015 2016 2017
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NAS growth continues to offset declines in Data & IP

Telstra Enterprise domestic Data & IP and NAS Revenue & Margin (A$b)

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5.6
4.7 4.9
3.4 NAS
2.3 2.6
2.4 2.3 2.2 Data & IP
2015 2016 2017
3% 6% 9% NAS
EBITDA %
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Continued growth in NAS across both Business and Enterprise segments
Continued improvement in NAS EBITDA towards mid-teens goal
Competition and nbn continues to drive Data & IP margins downwards

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Rapidly evolving markets create challenges for our Enterprise customers and opportunities for Telstra

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Non-traditional Disruptive New customer Regulatory &
competitors & technologies experience macro-
entrants & innovation benchmarks economics
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Telstra Enterprise creates better ways to empower business and government to thrive in a connected world

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Better
ways
Optimise Reach Secure Liberate your Create
your IT global markets your business workforce transformative
innovation
Telstra Programmable Network Employee
Cyber security effectiveness and IoT
productivity
Business
Hybrid cloud Global connectivity
solutions
Customer
Innovation and
Branch connectivity network servicesGlobal managed Electronic security engagement and insights design services
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Telstra Enterprise is focussed on driving four strategic priorities

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Product Market International Digitisation
Leadership Engagement Growth and
Experience
►Simplify the portfolio ►Transform the Sales & ►Continue to globalise ►Execute B2B
►Focus on fewer, bigger Service model Services capabilities digitisation
plays ►Accelerate indirect ►Maintain network
channels leadership in Asia
►Capture industry Pacific
whitespaces ►Deliver value adding
services in targeted
markets
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We have launched four market leading capabilities in the last six months

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Telstra  Network-as-a-Service – SDN, NFV and Cloud
Programmable connectivity in a single platform
Network  Brings software-control to the Network
 Re-imagining managed security for the explosion of data
Telstra
and data security threats
Dynamic  Open-source, Cloud-based and cutting-edge Security
Security
Operations Centres
 Unifying the desk phone and mobile phone
Liberate
 An Australian first, network-integrated solution
 Australia’s largest IoT network
Telstra IoT
Network  Early focus on Enterprise use cases: Location of Things,
Intelligent Transport, Smart Metering
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We see significant potential in Enterprise IoT

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Rapid Enterprise Australia’s Enterprise use-
IoT market largest IoT cases in focus
growth network
Intelligent Transport
5-6x
5.5B
Location of Things
0.8B
Smart Metering
2016 2023
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We continue to grow internationally and expand our capabilities beyond the network across five regions

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EMEAEMEA North AmericaNorth America  Acquired Company85 in UK to strengthen
 Focus on MNCs and  Connect OTTs, high-frequency Service capability in key MNC hub
wholesale customers  Provide leading network services in North AsiaNorth Asia traders and wholesale customers in North America to Asia  Winning and delivering large scale, Conferencing and Collaboration dealsglobal
North Asia, including
our PBS joint  Telstra Programmable Network gaining
venture in China traction with Australia-Out and Asian
MNCs
 Global Media Network delivering at major
sporting events
 Security Operations Centre to be built in
UK
 Provide leading network services, with delivery centres the region, including the telkomtelstra JV South AsiaSouth Asiaglobal across  Connect and deliver services for going outside of Australia and global customers coming into Australia Australian customers Australia in/outAustralia-Out  Retained #1 in Asia for Low-Latency World first across Hong Kong, Singapore, Japan China Data Centres Western MNCs and OTTs ‘Always-on’ networks resonating with service guarantee High-Capacity,
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Apps & Services
Platforms
Infrastructure
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Acquisitions continue to accelerate our business offerings and growth in Australia and globally

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Infrastructure Platforms, Applications and Services
Networks Data centres Managed data networks Security Cloud services applicationsCloud solutionsMobility Internet of Things solutionsIndustry
PBS JV
COGNEVO
Page 37
Australia
International
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Consumer and Small Business

Vicki Brady, Group Executive

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Q&A

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Financial strategy

Warwick Bray, Chief Financial Officer

Our financial strategy supports our corporate strategy Financial strategy

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Manage timing Fiscal discipline and conversion – Capital of cash Management Framework

Grow our underlying businesses

Reset the cost base

Deliver returns on our capital investments

Spectrum auctions • We continue to • Maximising returns
• Achieve >$500m manage the for shareholders EBITDA benefits efficiency and • Maintaining from strategic timing of converting financial strength capex EBITDA to cash • Retain financial
• Manage business and EPS flexibility for ROIC
Mobile • We are committed
• Fixed and nbn to >$1.5bn reseller reduction in core
• NAS and Data & IP fixed costs • Manage other costs through margins
• Manage efficiency of capital

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	Page 67 FY17 Income and growth1 Influences FY17 Income $b FY17 Income Growth Mobile $10.2b 0.8% Fixed excl. nbn connection $6.5b -5.1% NAS $3.4b 30.6% Data & IP $2.7b -4.1% One-off nbn DA $1.8b 130% Global connectivity $1.4b 4.4% Recurring nbn DA $0.5b 20.5% New businesses $0.2b -18.8% 1. Source: Full year 2017 results. Growth ex-MTAS & FAD 2. Source: Gartner Mobile • FY19-20 Opportunities– MMC growth through plan updates • Post nbn rollout- 5G and IOT • Risks– competition, price sensitive mix nbn reseller and legacy fixed • FY19-20 Opportunities– product differentiation; further reduce nbn cost to connect and cost to serve • Post nbn rollout– industry dynamics • Risks– competition, retention of voice Achieving growth by major product Influences NAS and Data & IP • FY19-20 Opportunities– Domestic NAS market expected to grow 10% CAGR out to FY202, NAS margin towards mid teens, NAS EBITDA dollar growth to offset Data & IP • Risks– competition, replace nbn commercial works contracts Grow our underlying businesses

Page 67
FY17 Income and growth1
Influences
FY17
Income
$b
FY17
Income
Growth
Mobile
$10.2b
0.8%
Fixed excl. nbn connection
$6.5b
-5.1%
NAS
$3.4b
30.6%
Data & IP
$2.7b
-4.1%
One-off nbn DA
$1.8b
130%
Global connectivity
$1.4b
4.4%
Recurring nbn DA
$0.5b
20.5%
New businesses
$0.2b
-18.8%
1. Source: Full year 2017 results. Growth ex-MTAS & FAD
2. Source: Gartner
Mobile
•
FY19-20 Opportunities– MMC growth through plan updates
•
Post nbn rollout- 5G and IOT
•
Risks– competition, price sensitive mix
nbn reseller and legacy fixed
•
FY19-20 Opportunities– product differentiation; further reduce nbn
cost to connect and cost to serve
•
Post nbn rollout– industry dynamics
•
Risks– competition, retention of voice
Achieving growth by major product
Influences
NAS and Data & IP
•
FY19-20 Opportunities– Domestic NAS market expected to grow 10%
CAGR out to FY202, NAS margin towards mid teens, NAS EBITDA
dollar growth to offset Data & IP
•
Risks– competition, replace nbn commercial works contracts
Grow our
underlying
businesses

Future growth and likely mix shift to technology is dilutive to percentage margins Mix effects on percentage margins

Reset the cost base

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Relative margin Influences
Lower margin Higher margin EBITDA percentage margin
products products • FY15 41.6%
• FY17 41.2%
NAS Mobile
Global connectivity Data & IP Aim to: • Grow overall EBITDA dollars
New businesses Fixed excl. nbn reseller • Achieve appropriate percentage margins and ROIC for each product
Fixed nbn reseller Recurring nbn DA
One-off nbn DA [1]
Overall growing faster Overall growing
slower or in decline
1. One-off nbn DA is accretive to percentage margin until peak of nbn receipts, then dilutive
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Reset the cost
base
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We are committed to >$1.5bn reduction in core fixed costs and manage other lines through margins Cost management approach

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FY16-17 operating costs [1] Influences
Core sales costs - we manage by efficiency. These costs
+$466m -$244m include handset costs, NAS CPE and nbn access payments.
-$68m $17,042m Post nbn rollout, reported core sales costs expected to be
+$214m ~$2bn higher due to nbn access payments
+$320m
$16,354m Core fixed costs – include NAS labour which supported
significant revenue increases in FY17. We manage these costs
through the NAS margin
nbnincrease in Including $268maccess NAS revenueSupporting increased $789m of -3.5% Guidance +4.2%basis We expect a new core fixed cost category for lease expense associated with Go Mobile swap. This will have offsetting revenue
payments Underlying – $244m reduction in FY17 underlying core fixed
costs against target of >$1.5bn by FY22. We manage these
FY16 Core sales One-off Core fixed Core fixed New FY17 costs through net productivity
Guidancebasis costs less nbnnbn DA C2C costs – NAS labour and corporate [2] underlyingcosts – businesses Guidancebasis Opportunity to further improve unit costs and eliminate costs associated with legacy business
1. Source: Full year 2017 results
2. NAS labour and corporate costs include significant transactions and events associated with NAS commercial works and labour, global connectivity costs including FX, Go mobile
lease costs and bond rate impacts
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Our productivity program has four approaches Reset the cost base
Improving end-to-end customer Product and process
experience simplification
 Reducing our customers effort by  Intuitive products
getting it right first time  Automation
 Digitisation
 Rationalising products and platforms
Supplier partnerships Fitter & faster organisation
 Using supplier partnerships to  Reducing complexity in our
reduce complexity and costs organisational structure
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Cost out of $244m delivered in FY17 Reset the cost
Productivity example initiatives base
Productivity focus Example initiatives Outcomes
Improve customer call • Reduced call scripts for most frequent call types e.g. international • Customer benefits: 20-30% faster resolution or 700,000 less
resolution speed roaming travel pass hours on the phone (when fully rolled out)
• Work led by experiences agents • Productivity: $15m p.a.
• Trained agents with a focus on increasing speed of resolution
Automate repetitive tasks • Created in house automation technology capability • Processes brought back from outsource partners to automate
• 75 ‘bots’ deployed in billing, credit and accounting onshore
• 100s more processes identified across the business • The outcomes are great financially and also better for customers
• Increasing skills – for example secondary credit checks are now processed by “a
bot” meaning customers don’t have to wait in store for an agent
to answer the phone and complete the check
Increase field job • Great outcomes in the field require strong alignment between • Productivity: average jobs completed per worker per day has
productivity front of house, dispatch and field work force increased 13% (from 4.6 to 5.2)
• Through root cause analysis we found that some KPIs were • Customer experience: appointments met on time has increased
more important than others from 93% to 97% (350 more per day)
• We have prioritised “start time” as an example and have a focus
on the correct spares being in vans the night before and have
improved our inventory management to do so
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Cost out of $244m delivered in FY17 Reset the cost
Productivity example initiatives base
Productivity focus Example initiatives Outcomes
Innovative Small Cell • Use of small cells to provide in-fill coverage in high demand • Repurposed existing equipment to increase the coverage by 2.2
Design regions times
• Increased coverage cells implies fewer cells, capex, rent and • Worked with vendors to reduce the cost per deployment
power • $20m of capital savings this year
• Future benefits for small cell roll outs
Better IT procurement • Increased rigour on “statement of work” • $25m of annual savings to date
outcomes - Specificity on task • Improving the capability and engagement of our IT workforce
- Review of internal vs external options more systematically
- Fact based challenge or resources required to complete
- Stopped unnecessary work through prioritisation
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Manage capex to sales down to 14% or below over Deliver returns on
our capital
investments
time
Capex to sales ratio (%) – Telstra Relative to global peers [1]
2
FY17-19 expected
average ~18%
1
20 FY13-16 average ~15% 3 Target ~14% 20 21.25
from FY20
17.8 ~18 ~18
15 15
14.9 14.6 13.9 15.2 ~14 ~14 ~15 15.8
10 10
5 5
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Telstra Median Top
1. Source: Capex to sales ratio comparison against 45 global telco peers (FY13-16) decile
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Spectrum is important to our competitive position and to providing an outstanding customer experience Spectrum auctions[1]

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Deliver returns on our capital investments

Band	Multi-band residual spectrum	3.6 GHz (3575 – 3700 MHz)	26 GHz (24.25 – 27.5 GHz)	900 MHz	850 MHz expansion2	1500 MHz
Spectrum quantity	Various	125 MHz	3250 MHz3	2x25 MHz	2x15 MHz	91 MHz
Use	3G/4G/5G	5G	5G	3G/4G/5G	4G/5G and possible PPDR band4	4G/5G
Current ACMA timing	Nov 2017	2H CY18	2H CY19	CY19	CY19	TBC5

Source: based on ACMA’s “Five Year Spectrum Outlook 2017-21”, released 26 October 2017
The ACMA has indicated an intent to auction 850 MHz expansion and 900 MHz spectrum at the same time in calendar year 2019. However the amount of 850 MHz expansion spectrum which may be offered to mobile network operators is dependent on government decisions on whether to allocate any of the 850 MHz expansion band to PPDR services

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The 27.0-27.5 GHz portion of the band may be auctioned later depending on when technical studies are completed to confirm the arrangements for sharing with incumbent NBN satellite services in this spectrum.
PPDR = Public Protection and Disaster Relief (emergency and public safety services)
The ACMA indicates that the 1500 MHz band is “currently regarded as a lower priority for allocation”

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Strategic investment program Deliver returns on
our capital
investments
• Investing up to $3bn incremental capex to achieve a step change in Customer Experience
• Total capex (including spectrum) over 3 years to FY19 to exceed $15bn
• Financial benefit of >$500 million per annum realised by FY21
Customer Experience
Networks of the future Digitisation
The New Generation Mobile Digital Experiences Digital Experiences
Network Leadership (Customer) (Employee)
Always On Network New Services Digital Platforms Digital Ways of Working
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Future growth and likely mix shift to technology is dilutive to ROIC Mix effects on ROIC

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Deliver returns on
our capital
investments
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Relative ROIC Influences
Lower ROIC Higher ROIC ROIC
products products • FY15 17.5%
• FY17 14.7%
NAS Mobile
Global connectivity Data & IP Aim to: • Deploy capital in line with ROIC opportunity
New businesses Fixed excl. nbn reseller • Optimise individual product ROIC
Fixed nbn reseller Recurring nbn DA • Optimise Corporate ROIC
One-off nbn DA [1]
Overall growing faster Overall growing
slower or in decline
1. One-off nbn DA is accretive to percentage margin until peak of nbn receipts, then dilutive
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We continue to manage the efficiency and timing of Deliver returns on
our capital
investments
converting EBITDA to cash and EPS
Cash vs accounting and timing
Conversion Timing expectations
Manage efficiency of converting Manage timing of cash vs accounting … and post nbn rollout completion
EBITDA to cash and EPS FY19-20…
• Capital efficiency as per previous • 18% capex to sales vs depreciation • 14% capex to sales vs depreciation
section reflecting lower historical rates reflecting higher historical rates
• Working capital improvements • Spectrum vs amortisation • Amortisation reflects additional spectrum
including mobile handsets leasing purchases FY18-20 (if any)
• 3.9% average interest rate on last three • nbn still consuming working capital • nbn no longer consuming substantial
working capital
new capital market bond issues
Implication: Accounting EPS superior to Implication: Cash superior to accounting
cash equivalent [1] EPS [1]
1. Subject to timing of spectrum payments and other cash flows
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Capital Management Framework Fiscal discipline –
Capital
Management
Framework
FISCAL DISCIPLINE
1 2 3
MAXIMISING MAINTAINING RETAIN
RETURNS FOR FINANCIAL FINANCIAL
SHAREHOLDERS STRENGTH FLEXIBILITY
1. We remain committed to retain balance sheet settings consistent with an A band credit rating
2. Pay fully-franked ordinary dividend of 70-90% of underlying earnings [1,2]
3. Target capex/sales ratio of ~14% excluding spectrum from FY20 [4,5]
4. Maintain flexibility for portfolio management and to make strategic investments
Return in the order of 75% of net one-off nbn™receipts to shareholders over time via fully-franked special dividends [2,3]
Capex/sales ratio [4,5] of ~18% in FY18 and FY19
1. Underlying earnings is defined as NPAT from continuing operations excluding net one-off nbn receipts (as defined in footnote 2).
2. “net one-off nbn receipts” is defined as net nbn one off Definitive Agreement receipts (consisting of PSAA, Infrastructure Ownership and Retraining) less nbn net cost to connect less tax.
3. Return subject to no unexpected material events, assumes nbn™ rollout is broadly in accordance with the nbn Corporate Plan 2017 and receipt of associated one-offs, and is subject to Board discretion having regard
to financial and market conditions, business needs and maintenance of financial strength and flexibility consistent with Telstra’s capital management framework.
4. Capex excludes expenditure on spectrum, measured on an accrued basis. Capex excludes externally funded capex.
5. This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance
also assumes the nbn™ rollout is broadly in accordance with the nbn Corporate Plan 2017. Page 78
OBJECTIVES
PRINCIPLES
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Key Telstra network assets Fiscal discipline –
Capital
Management
Framework
Optical transport network People
230,000 km of fibre across Australia, World renowned expertise and experience
plus 400,000km of subsea cables and 50+ in designing, building and operating
integrated data centres globally networks
Mobile sites – 3G/4G/4GX Spectrum
Over 9,000 mobile sites nationally, Invested over $3.4 billion over the past
>50% Telstra-owned 15 years in wireless spectrum portfolio
Exchanges and data centres Ducts, pits and pipes
Network of 5,300 exchanges across 500,000km of ducts and pipes and
Australia 6.8 million pits
Including up to
~2,500 redundant
exchanges
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FY18 guidance[1]

Measure FY17	Measure FY17	FY18 GUIDANCE
Total income	$28.2b	$28.3b to $30.2b
EBITDA	$10.7b	$10.7b to $11.2b
Net one-off nbn DA receipts less nbn net C2C	$1.3b	$2.0b to $2.5b
Capex	$4.6b	$4.4b to $4.8b
Free cashflow	$4.3b	$4.4b to $4.9b

1.This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance also assumes the nbn™ rollout is broadly in accordance with the nbn Corporate Plan 2017. Capex excludes externally funded capex.

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Summary
Growth from existing and future businesses
Reset the cost base
Capital, cash and fiscal discipline
Capture option value
• Industry structure
• Infrastructure
• Future opportunities
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Q&A
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CEO & CFO SPEECH NOTES

TELSTRA INVESTOR DAY

2 NOVEMBER 2017

ANDREW PENN – CEO

Slide – Investor Day

Good morning and welcome to our investor day.

We appreciate the investment of time that you are making to be here. I am particularly conscious we have a long session with you and will be covering a lot of material over the next 5 – 6 hours.

Investor day is an opportunity for us to immerse you in our business and strategic direction outside of our results announcements. Today is therefore not about providing a trading update, it is about taking you deeper into our strategy, how this is playing out across the business and how we are progressing regarding its implementation. We will however, make some comments on Q1 trends through the course of our presentations.

The telecommunications sector is going through a challenging and dynamic period. We are seeing increased competition, the effects of digital disruption, regulatory developments and the significant implications of the migration to the nbn across the whole industry. This makes the sector and Telstra more complicated to follow at the moment as there are a lot of moving parts and this is why we were keen to give you more time today.

None of us can predict how the market will play out over the next period and certainly the next 2 – 3 years will be challenging. However, we should not lose sight of the fact that we are seeing increasing demand for our services and growth in data volumes as connectivity becomes increasingly more important. We therefore remain optimistic about the long term future of the industry and for Telstra.

This is why we are making the significant capital investments that we are today. Not only do they put Telstra in the best possible position to respond to the market dynamics, they also set us up very strongly to deliver value and growth in the future.

Slide – Objectives for the day

Let me turn then to objectives for the day.

Firstly, today will be an opportunity to engage with key members of the broader team. You see a lot of Warwick and myself through results and our investor meetings.

The second objective for the day is to explore more deeply our vision and strategy within the context of the changing market dynamics about which I have already spoken.

In particular, we will demonstrate how we are progressing the 3 pillars of our strategy.

Delivering brilliant customer experiences;
Driving value and growth from the core business; and
Building new growth businesses close to the core.

Fourthly, we will update you in relation to the strategic investment program of up to an additional $3bn of Capex in networks and digitising the business to support the delivery of better experiences for customers.

We will also be providing you with a deeper dive in relation to our infrastructure and telecommunication assets and how we are deploying capex. We will illustrate the significant strategic value in our telecommunications infrastructure and how the assets we transfer to the nbn are a relatively minor part of the whole.

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The final objective for the day is to spend some time on the longer term growth and value opportunities that will arise from the investments we are making and capabilities we are building.

Slide – CEO Leadership Team

Let me start with a few introductions.

From my leadership team here and presenting today are first Stephen Elop. Stephen is the Group Executive Technology, Strategy and Innovation. Stephen joined us just over 18 months ago from Microsoft where he was Executive Vice President of the Devices Group. Prior to this Stephen was the Group Chief Executive of Nokia.

Next I think all of you are familiar with Brendon Riley, Group Executive Enterprise. Brendon has been with Telstra for 7 years, most of that time running the Enterprise business where he has also been the architect behind our very successful NAS business. Prior to Telstra, Brendon was Chief Executive of IBM Europe.

Vicki Brady has recently been appointed to the position of Group Executive Consumer and Small Business.

Vicki joined Telstra 18 months ago as head of Consumer and is already making a big impact with her new expanded responsibilities. Prior to joining Telstra, Vicki was Managing Director of Consumer at Optus.

Next Robyn Denholm, Robyn joined us as Chief Operations Officer in January when she returned to Australia after a successful 20 years in Silicon Valley. Prior to joining Telstra, Robyn was Chief Operating Officer for Juniper Networks.

Robyn is on the Board of Tesla where she is also the Chairman of their Audit Committee. As an aside, I have often thought this would have to be one of the most interesting boards to be a member of. Robyn was also formally on the Board of ABB.

Mike Wright, who is part of Robyn’s team is our very experienced Group Managing Director of Networks and a world respected leader in mobile technology. Mike is also speaking today.

Finally, Warwick Bray our CFO who you know well.

In addition to those speaking, also here from the Management team and with whom you will have an opportunity to interact over lunch are Cynthia Whelan Group Executive New Businesses and Joe Pollard, Group Executive Media and Marketing.

Slide – Agenda

Turning then to the agenda.

Following my introductory presentation you will hear from Stephen. You we will then receive presentations from Brendon and Vicki.

At that point we will have our first Q&A session responding to the first four presentations.

During lunch we have organised some immersion sessions. These will provide you with an opportunity to engage in what we are doing in our brand strategy, the whole of home for consumers and a tour of our new Security Operation Centre here in Sydney.

After lunch, Robyn and Mike are going to provide a deep dive on our telecommunication network assets and finally we will hear from Warwick on our financial strategy.

We will then have a further Q&A session before closing for the day.

Let me now turn then to my presentation.

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Slide - Vision

Two years ago we announced our vision to become a world class technology company that empowers people to connect.

I want to reinforce the point here that this is not about moving away from our origins of being a telecommunications company. Quite the opposite, it is in fact because we are a telecommunications company and because technology innovation is changing our industry that we need to build new skills in new areas.

It is often said that today every business in every industry needs to be a technology company, but this concept has special meaning for Telstra. As you have heard me say before the traditional worlds of telecommunications and computing are converging.

What I mean by this is that there is no technology innovation happening today that is not intended to be connected. Whether it’s drones, driverless cars, cloud computing, high definition video streaming, augmented reality or the internet of things. All of these applications have one thing in common; they all rely on high quality, fast, reliable and secure telecommunications networks.

We have a long history and deep skills in network and electrical engineering. We are a world leader and we have applied these skills to build the best telecommunications network in Australia.

But to support our ongoing leadership in telecommunications we need to build skills in new areas - in software engineering, in data science and in machine learning. Because this is how networks are built today and will be in the future.

The second reason for this change of emphasis is the applications and services driving the significant data growth on our network are all software based.

And as you will hear from Stephen, whilst there has been considerable growth in data on telecommunications networks globally, the value this demand has generated has typically been captured at the layer of the applications and services not by the telcos.

So this is not about losing sight of our traditional core business of being a telco, it is recognising what a telco will look like in the future. As we are building these new skills we are also very focussed on driving value in today’s business, in mobiles, in fixed, in data and IP and in NAS.

Slide – Challenges

This is critically important because the Industry is facing a challenging and dynamic period.

Competition has continued to intensify. Not only are we expecting the entrance of a fourth operator into the mobile sector, in the meantime we are seeing continued pressure on mobile pricing and increasing data allowances. We estimate the average data inclusions have increased another almost 100% for consumer postpaid handheld plans in the last 12 months alone.

As you know one of our critical objectives is to achieve growth in mobile services revenue which has been under pressure from these competitive dynamics over the last 2 years. We did see some modest signs of growth in the second half of last year however, we have yet to see this translate into further momentum and mobile services revenues declined slightly in Q1. As Warwick will take you through later consumer postpaid handheld MMCs are continuing to increase on PCP but this is being more than offset by lower additional data charges and business revenues.

In the market for retail fixed broadband services there are now around 180 resellers of nbn services in Australia and this is leading to significant downward pressure on pricing. We have continued to grow net adds in the market, but momentum has slowed. In response to this we have made a number of enhancements to our fixed broadband market offers which I will reference later.

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We also continue to experience the impact of digital disruption on some of our traditional business models. For example, video streaming on Foxtel and Over the Top communications solutions are impacting some of our communication products.

Turning to regulatory developments. The last fixed access determination on our wholesale prices to the industry reduced these by more than 9%. This in contrast to nbn wholesale prices which are increasing about 100% in the migration and are projected to increase a further 20-25% over the next 3 years in nbn’s plans.

We are obviously pleased with the ACCC decision in relation to mobile roaming because this was the right decision for customers, particularly in regional Australia. There are other regulatory reviews underway to which we will continue to contribute our views in the interests of the best outcome for customers.

Finally, and most significantly is the migration to the nbn. Clearly the nbn has major implications for the whole industry but the impact on Telstra is unique. We have taken you through the significant economic implications for the company with our latest estimate being the loss of around $3bn in EBITDA once the nbn is fully rolled out.

As a reseller of nbn, the economics are challenging. This is because the margins after the wholesale price are extremely slim. Notwithstanding this we remain committed to being a leader in the fixed market.

Ultimately it is critical we support all our customers with the best network experience available on the nbn and remain a leader in both fixed and mobile. While the current economics are challenging I am confident that ultimately the dynamics will improve because clearly the current paradigm is unsustainable.

Slide - nbn

In the meantime what I am most concerned about is the impact for customers and in this regard I think there are three areas of critical importance.

Firstly, the service experience.

Today the time taken to activate customers on the nbn can be considerably longer than for traditional broadband services. This is due to the extra complexity involved. We are working closely with nbn to continue to streamline our respective processes to ensure this becomes a more seamless experience. Vicki will touch on this in her presentation.

In the meantime it will be important that achieving the roll out schedule set does not come at the expense of improving the experience of customers being activated on the nbn.

Secondly, not all customers are receiving the speeds they were anticipating or hoping for. As I explained at the AGM this can be for a number of reasons.

Available speeds are principally determined by the underlying technology that nbn chooses to rollout - whether this is fibre, cable, copper or other forms of technology. This choice has a material impact on the maximum speed available to customers.

Once the maximum speed available is determined by nbn’s choice of technology, the customer then chooses an appropriate plan from their Retail Service Provider, the RSP. The RSP must provision the right amount of capacity from nbn through CVCs.

We continually monitor traffic and adjust our CVCs to meet demand. We installed robotic testers in our network more than 18 months ago to measure a sample of customer speeds to ensure we are buying enough CVCs.

It is this testing that gives us confidence we are buying the right amount of CVCs to meet or exceed the ACCCs recently issued guidelines to RSPs.

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There are other factors that can affect the speed that customers experience for the nbn. For example in home wiring and wifi configuration can play a significant role. Customers can find lots of tips on our website on how to optimise their broadband at home.

We are also continuing to develop products and tools to help our customers with their experience in the home.

Combined with Telstra’s Platinum Service, these are all designed to deliver the best possible experience for our customers in an nbn world.

If customers are still not experiencing what they anticipated, it is quite likely to be a fault in the nbn network or some other factor. In which case they should contact us so that we can investigate and follow up accordingly.

The third and final factor affecting customers in the migration to the nbn is affordability. Due to the significant costs associated with the rollout of the nbn, wholesale broadband prices in Australia from nbn are more than doubling in the migration.

nbn is currently conducting a review of its prices and it will be important in the long term that wholesale prices are set at a level which ensures affordability of broadband for all Australians.

Slide – Strategy

Notwithstanding these significant market challenges, our strategy has not changed. It is built on three fundamental pillars of delivering brilliant customer experiences, driving value and growth from our core and building new growth businesses close to the core.

This time last year we made some minor modifications to the language. We did this to make it absolutely crystal clear that the investments and the acquisitions that we are making are all about strengthening our core telecommunication business, extending our strategic differentiation and building new capabilities and offerings up the stack in applications and services.

These applications and services support our telco business and add opportunities for growth in the future.

Also this time last year we announced the details of our strategic investment program.

Slide - Strategic Investment Program

I want to remind you of the parameters of the program, the key metrics and how we are progressing against these.

The program is phased over a three year period to 30 June 2019. During this time we expect to invest up to an additional $3bn into the core business. The focus of the program is about delivering a very different and improved customer experience.

More than half of the investment is in building the capabilities for the networks for the future and this includes preparing for 5G. Approximately $1bn is expected in be invested in a major digitalisation program of work across the business. Finally, we expect to invest up to a further $500m in other customer experience improvement initiatives.

Robyn and Mike are going to talk more specifically about what we are delivering in networks and the digitisation program. You will also hear from Brendon and Vicki in relation to what we are doing to improve customer experience.

In the meantime let me make a couple of comments on networks.

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This is where foundational capabilities in SDN / NFV are critical such as our Next Gen OSS. This is providing significant efficiencies in how we operate the network and supporting our new managed security offering.

Our investment also includes upgrading our optical transmission network and our new CATM1 platform which is the foundation for the new IoT offerings we are developing. And of course our preparations for the launch of 5G where we are well advanced in relation to in market live trials on the Gold Coast in April next year. Only this week we successfully conducted the first 5G trial data call in Australia.

In addition the investments in digitisation have already enabled us to launch the Telstra programmable network. This capability enabled Enterprise customers to dynamically manage their networks and cloud digitally. We have also launched Liberate our Over the Top new unified communications product.

Ultimately we are targeting run rate benefits in excess of $500m in EBITDA per annum to be fully realised from the program by 2021.

Approximately 2/3 of these benefits will be derived from revenue and 1/3 in cost out. This represents a return on invested capital in excess of 14% and is consistent with our published guidelines for organic investment.

Slide 10 - $750m of Strategic Investment

As at 30 June we had invested approximately $750m most of which had been in the network. Our focus on digitalisation will ramp up in this financial year.

I do not propose to go through this slide in detail. However, it does provide an update in relation to metrics for the program we communicated last year. As you can see we are broadly on track with the progress we are making.

Slide 11 – We are making good progress

So in summary and in conjunction with the strategic program and other business initiatives we have been undertaking over the last two years, we are making progress on a number of fronts.

We are becoming a more innovative company, we are simplifying the business and have tightened our strategy. We made the decision not to pursue international mobile, we crystallised value in Autohome and we are restructuring our investment in Foxtel and improving its position by merging it with FoxSports.

We are building the new capabilities that we will need for the future, particularly in the network and we are delivering new applications and services into the market.

This week we launched a number of new fixed broadband bundles.

The $99 bundle now includes our hybrid modem with inbuilt 4G chipset and Telstra TV2 which is by far the best streaming device on the market with next generation compression technology, integrated free to air SVOD and pay TV and a universal search capability.

I am also pleased to announce that later this month we will be introducing unlimited data on our $99 and above plans for new and existing customers and doubling the data allowances on other broadband plans for existing customers over the coming weeks.

These bundles adopt the ACCC new communication guidelines for nbn services. We have been in discussions with the ACCC regarding these guidelines and how to address the spirit of them retrospectively and we anticipate communicating the results of this shortly.

Ultimately we are repositioning the brand of Telstra as a world class technology company that empowers people to connect.

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You will hear more about many of these initiatives from the team during the course of the day.

Slide – Driving Value

In the meantime, I wanted to comment more on what will drive value for the company in the short term and in the long term.

I know the current market outlook is challenging. I know we need to continue to respond to the competitive dynamics and mitigate the impact on margins of the nbn. I know critically we also need to do much more to improve the customer experience.

All of us at Telstra from the Board down are focussed on these priorities every single day. The economics of the company are driven by how well we execute in this regard and I can guarantee it is what management is focussed on.

Last year our EBITDA was approximately $10.7bn. This comprised of $1.3bn in one off nbn payments. We also know that the implementation of the nbn takes $3bn in EBITDA from Telstra.

Clearly therefore the short term drivers that you have heard Warwick talk about many times in the past are critical. He will revisit them today particularly as we also face the impact increased competitive dynamics. They are:

Continued growth in mobile contribution margins. This is the single biggest driver of value for the company today.
Improvements in nbn reseller margins. These are challenged today but ultimately we believe the nbn market dynamics have to improve. In the meantime it is critical we achieve our targeted improvements in the costs to connect and costs to serve customers on the nbn.
Delivery of our productivity and cost out program including our accelerated and increased productivity target of $1.5bn by FY22;
Growing our NAS business, expanding the EBITDA margins and growing IP products to more than offset the impact of pricing pressure and the decline in legacy data revenue; and
Finally delivering the strategic benefits from the capex program which we have promised.

We also firmly believe there are new sources of value emerging for the future.

Ultimately therefore our success is not only defined by what we are doing in the short term but what we are doing to build growth and value for the longer term.

This includes successfully growing the new businesses in which we have invested and delivering new revenue opportunities in areas such as IoT, 5G and big data.

These are the levers we need to pull to maximise the economic value of the company.

Slide – Horizon

We use the three horizon framework when thinking about investing for growth in the future. Stephen is going to comment more on these shortly but I will make some brief comments.

Firstly 5G. Each of the ‘Gs’ – 2G, 3G and then 4G led to a surge in value in the telecommunications industry. Recent research by Ericsson predicts that 5G could enable a 48 percent incremental revenue opportunity for Australian mobile operators by 2026, with up to $13.5 billion worth of digitalisation potential to tap into.

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This is because 5G brings a number of benefits – more efficient basic service for traditional use, video streaming in addition to new use cases. It is predicted that much of the value from 5G will be concentrated on the level of the applications and services which is consistent with our strategy.

In IoT we have created the platform and we have significant opportunities which are well underway. You will hear more on that from Brendon shortly and Stephen will also take you through the scale of the opportunity.

I am particularly pleased with yesterday’s announcement of the acquisition of MTData, a leading provider of GPS and telematics fleet management solutions. MTData delivers solutions that assist customers with compliance and safety, improving productivity and reducing operating costs.

This acquisition will provide Telstra with the technical capability and software expertise necessary to help fast track our Enterprise Connected Vehicle offering as part of our growing business in this area both in Australia and internationally.

An IoT solution for logistics where we are already a leading provider.

Turning to Big Data – you will have heard a lot of hype and speculation about the opportunities.

However, we believe the hype is now translating into material opportunities. In our core business for reasons already mentioned we are building significant capabilities, for example our Next Gen OSS which manages the network and where we experience 6 million transactions per minute.

This is one of the largest big data and machine learning engines in the country. It provides us some significant opportunities such as location insights where we are currently working on several projects. We match our anonymised location data with those of other customers such as in retail and banking to provide significant insights and value.

So while the next 2 – 3 years is likely to be more challenging, ultimately we believe in the long term value in the industry. We also believe value will grow and shift as our changing business model shifts and we leverage these new areas of opportunity.

We believe our core business will be defined more by our customer groups, consumer, small medium business and enterprise than by the nature of the underlying technology fixed and mobile.

We also will see a higher proportion of value arising from the internet of things and other enterprise platforms including data analytics, software applications above the layer of the network and through content and digital advertising.

It’s a challenging time but it is also an exciting time. Telstra has always been a leading telecommunications company. We have always also been a leader in innovation – not just locally but globally. We have always also been at the forefront of investment at pivotal times and that is where we are now and why our vision is to be a world class technology company that empowers people to connect.

Let me handover to Stephen Elop who will take you through some of the global contextual dynamics that support our strategy and reinforce the opportunities.

WARWICK BRAY – CFO

SLIDE – Financial strategy

Thank you Robyn. Good afternoon.

SLIDE – Our financial strategy supports our corporate strategy

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The purpose of this update is to provide a financial view of our transition to becoming a world class technology company that empowers people to connect. This financial view accompanies the strategies that you have heard today.

I will provide some views on recent financial movements, the implications for our economics in 201920 and at the conclusion of the nbn, and our capital efficiency and policies.

SLIDE – Achieving growth by major product

Achieving growth from our major products is important for our short and long term success.

We have heard from Andy, Stephen, Vicki, Brendon and Robyn about our strategies to achieve this including:

In consumer and small business:
Multi-brand
nbn leadership
local market execution; and
whole of customer approach

In enterprise:

our Telstra Programmable Network
our Internet of Things layers
Telstra dynamic security; and
• our leading NAS position

In network: our network of the future, 5G and digitisation.

To complement this strategic view, I will make some financial comments on our largest products, starting with mobile…

Mobile

Our largest product went through a period of rapid growth from 2010 to 2015, then some decline and has been stable for the 18 months ending June 2017.

Positive indicators for future growth are minimum monthly commitment increases through plan updates and continued growth in machine to machine.

Post the conclusion of the nbn rollout, we would expect positive momentum from 5G and IOT that you have heard about today from Robyn and Brendon.

In the balance is mobile broadband. We are optimistic about the longer term future with connected tablets and cellular WiFi but we first need to stabilise the category

Counteracting these positive indicators is that competition remains strong, we have a further competitor, and negative potential mix impacts from BYO offerings.

However, we are also taking a proactive approach to disruption, and have recently launched Belong mobile as a ‘fighter’ or ‘challenger’ brand that is competing for, and winning market share in the pricesensitive, data-led segment of the mobile market.

In Q1 this financial year, in what remains an intensely competitive market:

Mobile service revenue declined slightly on PCP.
We achieved continued growth in postpaid handheld SIOs (but at a slower rate than in the PCP), however this was offset by a modest decline in ARPU vs the PCP and the June 17 fourth quarter.

Fixed & nbn reseller

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As we indicated at the full year, the economics of reselling the nbn are tough for us and for the industry. We have taken approximately 50% share on the nbn but there is pressure on ARPU combined with rising CVC/AVC costs.

Our profitability on nbn in the future will depend on:

Our ability to differentiate through initiatives such as Telstra TV2, the hybrid modem and mesh Wi-Fi.
Industry dynamics especially price competition and nbn CVC/AVC costs.
Further reducing cost to serve and cost to connect. Cost to connect came down 18% in FY17 and 40% in FY16.

Our assumption in the estimated $3bn “annual recurring impact of the nbn” to our EBITDA is that nbn resale is not very profitable. If industry dynamics improve, then this is positive option value.

On the journey to nbn, the rate at which we hold legacy revenues is important including fixed voice SIO’s.

In Q1 this financial year, fixed trading conditions remain tough. Q1 fixed broadband SIOs grew but at a slower rate than PCP, while fixed revenue declines have accelerated especially due to further declines in voice and wholesale as a consequence of nbn migration.

NAS and data and IP

Our domestic NAS business has grown by over 30% in FY17 (or 14% without nbn commercial works) and the EBITDA margin has grown from 3% in FY15 to 9% in FY17.

Our aspirations for the domestic NAS business continue to be:

Growth in excess of the market CAGR of 10%.
Margin expansion towards the mid-teens.
Growth in NAS EBITDA dollars to offset the decline in data and IP (as was achieved in FY17).
Complement our data & IP offering.

In the FY19/20 years, the development of our nbn commercial works business will have some impact. We have strong aspirations for our commercial works business but this will depend on major contract wins.

SLIDE – Future growth and likely mix shift to technology is dilutive to percentage margins

Putting all of our products together, we expect the composition of our EBITDA will change over the next few years with:

Faster growth from lower margin products – e.g. NAS, global connectivity, new businesses and nbn reseller.
Slower growth or declining higher margin products – e.g. mobile, data & IP and legacy fixed.
Partly offset from a margin perspective by growth in higher margin one-off nbn DA receipts to FY19 and recurring nbn DA.

The implication is that we expect our percentage EBITDA margin in FY18 and 19 to be fairly stable but to decline by the end of the nbn rollout due to this mix effect.

We are focussed on increasing the dollar EBITDA of the corporation and getting individual products to appropriate percentage margins.

SLIDE – We are committed to >$1.5bn reduction in core fixed costs and manage other lines through margins

Turning to costs. We continue to manage costs by cost category, including

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First, core sales or variable costs. These costs include mobile handsets, NAS customer premises equipment, interconnect and roaming. We manage the unit cost of each of these categories and measure our success by changes in unit cost and the relevant margin e.g. hardware margin for mobile and service contribution margin for NAS. This category also includes nbn access payments that we would expect to rise by ~$2b by the conclusion of the nbn build.

Second, core fixed costs for NAS labour and corporate. NAS labour is reported in our fixed costs although, by nature, it is variable. We manage this category by unit costs and measure success by change in unit costs and NAS margin (which was up 3 percentage points in FY17). The $466m rise in this cost category in FY17 supported $789m of increased NAS revenue. This cost category also includes corporate costs such as bond rate but not corporate overhead which is in underlying core fixed costs.

A new cost which will appear in this category is Go Mobile swap costs. This is expected to be some hundreds of millions of dollars and will be matched by an entry in other revenue.

Third, underlying core fixed costs – where we manage costs by net productivity.

In FY17, we achieved $244m net productivity or a 3.5% net cost decline. We measure this category by net cost decline. To achieve this decline, our gross productivity must first offset inflation and reinvestment. We estimate that we required more than 6.5% gross productivity to achieve the 3.5% net productivity outcome.

The FY17 outcome was slightly ahead of our target run rate for our more than $1.5bn net productivity goal. To achieve this, we will need to further improve our unit costs, in particular nbn cost to serve and nbn cost to connect; and eliminate costs associated with our legacy fixed business. We are focussed on process improvement and productivity that results in better customer as well as cost outcomes.

In Q1 this financial year, somewhat offsetting the softening in mobile and fixed revenue we acheived accelerated cost-out. The Q1 rate of decline in underlying core fixed costs increased vs the 3.5% rate of decline achieved in FY17.

SLIDE – Our productivity program has four approaches

Our productivity program has four approaches which we outlined at our Investor Day 12 months ago.

First, improving end-to-end customer experience – we are focused on reducing our customers’ effort by getting it right first time, on time.
Second, product and process simplification – we are providing more intuitive products; improving our processes by automating, digitising and removing manual effort, complexity and waste; and reducing the number of products and platforms we operate.
Third, reducing complexity in our organisational structures.
Fourth, using supplier partnerships to reduce complexity and costs.

Our productivity program is delivering outcomes across our business. We take a co-ordinated whole of company approach with accountability sitting with line managers and the executive leadership team directly involved to accelerate decision making and tackle the hard challenges required to deliver cross-company improvements.

SLIDE – Cost out of $244m delivered in FY17

This slide shows productivity examples from FY17 – all of which acheived simultaneous improvement in both customer and productivity outcomes. This is our aim for the majority of the initiatives in the program.

To improve customer call resolution speed, we empowered our front line agents to redesign the call scripts focussing on the top reasons customers call front of house – for example, provisioning an international roaming pass – and the most common resolutions. This redesign, coupled with intensive training, led to 20-30% lower call handling times and $15m annual savings.

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On automating repetitive tasks, we have deployed 75 “bots" to eliminate repetitive billing and credit tasks, and have a pipeline of 100s of processes for further automation across the organisation.

For example, secondary credit checks are now processed by “a bot” meaning customers don’t have to wait in store for an agent to complete the check.

In our field work forces, we identified an opportunity to improve “start time” through improved processes to get the right tools and spares into vans and increasing the emphasis of this measure. This, coupled with other initiatives, has led to 13% increase in jobs completed per day and 350 more customer appointments met on time per day which is encouraging for customer satisfaction.

SLIDE – Cost out of $244m delivered in FY17 (cont.)

We have also achieved capital savings from our productivity initiatives.

For example, through Innovative Small Cell Design for our mobile network through re-purposing existing equipment as well as working with our vendors, we have more than doubled the coverage from each small cell. We have been scaling our use of small cells to provide in-fill coverage in high demand regions. The greater the coverage we can get from each small cell the less number of small cells we need, reducing capex and associated operating costs including rent and power.

SLIDE – Manage capex to sales down to 14% or below over time

In relation to capital investments. We have committed to a heightened spend on capex from FY17 – FY19 of 18% or up to $3bn.

Our long term capex to sales is estimated at 14%, including capital savings from our productivity initiatives.

We often get asked whether this long term number should be lower. A basis for the question is if one looks at product capex/sales – for example across mobile, NAS, nbn reseller, it would suggest a lower figure.

However, we note:

Capex/sales around the telecommunications world is rising partly due to growth in data.
We have given our estimate of a “through the cycle” figure ie. an average including periods of heightened capex.

Clearly in any year we would aim to come in lower than the 14%.

SLIDE – Spectrum is important to our competitive position and to providing an outstanding customer experience

We note that there are a number of important spectrum auctions coming up based on ACMA’s recently released “Five Year Spectrum Outlook”.

These include:

Multiband residual spectrum this month
3.6Ghz in 2H calendar 2018
26Ghz in 2H calendar 2019
850Mhz expansion & 900Mhz in calendar 2019

Spectrum is important to our competitive position and to providing an outstanding customer experience.

As a leading network operator, we need to have a strong spectrum position nationally to support our current and future services. We have the necessary holdings in the main mobile spectrum bands to deliver superior services to our customers, and we have a coherent spectrum strategy for the future.

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We look forward to the auction of the 3.6 GHz and 26 GHz bands, which we are keen to see brought to market as soon as practical to deliver 5G to the Australian public and businesses as early as possible.

Beyond that, we are actively engaged in local and international spectrum processes to identify future spectrum requirements and work with the relevant organisations to bring these to market in a timely and orderly fashion.

SLIDE – Strategic investment program

We are committed to returns from our strategic capex program.

Today you have heard from Robyn and Mike about what we are delivering in networks and digitisation. You have heard from Brendon and Vicki about what we are doing to improve customer experience.

And as you heard from Andy, we are targeting run rate benefits from our strategic capex program in excess of $500m in EBITDA per annum to be fully realised by 2021. This goal has remained unchanged since August 2016.

SLIDE – Future growth and likely mix shift to technology is dilutive to ROIC

From 2015 to 2017 our ROIC went from 17.5% to 14.7%. Similar to the mix effects on EBITDA, we would expect our ROIC to be influenced by the changing product mix including:

Faster growth from lower ROIC products – NAS, global connectivity, new businesses and nbn reseller.
Slower growth or declining higher ROIC products – Mobile, Data & IP and legacy fixed.
• Partly offset from a ROIC perspective by growth in higher margin one-off nbn DA receipts to FY19 and recurring nbn DA.

By the end of the nbn rollout we would expect our ROIC to be lower than today due to these mix effects but higher than our cost of capital.

We also aim to deploy capital in line with the ROIC opportunity, manage each of our product ROICs to optimum and optimise corporate ROIC.

SLIDE – We continue to manage the efficiency and timing of converting EBITDA to cash and EPS

This slide makes two points.

First. Managing efficiency of EBITDA to cash earnings is an ongoing priority. Go Mobile leasing is a good example of improved working capital. On interest costs, the rate on the last three new capital market bond issues has averaged 3.9%, well below our total FY17 gross borrowing costs of 5.1%.
Second. Timing differences between accounting and cash earnings.

Over the next few years we expect some important timing differences between our cash and accounting flows.

In FY19 and 20 we would expect that our cash flows would be lower than the accounting equivalents due to:

Capex and spectrum being higher than D&A (due to 18% capex/sales and likely spectrum auctions).
Continued build up of working capital due to nbn receipts (being billed quarterly in arrears).

At the end of the nbn, we would expect that our cash flows would be higher than the accounting equivalents due to capex at 14% of sales being lower than the D&A which will reflect the heightened spend in FY17-19 and likely spectrum auctions.

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The above statements are our best view at the moment and factors such as timing of spectrum payments could change that outlook.

The implication of this is that to understand our economic position (accounting, Balance Sheet ratios, and cash), it is important to consider these substantial timing differences and to consider both the cash and accounting views.

SLIDE – Capital Management Framework

We updated our Capital Management Framework at the full year results in August 2017 and we have no further update on the framework objectives or principles today.

Our objectives remain:

Maximising returns for shareholders
Maintaining financial strength; and to
Retain financial flexibility

On the principles. We are committed to retaining balance sheet settings consistent with an A band credit rating.

Our dividend policy is to pay ordinary dividends of 70-90% of underlying earnings from FY18 fullyfranked. In addition, it is our intention to return in the order of 75% of net one-off nbn income over time as fully-franked special dividends.

I have already talked to capex.

And we will maintain flexibility for portfolio management and to make strategic investments

SLIDE – Key Telstra network assets

We continue to review the value of assets on our balance sheet including the infrastructure assets that you heard earlier about from Robyn.

These assets will continue to be a key source of competitive advantage as well as underpin the core component of our earnings.

Most of our assets deliver a strategically valuable network, and as such their composite value is greater than the sum of the individual parts. However, we think our assets give us significant option value, and there may be opportunities to optimise.

For example with exchanges, land and buildings - accommodation requirements are reducing as electronics shrink, copper is transferred to nbn and we simplify our network architecture.

This will enable an estimated up to 2,500 or close to half our exchange sites to be potentially rationalised. Our initial view is that their market value less remediation costs would be more than their current written down book value of approximately $1bn.

SLIDE – FY18 guidance

Before concluding and consistent with our recent AGM, let me reconfirm our guidance for the year.

In FY18, we expect Income to be in the range of $28.3 to $30.2bn and EBITDA to be in the range of $10.7 to $11.2bn.

Guidance for EBITDA is after absorbing incremental restructuring costs of $200 to $300m to support our increased productivity target.

We expect net one-off nbn DA receipts less the net cost to connect to be in the range of $2 to $2.5bn.

We expect to spend capex in the range of $4.4 to $4.8bn or approximately 18% of sales.

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Finally we expect free cash flow to be in the range of $4.4 to $4.9bn.

As is usually the case, the basis on which we provide guidance is detailed in the footnote.

SLIDE – Summary

When we think about our financial strategy, it’s important that we grow the businesses that we can see today such as:

Mobile.
NAS EBITDA dollar growth to offset Data & IP.
Grow nbn reseller business and global connectivity.
New businesses to breakeven and beyond.

It is also important that we reset our cost base. To this end – we are targeting more than $1.5bn net reduction in fixed costs by FY22 and managing variable costs via efficiency.

Capital, cash and fiscal discipline is critical. We are focussed on efficient cash conversion and managing timing differences between cash and accounting earnings.

When we look longer term, we are optimists. We believe Telstra is in an operationally and financially unique position to take advantage through the strength of our infrastructure assets, customer base, skills and Balance Sheet.

We have option value which is important for us to capture where appropriate. Examples include:

First: industry structure. Our $3bn estimate of the nbn impact assumes that the nbn reseller market is not very profitable – but as Andy mentioned ‘while the current economics are unattractive, we are confident that ultimately the dynamics will improve.

Second: infrastructure. We continue to review the value of our assets, including our infrastructure assets. There may be opportunities to further optimise our assets – including for example, potentially rationalising up to close to half our exchange sites due to reduced accommodation requirements.

Third: Future opportunities including 5G, internet of things, data analytics and opportunities that require a deep network and low latency.

Thank you. I will hand back to Peter to moderate Q&A.

[END]

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TELSTRA GROUP LIMITED — Investor Presentation 2017

65927_rns_2017-11-01_0df690fe-f2e7-491d-8f30-4f0283ad02d5.pdf

Office of the Company Secretary

ELECTRONIC LODGEMENT

Telstra Investor Day 2017

Disclaimer

Telstra has capitalised on previous moments of disruption

Four key trends affecting the connectivity value chain

Telcos will look different in the future

Telstra Enterprise

NAS growth continues to offset declines in Data & IP

Telstra Enterprise domestic Data & IP and NAS Revenue & Margin (A$b)

Consumer and Small Business

Financial strategy

FY18 guidance[1]

ANDREW PENN – CEO

Slide – Investor Day

Slide – Objectives for the day

Slide – CEO Leadership Team

Slide – Agenda

Slide - Vision

Slide – Challenges

Slide - nbn

Slide – Strategy

Slide - Strategic Investment Program

Slide 10 - $750m of Strategic Investment

Slide 11 – We are making good progress

Slide – Driving Value

Slide – Horizon

WARWICK BRAY – CFO

SLIDE – Financial strategy

SLIDE – Our financial strategy supports our corporate strategy

SLIDE – Achieving growth by major product

Mobile

Fixed & nbn reseller

NAS and data and IP

SLIDE – Future growth and likely mix shift to technology is dilutive to percentage margins

SLIDE – We are committed to >$1.5bn reduction in core fixed costs and manage other lines through margins

SLIDE – Our productivity program has four approaches

SLIDE – Cost out of $244m delivered in FY17

SLIDE – Cost out of $244m delivered in FY17 (cont.)

SLIDE – Manage capex to sales down to 14% or below over time

SLIDE – Spectrum is important to our competitive position and to providing an outstanding customer experience

SLIDE – Strategic investment program

SLIDE – Future growth and likely mix shift to technology is dilutive to ROIC

SLIDE – We continue to manage the efficiency and timing of converting EBITDA to cash and EPS

SLIDE – Capital Management Framework

SLIDE – Key Telstra network assets

SLIDE – FY18 guidance

SLIDE – Summary

[END]

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TELSTRA GROUP LIMITED Investor Presentation 2017