TELSTRA GROUP LIMITED — M&A Activity 2021

Oct 24, 2021

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25 October 2021

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 9650 0989 companysecretary@team.telstra.com

Investor Relations Tel: 1800 880 679 investor.relations@team.telstra.com

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra to acquire Digicel Pacific in partnership with the Australian Government

In accordance with the Listing Rules, I attach a market release and accompanying slides for release to the market.

Authorised for lodgement by:

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Sue Laver Company Secretary

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

MARKET RELEASE

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Telstra to acquire Digicel Pacific in partnership with the Australian Government

25 October 2021 – Telstra today announced it had partnered with the Australian Government to acquire the Digicel business in the South Pacific region for US$1.6 billion, plus up to an additional US$250 million subject to business performance over the next three years.

The Digicel business will be owned and operated by Telstra. Telstra is contributing US$270 million of equity to the US$1.6 billion purchase price and the Australian Government, through Export Finance Australia, is providing the remaining US$1.33 billion through a combination of non-recourse debt facilities and equity like securities. Telstra will own 100 per cent of the ordinary equity.

Chief Executive Officer, Andrew Penn said Telstra was initially approached by the Australian Government to provide technical advice in relation to Digicel Pacific and subsequently considered acquiring the business with financial and strategic risk management support from the Government. Mr Penn said the partnership represented an important milestone in the company’s relationship with the Australian Government.

Mr Penn said the terms of the sale had now been agreed with completion expected to occur in the next 3- 6 months.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian Government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region. We previously said that if Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government. We also said that in addition to a Government funding and support package, any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction. I am pleased that we have been able to achieve both of those outcomes,” said Mr Penn.

Mr Penn said the acquisition was attractive for a number of reasons including the economics of the Digicel Pacific business, alignment with Telstra’s core strengths as well as the support from the Australian Government.

“Digicel enjoys a strong market position in the South Pacific region holding a strong number one position in all markets other than Fiji where it is the number two. The combined business generated EBITDA of US$233 million for the financial year ended 31 March 2021, with a strong margin. Digicel Pacific has already invested significant capital in PNG, which is its largest market, to achieve extensive network coverage including 4G to 55 per cent of the population. The medium to long-term capex to sales is expected to be around 15 per cent,” said Mr Penn.

The transaction is expected to deliver an attractive IRR and exceeds all Telstra M&A criteria – EPS accretive, ROIC above WACC and more accretive than a share buyback. The transaction implies a multiple of 5.8[1] -6.9x FY21 EBITDA for the acquisition of Digicel Pacific.

“Telstra provided guidance to the market for FY22 at its recent full year results presentation and it also provided aspirations for FY23. These did not include any allowance for the Digicel Pacific acquisition which will further enhance our outlook depending on the timing of completion,” said Mr Penn.

“The transaction does not distract from Telstra’s T22 or T25 strategies and represents a unique commercial opportunity. It is consistent with the Australian Government’s interest in encouraging quality investment in the Pacific, the financial arrangements make it very attractive for Telstra and it strengthens our relationships with the Australian Government and the Pacific region. The Board unanimously believes the transaction is in the best interests of shareholders and it is on this basis that Telstra has agreed to proceed with the acquisition.”

1 Estimated transaction multiple adjusted for transaction structure

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PAGE 1/2

MARKET RELEASE

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Upon completion of the transaction which is subject to Government and Regulatory approvals and following Telstra’s corporate restructure, the Digicel Pacific investment will be held by Telstra International which will become a fourth subsidiary of the new Telstra holding company, announced as part of its legal restructure. The Digicel Pacific business will be overseen by a Telstra controlled board which will also include current owner Denis O’Brien and two independent directors.

“We understand the need to ensure this is a stand-alone business and that Telstra delivers on its commitments as part of the T22 and T25 strategies, as well as our intention to grow in coming years,” said Mr Penn.

Digicel Pacific was founded in 2006 by Mr O’Brien, a global entrepreneur with a successful track record in growing businesses. It is a leading provider of communications services across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu. The company has around 2.5 million subscribers and 1700 employees generating US$431 million in service revenue for the financial year ended 31 March. The majority of the revenue is generated in PNG.

It is the number one player in all markets except Fiji, with strong underlying revenue growth. Around 76 per cent of its revenue is generated from its mobiles business, which is largely prepaid, and the balance from business solutions, TV and broadband services. Digicel Pacific currently services 1,500 small to medium business enterprises, 250 large enterprises and 200 corporates in PNG.

Media Contact: Steve Carey M: +61 (0) 413 988 640 E: media@team.telstra.com

Investor contact: Nathan Burley M: +61 (0) 457 529 334 E: investor.relations@team.telstra.com

Reference number: 137/2021

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Telstra to acquire Digicel Pacific in partnership with the Australian Government

Telstra to acquire Digicel Pacific in partnership with the Australian Government

Acquisition

•  Tiger will acquire the Dove business in the South Pacific region for US$1.6 billion, plus up to an additional US$250 million subject Telstra will acquire the Digicel business in the South Pacific region for US$1.6 billion, plus up to an additional US$250 million subject to to business performance over the next three years business performance over the next three years

•  Financial and strategic risk management support from the Australian GovernmentFinancial and strategic risk management support from the Australian Government

Funding and Preferred Return

Value Accretive

• Telstra is contributing US$270 million of equity to the US$1.6 billion purchase and will own 100 per cent of the ordinary equity

• The Australian Government, through Export Finance Australia (EFA), is investing the remaining US$1.33 billion through a combination of nonrecourse debt facilities and equity like securities

• Telstra is entitled to receive a preferred return of US$45 million per annum for the first six years

•  The Digicel Pacific business generated EBITDA of US$233 million for the financial year ended 31 March 2021, with a strong marginDove business acquired generated US$233 million EBITDA for the financial year ending 31 March 2021, with a strong margin

•  The transaction is expected to deliver an attractive IRR and exceeds all Telstra M&A criteria – EPS accretive, ROIC above WACC and more The acquisition is expected to deliver an IRR in excess of 20 per cent for Tiger and be accretive to EPS  Medium to long-term capex to sales is expected to be around 15 per centaccretive than a share buyback. The transaction implies a multiple of 5.8[1] -6.9x FY21 EBITDA for the acquisition of Digicel Pacific  Medium to long-term capex to sales is expected to be around 15 per cent

Strategic Alignment

Legal Structure

•  Consistent with the Australian Government’s interest in encouraging quality investment in the PacificConsistent with the Australian Government’s interest in encouraging quality investment in the Pacific   Important milestone in Tiger’s relationship with the Australian Government Strengthens Telstra relationship with the Australian Government and the Pacific region

•  Strengthens Tiger’s relationship with the Pacific regionNo Telstra exit before end of year six  Digicel Pacific investment will be held by Telstra International. Telstra International will be a subsidiary of the new Telstra holding company, following the previously announced corporate restructure

• The Digicel Pacific business will be overseen by a Telstra controlled board which will also include current owner Denis O’Brien and two independent directors

1 Estimated transaction multiple adjusted for transaction structure

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The leading telecommunications operator in the region with 2.5m subscribers

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Papua NewGuinea HubMarkets
#1 of2
90% share
Nauru
#1 of 1
100% share
Samoa
Vanuatu
#1 of 2 #1 of 2
63% share 65% share
Tonga
Australia
#1 of 2
60% share
Fiji
#2 of 2
40% share
v
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Source: Company information. Notes: #: Market Position of Total Market Participants. % : Share Represents Subscriber Market Share. As at March 2021.

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A strong brand in the Pacific region

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Three complementary revenue streams

KPIs by Market

Subscribers

Service revenue

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Hub
Hub
PNG Markets PNG Markets
83% 17% 76% 24%
US
2.5m $431m
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EBITDA

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Hub
PNG Markets
79% 21%
US
$233m
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Revenue by Segment

Mobile

Business Solutions

TV & Broadband

76% of service revenue

13% of service revenue

7% of service revenue

Source: Company information. Notes: Information based on the financial year ended 31-March-2021.

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Capital structure

US$m

Comments

					US$m		Comments
							Non-recourse debt facilities provided by EFA
			Debt		720		10 year term with options to extend
Government							No guarantees or other support provided by Telstra
EFA funding							A combination of two non-voting equity like securities
			Equity like securities		610		US$360m to be issued with discretionary distributions; and US$250m to be issued that ranks behind Telstra’s ordinary equity with limited rights to
							distributions
Telstra			Ordinary equity		270		Ordinary equity held by Telstra with entitlement to receive a preferred return of US$45 million per annum for the first six years After year 6, priority is given to senior debt repayment
					1,600
			Competitive pricing and terms on EFA funding
Other			Government support for cash repatriation from regions (where required) and FX protections for servicing funding obligations and
support			Telstra’s preferred dividend
items			Political Risk Insurance obtained including for certain political and regulatory interventions for six years
			Any Earn Out payment to be funded on an 80/20 (Government EFA funding/Telstra) basis

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Digicel - financial performance metrics

Subscribers (in millions)

ARPU (US$)

Service revenue (US$ million)

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2.5 2.5 2.5
FY19A FY20A FY21A
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11.5 11.2
9.9
FY19A FY20A FY21A
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500 455 458 431
450
400
350
300
250
200
150
100
50
0
FY19A FY20A FY21A
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EBITDA (US$ million)

Capex (US$ million)

EBITDA less Capex (US$ million)

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232 233 120%
208
100%
46% 51% 54% 80%
60%
40%
20%
0%
-20%
-40%
FY19A FY20A FY21A
EBITDA margin
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69
57
49
15% 11% 13%
FY19A FY20A FY21A
Capex % of Revenue
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183 176
139
FY19A FY20A FY21A
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Source: Company information.

Notes: Information based on the financial year ended March 2021. IFRS16 adopted for FY20 and FY21 on a prospective basis, i.e. no restatement of FY19

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