cd melbourne congress: ian martin
TRANSCRIPT
Ian Martin
+61 3 9827 8841
A closer look at nbn co financials
• Can it sustain A$5bn+ of revenue?
• Where are the pressure points in Operating FCF?
• What is it worth at sustainable Op FCF?
• Can it defer financial restructure to post build?
October 2017
NBN summary financials FY16-FY17
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A$billion FY16A FY17A FY18 FY19 FY20 FY21
Revenue 0.4 1.0 1.9 3.5 4.9 5.4
Opex (1.7) (2.1) (2.4) (2.5) (2.7) (2.9)
EBITDA pre PSAA (1.3) (1.1) (0.5) 1.0 2.2 2.5
Subscriber Pays (0.6) (1.6) (2.9) (3.4) (1.5) (0.3)
EBITDA (1.9) (2.7) (3.4) (2.4) 0.7 2.2
Capex (4.7) (5.8) (7.0) (4.2) (1.6) (0.6)
Contingency - - (0.5) (0.6) (0.6) (0.6)
Interest and Working Cap (0.6) 1.3 (0.1) (0.7) (0.9) (0.9)
CashFlow (7.2) (7.2) (11.0) (7.9) (2.4) 0.1
Peak Funding
Equity Funding (20.3) (27.5) (29.5) (29.5) (29.5) (29.5)
Debt Funding - - (9.0) (16.9) (19.3) (19.2)
(20.3) (27.5) (38.5) (46.4) (48.8) (48.7)
Source: nbn co Corporate Plan 2018, p 34
Cashflow
breakeven
target
NBN ‘steady state’ P&L
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Source: New Street Research estimates
NBN ‘steady state’ P&L
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Operating cost (2.0) benchmark to Chorus (59-62%)
Operating EBITDA 3.0 60% EBITDA margin
Source: New Street Research estimates
NBN ‘steady state’ P&L
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Operating cost (2.0) benchmark to Chorus (59-62%)
Operating EBITDA 3.0 60% EBITDA margin
Long term lease (1.0) Definitive Agreements
EBITDA/indicative OpFCF 2.0 40% EBITDA margin (46% CP21)
Source: New Street Research estimates
NBN ‘steady state’ P&L
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Operating cost (2.0) benchmark to Chorus (59-62%)
Operating EBITDA 3.0 60% EBITDA margin
Long term lease (1.0) Definitive Agreements
Operating EBITDA 2.0 40% EBITDA margin (46% CP21)
D&A; replacement capex (1.0) 30 year average asset life;
Chorus D&A 33% of revenue
EBIT 1.0 20% EBIT margin; Chorus 10% adj
Source: New Street Research estimates
NBN ‘steady state’ P&L
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Operating cost (2.0) benchmark to Chorus (59-62%)
Operating EBITDA 3.0 60% EBITDA margin
Long term lease (1.0) Definitive Agreements
Operating EBITDA 2.0 40% EBITDA margin (46% CP21)
D&A; replacement capex (1.0) 30 year average asset life;
Chorus D&A 33% of revenue
EBIT 1.0 20% EBIT margin; Chorus 10% adj
Interest charge (1.0) 5% on 19bn debt
Profit before tax - slim pickings
Source: New Street Research estimates
If all goes well for the NBN…
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A$billion Completion
Revenue 5.0 8m connections , A$52pm ARPU
Operating cost (2.0) benchmark to Chorus (59-62%)
Operating EBITDA 3.0 60% EBITDA margin
Long term lease (1.0) Definitive Agreements
Operating EBITDA 2.0 40% EBITDA margin (46% CP21)
D&A; replacement capex (1.0) 30 year average asset life;
Chorus D&A 33% of revenue
EBIT 1.0 20% EBIT margin; Chorus 10% adj
Interest charge (1.0) 5% on 19bn debt
Profit before tax 0 slim pickings
Tax 0 Tell him he’s dreaming
Return on A$30 equity 0 0% ROE (pre-tax) if all goes well
Source: New Street Research estimates
TPG MNO coverage and on-net BB footprint
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BB customer growth, c4% pa in NBN migration, then 1% pa
How many on-net?
• Rate of rollout of mobile network footprint,
especially the wireless access component
(1800MHz and 2500MHz)
• Portion in the wireless access footprint area that can be
offered a commercial service on net
= Fn {usage relative to capacity, fibre backhaul}
900MHz?
1800MHz
3500MHz?2500MHz
700MHz
1500MHz?
Optus Home Wireless Broadband
cf 2016 deal: $70 for 50GB
Up to 12/1 Mbps in 2300 MHz areas.
Up to 5/1 Mbps in other areas
Slowed to 256kbps after 250 GB
usage
Optus likely to expand the market impact of this service in 2H18,
And add 3,500Mhz service as mobile devices come to market in 2018
Telstra Home Gateway
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Telstra well positioned in Mobile for converged service offerings
All bets for the NBN are off from c 2020
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A$billion Capital Restructure
Revenue
fewer connections, lower ARPU
Operating cost
limited ability to cut LT opex
Operating EBITDA
EBITDA margin, trends down
Long term lease
Definitive Agreements, secured
Operating EBITDA
May become negative
Replacement capex
would require new funding
EBIT
what level of debt can nbn co service?
Interest charge
will interest rates rise?
Profit before tax
slim pickings
Tax
forget it
Return on A$30 equity
what further equity investment
Source: New Street Research estimates
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