Australian Mobile Market

Transcription

1 AUSTRALIA Fig 1 Telstra data inclusions on key post-paid plans 15GB 12GB $70 3GB $55 0GB Source: Company data, Macquarie Research, Feb 2016 Fig 2 Optus data inclusions on key post-paid plans 20GB 18GB 16GB 14GB 12GB 10GB 9GB 6GB 8GB 6GB 4GB "Everyday Connect" "Mobile Accelerate" $95 2GB $50 $40 0GB Source: Company data, Macquarie Research, Feb 2016 Fig 3 Vodafone data inclusions on key post-paid plans 20GB 18GB 16GB 14GB 12GB 10GB 8GB 6GB 4GB 2GB MyPlan "Doubledata" promotions MyPlan+ $65 0GB Note: Vodafone s plan replaced the $70 plan in Aug Source: Company data, Macquarie Research, Feb February 2016 Macquarie Securities (Australia) Limited $70 Plan tracker What goes down, can come up Event We continue to monitor activity in the Mobile sector via our Plan Tracker database. Operators continued to adjust pricing and inclusions over December/January. In post-paid, Telstra and Optus have recently increased pricing following an active summer selling period. This is a positive if sustained. In pre-paid, Optus increased data inclusions while Vodafone reined them in. For SIM-only, data inclusions increased for a number of operators and Vaya cut pricing following its acquisition by amaysim. Telstra and Optus also ramped up the value of its 12-month SIM only plans. Impact Telstra increased the majority of its iphone 6S plans by between $2-6, which is a positive if sustained. Given Optus moved by a similar amount, Telstra s premium to the #2 player was effectively unchanged. To boost its value proposition, Telstra is now bundling unlimited access to Telstra Air (wifi hotspot network) to 30 June and a data sharing SIM for 3 months with unlimited calling/sms and 1GB of data on it. Apple handset plans continue to include free Apple Music. As mentioned, Optus also increased the cost for most of its iphone 6S plans by $2-7, while adding 1GB of data to some of its lower end post-paid plans. Optus continues to discount its top end plan, which effectively sees it offering 18GB of data at the /month plan level (down from ). In addition, Optus boosted data inclusions on its pre-paid plans and SIM-only plans, but lowered some of the sign-on incentives for the latter. Vodafone did not alter the prices or data allowances of the postpaid plans we track, while Virgin increased the prices of a handful of iphone 6S plans. Data allowances remain elevated in the prepaid market. Optus has now introduced double data on its $30 and $40 prepaid plans (data caps of 3GB and 8GB, respectively). In contrast, Vodafone removed 2GB of bonus data across its mid-range and upper-range prepaid plans. In the SIM-only market, the MNOs (with the exception of Telstra) introduced more generous data inclusions. Vaya plans were repositioned to target the lower end of the market, in line with amaysim s stated strategy to use it as a price-fighter brand (refer amaysim Australia Pays up to roll up, 5 January 2016). Outlook While Mobiles competition has clearly heightened over the last 12 months, the recent re-pricing by Telstra and Optus highlights that it isn t simply a one-way race to the bottom on subsidy. The battleground right now looks to be in prepaid and at the lower end where pricing is down and inclusions up. Overall, we think that Mobile industry trends will remain robust with respect to revenue growth (excluding MTR adjustments). In the context of a robust Mobile market outcome, Telstra faces additional challenges to protect its subscriber base from re-invigorated competitors and following a period of significant revenue and subscriber share gains. As a result, we continue to see Telstra s FY16 Mobile EBITDA contribution as being unchanged relative to FY15. To put this in context, Telstra s mobile EBITDA CAGR for FY11-15 was 12.6%. We see Group FY16 EBITDA up 2.0% (in line with guidance), with the softer core operating outlook offset by an increase in NBN receipts. No change to our Neutral recommendation for Telstra or $5.60/sh target price. Please refer to page 11 for important disclosures and analyst certification, or on our website

2 Post-paid: Handset subsidy reduced by Telstra and Optus after a big summer selling period Telstra and Optus were active in January in the postpaid market, increasing the prices of a handful of iphone 6S plans and altering data allowances. To an extent this is a typical seasonal adjustment, however we view it as an encouraging indicator overall for market stability. Telstra Telstra increased the majority of its iphone 6S plans by between $2-6. A handful of iphone 6 plans rose by $5-7, while there was some mixed price movements in Samsung Galaxy S6 plans. Telstra shaved 1GB off its L plan data ($95/month) allowance, reducing it to 6GB/month. Data caps for the other three plans were unchanged, as shown in fig 4. Telstra altered its set of inclusions throughout December and January: Telstra is offering eligible mobile (prepaid and postpaid) and mobile broadband customers free Telstra Air Wi-Fi access until 30 June 2016; Customers who sign up to Apple plans will continue to receive a free 12-month subscription to Apple Music ($11.99/month thereafter); Postpaid users can opt to receive a free sim card for the purposes of data sharing. The sim card is worth $40 and is loaded with unlimited calls and 1GB of data. This is an interesting inclusion that could work on a number of levels for Telstra. First, it is an obvious way to promote its data sharing offering. This in turn could help it gain share in younger market segments (via implied family bundling) that Telstra has had limited success in attracting historically. In addition, the promotion could help Telstra boost its subscriber numbers short term. Fig 4 Telstra data inclusions on key post-paid plans 15GB 12GB "Everyday Connect" "Mobile Accelerate" 9GB 6GB $95 3GB 0GB Source: Company websites, Macquarie Research, February 2016 $70 $55 Optus Optus also increased the cost of most of its iphone 6S plans, with prices rising by $2-7. This reversed some of the discounts that emerged last September/October at these price points. Note that the most expensive plan is still being offered at a discount of $30 across the three iphone 6S sizes (i.e. at a price point), possibly indicating continued limited take-up and providing an incentive for customers to trade up from the plan. A selection of iphone 6 plans rose by $8-10, again reversing discounts that emerged towards the end of last year. Samsung Galaxy plan prices were unchanged. Optus varied its data allowances for the following plans (see fig 5): The $40 plan now offers 1.5GB (up 1GB); The plan now offers 4GB (up 1GB); The plan now offers 18GB (down 2GB). 4 February

3 Data inclusions at lower price points have been very stable in recent years, despite significant increases to inclusions at higher price points. This is an interesting development that needs to be monitored. If lower end data inclusions are increased too aggressively, it can lead to trading down by customers which presents and clear ARPU risk. Vodafone Vodafone did not make any changes to the prices or data allowances (fig 6) of the postpaid plans that we track. Vodafone announced a partnership with Qantas, which enables Qantas members (both individuals and businesses) to earn frequent flyer points by connecting to Vodafone s new 24-month Qantas Red Plans. Vodafone is also offering its Red users free international roaming in NZ, valid to 1 December Fig 5 Optus data inclusions on key post-paid plans Fig 6 Vodafone data inclusion on key post-paid plans 20GB 18GB 16GB MyPlan MyPlan+ 20GB 18GB 16GB "Doubledata" promotions 14GB 12GB 10GB 8GB 6GB 4GB 14GB 12GB 10GB 8GB 6GB 4GB $70 2GB $50 $40 0GB 2GB $65 0GB Note: Vodafone s plan replaced the $70 plan in August Virgin Virgin followed in the footsteps of its parent, Optus, with prices rising by $2-5 on a selection of its iphone 6S plans. Virgin s data inclusions were unchanged. Reduction in subsidy for postpaid plans Telstra and Optus increased the cost of its mid-range iphone plans (~3GB/month) by $6 and $5, respectively, while Vodafone was unchanged (fig 7). As a result, Telstra s premium at this price point rose from $7/month to $13/month. While this represents a withdrawal of subsidy from the market, we will continue to monitor price levels for evidence of whether the withdrawal is sustained (and whether competition is declining), or whether it simply is a reversal of some post-christmas discounts. We continue to believe that the market remains competitive, with data allowances and inclusions remaining at elevated levels. 4 February

4 Fig 7 Bundled plan costs (for mid-tier iphone plans offering ~3GB/month): Telstra s premium increases $/mnth Bundled plan costs grew steadily until mid iphone 5S launch Competition following Optus iphone 6 launch iphone 6S launch MyPlan+ releases 65 Telstra Optus Vodafone Note that the mid-tier iphone plans that we track changed in September from the iphone 6 to the iphone 6S plans. Vodafone began offering the plan in place of the $70 plan in August 2015, which explains the price drop.. For mid-range iphone plans (7-8GB/month), Telstra continues to operate at a sizable $17 premium despite Optus increasing its plan cost by $7/month (fig 8). While this relative pricing stability is a positive, the pricing gap is likely to be exploited by consumers if it endures. As a result, recent momentum at the -95 price point might slow, and some customers will spin-down or elect the more heavily subsidised offering, albeit with less data. Fig 8 Bundled plan costs (for mid-tier iphone plans offering 7-8GB/month): Telstra s large premium is maintained $/mnth iphone 5S launch iphone 6 launch Competition following Optus MyPlan+ releases iphone 6S launch 75 Telstra Optus Vodafone Note that the mid-tier iphone plans that we track changed in September from the iphone 6 to the iphone 6S plans.. Figures 9 and 10 show net service revenue (which nets out the wholesale handset cost) at each of the above price points. The charts indicate that despite an increase in plan costs over the past couple of months, net service revenues have followed a more moderate increase than outright bundled handset plan costs. This indicates a state of heightened competition, which we expect to continue in the first half. 4 February

5 Fig Net service revenues (for mid-tier iphone plans offering ~3GB/month) $/mnth iphone 5S launch Competition following Optus MyPlan+ releases iphone 6 launch iphone 6S launch Telstra Optus Vodafone Note: Vodafone began offering the plan in place of the $70 plan in August 2015, which explains the price drop. Fig 10 $/mnth Net service revenues (for mid-tier iphone plans offering 7-8GB/month) iphone 5S launch Competition following Optus MyPlan+ releases iphone 6 launch iphone 6S launch Telstra Optus Vodafone Note: Vodafone began offering the plan in place of the $70 plan in August 2015, which explains the price drop. Prepaid: Market remains competitive Data allowances remain generous in the prepaid market. Optus introduced double data on its $30 and $40 prepaid plans (data caps of 3GB and 8GB, respectively). In contrast, Vodafone removed 2GB of bonus data across its mid-range and upper-range prepaid plans. On inclusions, Optus improved its international calling feature, offering infinite standard international calls to ten countries for its $40 and $50 prepaid plan (up from small credit allowances). Optus also increased its data rollover from 10GB to 15GB, while Telstra is now offering free Telstra Wi-Fi until 30 June. MVNO: Remains a highly competitive space Data caps on SIM-only plans increased for the majority of MNOs: Optus is offering double data on its $50 SIM-only, month to month plan, for a total of 10GB (up 5GB). Vodafone is offering generous data bonuses on its SIM-only plans. This equates to $50 for 10GB (up 5GB), for 12GB (up 5GB) and for 14GB (up 3GB); Virgin also increased a handful of its SIM-only plans, e.g. offering $40 for 7GB (up 1GB) and for 13GB (up 1GB). 4 February

6 Fig 11 Provider Comparison of BYO month-to-month mobile plans with data allowances of 1.5GB and above BYO Plan Network Monthly access up to Cost Data (GB) Cost/ Voice SMS GB (stand. nat.) (stand. nat.) Notes $ $15 Unlimited Unlimited $5 off first two months for new orders (until 9 Feb) + Inc unltd intern'l text to 32 countries. amaysim Unlimited Optus 4G $ $8 Unlimited Unlimited $5 off first two months for new orders (until 9 Feb) + Inc unltd intern'l text to 32 countries. $ $9 Unlimited Unlimited Inc unltd stand intern'l calls and text to 32 countries. $ $6 Unlimited Unlimited Inc unltd stand intern'l calls and text to 32 countries. Power Plan $ $12 $650 Unlimited First mnth free + Free sim and sim delivery (worth $20). Power Plan $ $11 $650 Unlimited First mnth free + Free sim and sim delivery (worth $20). Vaya Unlimited Plan $ $16 Unlimited Unlimited First mnth free + Free sim and sim delivery (worth $20). Optus 4G Power Plan $ $9 $650 Unlimited First mnth free + Free sim and sim delivery (worth $20). Unlimited Plan $ $11 Unlimited Unlimited First mnth free + Free sim and sim delivery (worth $20). Unlimited Plan $ $9 Unlimited Unlimited First mnth free + Free sim and sim delivery (worth $20). $ $13 Unlimited Unlimited Inc 150 intern'l mins to selected countries. Optus My Plan Plus $ $10 Unlimited Unlimited +Double data intern'l mins to selected countries. Optus 4G Sim Only 7.0 $9 Unlimited Unlimited Inc unltd intern'l mins to selected countries. $ $7 Unlimited Unlimited Inc unltd intern'l mins to selected countries. Telstra Vodafone Virgin Mobile* Dodo TPG Telecom iinet Go Mobile Casual Telstra 4G $ $20 $1,000 Unlimited $ $10 Unlimited Unlimited $ $13 Unlimited Unlimited $ $13 Unlimited Unlimited Sim-Only Red Vodafone 4G 6.0 $10 Unlimited Unlimited Month-tomonth Optus 4G Postpaid Mobile 4G Sim Only Optus 4G 10.0 $8 Unlimited Unlimited $ $10 Unlimited Unlimited 6.0 $10 Unlimited Unlimited 10.0 $8 Unlimited Unlimited $ $12 $700 call/sms $24.90 sim cost. $ $10 Unlimited Unlimited $24.90 sim cost. $ $10 Unlimited Unlimited $24.90 sim cost. $ $13 $550 call/sms T4G Sim Only Vodafone 4G $ $15 Unlimited Unlimited $10 sim cost. $ $8 Unlimited Unlimited $10 sim cost. +2.5GB bonus data for new customers + Free Telstra Air until 30 June GB bonus data for all customers + Free Telstra Air until 30 June Inc unltd intern'l text + 90 intern'l mins to selected countries. +6GB bonus data (until 5 April) + Unltd intern'l text + Unltd intern'l mins to 10 countries + 90 intern'l mins to selected countries. +6GB bonus data (until 5 April) + Unltd intern'l text + Unltd intern'l mins to 10 countries intern'l mins to selected countries. +4GB bonus data (until 5 April) + Unltd intern'l text + Unltd intern'l mins to 10 countries intern'l mins to selected countries. +1GB for online sign ups + 2GB for new sign ups (from non-optus network) + $300 intern'l calls/text + 50% off first month (all until 11 Feb). +2GB for online sign ups + 2GB for new sign ups (from non-optus network) + $300 intern'l calls/text + 50% off first month (all until 11 Feb). +1GB for online sign ups + 2GB for new sign ups (from non-optus network) + $300 intern'l calls/text + 50% off first month (all until 11 Feb). 50% discount for first 6 mnths for new users (until 29 Feb) + Inc intern'l calls/text. $10 sim cost. Heavy Use Sim Optus 4G Only $ $23 Unlimited Unlimited Double data if bundled with broadband. $20 sim cost. +0.5GB weekend data + Inc free weekend calls. $5 sim $ $ min 50k SMS cost. ALDImobile Value Packs Telstra 3G $ $9 43,200 min 50k SMS/20k +1GB weekend data + Inc 1.5h intern'l calls. $5 sim cost. MMS $ $8 43,200 min 50k SMS/20k +1GB weekend data + Inc 3h intern'l calls. $5 sim cost. MMS Boost Mobile UNLTD Telstra 4G $ $13 Unlimited Unlimited +2GB weekend data. $2 sim cost. All in one M $ $ min 100 Lycamobile All in one L $ $ min 100 Telstra 3G All in one XL $ $18 1,000 min Unlimited Saver Plan XL $ $30 1,000 min Unlimited Inc intern'l calls to selected countries. National $ $12 Unlimited Unlimited 50% off for first month for new online orders. Mega Vodafone $ $8 Unlimited Unlimited 50% off for first month for new online orders. Lebara 3G+ Inc unltd intern'l calls to 60 countries + 50% off for first Unlimited $ $20 Unlimited Unlimited month for new online orders. $ $10 Unlimited Unlimited $4.90 sim cost. Kogan XL Vodafone 3G $ $7 Unlimited Unlimited $4.90 sim cost. Woolworths $ $12 $1,000 Unlimited 10% off recharges for Woolworths Rewards members. Woolworths Telstra 3G Inc $200 intern'l calls + 10% off recharges for Woolworths Connect $ $9 Unlimited Unlimited Rewards members. *Wholly owned subsidiary of Singtel Optus. Note that Coles also offer low-cost MVNO plans with data allowances of less than 1.5GB/month. Source: Macquarie Research, February February

7 Vaya has revamped its plans following its recent acquisition by amaysim. Generally speaking, pricing has been lowered as amaysim management follows through on its pledge to position Vaya as a price fighter brand, while amaysim positions itself as a customer champion. The biggest changes were to Vaya s Unlimited plans, where pricing for its 2.5GB plan was reduced by $5/month. Its top end product was pared back from offering 6GB to 4GB, however the pricing was reduced by $10/month. Vaya now operates in two price bands: $18-24 and $ Previously, Vaya offered a scattering of plans ranging from $18 to $44. Vaya s plans are as follows (refer fig 12): Power plan 18: $18/mnth, 1.5GB, $650 calling Power plan 22: $22/mnth (previously $24), 2GB, $650 calling Power plan 28: $28/mnth (previously $27), 3GB (up 0.5GB), $650 calling Unlimited 24: $24/mnth (previously $25), 1.5GB, unlimited calling Unlimited 28: $28/mnth (previously $33), 2.5GB, unlimited calling Unlimited 34: $34/mnth (previously $44), 4GB (down 2GB), unlimited calling For further reading of amaysim s acquisition of Vaya, refer amaysim Australia Pays up to roll up, 5 January Fig 12 Vaya SIM-only plan changes Old Vaya plans New Vaya plans Change Plan Cost ($) Data (GB) Cost/GB ($) Cost ($) Data (GB) Cost/GB ($) Cost ($) Data (GB) Cost/GB ($) Power Plan Power Plan Unlimited Power Plan Unlimited Unlimited Fig 13 Comparison of amaysim and Vaya sim-only mobile plans Cost / month $50 $40 $30 $20 $10 $0 GB/month Vaya Power Plan ($650 calls/sms) Vaya Unlimited calls/sms Series1 4 February

8 Activity also heating up in SIM-only, 12-month plans The MVNO numbers above refer to month-to-month plans. A smaller category is the SIM-only, 12- month plan segment. Here we have seen significant discounting by Telstra and Optus. This has thrown up some abnormalities in the market. For example, by committing to a 12-month SIM-only contract up front, a Telstra customer could save $186 on total spend over 24-months for a 64GB iphone 6s, and $324 for the 128GB model, when compared to entering a 2-year contract with handset. This implies a negative subsidy in place for this handset!! We have seen this occur before and expect the arbitrage to close up in time. Stocks mentioned Telstra Corporation (TLS AU, A$5.61, Neutral, TP: A$5.60) amaysim Australia (AYS AU, A$3.20, Neutral, TP: A$2.80) 4 February

9 Telstra Corporation (TLS) $5.55 Interim 1H15 2H15 1H16e 2H16e Full year FY15 FY16e FY17e FY18e Income (ex PSAA payments) $m 12, , , ,494.5 Income (ex PSAA payments) $m 26, , , ,651.0 Opex $m 7, , , ,061.0 Opex $m 15, , , ,131.2 EBITDA $m 5, , , ,433.5 EBITDA $m 10, , , ,519.8 D&A $m 1, , , ,979.9 D&A $m 3, , , ,063.8 EBIT $m 3, , , ,453.7 EBIT $m 6, , , ,456.0 Associates $m Associates $m EBIT incl. assoc $m 3, , , ,468.2 EBIT incl. assoc $m 6, , , ,484.6 Net Interest Expense $m Net Interest Expense $m Pre-Tax Profit $m 2, , , ,084.1 Pre-Tax Profit $m 5, , , ,663.9 Tax Expense $m Tax Expense $m 1, , , ,690.6 Net Profit $m 2, , , ,163.2 Net Profit $m 4, , , ,973.4 Minority Interests $m Minority Interests $m Adjusted Earnings $m 2, , , ,086.4 Adjusted Earnings $m 4, , , ,787.8 NRIs (net of tax) $m NRIs (net of tax) $m ,007.0 Reported Earnings $m 2, , , ,343.6 Reported Earnings $m 4, , , ,794.8 EPS (Adj/dil) cps EPS (Adj/dil) cps EPS Grow th % 6.6% 2.8% (6.9%) 0.3% EPS Grow th % 4.6% (3.3%) (0.3%) (0.9%) Ordinary DPS cps Ordinary DPS cps Special DPS cps Special DPS cps Total DPS cps Total DPS cps Dividend yield % 2.7% 2.8% 2.8% 2.9% Dividend yield % 5.5% 5.7% 5.8% 6.5% Payout ratio (adj) % 91.9% 90.9% 102.0% 93.6% Payout ratio (adj) % 91.4% 97.5% 99.4% 112.8% FCF/sh cps FCF/sh cps FCFE yield (annualised) % 0.6% 7.2% 7.1% 5.2% FCFE yield (annualised) % 3.9% 6.1% 6.6% 9.4% EBITDA margin % 40.4% 39.5% 38.0% 37.5% EBITDA margin % 39.9% 37.7% 37.3% 36.7% EBIT margin % 25.1% 24.7% 23.2% 23.8% EBIT margin % 24.9% 23.5% 23.2% 22.5% EBITDA grow th % (0.7%) 0.4% (2.2%) 1.9% EBITDA grow th % (0.2%) (0.2%) 0.9% (1.1%) EBIT Growth % (0.5%) (1.1%) (3.7%) 3.5% EBIT Growth % (0.8%) (0.0%) 0.4% (2.2%) Profit and Loss Ratios FY15 FY16e FY17e FY18e Cashflow Analysis FY15 FY16e FY17e FY18e Income grow th (ex PSAA payments) % 3.0% 5.7% 2.0% 0.5% EBITDA $m 10, , , ,519.8 % of EBITDA in 1H % 49.5% 48.5% 49.7% 49.3% Ch in Working Capital $m (467.0) (13.9) Effective tax rate % 30.0% 30.0% 30.0% 30.0% Net Interest Paid $m (749.0) (766.5) (814.1) (820.7) PER (adj) x Tax Paid $m (1,755.0) (1,860.5) (2,137.3) (2,550.7) EV/EBIT x Other $m , ,853.1 EV/EBITDA x Operating Cashflow $m 7, , , ,987.5 EV/Sales x Acquisitions $m (1,104.0) (250.0) (500.0) (500.0) Capex $m (5,102.0) (4,104.8) (4,571.3) (3,779.4) Balance Sheet Ratios FY15 FY16e FY17e FY18e Asset Sales $m Other $m ROE % 30.2% 30.1% 34.5% 40.6% Investing Cashflow $m (6,043.0) (4,354.8) (5,071.3) (4,279.4) ROFE % 22.9% 22.8% 22.2% 21.6% Dividends Paid $m (3,700.0) (3,789.9) (3,884.0) (4,059.3) ROA % 16.7% 16.3% 16.1% 15.7% Equity movements $m (604.0) (250.0) (900.0) (1,500.0) Net Debt (pro-forma) $m Debt movements $m (1,667.0) (148.8) Net Debt/Equity x Other $m Net Debt/EBITDA x Financing Cashflow $m (5,966.0) (3,908.7) (3,936.3) (5,708.1) Interest Cover (EBIT) x EFPOWA m Net Cashflow $m (4,263.0) Divisional revenue estimates FY15 FY16e FY17e FY18e Balance Sheet FY15 FY16e FY17e FY18e Fixed $m Cash $m 1, , , ,396.0 Mobiles $m Receivables $m 5, , , ,405.3 Data & IP $m Inventories $m NAS $m Investments $m ,387.0 Media $m PP&E $m 20, , , ,837.4 International $m Intangibles $m 9, , , ,332.0 Other sales revenue $m Other Assets $m 2, , , ,812.4 Foxtel $m Total Assets $m 40, , , ,647.5 Other revenue $m Payables $m 4, , , ,771.2 Total revenue $m Short Term Debt $m 1, , , ,496.0 Long Term Debt $m 14, , , ,968.1 Snapshot Current Provisions $m 1, , , ,254.0 Current price $ 5.55 Other Liabilities $m 4, , , ,303.0 EFPOWA # 12,276.7 Total Liabilities $m 25, , , ,792.3 Market cap $m 68,135.5 Shareholders Funds $m 14, , , ,448.2 Net debt $m 13,566.0 Minority Interests $m EV $m 81,701.5 Shaereholder Equity $m 14, , , , February

10 amaysim (AYS) $3.15 Interim 1H15a 2H15a 1H16e 2H16e Full year FY15a FY16e FY17e FY18e Revenue $m Revenue $m Opex $m Opex $m EBITDA $m EBITDA $m D&A $m D&A $m EBIT $m EBIT $m Associates $m Associates $m EBIT incl. assoc $m EBIT incl. assoc $m Net Interest Expense $m Net Interest Expense $m Pre-Tax Profit $m Pre-Tax Profit $m Tax Expense $m Tax Expense $m Net Profit $m Net Profit $m Minority Interests $m Minority Interests $m Adjusted Earnings $m Adjusted Earnings $m NRIs (net of tax) $m NRIs (net of tax) $m Amortisation of PPA $m Amortisation of PPA $m Reported Earnings $m Reported Earnings $m EPS (Adj/dil) cps EPS (Adj/dil) cps EPS Grow th % nmf nmf 270.9% 45.8% EPS Grow th % nmf 95.5% 52.7% 11.9% DPS cps DPS cps -% 848.7% % % Payout ratio (adj) % -% -% 75.0% 75.0% Payout ratio (adj) % -% 75.0% 75.0% 75.0% FCF/sh cps FCF/sh cps FCFE yield % 0.6% 5.8% 5.6% 25.0% FCFE yield % 3.2% 15.3% 4.1% 4.9% EBITDA margin % 4.6% 10.4% 10.7% 12.2% EBITDA margin % 7.7% 11.5% 14.0% 14.5% EBIT margin % 3.6% 9.4% 9.5% 11.2% EBIT margin % 6.7% 10.4% 13.1% 13.6% EBITDA grow th % nmf nmf 192.6% 59.3% EBITDA grow th % nmf 96.7% 49.1% 11.8% EBIT growth % nmf nmf 239.7% 61.0% EBIT growth % nmf 105.7% 53.4% 12.6% Key assumptions 1H15a 2H15a 1H16e 2H16e Key assumptions FY15a FY16e FY17e FY18e Total subscribers 000s ,014.0 Total subscribers 000s , , ,166.3 Subscriber grow th % 36.9% 16.0% 16.1% 41.2% Subscriber grow th % 16.0% 41.2% 8.6% 5.9% Net subscriber adds 000s Net subscriber adds 000s Churn % 3.5% 3.5% 2.9% 2.9% Churn % 3.5% 2.9% 3.0% 3.0% ARPU $ ARPU $ Profit and Loss Ratios FY15a FY16e FY17e FY18e Cashflow Analysis FY15a FY16e FY17e FY18e Revenue grow th % 66.0% 31.7% 22.3% 8.5% EBITDA $m % of EBITDA in 1H % 28.0% 41.7% 44.9% 48.5% Ch in Working Capital $m Effective Tax Rate % 30.5% 31.9% 30.7% 30.7% Net Interest Paid $m PER (adj) x Tax Paid $m EV/EBIT x Other $m EV/EBITDA x Operating Cashflow $m EV/Sales x Acquisitions $m Capex $m Balance Sheet Ratios FY15a FY16e FY17e FY18e Asset Sales $m Other $m ROE % % 488.2% 189.3% 131.9% Investing Cashflow $m ROFE % -76.6% -99.8% % % Dividends Paid $m ROA % 37.4% 66.8% 78.3% 81.3% Equity movements $m Net Debt $m Debt movements $m Net Debt/Equity x Other $m Net Debt/EBITDA x Financing Cashflow $m Interest Cover (EBIT) x EFPOWA m Net Cashflow $m Cost estimates FY15a FY16e FY17e FY18e Balance Sheet FY15a FY16e FY17e FY18e Revenue $m Cash $m Cost of sales $m Receivables $m Gross profit $m Inventories $m Employee costs $m Investments $m Marketing costs $m PP&E $m Facilities & IT costs $m Intangibles $m Other costs $m Other Assets $m Total opex $m Total Assets $m EBITDA $m Payables $m Short Term Debt $m Long Term Debt $m Snapshot Current Provisions $m Current price $ 3.15 Other Liabilities $m EFPOWA # Total Liabilities $m Market cap $m Shareholders Funds $m Net debt $m Minority Interests $m EV $m Shaereholder Equity $m February

11 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2015 AU/NZ Asia RSA USA CA EUR Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients) Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients) Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients) TLS AU vs ASX 100, & rec history AYS AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, February month target price methodology TLS AU: A$5.60 based on a DCF methodology AYS AU: A$2.80 based on a Sum of Parts methodology Company-specific disclosures: TLS AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Telstra Corporation Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Telstra Corporation Ltd with investment advisory services in the past 24 months, for which it received compensation. AYS AU: MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Amaysim Australia Pty Ltd in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Amaysim Australia Pty Ltd in the past 12 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at Target price risk disclosures: TLS AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. AYS AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. 4 February

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13 Inc. and Osaka Exchange, Inc. (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association). India: In India, research is issued and distributed by Macquarie Capital Securities (India) Pvt. Ltd. (CIN: U65920MH1995PTC090696), formerly known as Macquarie Capital (India) Pvt. Ltd., 92, Level 9, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai , India, which is a SEBI registered Research Analyst having registration no. INH Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: In Taiwan, research is issued and distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Nothing in this research shall be construed as a solicitation to buy or sell any security or product. Research Associate(s) in this report who are registered as Clerks only assist in the preparation of research and are not engaged in writing the research. Thailand: In Thailand, research is produced, issued and distributed by Macquarie Securities (Thailand) Ltd. Macquarie Securities (Thailand) Ltd. is a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member of the Stock Exchange of Thailand. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at South Africa: In South Africa, research is issued and distributed by Macquarie Equities South Africa (Pty) Ltd, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie Equities South Africa (Pty) Ltd and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-us affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc. s affiliate s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Information regarding futures is provided for reference purposes only and is not a solicitation for purchases or sales of futures. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at or contact your registered representative at MAC-STOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY Macquarie Group 4 February