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Thank you for standing by, and welcome to the Aussie Broadband quarterly update. [Operator Instructions] I would now like to hand the conference over to Mr. Phillip Britt, Managing Director. Please go ahead.
Thanks very much, and thanks, everyone, for joining us today. We're pleased to get everyone together for this quarterly update and also, I guess, a precursor of our half update as well. For this quarter, we saw, again, significant growth in our broadband segment, just shy of 49,000 broadband services, added another 11% on top of our base. And this was helped particularly through our wholesale segment and the white label component coming through. So our white label product only sort of got off the ground in June last year. And we've seen quite a significant growth in that line, both organically through our white label customer additions as well as the migrations that we started during the quarter. But our traditional business segments of residential and business continue to go strongly as well. Business, adding around about another 5,500 connections during the period. And the really pleasing part of this was actually in the enterprise ethernet space. So this is a -- I guess, a premium product set that would normally be provided on other carriers' networks. And it's a product NBN brought to market, probably just shy of 2 years ago now. But we're taking 15% of all order volume going into NBN in that product set. And that also shows that we're driving more business into our -- I guess, the higher end of the business market, just not your mom-and-dad sort of operations. This is typically when we win enterprise ethernet deals. We win a number of connections at once. Usually, they're larger organizations, councils, local government, local water authorities and a range of other organizations. So business continues to run really strong through the period, which has been pleasing. As we sort of look through the services gain, we've continued to grow all of our services through the period. Mobile, not quite as much as we would have hoped. But we've now completed the transition from moving our existing customer base off the Telstra network and onto the Optus mobile network. And so we've managed to maintain the majority of our customers through that period, but there was a little bit of loss in there just due to, I guess, the change in coverage patterns. But that side of things, I believe, is now behind us, and we can get on with growing our mobile services through our wider broadband base and grow that further. If we look at where we're at with our Aussie Fibre Project, this is our flagship fiber build and that's been our major construction project for the last 18 months, that's coming into the final stages of completion at the moment. We expect that we'll finish the majority of the fiber build by the end of March, and there will be around 10 sites that will be complete between that March and June period. And the key part to this is it allows us to move a lot of our connectivity that runs out to the NBN POIs or points of interconnect and move those on to our own network. And so we pick up quite a margin improvement and, ultimately, a big improvement that falls through the bottom line. And that kicks in from FY '23 onwards. So this will allow us to continue what is going to be a step change in our EBITDA result as we complete our FY '22 and move into FY '23. The reason we're so particularly pleased with this Fibre Project is that when we set out 18 months ago, we had 0 experience of putting optic fiber into the ground. And usually, with large construction projects like these, they're fraught with cost overruns and time overruns. This project, we said would be complete by the end of FY '22. That will be complete by then, and it will be completed within the budget that we've set aside. So we're particularly pleased that we're able to model out such a large project and bring it to completion in the time frame and on budget. Through the quarter, CVC improved in the second quarter. It was challenging, as we called out in our first quarter update but did improve as the lockdowns lifted through late October and early November. We saw bandwidth return to what we would expect to be normal levels. And then, thus, the cost also reducing. So CVC has come back under control. And so that's a core cost line for us that we're very sensitive about and continue to advocate with NBN that we -- ultimately, we believe that CVC, with the volume-based charging that NBN charges for their product shouldn't be there. And so there's been some developments in that. There's a process running with the ACCC. And ultimately, NBN has now put forward a proposal that would see CVC removed on speed tiers of 100 meg or higher, but it would still apply to 50/20 speed tier or below. And so that would still apply to about -- in Aussie's case, around 60% of our connections. And so we're continuing to advocate for the removal of CVC, and that will continue to play out through this year. But I don't see that we'll actually see any change to NBN's pricing structure in this calendar year. I think we might know what it will look like towards the end of the calendar year. But in terms of implementation, I think it's going to be in calendar year '23 that we'll potentially see some changes there. In terms of our financial performance for the half. Ultimately, we saw EBITDA coming before the -- before any transaction costs and before any contribution for other things like Over the Wire at $9.1 million. This was impacted a little bit through -- basically, we ran customer promotions far heavier in the second half than we had done in previous periods. But our marketing expense was consistent with half 2 for FY '21. So from a marketing -- overall marketing cost perspective, consistent, in line with what we expected. But with the promotional side of things, we have quite a bit of success with those promotions during the period. And so they went a bit higher than we expected. As we move forward into the second half, we're targeting those promotions in a different way. And we're expecting that, that promotional costs will reduce down and probably be around about the $4.5 million mark for the next half with absolute marketing expense being about the same. So in terms of -- as a percentage of revenue, both of those things will fall in the next half, which is what we've tried to call out in the cost of acquisition graph in the announcement. So ultimately, we're going to target those promotions differently. And what we've seen in January is we've actually used very little promotional costs. But in January -- we've delivered another record month for January. So we've been able to get more strategic in how we've used those promotions to still generate an exceptional outcome in terms of sales. If we look at where we're at with the Over the Wire acquisition, we see Over the Wire as being a key strategic pillar for us. About 12 -- probably nearly 18 months ago now, we set out that we wanted to grow the business segment considerably from where we do today. And we've had a lot of success doing that in the broadband space. But ultimately, to win businesses, you need to have a wide range of products that it's not just about broadband, it's about things like cloud, security and other technologies, including voice. And set about looking at how we would build those capabilities into our business. And we've built a lot of technical skill before. That's -- we're a very technical business, but it's a time factor. And so we looked at Over the Wire and decided they were the best in market in terms of having those skills and experience and product capability in mix. And so we have known the people from Over the Wire for some time. We've done wholesale business with them before. And thought, okay, let's make the approach there. Went through a fairly lengthy sort of, I guess, negotiation and then finally managed to get the deal signed at the end of last year. That's now proceeded through to the court approving the convening of a scheme meeting of the shareholders. That shareholder meeting is on the 24th of February. And then shortly after that, there will be a court hearing to put it into play. So we're looking forward to welcoming the Over the Wire team on board and ultimately, the product skills and capability that they'll bring to the mix, along with Aussie's volume organic growth capability and national network. So that's a piece that we're really keen to close out. If we look forward over the next half, we've provided an EBITDA guidance in the range of $27 million to $30 million. The range component here is basically looking at what comes through from those sales and marketing efforts that we run over the next, well, really, 5 months now. And we've also called out a connection guidance range of 85,000 to 95,000, which includes the migration of the remaining white label services, which are now largely complete. We'll have those finished by the middle of February. And so that's quite a step change in EBITDA from first half to second half. And when we look at those, ultimately, we've got comparable marketing costs from the first half. So the -- called out from -- in absolute dollar terms, we plan to spend about the same with a slightly reduced or nearly close to half reduction in the promotional cost element. Getting some leverage on the employee side, CVC now remaining back where we expect it to be, assuming that there's no further lockdowns. And we get all the benefit of the white label migrations. That's a significant number of customers that have come in, in a very short period of time and, ultimately, all the revenue benefit from our first half. So we start to see quite a rapid acceleration in that EBITDA generation moving forward. And then when we look forward into FY '23, we can see another fundamental step change with the combination of what Aussie is doing, the benefits of our fiber network coming through and the savings that we will achieve through that, along with the EBITDA contribution from Over the Wire as well coming on board. It will be a fundamentally different business from an EBITDA-generation perspective in FY '23. So that's sort of really the main points we wanted to cover today. It was more about providing the opportunity for the shareholders and investors and analysts to ask us questions. So what we'd like to do is open the floor to questions and go from there.
[Operator Instructions] Your first question comes from Lachlan Brown from Credit Suisse.
I've got 3 questions. Just on Aussie taking 15% of NBN enterprise ethernet orders in FY '22 year-to-date, are you able to give us a sense of how that's trended throughout the year or how that compares to FY '21? And also, are you able to provide any color on the metro regional split? Just interested if you're seeing -- or starting to see any benefit from NBN's expansion of enterprise ethernet services into the regional markets? That's my question. Yes, I might leave it down and ask my third one afterwards.
Yes. No, I appreciate the question at a time. That certainly is good. Yes, look, it's run pretty consistently through the half. It probably was around 10% as we sort of entered the half and then grew fairly rapidly as we changed a couple of our marketing and price points in AU. So it's run probably at least 5 months of the half around that 15% mark. In terms of the split between regional and in metro, we've now got enterprise ethernet services on every point. So around about 70% of employees cover metro and then the other 30% cover regional. So it's -- the split is almost based -- if you look at a population-type metric, the split of AU services, it almost follows the population with us.
Yes. Perfect. And just lastly, on the marketing expense as a percentage of revenue, that increased to 12.6% in the first half '22, and I know that you mentioned this will reduce in the second half. Do you have any broader, long-term targets, [ somewhere that can fit ]? Or is that just too fluid?
Look, it is fluid. We're probably operating on the theory that we'll keep it around about the same in absolute dollar terms next year as for this year. But it is subject to -- like if opportunities present, we'll take those opportunities. And I think we're in an interesting time where we're straddling that point at the moment from a growth company to a -- I guess, an earnings-generating company and trying to please, I guess, both sides at the moment. So I think we'll continue to pursue growth where opportunities exist, but we are certainly focusing and doubling down on the earnings side of things now.
The next question is from Ian Munro from Ord Minnett.
Just with regards to the size of the customer base, obviously, pushing through the 500,000 mark and noting your record January, can you maybe just give us a sense of like the customer retention strategies that you have in place to ideally reduce churn? And perhaps, any update on how you're seeing just general industry conditions and competition for customers?
All right. Thanks, Ian. Look, ultimately, we're seeing things fairly quiet from a competition perspective at the moment. Last -- this same period last year, it really hotted up with NBN's focus on fast campaigns and so on. There's no campaigns from NBN's moved or otherwise for this half. And we're seeing most of the market activity more in the mobile space than the broadband space. In terms of the churn side of things, our churn has been pretty stable, except for probably a slight uptick in December and again in January, as those focus on fast campaigns sort of roll off. So we're expecting that it will, probably from February onwards, return back to the levels we were. Having said that, we want to actually improve that. And we do have quite low churn by industry standards, but we want to improve that further. Because ultimately, if you can retain those customers, then you don't have to bring as many in the door again. So that is a focus. What we're doing is giving our team additional training and so on. We're building in some -- I guess, some [ save ] components into our customer, the way that we're interacting with customers, but not in terms of just throwing money at the problem. We're looking at other ways of retaining and saving those customers. So it's something we're focused on and we're putting some more effort into that as we go into this half as well.
Very good. And just with respect to white label agreements and obviously, your Origin agreements due to the transition in February, can you give us a sense of the attitude to other white label agreements? Like would you look for something that's equally meaningful? And what kind of sectors perhaps could you look at? And any sort of expectation around maybe one-size agreement per annum would be a reasonable expectation?
Yes. Look, we're looking to grow white label further. We had been starting to think whether we might do something along the lines of a value brand or that sort of thing as a way of generating a new channel of growth. We sort of now perhaps switched into the thinking that maybe, as you say, 1 or 2 white label customers of decent size would also meet the bill there. So we're looking to actively pursue some of those. it's -- as you see, there's probably 1 a year might be the maximum that you would see, and it does take a long time, like Origin took us about 12 months from start of discussion to when the agreement was announced. So they do take time, but we are starting to work on those. We've recently employed someone to specifically manage the white label channel and grow that further. So yes, I think you'll see some more, in time, from us in this space.
[Operator Instructions] There are no further questions at this time. I'll now hand back to Phil for closing remarks.
All right. Thank you. And yes, look, thanks, everyone, for attending today. I think it's an exciting time for Aussie as we move into this sort of next phase. And ultimately, I think FY '23 is going to be a game-changing year for Aussie with having a combination of Over the Wire as well as where Aussie has built to today. I think it's going to be a very, very exciting year to be part of. So thank you again, and thank you for your support, and we'll speak in the next update. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.