FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2006 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 |
Commission file number:
1-14722
TELSTRA CORPORATION LIMITED
(Exact name of Registrant as specified in its charter)
AUSTRALIAN CAPITAL TERRITORY, AUSTRALIA
(Jurisdiction of incorporation or organization)
242 EXHIBITION STREET, MELBOURNE, VICTORIA 3000 AUSTRALIA
(Address of principal executive offices)
Securities registered or to be registered
pursuant to section 12 (b)of the Act.
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Title of each Class
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Name of Exchange on which Registered |
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Ordinary Shares(1)
American Depositary Shares(2)
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New York Stock Exchange
New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
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Ordinary Shares
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12,443,074,357 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act:
Yes þ No o
If this is an annual report or transition report, indicated by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yesþ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
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No
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(1) Not for trading but only in connection with the listing of the American Depositary Shares.
(2) Evidenced by American Depositary Receipts, each American Depositary Share representing five
Ordinary Shares.
Form 20-F Cross Reference Index
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Form 20-F Item Number and Caption |
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Item 1: Identity of Directors, Senior Management and Advisers |
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Not applicable to annual reports on Form
20-F
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Item 2: Offer Statistics and Expected Timetable |
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Not applicable to annual reports on Form 20-F
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Item 3: Key Information |
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A. Selected Financial Data |
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7-9 |
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B. Capitalization and Indebtedness
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Not applicable to annual reports on Form 20-F
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C. Reasons for the Offer and Use of Proceeds
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Not applicable to annual reports on Form
20-F
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D. Risk Factors |
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10-17 |
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Item 4: Information on the Company |
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A. History and Development of the Company
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94,104 |
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B. Business Overview
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94-109,113-124 |
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C. Organizational Structure |
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94-97,104
Notes 29 and 30 to the Financial Statements
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D. Property, Plant and Equipment |
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109 |
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Item 5: Operating and Financial Review and Prospects |
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A. Operating Results |
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29-89 |
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B. Liquidity and Capital Resources |
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77-80 |
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C. Research and Development, Patents and Licenses, etc. |
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84-85 |
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D. Trend Information |
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29-31,33-34 |
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E. Off-balance sheet arrangements |
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82 |
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F. Tabular disclosure of contractual obligations |
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81-82 |
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Item 6: Directors, Senior Management and Employees |
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A. Directors and Senior Management
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125-131 |
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B. Compensation |
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191-217
Note 32 to the Financial Statements
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C. Board Practices
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125-145,191-217
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D. Employees
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63-64,110-112
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E. Share Ownership
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132,191-217, Note 31 to the Financial
Statements
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Item 7: Major Shareholders and Related Party Transactions |
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A. Major Shareholders
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22-26 |
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Form 20-F Item Number and Caption |
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Page |
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B. Related Party Transactions
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82-84, Note 33 to the Financial Statements
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C. Interests of Experts and Counsel
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Not applicable to annual reports on Form
20-F
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Item 8:
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Financial Information |
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A. Consolidated Statements and Other Financial
Information
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10,109-110, Financial Report
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B. Significant Changes |
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30-31 |
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Item 9: The Offer and Listing |
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20-21 |
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Item 10: Additional Information |
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A. Share Capital |
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Not applicable to annual reports on Form 20-F
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B. Memorandum and Articles of Association
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152-158 |
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C. Summary of Material Contracts
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None
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D. Exchange Controls
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146-151 |
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E. Taxation |
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159-164 |
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F. Dividends and Paying Agents
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Not applicable to annual reports on Form 20-F
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G. Statement of Experts |
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Not applicable to annual reports on Form 20-F
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H. Documents on Display |
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158 |
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I. Subsidiary Information |
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Notes 29 and 30 to the Financial Statements
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Item 11: Quantitative and Qualitative Disclosures about Market Risk |
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90-93
Note 35 to the Financial Statements
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Item 12: Description of Securities other than Equity Securities |
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Not applicable to annual reports on Form
20-F
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Item 13: Defaults, Dividend Arrearages and Delinquencies |
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Not applicable
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Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds |
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Not applicable
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Item 15: Controls and Procedures |
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A. Disclosure controls and procedures
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141 |
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B. Managements annual report on internal control
over financial reporting
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Not applicable
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C. Attestation report of the registered public accounting firm |
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Not applicable
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D. Changes in internal control over financial
reporting
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141 |
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Item 16: |
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A. Audit committee financial expert |
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137 |
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B. Code of ethics |
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142 |
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C. Principal Accountant Fees and Services
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Note 8 to the Financial Statements
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D. Exemptions from Listing Standards for Audit
Committees
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Not applicable
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E. Purchasers of Equity Securities by the Issuer and
Affiliated Purchasers
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Not applicable
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Form 20-F Item Number and Caption |
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Item 17: Financial Statements |
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Not applicable
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Item 18: Financial Statements |
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Financial Report
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Item 19: Exhibits |
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Cautionary Statement Regarding Forward-Looking Statements
Some of the information contained in this Form 20-F constitutes forward-looking statements
that are subject to various risks and uncertainties. These statements can be identified by the
use of forward-looking terminology such as may, will, expect, anticipate, estimate,
continue, plan, intend, believe, objectives, outlook, guidance or other similar
words, including statements relating to our outlook for fiscal 2007 and strategic management
objectives set forth in Operational and Financial Review and Prospects, including under the
captions Operational and Financial Review and Prospects Strategic Management Objectives and
Outlook. Our actual results, performance or achievements could be significantly different
from the results or objectives expressed in, or implied by, those forward-looking statements.
Our fiscal 2007 outlook and strategic management objectives contained in this Form 20-F
are based on a large number of assumptions concerning future events, including without
limitation the successful implementation of our transformation strategy and no further adverse
regulatory outcomes, as well as a number of assumptions and estimates relating to factors
affecting our business. As a result, these assumptions and estimates are inherently uncertain
and subject to a wide variety of risks, including significant regulatory, business, economic
and competitive risks, that could cause our actual results to differ materially from our fiscal
2007 outlook and strategic management objectives. Investors should note that our Board
established the strategic management objectives in order to measure the performance of
management, particularly in relation to the implementation of our transformation strategy. See
Operating and Financial Review and Prospects Strategic Management Objectives. It is
important to note that our outlook for fiscal 2007 and strategic management objectives are not
forecasts or projections, and should not be regarded as such by investors. Investors should
also note that any movement in an assumption may offset or compound the effect of a change in
any other assumption. Accordingly, there can be no assurance that the fiscal 2007 outlook and
strategic management objectives will be indicative of our future performance or that actual
results will not differ materially. We can not give any assurance that either our fiscal 2007
outlook or strategic management objectives will be achieved and their inclusion in this Form
20-F should not be regarded as a representation by any person that they will be achieved.
Important factors that could cause our actual results to differ materially from our fiscal
2007 outlook and strategic management objectives and other forward-looking statements in this
Form 20-F are set forth under the caption Risk Factors and elsewhere in this Form 20-F,
including under the captions Operational and Financial Review and Prospects Outlook and
Strategic Management Objectives. Given these risks, uncertainties and other factors, you
should not place an undue reliance on any forward-looking statement.
1
TABLE OF CONTENTS
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Summary Overview |
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3 |
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Summary Consolidated Financial & Statistical Data |
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Risk Factors |
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10 |
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Dividends |
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18 |
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Exchange Rates |
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19 |
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Listing Information |
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20 |
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Major Shareholders and Related Parties |
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22 |
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Relationship with the Commonwealth |
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24 |
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Operating and Financial Review and Prospects |
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Quantitative and Qualitative Disclosures about Market Risk |
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90 |
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Information on the Company |
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94 |
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Competition |
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113 |
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Regulation |
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116 |
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Directors and Management |
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125 |
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Exchange Controls and Foreign Ownership |
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146 |
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Description of Shares and our Constitution |
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152 |
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Taxation |
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159 |
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Glossary |
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165 |
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Directors Report |
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170 |
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Financial Report |
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218 |
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Index of Exhibits |
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424 |
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Exhibit 1 Constitution of Telstra Corporation Ltd |
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425 |
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Exhibit 8 Subsidiaries |
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501 |
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Exhibit 12 302 Certifications pursuant to Rule 13(a)-14(a)/Rule
15(d)-14(a) of the US Securities Exchange Act |
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502 |
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Exhibit 13 906 Certifications pursuant to 18 U.S.C. section 1350 |
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504 |
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Exhibit 15 Consent of Ernst & Young |
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506 |
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2
Summary Overview
This summary highlights key aspects of this Form 20-F. This summary is not a substitute for
the more detailed information contained in the rest of this Form 20-F. The terms we, our, us,
and other like terms refer to Telstra Corporation Limited and its consolidated subsidiaries, unless
the context requires otherwise. The Commonwealth of Australia is referred to as the Commonwealth
and the Government of the Commonwealth of Australia is referred to as the Australian Government
or the Government.
General
We are Australias leading telecommunications and information services company, offering a
full range of services in these markets. We also operate in certain overseas countries.
Our main activities include the provision of:
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basic access services to most homes and businesses in Australia; |
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local and long distance telephone calls in Australia and international calls to and
from Australia; |
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mobile telecommunications services; |
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broadband access and content; |
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a comprehensive range of data and Internet services including through Telstra BigPond(R),
Australias leading Internet service provider (ISP); |
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management of business customers information technology and/or telecommunications
services; |
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wholesale services to other carriers, carriage service providers (CSPs)
and ISPs; |
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advertising, search and information services through Sensis; and |
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cable
distribution services for FOXTELs cable subscription television services. |
One of our strengths in providing integrated telecommunications services is our extensive
geographical coverage through both our fixed and mobile network infrastructure. This underpins the
carriage and termination of the majority of Australias domestic and international voice and data
traffic.
We own 50% of FOXTEL, and our international businesses include interests in CSL New World
Mobility Group (CSL), Hong Kongs leading mobile operator, TelstraClear Limited (TelstraClear),
the second largest full service carrier in New Zealand, and Reach Ltd (REACH), a provider of
global connectivity and international voice and satellite services, as well as SouFun Holdings
Limited, a leading real estate and home furnishings website in China.
Corporate Objective
Our corporate objective is to create long-term shareholder value through providing integrated
communication, information and entertainment services and customer-focused solutions.
Vision and Mission
Our vision is to do for our customers what no one else has done. That is, create a world of
1-click, 1-touch, 1-button, 1-screen, 1-step solutions that are simple, easy and valued by
individuals, businesses, enterprises and governments.
Our mission is to know our customers and meet their needs better than anyone else. We aim to
give customers a personalised, seamless experience that makes it easy for them to do what they
want, when they want it.
3
Strategy
Following a comprehensive review of our operations during the first half of fiscal 2006, from
customer-facing to back-office operations, we announced a whole-of-company, five year transformation
strategy in November 2005. The key elements of this transformation strategy are:
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building a next-generation fixed network to support the growing demand for IP-based services and
simplifying IT systems; |
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rolling out next-generation wireless services over our
recently launched NEXT G(TM) national
wireless broadband network (NEXT G(TM) wireless network); |
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implementing market-based management using extensive customer research and knowledge to
differentiate our product and service offerings tailored for particular customer segments; |
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providing customers with an integrated user experience across all devices and platforms fixed,
wireless and Internet; |
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removing costs from operations, by reducing complexity, making business systems more efficient
and simplifying operations; |
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expanding and enhancing our Sensis business through organic growth and targeted acquisitions of
advertising, search and information businesses; and |
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undergoing cultural transformation, including large investments in training staff and reforming
the way we do business. |
Our transformation strategy involves a complex and fundamental change to our business,
operations, networks and systems and we are undertaking the transformation on an accelerated
schedule. A transformation of this size, speed and complexity has not been attempted by any other
telecommunications company around the world. The initiatives associated with our transformation
strategy involve significant capital expenditure and extensive management attention and resources
and entail substantial risks. Our ongoing investment in this transformation has significantly
reduced income and free cash flows. We believe we have to undertake these major changes at this
time and under our proposed schedule in order to maintain our competitiveness and improve our
financial results in an increasingly competitive, technologically challenging and highly regulated
environment. The main initiatives of our transformation strategy are described below.
Strengthening our fixed line telecommunication network and services
We intend that our next-generation fixed network will deliver new, better and faster services
to our customers. This next-generation fixed network will include an IP core network that will
offer increased platform capacity compared to our current network. We intend to provide users with
more reliable and stable media and telephony services and expand the number and range of services
available to customers.
The development of our IP core network is well advanced. We are beginning to deploy advanced
services to upgrade business customers, including IP telephony and conferencing, IP-based call
centres, reliable higher-speed broadband, web-hosting and security services. We will offer new
multimedia applications to residential customers when higher speed services become available.
The new next-generation fixed network is expected to provide us with the ability to address
increasing customer demand and the growing market for Virtual Private Networks (VPNs) to connect
organisations and enterprises to the Internet. The new next-generation fixed network is expected to
reduce overall unit costs, allow proactive management of actual and predicted network demand and
permit network upgrades to be implemented simultaneously across the nation rather than sequentially
over many months. We are also investing in technology that greatly improves the speed of ADSL.
Deploying NEXT G(TM) our national wireless broadband network for Australians
In October 2006, we launched our new NEXT G(TM) wireless network to replace our existing CDMA
network. Our NEXT G(TM) wireless network customers will enjoy access to a greater range of content
and services as well as many enhanced features, such as improved video calling services and faster
broadband access speeds, in addition to better in-building coverage. We will continue to operate
services over both our existing GSM and CDMA networks until the national NEXT G(TM) wireless
network provides the same or better coverage than the CDMA network, and in any event at least until
January 2008. From that time, once the software
4
upgrades are complete and the new service matches or betters the current range and performance of
CDMA and any necessary Government agreements have been gained, we will close our CDMA network. We
expect that this initiative will reduce duplication of both capital and operational expenditure.
Implementing market-based management
We are implementing a market-based management approach focused on our customers needs. We
believe that extensive customer research will allow us to differentiate ourselves from competitors
by creating offers that are more relevant to the lifestyles and needs of particular customer
segments. Our ongoing customer research has guided the restructure of our consumer and small
business sales and marketing teams around seven consumer and five small and mid-sized enterprise
segments.
Creating integrated solutions for customers
We are seeking to provide individual and business customers with an integrated user experience
across devices and platforms fixed, wireless and Internet. Our transformation strategy involves
the integration of services across mobiles, BigPond(R), and Sensis and is designed to facilitate
product differentiation tailored to customer needs, increasing the value of our products and
services for our customers.
Rationalising product and network platforms using a one factory approach
We are endeavouring to remove costs from our operations in part by reducing complexity, making
business systems more efficient and simplifying operations. We are removing or capping obsolete,
duplicated and ageing products and network platforms. Working with the customer is a crucial part
of this program as the customers move off legacy systems. Cutting complexity and the associated
cost from our operations is a critical first step to deliver customers a powerful and seamless user
experience, integrating devices and platforms in a simpler way.
Expanding and enhancing Sensis online offerings
Sensis, our advertising, search and information services business, is building on its search
and transaction business and over time integrating its applications and services business with
other products such as BigPond(R) and Telstra Mobile. Sensis is seeking to achieve rapid user and
advertiser growth by increasing online and wireless usage with a wide range of new content,
services and improvements across Sensis online network and through targeted acquisitions.
Transforming our culture
We are also undergoing a cultural transformation, with large investments in training employees
and improving the way we do business.
We have recast leadership, talent management and performance incentives to deliver essential
culture change. Our technical field workforce is becoming more mobile and responsive to customer
needs with new tools and equipment to support its operational performance. We are investing an
additional A$210 million over three years in a new training program for technical, engineering and
marketing staff in order to equip them with the right skills to build, operate and maintain
next-generation networks and better serve customers.
Achieving regulatory reform
We remain committed to working towards a new regulatory environment that is pro-investment,
pro-consumer, pro-innovation and pro-competition. That is the kind of environment that we believe
is good for our business, our shareholders, our customers and the Australian telecommunications
industry overall. We will continue to invest considerable time and resources in a dialogue with
policy-making and regulatory authorities seeking to achieve a regulatory environment that
safeguards shareholder investments in next-generation networks and services.
T3 Global Offering
In November 2006, the Commonwealth of Australia completed the third stage of its privatization
of Telstra through a global offering of a total of 4,248,049,190 of its shares in Telstra
(including the over-allocation option exercised in December 2006) (the T3
5
Global Offering). The T3 Global Offering was conducted in Australia and New Zealand as a retail
offering, in the United States as an institutional offering, in Japan as public offer without
listing and as an institutional offering in several other jurisdictions. Payment will be made for
the shares sold in the T3 Global Offering in two instalments. Upon payment of the first instalment,
purchasers of the shares will be issued instalment receipts. Each instalment receipt will evidence
beneficial ownership in a particular share, subject to a security interest in favor of the
Commonwealth securing payment of the final instalment for that share.
Upon payment of the first instalment, the underlying shares are transferred to the instalment
receipt trustee, Telstra Sale Company Limited, under a trust deed among the Commonwealth, the
trustee and the holders of instalment receipts. The trustee will be the registered holder of the
shares and will hold them in trust for the benefit of the holders of instalment receipts until
payment of the final instalment, subject to a security interest in favour of the Commonwealth
securing payment of the final instalment.
The trust deed allows for the holder of the instalment receipt to exercise the voting rights
attached to the share underlying each instalment receipt and to receive all dividends and other
benefits paid or given on that share. Upon payment of the final instalment, the instalment receipts
will be cancelled and investors will become registered holders of the underlying shares.
6
Summary Consolidated Financial and Statistical Data
The following summary consolidated financial data comes from our audited consolidated
financial statements. The statistical data represent managements best estimates. The following
information should be read in conjunction with our audited consolidated financial statements and
the other information contained in this Form 20-F. Our audited consolidated financial statements
for the year ended 30 June 2006 were prepared in accordance
with
A-IFRS, and comparative
information for the year ended 30 June 2005 has been restated in
accordance with A-IFRS, except for
AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139: Financial
Instruments: Recognition and Measurement, where comparative information was not required to be
restated. In addition, we have elected to early adopt AASB 7: Financial Instruments: Disclosures,
which supersedes the disclosure requirements of AASB 132. The financial information for the years
ended 30 June 2004, 2003 and 2002 has been reconciled to US-GAAP and is derived from our audited
consolidated financial data for those periods, which is not included herein. A-IFRS differs in some
material respects from US-GAAP. For a reconciliation of the material differences between A-IFRS and
US-GAAP as they relate to our audited consolidated financial statements, see note 37 to our audited
consolidated financial statements.
Financial data in accordance with A-IFRS for the two-year period ended 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2006 (1) |
|
|
2005 |
|
|
|
A$ |
|
|
US$ |
|
|
A$ |
|
|
|
(In millions, except per share amounts) |
|
Income Statement data |
|
|
|
|
|
|
|
|
|
|
|
|
Total Income (excluding finance income)(2) |
|
|
23,100 |
|
|
|
17,147 |
|
|
|
22,442 |
|
Expenses (excluding depreciation,
amortisation and finance costs)(2)(3) |
|
|
13,516 |
|
|
|
10,032 |
|
|
|
11,978 |
|
Depreciation and amortisation |
|
|
4,087 |
|
|
|
3,034 |
|
|
|
3,529 |
|
Net finance costs |
|
|
936 |
|
|
|
695 |
|
|
|
880 |
|
Profit before income tax expense |
|
|
4,561 |
|
|
|
3,386 |
|
|
|
6,055 |
|
Profit for the year |
|
|
3,181 |
|
|
|
2,362 |
|
|
|
4,309 |
|
Basic earnings per share(4) |
|
|
0.26 |
|
|
|
0.19 |
|
|
|
0.35 |
|
Dividends paid(5) |
|
|
4,970 |
|
|
|
3,689 |
|
|
|
4,124 |
|
Dividends declared for the fiscal year |
|
|
4,224 |
|
|
|
3,135 |
|
|
|
4,970 |
|
Dividends declared per share |
|
|
0.34 |
|
|
|
0.25 |
|
|
|
0.40 |
|
Total income comprises |
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue |
|
|
22,750 |
|
|
|
16,888 |
|
|
|
22,161 |
|
Other revenue |
|
|
22 |
|
|
|
16 |
|
|
|
20 |
|
Other income |
|
|
328 |
|
|
|
243 |
|
|
|
261 |
|
Finance income |
|
|
66 |
|
|
|
49 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,166 |
|
|
|
17,196 |
|
|
|
22,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
36,175 |
|
|
|
26,853 |
|
|
|
35,211 |
|
Current borrowings |
|
|
1,969 |
|
|
|
1,462 |
|
|
|
1,507 |
|
Non-current borrowings |
|
|
11,409 |
|
|
|
8,469 |
|
|
|
10,941 |
|
Share capital |
|
|
5,569 |
|
|
|
4,134 |
|
|
|
5,536 |
|
Equity/net assets |
|
|
12,832 |
|
|
|
9,525 |
|
|
|
13,658 |
|
|
|
|
(1) |
|
Unless otherwise noted, all amounts have been translated at the noon buying rate on 30 June
2006 of A$1.00 = US$0.7423. |
|
(2) |
|
For a breakdown of operating revenue by product group and a breakdown of operating expenses by
expense category, see Operating and Financial Review and Prospects. |
|
(3) |
|
Includes our share of net (profit)/loss from jointly controlled and associated entities. |
|
(4) |
|
Calculated based on the weighted average number of issued ordinary shares that were outstanding
during the fiscal year. Refer to note 3 in our consolidated financial statements for further
details. Basic earnings per share for each year was materially consistent with diluted earnings per
share. As at 30 June 2006, we had issued ordinary shares of 12,443,074,357 (2005: 12,443,074,357).
During fiscal 2005, we completed a share buy-back of 185,284,669 ordinary shares. |
|
(5) |
|
During fiscal 2006, we paid dividends of A$4,970 million, being the previous years final
dividend of A$1,739 million, a special dividend of A$746 million paid with the previous years
final dividend, the fiscal 2006 interim dividend of A$1,739 million and a special dividend of A$746
million paid with the interim dividend. |
7
Financial data in accordance with US-GAAP for the five-year period ended 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2006 (1) |
|
|
2005 (4) |
|
|
2004 (4) |
|
|
2003(4) |
|
|
2002(4) |
|
|
|
A$ |
|
|
US$ |
|
|
A$ |
|
|
A$ |
|
|
A$ |
|
|
A$ |
|
|
|
(In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
Income Statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
|
22,779 |
|
|
|
16,909 |
|
|
|
22,167 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
20,196 |
|
Net income, before cumulative effect of change in
accounting principle |
|
|
2,718 |
|
|
|
2,019 |
|
|
|
4,204 |
|
|
|
1,265 |
|
|
|
3,847 |
|
|
|
3,922 |
|
Cumulative effect of change in accounting principle(2) |
|
|
(245 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
4 |
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
2,473 |
|
|
|
1,838 |
|
|
|
4,204 |
|
|
|
1,269 |
|
|
|
3,538 |
|
|
|
3,922 |
|
Basic earnings per share, before cumulative effect of
change in accounting principle |
|
|
0.22 |
|
|
|
0.16 |
|
|
|
0.34 |
|
|
|
0.10 |
|
|
|
0.29 |
|
|
|
0.31 |
|
Cumulative effect of change in accounting principle(2) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share(3) |
|
|
0.20 |
|
|
|
0.15 |
|
|
|
0.34 |
|
|
|
0.10 |
|
|
|
0.27 |
|
|
|
0.31 |
|
Proforma net income(2) |
|
|
2,718 |
|
|
|
2,019 |
|
|
|
4,184 |
|
|
|
1,228 |
|
|
|
3,569 |
|
|
|
3,936 |
|
Proforma basic earnings per share(2) |
|
|
0.22 |
|
|
|
0.16 |
|
|
|
0.34 |
|
|
|
0.10 |
|
|
|
0.28 |
|
|
|
0.31 |
|
Balance Sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
35,777 |
|
|
|
26,557 |
|
|
|
37,040 |
|
|
|
35,670 |
|
|
|
40,529 |
|
|
|
42,948 |
|
Current borrowings |
|
|
1,984 |
|
|
|
1,473 |
|
|
|
1,524 |
|
|
|
3,246 |
|
|
|
1,323 |
|
|
|
1,866 |
|
Non current borrowings |
|
|
11,734 |
|
|
|
8,710 |
|
|
|
11,641 |
|
|
|
9,095 |
|
|
|
11,580 |
|
|
|
12,372 |
|
Share capital |
|
|
5,954 |
|
|
|
4,420 |
|
|
|
5,921 |
|
|
|
6,164 |
|
|
|
6,568 |
|
|
|
6,536 |
|
Equity/net assets |
|
|
11,803 |
|
|
|
8,761 |
|
|
|
14,196 |
|
|
|
15,082 |
|
|
|
17,899 |
|
|
|
18,363 |
|
|
|
|
(1) |
|
Unless otherwise noted, all amounts have been translated at the noon buying rate on 30 June
2006 of A$1.00 = US$0.7423 |
|
(2) |
|
During fiscal 2006, we changed our accounting principles under US-GAAP in relation to mobile
handset subsidies and capitalisation of pension costs. Refer to note 37(b) in our financial
statement for further details. The proforma amounts for net income and basic earnings per share
assume that these changes in accounting principle were applied retroactively. |
|
(3) |
|
Calculated based on the weighted average number of issued ordinary shares that were outstanding
during the fiscal year. Refer to note 3 in our consolidated financial statements for further
details. Basic earnings per share for each year was materially consistent with diluted earnings per
share. As at 30 June 2006, we had issued ordinary shares of 12,443,074,357. As at 30 June 2005, we
had issued ordinary shares of 12,443,074,357 after completing a share buy-back of 185,284,669
ordinary shares. As at 30 June 2004, we had issued ordinary shares of 12,628,359,026 after
completing a share buy-back during fiscal 2004 of 238,241,174 ordinary shares. As at 30 June 2003
and 30 June 2002, we had 12,866,600,200 issued ordinary shares. |
|
(4) |
|
Certain US-GAAP amounts in 2005, 2004, 2003 and 2002 have been restated as a result of a number
of immaterial adjustments that were identified as part of our adoption of A-IFRS. Refer to note
37(a) in our consolidated financial statements for further details. |
8
Statistical Data as at the end of the period (except for traffic data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Billable Traffic Data (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local calls (number of calls) |
|
|
7,432 |
|
|
|
8,469 |
|
|
|
9,397 |
|
|
|
9,794 |
|
|
|
10,269 |
|
National long distance minutes(1) |
|
|
7,215 |
|
|
|
7,743 |
|
|
|
8,520 |
|
|
|
9,161 |
|
|
|
9,170 |
|
Fixed to mobile minutes |
|
|
4,491 |
|
|
|
4,375 |
|
|
|
4,226 |
|
|
|
3,944 |
|
|
|
3,691 |
|
International direct minutes |
|
|
534 |
|
|
|
580 |
|
|
|
651 |
|
|
|
740 |
|
|
|
781 |
|
Mobile voice telephone minutes(2) |
|
|
7,311 |
|
|
|
6,746 |
|
|
|
6,145 |
|
|
|
6,335 |
|
|
|
5,780 |
|
Inbound Calling Products B Party minutes |
|
|
2,922 |
|
|
|
2,773 |
|
|
|
2,708 |
|
|
|
2,655 |
|
|
|
3,345 |
|
Inbound Calling Products A Party minutes |
|
|
1,012 |
|
|
|
940 |
|
|
|
938 |
|
|
|
918 |
|
|
|
N/A |
|
Number of short messaging service (SMS) sent |
|
|
3,019 |
|
|
|
2,289 |
|
|
|
1,944 |
|
|
|
1,413 |
|
|
|
N/A |
|
Network and Operations Data (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access lines in service(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
5.46 |
|
|
|
5.60 |
|
|
|
5.87 |
|
|
|
6.20 |
|
|
|
6.35 |
|
Business |
|
|
2.32 |
|
|
|
2.45 |
|
|
|
2.57 |
|
|
|
2.71 |
|
|
|
2.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail customers |
|
|
7.78 |
|
|
|
8.05 |
|
|
|
8.44 |
|
|
|
8.91 |
|
|
|
9.07 |
|
Domestic wholesale |
|
|
2.16 |
|
|
|
2.07 |
|
|
|
1.84 |
|
|
|
1.55 |
|
|
|
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic access lines in service |
|
|
9.94 |
|
|
|
10.12 |
|
|
|
10.28 |
|
|
|
10.46 |
|
|
|
10.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISDN access (basic lines equivalents) (in
thousands)(4) |
|
|
1,214 |
|
|
|
1,208 |
|
|
|
1,288 |
|
|
|
1,213 |
|
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Services in Operation (SIO) (in
thousands)(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3G |
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSM |
|
|
6,468 |
|
|
|
6,894 |
|
|
|
6,653 |
|
|
|
5,812 |
|
|
|
5,346 |
|
CDMA |
|
|
1,703 |
|
|
|
1,333 |
|
|
|
951 |
|
|
|
757 |
|
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services in operation |
|
|
8,488 |
|
|
|
8,227 |
|
|
|
7,604 |
|
|
|
6,569 |
|
|
|
5,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Wholesale mobile SIOs (in thousands) |
|
|
119 |
|
|
|
83 |
|
|
|
61 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online subscribers (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrowband subscribers |
|
|
1,027 |
|
|
|
1,205 |
|
|
|
1,194 |
|
|
|
1,158 |
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband subscribers Retail |
|
|
1,476 |
|
|
|
856 |
|
|
|
427 |
|
|
|
121 |
|
|
|
168 |
|
Broadband subscribers Wholesale(6) |
|
|
1,427 |
|
|
|
888 |
|
|
|
379 |
|
|
|
240 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Broadband subscribers |
|
|
2,903 |
|
|
|
1,744 |
|
|
|
806 |
|
|
|
361 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total online subscribers |
|
|
3,930 |
|
|
|
2,949 |
|
|
|
2,000 |
|
|
|
1,519 |
|
|
|
1,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FOXTEL subscribers (in thousands) |
|
|
1,130 |
|
|
|
1,023 |
|
|
|
904 |
|
|
|
836 |
|
|
|
800 |
|
Employee Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic full-time staff(7) |
|
|
37,599 |
|
|
|
39,680 |
|
|
|
36,159 |
|
|
|
37,169 |
|
|
|
40,427 |
|
Full time staff and equivalents(8) |
|
|
44,452 |
|
|
|
46,227 |
|
|
|
41,941 |
|
|
|
41,941 |
|
|
|
44,977 |
|
Total workforce(9) |
|
|
49,443 |
|
|
|
52,705 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
(1) |
|
Includes national long distance minutes from our public switched telephone network (PSTN) and
independently operated payphones. Excludes minutes related to calls from non-PSTN networks, such as
ISDN and virtual private networks. |
|
(2) |
|
Includes all calls made from mobile telephones including long distance and international calls,
excludes data, messagebank, international roaming and CSL New World. |
|
(3) |
|
Excludes Incontact service (a free service with restrictive calling access) and advanced access
services, such as ISDN services. |
|
(4) |
|
Expressed in equivalent number of clear voice channels. Comparatives have been restated to
reflect updated assessment of channels per SIO on ISDN 10/20/30. The previous assessment was based
on a calculation of channel configurations across sample services. The revised assessment is based
on the entire customer base. |
|
(5) |
|
Excludes CSL New World SIOs. |
|
(6) |
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Within Broadband, retail products include cable, satellite, BigPond Wireless, HyperConnect,
ADSL and Symmetrical HDSL, while wholesale products include DSL Layer 1, DSL Layer 2, DSL Layer 3,
Spectrum Sharing and vISP Broadband. Total Broadband subscribers exclude Broadband component of ULL
and Mobile Broadband which form part of intercarrier services and mobiles revenue respectively. |
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(7) |
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Excludes offshore, casual and part time employees. |
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(8) |
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Includes all domestic and offshore employees, including controlled entities. |
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(9) |
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Includes all domestic and offshore employees, including controlled entities, as well as
contractors and agency staff. |
9
Risk Factors
The following describes some of the significant risks that could affect us. Additionally, some
risks may be unknown to us and other risks, currently believed to be immaterial, could turn out to
be material. Some or all of these could materially adversely affect our business, profits, outlook
and management objectives, assets, liquidity and capital resources. These risks should be
considered in conjunction with any forward-looking statements in this Form 20-F and the cautionary
statement regarding forward-looking statements in this Form 20-F.
We operate in a highly regulated environment that negatively affects our business and
profitability. In particular, we believe that regulation limits our ability to pursue certain
business opportunities and activities affecting the returns we can generate on our assets. We are
required to give our competitors access to certain services and infrastructure in which we have
invested significant shareholder funds, even though the competitors could have invested in
developing their own capabilities but chose not to do so.
A further description of Australias telecommunications regulatory regime is contained in
Relationship with the Commonwealth The Commonwealth as regulator and Regulation.
Telstra believes that regulation is the most significant ongoing risk to the company. There
can be no assurances as to future policies, ministerial decisions or regulatory outcomes. These may
be significantly adverse to our shareholders.
We are focused on building competitive advantage. This may however be undermined by adverse
policies, decisions or regulatory outcomes.
We believe the current regulatory regime is value destroying. Regulatory reform is an issue
with which management is seriously engaged and although recent history does not give us any
indication that regulatory risks will be reduced, we are committed to seek regulatory reform on
behalf of our shareholders.
We face substantial regulatory risks that we believe have, and will continue to have,
substantial adverse effects on our operations and financial performance. The key risks include:
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Access pricing: The ACCC can require us to provide certain services to our competitors using
our networks, at a price based on the ACCCs calculation of the efficient costs of providing
these services if the parties fail to agree a price. In many cases we believe that the ACCC
proposes prices that are below our efficient cost of supply. The ACCC is yet to issue its
final ruling on the prices it will allow us to charge for various wholesale services including
unconditioned local loop service (ULLS) and spectrum sharing service (SSS). We believe
that these are extremely important matters for the financial performance of our business. The
ACCC has recently issued several interim determinations in ULLS arbitrations to which we are a
party, reducing the price from A$22 to A$17.70 per line per month in band 2 (metropolitan
areas, where the greatest number of ULLS services will be provided). We are effectively
required by law to charge the same price for a basic line rental service for all retail
customers across Australia, but the ACCC will not follow the same principle for wholesale
customers, instead setting
prices which differentiate between metropolitan and non-metropolitan areas (de-averaged prices),
well below our calculation of the efficient costs. This will enable our competitors to target
customers in higher density areas where access prices are low, leaving us to provide services to
some customers in high cost, low density areas at the same retail price as in metropolitan areas.
The ACCC may reduce access prices further which would adversely affect our revenues, earnings and
shareholder returns, including dividends. In addition, the ACCC recently issued two draft interim
decisions in SSS arbitrations significantly reducing the monthly charge to A$3.20. We believe such
a price would lead to accelerated growth in SSS enabling our competitors to provide broadband and
VoIP services with greater growth opportunities while we are restricted to supplying basic access
services. In addition, we believe such reduced access prices would be likely to lead to a
reduction in our retail prices. Since the draft interim decisions were issued, three further SSS
arbitrations have been filed against us claiming that our charges for SSS are too high. |
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Mandated access to Telstra networks: A key part of our transformation strategy involves
deploying next-generation networks, including our recently launched
NEXT G(TM) wireless
network. The ACCC may hold a public inquiry at any time into whether compulsory competitor
access to the network should be required. We believe such compulsory competitor access would
not be appropriate because of the wide availability of competing wireless networks. Were such
access to be required this would deprive our shareholders of the benefits of the wider
coverage of our network and we believe this would materially adversely affect our investment
returns, earnings and shareholder returns, including dividends. This may undermine our
commercial incentives to continue to invest in the NEXT G(TM) wireless network, for example,
to increase data speeds. |
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Conduct regulation: On 12 April 2006, the ACCC claimed that we engaged in anti-competitive
conduct when we raised our wholesale basic access prices to allow greater recovery of our
estimated costs of providing the service without a similar increase in retail prices, in
breach of the Trade Practices Act. The ACCC may take us to the Federal Court for this alleged
breach. The maximum potential penalties that the Federal Court could impose exceed A$470
million as at 30 September 2006 and are increasing at A$3 million per day. Optus Networks Pty
Ltd, a subsidiary of one of our principal competitors, has issued proceedings in the Federal
Court in the same matter seeking damages and an injunction. We will vigorously defend these
proceedings and any enforcement proceedings that may be brought by the ACCC, on the basis that
we have not acted anti-competitively and that we believe we should be allowed to move our
prices closer to our costs. The ACCC may in the future reach the view that other of our
conduct is a breach of the Act. For example, a refusal by us to supply services to our
competitors for what we believe to be normal commercial reasons may in the ACCCs view, be a
breach of the Act. We believe that, should the ACCC allege that we have engaged in
anti-competitive conduct, it will rely upon the potential for very large fines in an endeavour
to have us modify what we believe to be normal commercial behavior. We will defend our right
to act in what we believe to be a normal commercial manner. |
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Wide ministerial and regulatory discretion: The Communications Minister has broad and largely
discretionary powers to impose and vary licence conditions and other obligations on us. For
example, the requirement to operate separate retail, wholesale and network business units
(operational separation) places a burden on us with many restrictions imposed on the way we
run our business. Refer Regulation Operational separation. However, the real risk with
operational separation lies in the power of the Communications Minister to determine the way
we conduct our business by directing us to vary our operational separation plan, subject only
to the aims and objects of the legislation which are very broad. In addition, we are subject
to retail price controls for example, we are not allowed to charge for directory assistance
(even to customers of our competitors), but there is no such restriction on our competitors
charging for these services. Also, we are obliged to make certain uneconomic services
available in rural and remote areas, without receiving what in our opinion is a fair
contribution to our costs from our competitors. Further, the ACCC has broad discretionary
powers and is in general not subject to ministerial oversight or direction. |
Because of these regulatory factors, there is a risk that we are, and could be, exposed to
significant limitations, uncommercial imposts, penalties and compensation payments in relation to
our current and future activities and assets. This may make it prudent on some occasions for us to
cease, or choose not to
engage in, business activities in which we might otherwise engage; or avoid, defer or abandon
certain capital projects as was the case with our fibre to the node (FTTN) project, where we chose
not to build this network because in our view the access price likely to be set by the ACCC would
not enable us to earn a competitive return for our shareholders. These regulatory risks could
therefore have an adverse effect on our ability to pursue certain business opportunities and
activities and the returns we can generate on our assets, and could benefit our competitors. This
may in turn adversely affect our financial performance.
For more detailed information regarding our regulatory environment and our obligations and
potential liabilities under Australian regulations, see Regulation.
We may not succeed in implementing our transformation strategy. Even if successfully implemented,
our transformation strategy may not achieve the expected benefits, or may not be achieved within
the intended timeframe.
We have invested substantial capital and other resources in the development, streamlining and
modernisation of our networks and systems and have embarked upon a substantial transformation of
the company. Our transformation strategy involves a complex and fundamental change to our business,
operations, networks and systems, and we are undertaking the transformation on an accelerated
schedule. A transformation of this size, speed and complexity has not been attempted by any other
telecommunications company around the world. There is a significant risk that we may not be
successful in the implementation of our transformation strategy. In particular, there are
substantial risks that:
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our next-generation technologies and network, including our
recently launched NEXT G(TM) wireless
network, and IT support systems and processes will not function as anticipated; |
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key vendors on which we are dependent may not perform as expected; |
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customer take-up of and planned large-scale migration to our new products and services are
significantly less than planned; |
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extended delays and other execution problems in implementing our transformation strategy may
develop; |
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competitors may in time offer similar services and capabilities; and |
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our actual capital and operating costs turn out to be substantially greater than those budgeted. |
The occurrence of any or all of these risks may have a material adverse impact on our
competitiveness, earnings and shareholder returns, including dividends.
Our next-generation technologies and network and IT support systems may not function as planned and
the timetable for implementation is aggressive.
Our next-generation technologies span across our fixed line and wireless networks, including
our switching and transmission systems, as well as all our network and IT support systems and
processes. We face significant risks that the technology may not be installed in a satisfactory
manner, on time or within budget, and that the technology may not perform as expected and
represented by our key vendors. The risks of non-performance include those relating to speed of
transmission, quality of service, costs to deploy and operate the new networks and systems, the
ability to create and effectively implement new product and service offerings and the capability to
integrate applications and create seamless interfaces with front office order-entry systems and
back office billing and customer support systems. As more customers are migrated to our
next-generation networks and systems, some of these operational risks will increase. Any
substantial delays in completing the new IT systems, or the customer migration, will lead to an
extended period where we face the additional cost of operating old and new systems in parallel and
delay the benefits from decommissioning the old systems.
One of the most complex and highest risk elements of our transformation strategy is the
rationalisation
of our network platforms and IT systems, including our operational support systems and
business support systems. Our plan to cap or exit 65% of our network platforms and reduce the
number of our IT systems by at least 80% by 2010 is in its early stages and we have not yet
delivered the initial release. If we are unable to simplify and rationalise our networks and
systems or if we are substantially delayed in achieving this objective, we may not be able to
achieve the full benefits of our transformation strategy.
Our transformation strategy also depends upon the installation of new and untested support
systems that we expect will allow us to price and sell services efficiently and bill and care for
the customers who purchase them. The systems we are deploying are largely untested in the
applications and the environments we intend for them. There is therefore substantial risk that our
planned system installation and the migration of our customers to the new systems may not be
successful or that we may not be able to integrate the systems supporting the multiple technologies
and services we plan to operate. In addition, the migration of our
CDMA customers to our NEXT G(TM)
wireless network may be more costly or take longer than anticipated, leading to unanticipated costs
in operating the CDMA network for longer than expected.
We are dependent on key vendors which may not perform as expected.
We are dependent on key vendors for the implementation of our transformation strategy, such as
Accenture, Alcatel, Cisco, Ericsson, Siebel, Kenan Systems and IBM. Our dependence on key vendors
for the implementation of our next-generation technologies creates a number of risks, including
risks that key vendors may not deliver or perform as promised or may fail, and the products we have
chosen may be discontinued or become unsupported. Also, our ability to use other vendors, obtain
contractual recourse or secure intellectual property rights should one of our chosen vendors fail
to deliver or perform as promised may be limited.
Customer acceptance and take up of our new product and service offerings and our planned
large-scale customer migration to new platforms, including in relation to our recently launched
NEXT G(TM) wireless network, may be significantly less than planned.
The success of our transformation strategy depends upon the large scale customer take-up of
newly-created products and services enabled by our next-generation networks, including our NEXT
G(TM) wireless network. No other major international telecommunications company has proven the
commercial viability of creating and marketing the next-generation products and services we are
planning to roll out. There is a substantial risk that we will not be able to create and develop
appropriate or commercially attractive products and services that take advantage of these new
network capabilities and meet market demand or that we will not develop appropriately tailored
bundles of products and services compared to our competitors. Even if we do, there is a risk that
customers will not purchase them in sufficient quantities or at high enough prices to recoup our
investment.
12
The take-up of new next-generation products and services also depends on our ability to
successfully migrate our substantial customer base to our new network platforms. There is a risk
that we may be unable to migrate our customers to our new networks and systems successfully and
that we experience excessive churn of customers to other providers during the migration process. We
may also be unable to suppress continuing demand for development of existing or legacy IT systems.
The occurrence of any of these risks could also complicate the build and integration of new systems
and hamper the application of sufficient resources to build and integrate the new systems and cause
us to have to operate old and new systems for an extended period.
We may face extended delays and other execution problems in implementing our transformation
strategy.
Our transformation strategy calls for more deployments of more network technologies and IT
support systems than we have ever attempted or that any major telecommunications company worldwide
has successfully accomplished. The risks of executing all aspects of these deployments and the
integration process on time and on budget, with high quality results, are significant. The risks
associated with any one
such deployment increase significantly as multiple deployments are being pursued
simultaneously, each dependent in some measure upon the others being performed. In addition, our
transformation is being executed in a relatively short period by a company that has not experienced
a transformation process of this magnitude. There is substantial risk that our installation of
these systems and the conversion of our embedded base of customers to them will take longer, be
more expensive and cause more disruption than we anticipated, leading to lower sales, higher costs
and widespread customer dissatisfaction. The risks associated with the execution of our
transformation strategy also include the lack of suitable personnel and resources to implement our
transformation, an inability of new IT systems and processes to deliver productivity gains and
targeted workforce reductions and the potential for industrial disputes, each of which could
significantly delay the transformation or limit its effectiveness.
Competitors may in time offer similar services and capabilities.
We expect our competitors to continue to adapt their product offerings and technical
capabilities. As a result, there is a risk that our ability to differentiate ourselves from our
competitors on the basis of our planned next-generation technologies, network and IT support
systems may be reduced, affecting our revenues, margins and profits. In addition, the relative
advantages expected of our NEXT G(TM) wireless networks geographic and in-building coverage and
speed may be offset by competitors offering similar services and capabilities.
Our actual capital and operating costs may turn out to be substantially greater than budgeted.
Our transformation strategy is very costly and has resulted in significant declines in our net
income and our cash flow available for reinvestment or the payment of dividends. The foregoing
risks could cause additional costs and expenses, delays in the availability of new technology and
new products and services, fewer than expected customers buying fewer new products at lower than
expected prices, and asset write-downs. These risks could lead to us not generating profits or cash
flow to the levels prevailing when the transformation began and could also result in a significant
reduction in earnings and shareholder returns, including dividends. In addition, while our
transformation strategy is designed to respond to current market changes through the modernisation
of our networks and systems, future technology and market changes may create the need for other
network and systems changes and therefore require us to spend more than currently budgeted.
The success of our transformation strategy is highly dependent on our key personnel and the loss of
one or more of these key executives could materially impact the timely and effective implementation
of this strategy.
Our CEO and a number of key members of his senior management team have joined the company
within the last eighteen months and bring with them extensive telecommunications expertise. The
transformation strategy that we are now pursuing is an enormous enterprise formulated by our
current senior management team. Given the breadth of the strategy and the significant undertakings
associated with it, the loss of one or more of these key executives, in particular the CEO or COO,
could have a material adverse impact on our ability to achieve some or all of the objectives of the
transformation strategy and consequently our earnings and shareholder returns, including dividends.
There is also a risk that if the CEO were to leave us one or more of the overseas executives he has
recruited may also leave.
We could experience difficulty in retaining and attracting skilled and experienced people.
As technology evolves we will need to attract, retain and train our workforce. The relevant
skills are in short supply worldwide. There is a risk that an inability to attract and retain
skilled and experienced people and hence to embrace new technology and retain our corporate
knowledge could impact our ability to remain competitive.
13
For more information on our workforce, see Directors and Management.
If we are not successful in addressing the decline in revenues from our traditional high-margin
fixed-
line (PSTN) products and services and in increasing the revenues and profitability of our emerging
products and services, our overall profitability will decline.
Our PSTN revenues declined by 6.7% in fiscal 2006. This decline will continue and may
accelerate. The decline has been caused by increasing competition, substantial regulatory impacts
and the continued growth and development of technologies that offer increasingly viable
alternatives to our PSTN services. This trend is present across telecommunications markets
globally, and it is expected to continue. PSTN revenues comprise a significant portion of our
revenues and provide high margins and strong cash flows that enable us to invest in and develop our
business. If we are unable to arrest or slow the rate of decline in our PSTN revenues or grow
alternative revenue sources, manage costs and minimise margin erosion in newer lower-margin
products and services, such as mobiles, Internet, IP solutions, advertising and directory services
and pay TV bundling, our earnings and shareholder returns, including dividends, could be materially
adversely affected.
Rapid technological changes and the convergence of traditional telecommunications markets with
data, Internet and media markets expose us to significant operational, competitive and
technological risks.
Rapid changes in telecommunications and IT are continuing to redefine the markets in which we
operate, the products and services required by our customers and the ability of companies to
compete in the telecommunications industry in Australia and elsewhere in the world. These changes
are likely to broaden the range, reduce the costs and expand the capacities and functions of
infrastructure capable of delivering these products and services. We are responding to current
market changes through the modernisation of our networks and systems, including the deployment of
our new nationwide NEXT G(TM) wireless network, but future technology and market changes may create
the need for other network and systems changes at considerable cost to Telstra.
To address the continuing changes in converging telecommunications, data, Internet and media
markets, we may be required to devote considerable resources to enhancing our ability to deliver
services required by these markets. There is a risk that competitors may leverage both their own
and our infrastructure or deploy or develop technologies or infrastructure that provides them with
a lower cost base or other operating advantages that may drive down market prices. This could give
these competitors an advantage if we are unable to promptly and efficiently provide equivalent
services.
Competition in the Australian telecommunications market could cause us to continue to lose market
share and reduce our prices and profits from current products and services.
The Australian telecommunications market has become increasingly competitive since the
Commonwealth introduced open competition on 1 July 1997. Although the overall market has
experienced growth to date, we have lost substantial market share in some key markets particularly
as a result of aggressive price competition, the development of new technologies and facilities by
competitors, the market entry of non-traditional competitors with access to significant content and
resources and increased regulatory action. In response to increased competition, we have lowered
the prices of our products and services, particularly the prices for our local calls, national long
distance calls and international telephone services and calls to and from mobile services.
There is also a risk that non-traditional competitors with greater access to content,
substantial resources and/or alternative delivery platforms, such as Internet search engine and
Internet trading companies, VoIP and media companies, may enter and compete effectively in our
telecommunications markets.
We expect vigorous price and facilities or network-based competition to continue or
accelerate. We also expect that our competitors will continue to market aggressively to our high
value customers. The continued loss of market share or downward pressure on prices would have an
adverse effect on our financial results in the market or markets in which this type of competition
occurs.
The Australian Government has announced Connect Australia, a A$1.1 billion package to
subsidise the
supply of broadband, mobile and fixed line services for people living in regional, rural and
remote areas in Australia. In addition, nine of our competitors have outlined a possible model for
the building of a jointly owned FTTN network to deliver broadband services to a large number of
customers. Connect Australia is likely to increase facilities and network-based competition in
these areas.
For more information on our competitive environment, see Competition.
14
Our ability to pursue our strategy with some joint investments may be limited.
Some of our domestic and international activities are conducted through subsidiaries, joint
venture entities and other equity investments. These include our interests in FOXTEL, REACH, our
3GSM 2100 network sharing partnership with Hutchison (3GIS), CSL and SouFun. Under the governing
documents for some of these entities, certain key matters such as the approval of business plans
and decisions as to capital invested and the timing and amount of cash distributions require the
agreement of our co-participants. Our co-participants may have different approaches with respect to
the investment and the markets in which they operate and on occasions we may be unable to reach
agreement with them. Any dispute or disagreement from time to time with our partners may negatively
affect our ability to pursue our business strategies.
In some cases, strategic or venture participants may choose not to continue their
participation. In addition, our arrangements with our co-participants may expose us to additional
investment, capital expenditure or financing requirements. There are also circumstances where we do
not participate in the control of, or do not own a controlling interest in an investment and our
co-participants may have the right to make decisions on certain key business matters with which we
do not agree.
All of these factors could negatively affect our ability to pursue our business strategies
with respect to the concerned entities or business objectives and the markets in which they
operate. For more information on some of our investments, see Information on the Company
International investments and Information on the Company Products and services Mobiles 3G
wireless service and Information on the Company Products and services Subscription
television, and Information on the Company Networks and Systems.
Network and system failures could damage our reputation and earnings.
Our technical infrastructure is vulnerable to damage or interruption from a range of factors
including floods, wind storms, fires, power loss, telecommunication failures, cable cuts and/or
intentional wrongdoing. The networks and systems that make up our infrastructure require regular
maintenance and upgrade that may cause disruption. The occurrence of a national disaster or other
unanticipated problems at our facilities or any other damage to or failure of our networks and/or
systems could result in consequential interruptions in service across our integrated
infrastructure. Network and/or system failures, hardware or software failures or computer viruses
could also affect the quality of our services and cause temporary service interruptions.
There is a risk that our major customers capacity requirements will be in excess of our
ability to supply, resulting in lost revenue, customers moving to competitors and possibly claims
by customers against us.
Our IT systems are complex and there is a risk that our ability to support strategic
priorities in customer service and growth products may be delayed by our transformation program and
the complexity of changing our systems. Our IT systems are also vulnerable to viruses, denial of
service and other similar attacks which may damage our systems and data and that of our customers.
Any of these occurrences could result in customer dissatisfaction and damages or compensation
claims as well as reduced earnings.
Future sales of a substantial portion of our shares by the Future Fund could depress the market
price for our shares and other equity interests.
The Commonwealth has indicated it will transfer its Telstra shares not sold in the T3 Global
Offering to the Future Fund, a Commonwealth investment fund. Following the T3 Global Offering the
Future Fund
will have a substantial shareholding in Telstra. The shares held by the Future Fund will be
subject to an escrow or lock-up period of two years (with certain exceptions). After the escrow or
lock-up period, the Future Fund will be required to sell down its shareholding over the medium-term
to a level consistent with its investment strategy (at least below 20% of our issued share
capital). See Future Fund General investment mandate. Future disposals by the Future Fund of
our shares or the perception that such disposals may occur could reduce our share price, and
adversely affect the timing and effectiveness of our capital raisings, which could have an adverse
impact on our cost of capital.
The Finance Minister may issue directions to the Board of the Future Fund in relation to
Telstra shares held by the Future Fund, including specifying how disposals, voting and other rights
relating to the shares are to be exercised. While the current Government does not intend to issue
directions specific to Telstra shares (except to impose the escrow and require the sell-down), a
future Government might take a different approach, using its direction power to require the
disposal or voting of the Telstra shares held by the Future Fund to pursue Government objectives.
There is also a risk that the interests of the Future Fund and/or the Commonwealth may not be
aligned with the interests of our other shareholders, and the Future Fund could take actions that
we may not regard as being in the best interests of our shareholders.
15
There are significant differences between the Commonwealth and the Telstra Board with respect to
the election as a director of Mr Geoffrey Cousins.
Telstras annual general meeting was held on 14 November 2006 shortly before the completion of
the T3 Global Offering, at which time the Commonwealth still owned approximately 51.8% of Telstra
shares. The Commonwealth sought the nomination of Mr Geoffrey Cousins for election as a director of
Telstra at the annual general meeting and voted its shares in favour of the election of Mr Cousins.
Mr Cousins has more than 26 years experience as a company director and is currently a director of
Insurance Australia Group Limited. Mr Cousins was previously the Chairman of George Patterson
Australia and is a former director of Publishing and Broadcasting Limited, the Seven Network, Hoyts
Cinemas group and NM Rothschild & Sons Limited. He was the first Chief Executive of Optus Vision
and before that held a number of executive positions at George Patterson, including Chief Executive
of George Patterson Australia. Mr Cousins is a director of the Cure Cancer Australia Foundation.
Mr Cousins was a part-time consultant to the Prime Minister for nine years resigning upon his
nomination for the Board.
The Government believes that Mr Cousins has the necessary qualifications to serve as a
director given his broad experience across the telecommunications, broadcasting and advertising
sectors and will be an effective director. It does not intend or believe that Mr Cousins will act
as a representative of the Government on the Telstra Board. It is not the Governments intention to
issue additional directions specific to Telstra shares to the Future Fund (see The Future Fund).
The Government raised Mr Cousins nomination with Telstra at the beginning of the week commencing
11 September 2006 and believes that it gave Telstra ample time to consider his nomination, having
regard to his extensive experience.
The Telstra Board did not seek Mr Cousins nomination and did not have the opportunity to
adequately assess Mr Cousins candidacy in accordance with its governance processes, which include
assessing a proposed director having regard to the independence requirements of the Boards Charter
and the ASX Principles of Good Corporate Governance. The Boards Charter states that it is the
Boards current intention that non-executive directors should be independent directors. While the
Board has not reached a concluded view, the Board is concerned that there is a risk that Mr
Cousins previous consulting role with the Government could interfere with his capacity to be
considered an independent director. In the Telstras notice of meeting for the annual general
meeting, the Board did not recommend that shareholders vote in favour of Mr Cousins.
To be satisfied that a director is independent the Board would need to conclude, among other
things, that the director is not
associated directly with a substantial shareholder of Telstra and is free from any interest and
any
business or other relationship which could, or could reasonably be perceived to, materially
interfere with the exercise of his or her unfettered and independent judgement and ability to act
in the best interests of the company. The Board has been very careful to ensure that it does not,
and is not seen to, prejudge in any way whether Mr Cousins would meet these requirements. However,
it is clear from the circumstances of Mr Cousins nomination and his previous association with
Government that these issues will require careful examination in accordance with best practice and
that this is likely to take some time to conduct appropriately. The Board has commenced a process
to assist it reaching a conclusion on these issues.
The Government believes that Mr Cousins will act independently as a director and not as a
representative of the Government on the Telstra Board.
However, Telstra operates in a highly regulated environment and the Commonwealth and its
agencies are the key regulators. While Telstra acknowledges that Mr Cousins has served as a public
company director, Telstra believes that there is a risk if Mr Cousins cannot be considered an
independent director that this could prove disruptive to the smooth and effective functioning of
the Board. Were this to occur, this could also affect Telstras ability to attract and retain
qualified directors.
Actual or perceived health risks relating to the emission of electromagnetic energy (EME) by
mobile handsets and transmission equipment could lead to decreased mobile communications usage.
While certain reports have suggested that EME emissions from mobile handsets and transmission
equipment may have adverse health consequences, the overwhelming weight of scientific evidence is
that there are no adverse health effects when wireless equipment is used in accordance with
applicable standards. Nonetheless, any widespread perception of EME risks may lead to decreased
mobile communication usage, which would decrease our wireless business.
16
There may be a lower level of dividends.
The Boards current intention is to declare dividends totaling A$0.28 per share fully franked
for fiscal 2007, subject to continued success in implementing our transformation strategy and no
further material adverse regulatory outcomes during the course of the year. There is a risk that if
we are unsuccessful in implementing our transformation strategy or there are further material
adverse regulatory outcomes, the amount of dividends in any year may be reduced or not fully
franked, which would negatively affect yield.
There are limits on foreign ownership of our shares
The Telstra Corporation Act 1991 imposes limitations on the ownership of shares by foreign
persons. Foreign persons and their associates may not in total have interests in more than 35%
of our shares not held by the Commonwealth, and no single foreign person and its associates may
have an interest in more than 5% of our shares not held by the Commonwealth. If either of these
limitations is exceeded, the person who acquired shares or instalment receipts which resulted in
the limits being exceeded may be subject to fines.
Under the trust deed and our constitution, we and the trustee have the power to compel the
sale of the shares or instalment receipts held by foreign persons or their associates that exceed
these limits. We or the Commonwealth may also seek relief from the courts, which could include:
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directing the disposal of shares or instalment receipts; |
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restraining the exercise of any rights attaching to shares or instalment receipts; and |
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prohibiting or deferring receipt of sums payable on shares or instalment receipts. |
We intend to deregister from the SEC and delist our ADRs from the NYSE as soon as feasible
following adoption of new SEC regulations on deregistration.
In December 2005, the SEC proposed rules that, if adopted, would make it easier for foreign
companies to terminate their SEC registration. If these or similar rules are adopted, we intend to
deregister from the SEC and to delist our ADRs from the NYSE at the earliest opportunity. Following
the deregistration and delisting, we will no longer prepare annual reports on Form 20-F and instead
will only be required to comply with the Australian reporting obligations. Investors should note
that such disclosure obligations differ in certain material respects from our SEC ongoing reporting
obligations. In addition, the public trading market for our ADRs on the NYSE would then no longer
exist.
Other risks
We also face other risks with respect to economic exposure to movements in market risks and
the environment which are discussed in Information on the Company and Quantitative and
Qualitative Disclosures about Market Risk. In addition, the government of the Australian Capital
Territory is seeking to charge rates on our infrastructure, which could lead to an additional cost
burden on us if this practise were to spread.
17
Dividends
Our Board has considered the level of future dividends. In the interests of shareholders, it
is the current intention of the Board to declare fully franked ordinary dividends of A$0.28 per
share for fiscal 2007. This assumes that we continue to be successful in implementing our
transformation strategy and there are no further material adverse regulatory outcomes during the
course of fiscal 2007.
The Board is unable to give guidance on ordinary dividends for fiscal 2008 owing to the
continuing uncertainty attached to regulatory outcomes and impacts on our business as well as
transformation and market place risks. The final amount of dividends declared for any year is a
decision for the Board to make twice a year in its normal cycle having regard to our earnings and
cash flow as well as future regulatory impacts and all other factors that affect our operations.
See also Operating and Financial Review and Prospects Liquidity and capital resources and
Operating and Financial Review and Prospects Outlook.
It is our policy to pay dividends to Australian and New Zealand shareholders by direct credit
to the shareholders or another nominated persons account with a bank or other financial
institution. We consider that payment by direct credit is fast, efficient and secure and
significantly reduces our administrative costs in relation to payment of dividends.
18
Exchange Rates
Our consolidated financial statements are shown in Australian dollars (A$) except where
another currency is specified. For convenience, this Form 20-F has translations of certain A$ into
US dollars (US$) at an exchange rate as at 30 June 2006 of A$1.00
= US$0.7423. These translations are indicative only and do not mean that the A$ amounts could be
converted to US$ at the rate indicated.
The following tables show, for the periods and dates indicated, information concerning the
rates of exchange at the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New York. On 27
November 2006, the noon buying rate was A$1.00 = US$0.7785.
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
June 2006 |
|
|
0.7527 |
|
|
|
0.7284 |
|
July 2006 |
|
|
0.7664 |
|
|
|
0.7407 |
|
August 2006 |
|
|
0.7699 |
|
|
|
0.7568 |
|
September 2006 |
|
|
0.7704 |
|
|
|
0.7461 |
|
October 2006 |
|
|
0.7743 |
|
|
|
0.7434 |
|
November 2006 |
|
|
0.7896 |
|
|
|
0.7629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
At Period End |
|
Average Rate(1) |
|
High |
|
Low |
2002 |
|
|
0.5628 |
|
|
|
0.5240 |
|
|
|
0.5748 |
|
|
|
0.4841 |
|
2003 |
|
|
0.6713 |
|
|
|
0.5884 |
|
|
|
0.6729 |
|
|
|
0.5280 |
|
2004 |
|
|
0.6952 |
|
|
|
0.7155 |
|
|
|
0.7979 |
|
|
|
0.6930 |
|
2005 |
|
|
0.7618 |
|
|
|
0.7568 |
|
|
|
0.7974 |
|
|
|
0.6880 |
|
2006 |
|
|
0.7423 |
|
|
|
0.7472 |
|
|
|
0.7781 |
|
|
|
0.7056 |
|
|
|
|
(1) |
|
The average of the noon buying rates on the last day of each month during the year. |
Fluctuations in the A$ to US$ exchange rate will affect the US$ equivalent of the A$ price of
the shares and the instalment receipts on the ASX.
19
Listing Information
Markets in which our shares are traded
We are listed on the ASX and the NZSX. We also have ADRs listed on the NYSE.
In December 2005, the SEC proposed rules that, if adopted, would make it easier for foreign
companies to terminate their SEC registration. If the SECs proposed deregistration rules are
adopted, we intend to deregister from the SEC ongoing reporting obligations and to delist our ADRs
from the NYSE at the earliest opportunity, which may be accomplished by the end of fiscal 2007.
The stock market operated by the ASX is the principal stock exchange in Australia. The
exchange operates by way of the Stock Exchange Automated Trading System (SEATS), which is a fully
computerised system.
Trading on SEATS takes place each business day between the hours of 10:00am and 4:05pm,
Australian Eastern Standard Time or Australian Eastern Daylight Time. At 4:05pm each day, the ASX
subsequently matches any buy and sell orders in the system that satisfy both buyers and sellers.
The prices of all listed shares are continuously quoted while the market is open and the system
prioritises orders first by price and second by time of placement in the system. Exchange
participants can cross stock between buying and selling orders, at the buy or sell quote, provided
those quotes are no more than one marketable bid apart and can cross outside this range in amounts
of A$1 million or more. Transactions on the ASX are settled on the third business day following the
trade date.
Our securities were initially listed on 17 November 1997. This followed the sale by the
Commonwealth of 33.3% of its shares in Telstra. This initial sale by the Commonwealth was followed
by a further two share offerings to the public. The first being on 18 October 1999 (T2), when the
Commonwealth sold an additional 16.6% of shares and the second when the Commonwealth sold an
additional 34.1% of shares in Telstra in November 2006 in the Telstra T3 Global Offering.
Price history of our shares
The following tables give the price history of our shares and ADSs as derived from the daily
official list
of the ASX and NYSE.
High and low closing price for shares and ADSs on an annual basis for a period of five years
or time of trading if less than five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ per Share |
|
US$ per ADS |
Period |
|
High |
|
Low |
|
High |
|
Low |
Fiscal 2002
|
|
|
5.68 |
|
|
|
4.48 |
|
|
|
14.85 |
|
|
|
12.10 |
|
Fiscal 2003
|
|
|
5.04 |
|
|
|
3.96 |
|
|
|
15.25 |
|
|
|
11.84 |
|
Fiscal 2004
|
|
|
5.15 |
|
|
|
4.45 |
|
|
|
19.17 |
|
|
|
14.87 |
|
Fiscal 2005
|
|
|
5.49 |
|
|
|
4.63 |
|
|
|
21.61 |
|
|
|
16.35 |
|
Fiscal 2006
|
|
|
5.14 |
|
|
|
3.63 |
|
|
|
19.62 |
|
|
|
12.77 |
|
|
(1) Each ADS represents 5 ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High and low closing price for shares and ADSs on a quarterly basis for the two most recent
full financial years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ per Share |
|
US$ per ADS |
Period |
|
High |
|
Low |
|
High |
|
Low |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 30 September |
|
|
5.05 |
|
|
|
4.63 |
|
|
|
18.45 |
|
|
|
16.35 |
|
1 October 31 December |
|
|
4.94 |
|
|
|
4.63 |
|
|
|
19.42 |
|
|
|
16.77 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 January 31 March |
|
|
5.49 |
|
|
|
4.81 |
|
|
|
21.61 |
|
|
|
18.30 |
|
1 April 30 June |
|
|
5.17 |
|
|
|
4.79 |
|
|
|
20.01 |
|
|
|
18.37 |
|
1 July 30 September |
|
|
5.14 |
|
|
|
4.04 |
|
|
|
19.62 |
|
|
|
15.36 |
|
1 October 31 December |
|
|
4.32 |
|
|
|
3.76 |
|
|
|
16.10 |
|
|
|
14.10 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 January 31 March |
|
|
4.10 |
|
|
|
3.63 |
|
|
|
15.58 |
|
|
|
12.77 |
|
1 April 30 June |
|
|
3.97 |
|
|
|
3.64 |
|
|
|
15.33 |
|
|
|
13.35 |
|
1 July 30 September |
|
|
3.94 |
|
|
|
3.45 |
|
|
|
14.98 |
|
|
|
13.12 |
|
|
|
|
(1) |
|
Each ADS represents 5 ordinary shares |
20
High and low closing prices for the most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ per Share |
|
US$ per ADS(1) |
Period |
|
High |
|
Low |
|
High |
|
Low |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April |
|
|
3.94 |
|
|
|
3.65 |
|
|
|
14.75 |
|
|
|
13.37 |
|
May |
|
|
3.97 |
|
|
|
3.71 |
|
|
|
15.33 |
|
|
|
14.07 |
|
June |
|
|
3.82 |
|
|
|
3.64 |
|
|
|
14.21 |
|
|
|
13.35 |
|
July |
|
|
3.87 |
|
|
|
3.67 |
|
|
|
14.59 |
|
|
|
13.76 |
|
August |
|
|
3.94 |
|
|
|
3.45 |
|
|
|
14.98 |
|
|
|
13.12 |
|
September |
|
|
3.71 |
|
|
|
3.53 |
|
|
|
14.05 |
|
|
|
13.23 |
|
October |
|
|
3.97 |
|
|
|
3.57 |
|
|
|
15.45 |
|
|
|
13.52 |
|
November |
|
|
3.97 |
|
|
|
3.63 |
|
|
|
15.40 |
|
|
|
14.12 |
|
|
|
|
(1) |
|
Each ADS represents 5 ordinary shares |
There were 10,338,416,428 shares and instalment receipts issued and available for trading on
the market as at 29 November 2006. At that date, 32,699,544 ADSs (equivalent to 163,497,720 shares were held by 51 record holders and
2,409,272 ordinary shares were held by 1,283 US record holders. At that date there were 1,445,208
Australian record holders, representing 99.24% of all record holders.
We successfully completed a A$1 billion off-market share buy-back in November 2003, and a
A$750
million off-market share buy-back in November 2004.
Before the buy-backs, we had 12,866,600,200 shares outstanding, including those held by the
Commonwealth. As a result of the 2003 buy-back, the number of shares outstanding reduced to
12,628,359,026 and the number of shareholders reduced from approximately 1.805 million to 1.769
million. Following the 2004 buy-back, the number of shares outstanding reduced to 12,443,074,357
and the number of shareholders reduced to 1.634 million. The Commonwealth did not participate in
the buy-backs.
On 30 November 2006, the number of shareholders was 1,589,369.
The closing price for our shares on the ASX on 30 November 2006 was A$3.77.and the closing
price of our ADSs on the NYSE was US$14.92.
21
Major Shareholders and Related Parties
Major shareholders
The following table shows the number of unlisted shares and listed shares and installment
receipts (IRs) on issue at 29 November 2006. The table also shows, as a group, the shareholdings of
our directors and officers:
|
|
|
|
|
|
|
|
|
|
|
Title of Class |
|
Identity of Person or Group |
|
|
Amount Owned |
|
|
% of Class |
|
Shares |
|
The Commonwealth |
|
|
2,104,657,933 |
|
|
|
16.9 |
|
Shares/IRs |
|
Listed shareholders |
|
|
10,338,416,424 |
|
|
|
83.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,443,074,357 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
Shares/IRs |
|
Directors and officers as a group |
|
|
1,626,665 |
(2) |
|
|
|
|
|
|
|
(2) |
|
Refers to direct and indirect holdings. |
The shareholdings of each person known by us to be the owner of more than 5% of our voting
securities, as at 29 November 2006, is shown in the table titled Twenty largest registered
securityholders as at 29 November 2006. As at 29 November 2006, we are not aware of any individual
beneficial holder, other than the Commonwealth, whose securities represent more than 5% of the
issued and outstanding securities. The Commonwealth has equal voting rights with all other
securityholders.
Distribution of shares
The following table summarises the distribution of our public listed shares and IRs as at 29
November 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Registered |
|
|
|
|
|
|
Securityholders(1) |
|
|
Shares |
|
Size of Holding |
|
Number |
|
|
% |
|
|
Number |
|
|
% |
|
1-1,000 |
|
|
885,250 |
|
|
|
60.33 |
|
|
|
542,025,234 |
|
|
|
5.24 |
|
1,001-2,000 |
|
|
271,310 |
|
|
|
18.49 |
|
|
|
423,907,496 |
|
|
|
4.10 |
|
2,001-5,000 |
|
|
216,052 |
|
|
|
14.72 |
|
|
|
683,677,241 |
|
|
|
6.61 |
|
5,001-10,000 |
|
|
61,155 |
|
|
|
4.17 |
|
|
|
441,544,944 |
|
|
|
4.27 |
|
10,001-100,000 |
|
|
32,698 |
|
|
|
2.23 |
|
|
|
691,129,267 |
|
|
|
6.69 |
|
100,001 and over |
|
|
960 |
|
|
|
0.07 |
|
|
|
7,556,132,242 |
|
|
|
73.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,467,425 |
|
|
|
100 |
|
|
|
10,338,416,424 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Number of shareholders holding less than a marketable parcel of shares was 10,240,
holding 875,842 shares.
Number of IR holders holding less than a marketable parcel of IRs
was 98, holding 16,889 IRs |
Twenty largest registered securityholders as at 29 November 2006
The following table sets out the top 20 securityholders other than the Commonwealth when multiple
holdings are grouped together:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
% of Issued |
Shareholders |
|
|
|
|
Shares |
|
Shares(1) |
1 |
|
Telstra Sale Company |
|
|
4,341,549,190 |
|
|
41.79 |
% |
2 |
|
National Nominees Limited |
|
|
681,302,404 |
|
|
6.56 |
% |
3 |
|
Westpac Custodian Nominees Ltd. |
|
|
523,423,174 |
|
|
5.04 |
% |
4 |
|
J P Morgan Nominees Australia Ltd.A |
|
|
453,793,122 |
|
|
4.37 |
% |
5 |
|
Citicorp Nominees Pty Limited |
|
|
246,287,067 |
|
|
2.37 |
% |
6 |
|
ANZ Nominees Limited. |
|
|
212,795,112 |
|
|
2.05 |
% |
7 |
|
HSBC Custody Nominees (Australia) Limited |
|
|
126,783,002 |
|
|
1.22 |
% |
8 |
|
Cogent Nominees Pty Limited |
|
|
101,584,556 |
|
|
0.98 |
% |
9 |
|
RBC Global Services Australia
Nominees Pty Ltd |
|
|
89,832,268 |
|
|
0.86 |
% |
10 |
|
UBS Nominees Pty Ltd |
|
|
62,092,201 |
|
|
0.60 |
% |
11 |
|
Telstra ESOP Trustee Pty Ltd. |
|
|
51,461,125 |
|
|
0.50 |
% |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
% of Issued |
Shareholders |
|
|
Shares |
|
Shares(1) |
12 |
|
Queensland Investment Corporation |
|
|
45,002,879 |
|
|
0.43 |
% |
13 |
|
AMP Life Limited |
|
|
42,936,363 |
|
|
0.41 |
% |
14 |
|
Warbont Nominees Pty Ltd |
|
|
34,871,657 |
|
|
0.34 |
% |
15 |
|
Australian Foundation Investment Company Limited |
|
|
32,928,338 |
|
|
0.32 |
% |
16 |
|
Westpac Financial Services Ltd. |
|
|
26,204,988 |
|
|
0.25 |
% |
17 |
|
Australian Reward Investment Alliance |
|
|
19,222,034 |
|
|
0.19 |
% |
18 |
|
Argo Investments Limited |
|
|
18,954,800 |
|
|
0.18 |
% |
19 |
|
Telstra Growthshare Pty Ltd. |
|
|
17,508,460 |
|
|
0.17 |
% |
20 |
|
Questor Financial Services Limited |
|
|
13,087,092 |
|
|
0.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,141,619,832 |
|
|
68.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Not including those shares held by the Commonwealth. |
Substantial shareholders
As at 27 November 2006, other than the Commonwealth we did not have any substantial
shareholders. Except as described in Relationship with the Commonwealth, Telstra is not directly
or indirectly controlled by another entity or person or any foreign government and there are no
arrangements known to Telstra, the operation of which may, after the date of this Form 20-F, result
in a change in control of Telstra.
23
Relationship with the Commonwealth
We have a number of distinct relationships with the Commonwealth, including as shareholder,
regulator and customer. Until the recently completed T3 Global Offering, the Commonwealth was our
controlling shareholder. Our relationship with all of our shareholders (including the Commonwealth)
is, in general, regulated by the Corporations Act, the ASX Listing Rules and our constitution.
Commonwealth departments and independent agencies are also responsible for the regulation of the
telecommunications industry generally and us in particular under the Telstra Act, the Trade
Practices Act, the Telecommunications Act and the Telecommunications (Consumer Protection and
Service Standards) Act.
The Commonwealth as shareholder
The Commonwealth has sold down its original 100% equity holding in us in three tranches: it
sold 33.3% of its shares in November 1997; it sold an additional 16.6% of shares in October 1999
and a further
34.1% of shares in November 2006. Once the transfer of its remaining shares to the Future Fund
is complete (which we expect to occur by February 2007), the Commonwealth will cease to hold any
shares in the Company.
T3 Global Offering
In September 2005, the Commonwealth amended the Telstra Act by passing the Telstra (Transition
to Full Private Ownership) Act 2005 (the Transition to Full Private Ownership Act) to enable the
Commonwealth to undertake a sale of all or part of its remaining stake in Telstra.
In November 2006, the Commonwealth sold approximately 34% of its shares in a global offering,
taking its equity holding in us from 51.8% to 17.8%. The sale was completed when the 30 day
over-allocation option given by the Commonwealth to the banks who conducted the sale on its behalf
was exercised, in December 2006. The remaining shares in us held by the Commonwealth will then be
transferred to the Future Fund. See The Future Fund and Risk Factors. After a two year lock up
period (which is subject to several exceptions), the Future Fund is expected to sell down its
Telstra shareholding over the medium term to a market-weight holding.
The Commonwealth issued requests to us and our Board under section 8AQ of the Telstra Act for
us and our Board to assist the Commonwealth and its advisers with the T3 Global Offering. The
Telstra Act provides that, in providing such assistance, we are not subject to restrictions that
would otherwise apply under the Corporations Act, the listing rules of stock exchanges regulated
under Australian law, or rules of common law or equity (except for administrative law rules). The
Commonwealth has indemnified us and our directors and senior management for certain liabilities in
relation to the T3 Global Offering, and to reimburse us for our reasonable costs incurred in
relation to the T3 Global Offering.
Consequences of the T3 Global Offering
Under the amendments to the Telstra Act made by the Transition to Full Private Ownership Act,
certain provisions in the Telstra Act and other Commonwealth legislation have ceased or will cease
to have effect or apply to us once the Commonwealths ownership of Telstra falls below one of two
particular levels. Those two ownership thresholds are below 50% and 15% or less. For this purpose,
Telstra shares transferred to the Future Fund following completion of the T3 Global Offering will
not be considered to be owned by the Commonwealth. This means that these thresholds either have
already or will be triggered a short time after the completion of the T3 Global Offering.
The Commonwealths ownership of Telstra fell below 50% on completion of the T3 Global Offering
(excluding the over-allotment option) on 24 November 2006. As a result, we have lost our Australian
capital gains tax (CGT) exempt status on assets that we acquired before 20 September 1985.
Accordingly, any future gains in the value of these assets after completion of the T3 Global
Offering will be taxable upon disposal of the asset by us. Since we do not currently intend to
dispose of any material assets acquired before 20 September 1985, the loss of CGT exempt status for
these assets is not expected to have a material impact on Telstra.
The legislative consequences of the Commonwealths ownership of Telstra having fallen below
50% are not considered to have a material impact on Telstra but include:
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our employees who are members of the Commonwealth Superannuation Scheme (CSS) will cease to be
eligible employees for the purposes of the Superannuation Act 1976, and will no longer be
entitled to contribute to the CSS; and |
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our auditor, currently the Commonwealth Auditor-General, may (and is expected to) resign. In any
event, the Auditor-General will cease to be our auditor on the earlier of his resignation or the
end of the first annual general meeting held after the Commonwealths ownership of Telstra falls
below 50%. This means that we and our shareholders can decide who to appoint as our auditor. |
The Commonwealth has advised Telstra that it will introduce legislation into parliament that
maintains coverage for Telstra employees under existing Commonwealth long service leave legislation
for three years after the Commonwealths ownership in Telstra falls below 50%.
The Commonwealths ownership of Telstra is expected to fall to 15% or less no later than when
the Commonwealth transfers to the Future Fund Telstra shares not sold as part of the T3 Global
Offering. This is intended to occur as soon as practicable after the exercise or expiry of the
Over-allotment Option, and in any event, no later than 24 February 2007. The main consequences of
the Commonwealths ownership of Telstra falling to 15% or less are:
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we will no longer be subject to the obligations to provide financial and other information to the
Commonwealth; |
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we will no longer be subject to the Communications Ministers power to direct us (as appears to
the Communications Minister to be necessary, in the public interest); and |
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we will no longer be subject to the Finance Ministers power to direct us not to dilute the
Commonwealths equity in Telstra or to issue securities or financial products. |
The closing of the T3 Global Offering and the transfer of the Commonwealths remaining shares
to the Future Fund has required and may require further regulatory or governmental approval under
regulatory licenses of Telstras international operations. For more information, refer to
Regulation Offshore subsidiaries.
Following completion of the T3 Global Offering, we expect to no longer have a standing
obligation to appear before and provide information to Parliamentary committees.
The Commonwealth as regulator
We are currently regulated by the Commonwealth, its Ministers and independent agencies under a
number of statutes including:
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the Telstra Act; |
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the Telecommunications (Consumer Protection and Service Standards) Act
1999; |
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the Trade Practices Act; and |
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the Telecommunications Act. |
The Commonwealth has stated that the telecommunications regulatory regime is intended to
promote the long-term interests of telecommunications consumers, including through promoting
competitive telecommunications markets and encouraging economically efficient investment in
infrastructure. The telecommunications regime also supports industry self-regulation and is
intended to minimise the financial and administrative burdens on the telecommunications industry.
The Commonwealth believes that since the market was fully opened to competition in 1997,
consumers have benefited through a wider range of services and significant reductions in prices.
The Commonwealth considers that the telecommunications industry is currently in transition to
full competition and that appropriately targeted regulation is in place to facilitate this outcome.
Overall, the Commonwealth regards the regulatory legislation as settled. However, the Commonwealth
has announced that it will review the telecommunications competition regulatory regime in 2009.
Refer to Regulation for details of the regulatory regime and its effect on our business.
25
The Commonwealth as customer
The Commonwealth is a major user of our services. The Commonwealth, as a result of
telecommunications liberalisation, is increasingly seeking to take advantage of open
competition when purchasing telecommunications services in such a competitive environment.
Related party transactions
A discussion of our related party transactions is contained in Operating and Financial Review
and Prospects Related party transactions.
26
Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the annual consolidated financial
statements, including the notes to these consolidated financial statements, which are included with
this Form 20-F. These annual consolidated financial statements have been prepared for the first
time in accordance with Australian equivalents to International Financial Reporting Standards
(A-IFRS). Our comparatives have been restated to reflect the adoption of A-IFRS, with the
exception of the accounting standards on financial instruments that were subject to an exemption
and adopted from 1 July 2005. A-IFRS differs in certain respects from U.S. generally accepted
accounting principles (US-GAAP). A discussion of the principal differences between A-IFRS and
US-GAAP as they relate to us and a detailed reconciliation of net income and equity to US-GAAP, is
provided in note 37 to our consolidated financial statements. Refer to the 2005 Annual Report for
the financial results of the prior periods determined under previous Australian Generally Accepted
Accounting Principles (AGAAP).
The Operating and Financial Review and Prospects includes statements of future expectations
and forward-looking statements that are based on managements current views and assumptions, and
involve known and unknown risks and uncertainties that could cause actual results, performance or
events to differ materially from those in the forward-looking statements. For a discussion of some
of the principal risks that could affect our business is presented in this Form 20-F refer to Risk
Factors and Cautionary Statement Regarding Forward-Looking Statements.
In this section, we refer to our fiscal years ended 30 June 2006 and 30 June 2005 as fiscal
2006 and fiscal 2005 respectively. We have referred to the two fiscal years ended 30 June 2006 as
the two-year period.
Our transformation strategy
At the beginning of fiscal 2006, our new CEO and management team initiated a comprehensive
review of our operations and strategies. Based on this review, we determined that our networks,
systems and products and service offerings were outdated and lagging behind our international peers
and that our costs were escalating due to increasing costs of goods and labour costs as well as
rising costs associated with maintaining and supporting complex legacy systems. In addition,
revenues from our traditional high margin PSTN products and services have been declining due to a
combination of increased competition and customers migrating to lower margin emerging products and
services.
In November 2005, we decided to implement wholesale changes to our networks, systems and
operations under a five-year transformation strategy. The key elements of this transformation
strategy are:
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building a next generation fixed network to support IP-based services; |
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rolling out next generation wireless services over our
recently launched NEXT G(TM)
WIRELESS NETWORK; |
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implementing market-based management and using customer research to
differentiate our product offerings; |
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providing customers with integrated services across fixed,
wireless and Internet platforms; |
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simplifying systems and operations to reduce costs; |
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expanding
and enhancing our Sensis advertising, search and information services business; and |
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instituting cultural changes through business reform and increased training. |
We believe that if we can successfully transform our business, it will improve our
competitiveness and
financial results.
Our transformation strategy is significantly more extensive than similar initiatives
undertaken by other telecommunications companies, involves significant capital spend and is subject
to significant execution risks. In addition, we are endeavouring to accomplish this transformation
on an accelerated timetable. As a result, during the early years of the transformation our earnings
and cash flows will be significantly reduced, and we have needed to increase borrowings to fund our
capital expenditures, investments and dividends. However, we believe that we need to undertake
these major changes now and under our proposed timetable in order to remain competitive and improve
the financial results and position of our company in the future.
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Strategic Management Objectives
Together with the announcement of our transformation strategy in November 2005, our Board set
strategic management objectives to measure the successful implementation of our five year
transformation strategy. We have linked our remuneration structure to the transformation strategy,
with the aim of increasing the focus and understanding by senior executives of the key strategic
objectives and motivating employees to execute on the strategy. In October 2006, our Board revised
these strategic targets in order to reflect the current regulatory environment and market
conditions and the experience of the first year of our transformation plan, and approved the
following:
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revenue compound annual growth in the range of 2.0% to 2.5% (to fiscal 2010 from the fiscal 2005
base level), to be achieved by offsetting the expected substantial deterioration in traditional
PSTN revenues with revenues from new products and services delivered through our next-generation
networks; |
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new product revenue exceeding 30% of sales revenue by fiscal 2010; |
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limiting compound annual growth of operating expenses (excluding depreciation and amortisation)
to 2.0% to 3.0% (to fiscal 2010 from the fiscal 2005 base level); |
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EBITDA compound annual growth in the range of 2.0% to 2.5% (to fiscal 2010 from the fiscal 2005
base level) and EBITDA margins of between 46% to 48% by fiscal 2010. We are expecting EBITDA during
the five year transformation strategy to decrease in the early years of the transformation, and are
then targeting improvement in the later years of the transformation; |
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cash capital expenditure falling to a range of 10% to 12% of sales revenue by fiscal
2010; |
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free cash flow increasing to between A$6,000 million and A$7,000 million by
fiscal 2010; and |
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work force reductions of approximately 12,000 over five years of
the transformation strategy. |
It is important to understand that these are internal objectives set by our Board in order to
measure our managements performance in implementing the transformation strategy, and are not
financial forecasts or projections and should not be regarded as such. The strategic management
objectives are primarily based on:
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our decision not to roll-out an FTTN network, and instead offer high-speed broadband products and
services through our existing networks; |
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successfully rolling out our NEXT G(TM) wireless network services and migrating CDMA customers to
the new network; |
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successfully deploying our next-generation fixed line network; |
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existing regulatory settings, including the ACCC interim determination establishing ULLS pricing
of A$17.70 per month in band 2, and no mandated competitor access to our NEXT G(TM) wireless
network; |
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successfully implementing short, medium and long-term revenue initiatives in key PSTN, mobile and
broadband markets and customer segments; |
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our ability to differentiate ourselves and obtain new revenues from our new networks and new
products and services to replace declining revenues from our traditional high-margin PSTN products
and services; |
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rationalising our operational support systems (OSS) and business support systems (BSS), and
achieving an 80% reduction in the number of such systems by the end of fiscal 2010; |
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key vendors in connection with our transformation performing on-time and as contracted; |
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growing our Sensis business organically and by targeted acquisitions; |
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competitors not engaging in sustained and extreme price competition or investing in substantial
new infrastructure or disruptive technologies; and |
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our workforce embracing our cultural transformation. |
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The strategic management objectives are based on the current regulatory environment and market
and competitive conditions, which are expected to change over time. Our ability to achieve our
strategic management objectives is subject to significant risks. See Risk Factors for a
description of these key risks. Investors should note that many of these risks are outside of our
control, and that no assurance can be given that we will successfully complete our transformation
or achieve our strategic management objectives.
Revenue and products
During the two-year period, our increase in sales revenues was due mainly to revenue growth in
mobiles, Internet and IP solutions, advertising and directory services, and pay TV bundling. Our
challenge moving forward will be to continue and to consolidate the growth in these areas, while
controlling costs, minimising margin erosion and managing the decline in our PSTN revenues.
Competition has continued to intensify and, as a result, we have seen our revenues decline in a
number of areas despite increasing volumes. We have continued to focus on maximising returns from
our higher margin traditional products such as PSTN products, while managing the shift in customer
demand for our lower margin emerging products, such as mobiles, broadband and other Internet based
products. We have aligned our investment strategies with our growth products and continue to focus
on simplifying our existing processes to identify cost efficiencies and protect operating margins,
while improving our customer service levels. Our overall operating margins are under constant
pressure from the product mix change to lower margin products. However, we are building a
software-based cost efficient infrastructure that we expect will enable us to deliver new products
at low incremental costs and good margins.
Most of our revenues are generated from basic access, fixed and mobile call charges,
specialised data, Internet and IP solutions, advertising and directories services, solution
management services and our international operations. We are focusing on a range of key products
and services within these categories in order to grow our revenues. This is further described
below:
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PSTN products: We first experienced a significant decline in overall PSTN revenues in the
second half of fiscal 2005. Performance in this market has been depressed by competition and
product substitution. Our PSTN revenue was also adversely impacted by ULL as carriers have
reached customer density thresholds to be able to undertake viable ULL investment, which has
further been assisted by falling equipment prices reducing the capital required. |
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This market remains a focal point and a significant part of our company in terms of sales revenue.
It continues to provide us with strong cash flows. |
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We continue to focus on maximising returns and improving customer service in this area by offering
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broad range of product packages that include bundling traditional products with new products. In
addition, in June 2006 we introduced new capped calling plans on our basic access lines, which
includes untimed local and national long distance calls. Despite a positive response to these
initiatives, total PSTN revenues declined in fiscal 2006, led by competitive pricing pressures and
the continued migration of customers to mobiles and other products and services. |
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Mobiles: While the rate of growth has slowed, mobile revenue growth has been driven by low
access fee plans, value added services including mobile data and the increasing popularity of
prepaid offerings. We continue to increase revenues by providing more innovative products on
our mobile networks including access to a wide range of Internet products and content through
mobile handsets and the provision of high-speed wireless services, including 3G mobile
services. In addition, revenues continue to increase with the higher number of mobile users. |
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Internet and IP services: Growth in this area was attributable to an increase in both retail
and wholesale broadband subscribers. We expect the Internet and IP solutions products to
continue their expansion as a result of large increases in the number of broadband subscribers
and robust competition as providers compete for market share. This market is in a growth phase
and our strategy to capitalise on this growth involves the provision of high speed, innovative
Internet products such as the launch of Australias first legal movie download service. The
ability to offer a suite of product and services, combined with value based pricing, is a key
to our strategy. |
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We expect take up of ADSL and other emerging broadband Internet services via HFC cable and
satellite to increase in future reporting periods as the market becomes more aware of their
performance capabilities. |
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Advertising and directories: Growth in our Sensis business has been led by an increase in
revenue from our Yellow(R) and White Pages(R) printed and online advertising solutions. This
was predominantly driven by product innovation and customer demand. In addition, we have
continued to grow our Yellow(R) and White Pages(R) Online directory businesses. |
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As telecommunications, computing and media technologies continue to converge, we are focused on
enhancing our capabilities to provide new and innovative application and content services and to
expand further into these converging markets. |
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Solutions management: We have continued to strengthen our position in the managed services
and information and communication technology (ICT) market. During fiscal 2005, we acquired
KAZ, a provider of business process outsourcing, systems integration, consulting, applications
development and IT management services. During fiscal 2005, we also acquired PSINet, a
provider of e-business infrastructure solutions and corporate IP based communication services.
These acquisitions expanded our IT services capability to both our Australian and
international customers, complementing our core strength in telecommunications. These
acquisitions combined with our pre-existing solutions management business have significantly
broadened our solutions management services, which we believe will assist us to achieve our
goal of becoming an Australian leader in the ICT market. |
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International operations: Our offshore controlled entities contributed 7.7% of our total
sales revenue in fiscal 2006 and 7.3% in fiscal 2005. This is primarily attributable to the
CSL New World Mobility Group operations in Hong Kong and the TelstraClear operations in New
Zealand, which generate revenues mainly from the mobile market and from fixed network services
respectively. |
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During fiscal 2006, we merged our 100% owned Hong Kong mobile operations (CSL) with the Hong
Kong mobile operations of New World Mobility Group to form the CSL New World Mobility Group
(CSLNW). Under the merger agreement, CSL issued new shares to New World Mobility Holdings Limited
in return for 100% of the issued capital of the New World Mobility Group and A$42 million in net
proceeds. The share issue diluted our ownership in the merged group to 76.4%. This merger was
undertaken because the two entities have complementary services in providing mobile
telecommunication products and services in Hong Kong. We believe CSLNW will be able to leverage
their strong brand recognition and common network to improve its operating performance. The
merged
entity is now the largest wireless service provider in the Hong Kong market. |
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During fiscal 2006, TelstraClear unveiled a new strategic focus for growth through the
delivery of differentiated services and investment in high value voice and data services. New
Zealand is a strategically important market for our trans-Tasman customers and the combination of
TelstraClear and Telstra enables us to provide customers on both sides of the Tasman with
seamless communication and IT solutions. |
We have maintained our attention on managing the performance of our individual product and
service categories. However, as a fully integrated telecommunications company, we are building on
our existing customer base and capturing the market trend towards integrated access and seamless
voice, data and content offerings. To achieve this, we continue to bundle our individual products
and provide customers with price discounts. In addition, we are expanding the integrated content
services provided through our BigPond(R) and Sensis applications to enable our customers to access
content across multiple devices including mobiles, personal computers and home phones.
In fiscal 2006, we implemented a number of revenue initiatives, particularly in our PSTN,
mobile and broadband businesses. These initiatives include subscription pricing plans, targeted
win-back campaigns, differentiated customer propositions and distribution channel optimisation.
Achievement of our strategic management objectives, particularly during the later years of our
transformation, depends in part on our success in implementing these initiatives.
Events after the end of fiscal 2006
Except as described below and in Directors Report Events occurring after the end of the
financial year and Note 34 to our Financial Statements, there have been no events that have
occurred since the end of the 2006 financial year that have significantly affected or may
significantly affect Telstras operations, the results of Telstras operations or the state of
Telstras affairs.
On 31 August 2006, we announced our acquisition of a 51.0% shareholding (on a fully diluted
basis) in SouFun Holdings Limited (SouFun) for a total cash consideration of US$254 million
(approximately A$334 million plus acquisition costs). SouFun is a leading real estate and home
furnishing and improvement website in China. It provides information, advertising and listing
services to Chinas growing online real estate and home furnishing and improvement sectors. This
investment is integral to Sensis growth strategy of expanding into new geographic markets through
the pursuit of partnerships or acquisitions that can deliver value to our shareholders. On 31
August 2006, we also announced the sale of Australian Administration Services (AAS), the
superannuation administration business of our subsidiary KAZ, for A$235 million, giving rise to a
profit on sale of A$55 million. The sale followed our
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comprehensive review that determined that superannuation administration services were no longer
strategic to our business in future reporting periods. As a result of these transactions, we have
divested a non core asset and redeployed the funds into one of our growth areas.
Costs and operational efficiency
In fiscal 2006 we began our transformation program as outlined by the strategic review. During
this review, we identified complexity in the business involving our cost and operational structure,
resulting in an upward pressure on costs. The transformation program will occur over a five-year
period, with cost reduction being a major objective of the overall program.
Our total expenses grew during the two-year period, led by the recognition of additional
expenses incurred as part of the transformation program, including a provision at year end for
restructuring and redundancy costs of A$427 million. We also experienced expense growth across
various categories to support our emerging business areas such as broadband, 3G mobile services and
pay television, as well as to meet our customer service requirements, partly offset by previous
cost reduction programs. In addition, our depreciation and amortisation expense increased
reflecting the impact of a review of the service lives of
our assets as part of the transformation strategy. The accelerated depreciation and
amortisation was mainly in relation to adjusting the service lives of the CDMA network, our
switching systems, certain business and operational support systems and related software.
We are committed to continuing our review of areas of the business where cost and operational
efficiencies can be achieved, while improving the customer experience. We believe opportunities to
achieve this include:
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rationalising our various IT and network
platforms; |
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streamlining our business
operations; |
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obtaining better value from our
capital expenditure; |
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extracting synergies from our recent investment
acquisitions; |
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improving network efficiency; and |
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managing total labour costs more efficiently. |
During the two-year period, we have devoted increased capital expenditure to upgrade our
telecommunications networks, eliminate components that are no longer useful and improve the systems
used to operate our networks. We continue to upgrade and simplify our telecommunications networks
to meet customer demands, particularly for new growth product areas such as broadband.
As part of our strategic review, we have introduced the one factory approach to consolidate
and simplify the way we operate at all levels of the business. The company is very dependent on
business and operational support systems. Historically, significant time and investment has been
required to meet changing market conditions. The IT transformation will provide an integrated
platform that is much more flexible and is expected to require lower costs to maintain. The
objective is an 80% reduction in the number of systems over five years from November 2005. In
addition to operational efficiency, overall effectiveness is expected to improve. We believe the
deployment of our new IP core network will reduce the cost of installing new applications and will
provide our customers with better and faster services. We believe incremental change is not enough
to meet our strategic objectives and as a result we are looking to transform our IT capability.
On 6 October 2006, we launched our new NEXT G(TM) wireless network. This network will replace
our existing CDMA network, and over time we will migrate all of our mobile customers onto the NEXT
G(TM) wireless network. The move will reduce duplication of both capital and operational
expenditure and the digital divide between our regional and metropolitan customers. In addition to
current services already experienced on existing networks, we believe our NEXT G(TM) wireless
network customers will enjoy access to a greater range of content and services, as well as many
enhanced features, such as improved video calling services and faster broadband access speeds, in
addition to better in-building coverage. We plan for the CDMA network to be available until
replacement services and coverage provided by our NEXT G(TM) wireless network are the same as or
better than the CDMA network and in any event at least until January 2008.
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Customer service
We strive to continually improve our customer service. During fiscal 2006, we announced a
A$210 million training initiative to ensure our staff have the best available training to enable
and maintain next generation networks. In addition, we are achieving service delivery innovations
that cater to the needs of our customers such as providing and improving our online billing
facilities. Our focus for continual improvement in customer service is in the following key areas:
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upgrading our networks and reducing fault incidence; |
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placing additional trained staff in our call centres to directly deal with our
customers; |
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providing tools to sales representatives that help them consult with
customers; |
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improving the self service technology; |
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enhancing the skills of our
staff, enabling them to solve a
customers problem on the first call; |
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ensuring customer appointments are met and
reducing response times and queue lengths; and |
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further improving our performance
under the customer service guarantees. |
Business segments
During fiscal 2006, we changed our business segments to improve the way our business is
structured and operates to meet the needs of our customers. We have restated all our comparative
segment information to reflect the current financial reporting position as if all our new business
segments and segment accounting policies existed in the prior year. Our significant changes
included:
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the creation of a new business segment named Telstra Business to specifically cater for the full
provision of telecommunication products and services to small and medium enterprises; |
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the creation of a new business segment named Telstra Operations. This group consolidated Telstra
Services (formerly known as Infrastructure Services), Telstra Technology, Innovation and Products
and Operations Support, which was previously reported within our corporate areas. The consolidation
of these operational areas reflects our move to the one factory approach; |
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the creation of the Telstra Product Management Group within Telstra Operations to focus on the
management and performance of our existing and future products; and |
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the creation of the Strategic Marketing Group to implement the market based management approach
adopted to better understand the needs of our customers and provide better products and services to
meet their requirements. |
The Telstra Country Wide(R) business unit ensures we continue to have a strong commitment to
telecommunication services in the major rural, minor rural and remote areas of Australia. In
addition, under the USO regime, we deliver the standard telephone service and prescribed carriage
services to all people, wherever they reside or carry on business. Through our continued focus on
providing excellent customer service, we aim to satisfy our existing customers and drive future
revenue growth by providing quality services to all our customers.
Refer to Information on the Company Organisational structure for details on our
organisational structure.
Returns to shareholders
During the two-year period, in addition to continuing ordinary dividends, we have also
returned A$2,988 million to shareholders through special dividends and share buy-backs as part of
our capital management program. During fiscal 2006, we announced that the third year of the capital
management program, whereby A$1,500 million was to be returned each year to shareholders through
special dividends and share buy-backs, would not occur to allow the funds to be diverted to our
transformation program.
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In fiscal 2006, we paid special dividends totalling A$1,492 million (A$0.12 per share). In
fiscal 2005, we paid a special interim dividend of A$746 million (A$0.06 per share) and also
undertook a share buy-back that resulted in the buy-back of 185,284,669 ordinary shares. In total,
1.47% of our total issued ordinary shares, or 3.00% of our non-Commonwealth owned ordinary shares,
were bought back. The cost of the share buy-back comprised the purchase consideration of A$750
million and associated transaction costs of A$6 million. The shares bought back were subsequently
cancelled, reducing the number of fully paid ordinary shares on issue. The Commonwealth did not
participate in the share buy-back and as a result its shareholding increased from 51.0% before the
buy-back to 51.8%. The share buy-back improved our earnings per share as we have fewer shares
outstanding and has not hindered our ability to take advantage of profitable investment
opportunities when they arise.
Outlook
Overview
Whether our future financial performance will improve is largely dependent on our ability to
implement and execute our transformation strategy successfully and generate the increased volumes
and usage rates for our products and services we seek to achieve. In addition, our transformation
is a five-year plan, with the early years involving the deployment of large amounts of capital, the
roll-out of new networks and systems and the incurrence of additional operating costs and
provisions associated with the fundamental changes we are implementing throughout our systems and
operations. Our ability to successfully implement our transformation strategy is subject to
significant risks. See Risk Factors.
We are involved in continuing discussions over the current and future regulatory environment
impacting the Australian telecommunications industry in general and us in particular. There are
several key regulatory issues, which include:
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regulated wholesale access pricing; |
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retail price controls; |
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any potential competitor access to our NEXT G(TM) wireless network; and |
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the use by the ACCC of the conduct rules in the Trade Practices Act to affect the way we price
our products and services. |
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Some of the key factors that we believe may impact our future financial results include: |
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our ability to implement and execute our transformation strategy, including the deployment of our
NEXT G(TM) wireless services, and the rationalisation of our various IT and network platforms; |
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our ability to introduce new value-added products and services to compensate for lower prices,
volumes and earnings we expect to realise from our traditional higher margin product and service
lines; |
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the difficulties for us in predicting regulatory outcomes and, in our view, the unpredictable
actions of the key regulators; and |
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changes to our competitive environment as markets and technologies evolve and competition
intensifies, and the actions and initiatives of our major competitors. |
General trends
Our traditional high margin PSTN revenues have been and will continue to be negatively
affected by both intense competitive pressure and customers migrating to alternative platforms,
such as wireless, high bandwidth Internet, IP telephony, and web and managed services. We expect
these trends to continue. The overall volume of telecommunications services purchased in Australia
has continued to increase and the range of products and services offered has continued to expand.
One of the central objectives of our transformation is to position the company to have the
networks, systems and capabilities to meet the evolving needs of our customer base. With our
planned next-generation networks, we are building the infrastructure to reduce our reliance on our
traditional high-margin PSTN revenue stream and to grow our mobile, Internet and other
next-generation revenues.
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We intend to streamline our businesses, systems and operations to reduce the high operating
costs associated with maintaining and supporting complex legacy IT systems, products and services.
However, we expect depreciation and amortisation to increase as we invest heavily in transforming
our IT base, together with the acceleration of depreciation for certain assets that are being
phased out.
A number of key regulatory decisions and determinations are still unresolved. In August 2006,
for
example, the ACCC made several interim determinations reducing ULLS access pricing for some of
our largest wholesale customers to A$17.70 per month in band 2 (representing the metropolitan area,
where the greatest number of ULLS services will be provided). These decisions are only interim
determinations by the ACCC and the ACCCs final determinations can be higher or lower than this
price. We are uncertain as to the ACCCs timeframe for making these final determinations. We no
longer propose to build an FTTN network because we disagreed with the ACCC as to the costs which
could be taken into account in setting a price at which our competitors could use that network.
Fiscal 2007 outlook
We are currently in the early years of our transformation, which has required increased
capital and operating expenditures to roll out new networks and implement our planned system and
operational changes, resulting in significant reductions to our earnings and cash flow.
Accordingly, we expect that our fiscal 2007 financial results will show:
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reported revenue (total income) growth of between 1.5% and 2.0% compared with our fiscal 2006
total income of A$23,100 million; |
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reported earnings before interest and income tax expense (EBIT) growth in the range of 2.0% and
4.0% compared with our fiscal 2006 EBIT of A$5,497 million, but we expect fiscal 2007 reported EBIT
will be in the range of 18% to 20% lower than fiscal 2005 EBIT of A$6,935 million. Note 7(b) of our
2006 audited financial statements discloses that in explaining our fiscal 2006 financial
performance, it is relevant to note that expenses associated with the implementation of the
strategic review initiatives of A$1,126 million were incurred. We expect similar net costs of
approximately A$800 million to be incurred in fiscal 2007; and |
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reported cash capital expenditure (excluding investments) in the range of A$5,400 million to
A$5,700 million. |
Importantly, our ability to achieve the fiscal 2007 outlook described above, as well as our
outlook for the first and second halves of fiscal 2007 described below, is subject to a number of
key assumptions, including:
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not building an FTTN network; |
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a band 2 ULLS price of A$17.70 per month applying to all wholesale customers for the remainder of
fiscal 2007; |
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no additional redundancy and restructuring provision; |
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slowing the decline in PSTN
revenues; |
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retail volume growth in mobiles voice and data traffic, dependent in part on the successful
roll-out of our NEXT G(TM) wireless network services; |
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growth in the retail broadband market and in our market share; |
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growth in Sensis print and online revenues; |
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not exceeding budgeted net transformation related operating expenditure costs of approximately
A$500 million; and |
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general productivity gains from our reduced workforce. |
Our ability to achieve our fiscal 2007 outlook is also subject to significant risks. Refer to
Risk Factors for a description of these key risks.
34
We expect fiscal 2007 to be the largest transformation spend year in terms of operating and
capital
expenditure. Provided there are no further material adverse regulatory outcomes and we
continue to be successful in implementing our transformation strategy, we expect our free cash flow
to improve in fiscal 2008 compared with fiscal 2007.
It is the current intention of the Board to declare fully franked ordinary dividends of A$0.28
per share for fiscal 2007. This assumes that we continue to be successful in implementing our
transformation strategy and there are no further material adverse regulatory outcomes during fiscal
2007. The Board will make its final decision on the future amount of dividends in its normal cycle
having regard to, among other factors, our earnings and cash flow, as well as regulatory impacts on
our business and all other factors that affect our operations. On 10 August 2006, the directors
declared a fully franked final dividend of A$0.14 per share (A$1,739 million), which will be
recognised in our accounts for fiscal 2007.
Two months ended 31 August 2006 review
Our unaudited operating results for the two-month period ended 31 August 2006 compared with
the prior corresponding period show the following:
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sales revenue growth of 3.3% reflecting continued growth in retail broadband of 41.0%, mobiles of
9.0% and advertising and directories revenue of 10.6%. This growth was partially offset by the
decline in PSTN revenues of 5.9% as the market continues its trend from high-margin PSTN products
and services to lower-margin emerging telecommunication products and services. In addition, the
rise in sales revenue reflected the inclusion of revenues for the New World Mobility Group. |
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EBIT decline of 8.6% as our income growth during the two months was offset by higher expenses
mainly due to an increase in cost of good sold led by additional take up of our 3G mobile handsets
and a rise in the number of subscribers to our services and higher depreciation and amortisation
expenses attributable to our transformation initiatives. The increase in expenses was partially
offset by lower labour expenses reflecting a reduction in the number of staff. |
We believe that our results for the first two operating months of fiscal 2007 are consistent
with the trends identified during fiscal 2006 and we are on track to achieve our fiscal 2007
outlook. Investors should note, however, that these results are only for two months and are not
necessarily indicative of what our results will be for the year.
First half fiscal 2007 outlook
We expect that our reported results for the first half of fiscal 2007 will be impacted by the
following factors:
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revenue will be impacted by the distribution of Melbourne Yellow(R) being completed in the second
half of fiscal 2007, therefore the revenue will be recognised in the second half of fiscal 2007. In
fiscal 2006, distribution of Melbourne Yellowwas completed in the first half of fiscal 2006 and as
a result, the revenue was recognised in the first half of fiscal 2006; |
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expenses will include significant transformation related costs in the first half of fiscal 2007
compared with no transformation expenses in the first half of fiscal 2006; |
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revenue and expenses for the CSL New World Mobility Group will be included for the full year in
fiscal 2007; and |
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accelerated depreciation and amortisation expenses in the range of A$150 million to A$175 million
will be reported in the first half of fiscal 2007, reflecting our transformation, compared with no
accelerated depreciation and amortisation in the first half of fiscal 2006. |
As a result of these factors, we expect our reported EBIT to be 17% to 20% lower in the first
half of fiscal 2007 compared with the first half of fiscal 2006.
Second half fiscal 2007 outlook
We expect that our reported results for the second half of fiscal 2007 will be impacted by the
following factors:
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revenue will be impacted by the distribution of Melbourne Yellow(R) being completed in the second
half of fiscal 2007, therefore the revenue will be recognised in the second half of fiscal 2007. In
fiscal 2006, distribution of Melbourne Yellow(R) was completed in the first half of fiscal 2006 and
as a result, the revenue was recognised in the first half of fiscal 2006; |
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expenses will reduce in the second half of fiscal 2007 compared with the second half of fiscal
2006. During fiscal 2006, transformation costs were only incurred in the second half of fiscal 2006
including the redundancy and restructuring provision.
We do not expect to raise a redundancy and restructuring provision during fiscal 2007; and |
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revenue and expenses for the CSL New World Mobility Group will be included for the full year in
fiscal 2007. |
As a result of these factors, we expect our EBIT to be 37% to 40% higher in the second half of
fiscal 2007 compared with the second half of fiscal 2006.
Due to the combination of our expected first half and second half reported results for fiscal
2007, we expect reported EBIT for fiscal 2007 to increase between 2.0% and 4.0% compared with
fiscal 2006 as previously outlined.
Management estimates and judgements in the application of our critical accounting policies
Our consolidated financial statements have been prepared in accordance with A-IFRS. Our basis
of preparation and significant accounting policies are fully described in note 1 and note 2 to our
consolidated financial statements respectively.
During fiscal 2006, we adopted A-IFRS in the preparation and presentation of our consolidated
financial statements. Our accounting policies for both fiscal 2006 and fiscal 2005 are compliant
with all aspects of A-IFRS. As a result, we remeasured and restated our fiscal 2005 comparative
financial information to be consistent with A-IFRS. We have taken the exemption available under
AASB 1: First time adoption of Australian Equivalents to International Financial Reporting
Standards to only apply AASB 132: Financial Instruments: Disclosure and Presentation and AASB
139: Financial Instruments: Recognition and Measurement from 1 July 2005. In addition, we elected
to early adopt AASB 7: Financial Instruments: Disclosures, which supersedes the disclosure
requirements of AASB 132.
In all material respects, our accounting policies are applied consistently across the Telstra
Group of companies and to all business segments. Where there is no conflict with A-IFRS, we align
our accounting policies with US-GAAP to reduce the number of A-IFRS/US-GAAP reconciliation
differences required to be adjusted in note 37 to our consolidated financial statements.
The preparation of our consolidated financial statements requires management to make estimates
and judgements that impact the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of off balance sheet arrangements, including commitments and contingent liabilities.
We continually evaluate our estimates and judgements. We base our estimates and judgements on
historical experience, various other assumptions we believe to be reasonable under the
circumstances and, where appropriate, practices adopted by international telecommunications
companies. Actual results may differ from these estimates in the event that the scenarios on which
our assumptions are based proves to be different.
The following are the critical accounting estimates and judgements we have applied in
producing our A-
IFRS consolidated financial statements:
Carrying value and amortisation of investments, goodwill and acquired intangible assets
We assess the carrying value of our goodwill and other indefinite useful life assets for
impairment annually at each reporting date. In respect of other assets, an assessment of the
carrying value is only required in instances where there is some indication of impairment. Our
assessment of the carrying value covers both goodwill and other assets, as it would be difficult to
separate the cash flows generated from the other assets as distinct from the cash flows supporting
the carrying value of goodwill. In addition, we have allocated goodwill and intangible assets with
an indefinite useful life to cash generating units (CGUs) for the purposes of undertaking
impairment testing.
Our assessment of the carrying value generally applies the discounted cash flow analysis
approach, except in the case of listed investments, where we use market prices. The discounted cash
flow analysis is based on the value in use calculation, representing the present value of the
future amount expected to be recovered through the cash inflows and outflows arising from the
assets continued use and subsequent disposal, discounted to its present value by an applicable
discount rate.
In determining our value in use, we apply management judgement in establishing our forecasts
of future operating performance of the assets in their current condition, as well as the selection
of an appropriate discount rate and terminal value growth rate. These
36
judgements are based on past experience and expectations for the future. The discount rate reflects
the market determined discount rate adjusted for specific risks relating to the CGU and the country
in which it operates. Our terminal value growth rate represents the growth rate applied to
extrapolate our cash flows beyond the five year forecast period.
We acquire intangible assets either as part of a business combination or through separate
acquisition. Intangible assets acquired in a business combination are recorded at fair value at the
date of acquisition and recognised separately from goodwill. On initial acquisition, we apply
management judgement to determine the appropriate allocation of purchase consideration to the
assets being acquired, including goodwill and identifiable intangible assets.
The carrying value of goodwill was A$2,073 million as at 30 June 2006 compared with A$2,037
million as at 30 June 2005. On initial acquisition, and at each subsequent reporting date, we
assess the useful life of goodwill and other acquired intangible assets as part of our assessment
of the carrying value of our investments. The increase in the carrying value of goodwill was mainly
attributable to the acquisition of controlled entities and foreign exchange movements.
The carrying value of our investments in jointly controlled and associated entities was A$23
million as at 30 June 2006 compared with A$48 million as at 30 June 2005. The carrying amount has
reduced during fiscal 2006 due to the sale of our 35.0% shareholding in Xantic B.V.
The carrying value of our acquired intangible assets including patents, trademarks, licences,
brandnames, customer bases and mastheads was A$1,686 million as at 30 June 2006 compared with
A$1,702 million as at 30 June 2005. The carrying value of these intangible assets are assessed
annually and adjusted down where it exceeds recoverable amount.
Our acquired intangible assets are amortised on a straight-line basis over the period of
expected benefit starting from the commencement date of use, with the exception of assets assessed
as having an indefinite useful life (predominately relating to mastheads). We apply management
judgement to determine the amortisation period based on the expected useful lives of the respective
assets. In some cases, the useful lives are supported by external valuation advice at the time of
acquisition. As at 30 June 2006, the remaining amortisation period of our acquired intangible
assets was reviewed and deemed appropriate. The mastheads of A$447 million were acquired as part of
our acquisition of the Trading Post(R). The mastheads are deemed to have an indefinite life, the
appropriateness of which is reassessed at each reporting date.
If our forecasts and assumptions prove to be incorrect or circumstances change, we may be
required to impair the carrying value of our investments, goodwill and acquired intangible assets.
In applying our assessments, we have not written down significant amounts of these assets during
the two-year period. We believe that as at 30 June 2006 our investments, goodwill and acquired
intangible assets are recoverable at the amounts at which they are stated in the consolidated
financial statements.
Carrying value and depreciation of property, plant and equipment
Property, plant and equipment assets made up 65.3% of our total assets in fiscal 2006 compared
with 65.0% in fiscal 2005. We therefore consider our accounting policies in relation to the
carrying value and depreciation of these assets to be critical. We have adopted the cost basis of
recording our property, plant and equipment, rather than the fair value basis. Land and buildings
are subject to valuation at least every three years, except properties that are on a disposal
program, which are subject to valuation each year.
We assess whether there is an indicator of impairment in our property, plant and equipment at
each reporting date. Where assets can be shown to be working together to generate net cash flows,
this assessment is performed over the group of assets rather than individually. When considering
this assessment we exclude the HFC cable network, as we do not consider this network to be
integrated with the rest of our ubiquitous telecommunications infrastructure in Australia. As at 30
June 2006, our assessment of the ubiquitous network and the HFC cable network did not identify any
impairment triggers and therefore it was not necessary to perform a recoverable amount test in
relation to the carrying value of the network assets.
We assess the appropriateness of the service lives of our property, plant and equipment assets
on an annual basis. This assessment includes a comparison against international trends for other
telecommunications companies. In relation to communications assets, our assessment includes a
determination of when the asset may be superseded technologically. We use a end date lifing
methodology where we believe technologies will be replaced by a certain date. Assets are grouped
into classes based on technologies when making the assessment of useful lives.
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The review of service lives was carried out at the commencement of the year and updated in
November 2005 to take into account the impacts associated with the transformation. As part of our
review, certain assets are reassessed with lives being extended or in some cases being reduced. The
net effect of the reassessment for fiscal 2006 was an increase in our depreciation expense of A$66
million compared with a decrease of A$60 million in fiscal 2005. The fiscal 2006 net increase
comprised a reduction in depreciation of A$196 million based on the review of services lives at 1
July 2005 and accelerated deprecation of A$262 million as a result of our transformation
initiatives. Any reassessment in a particular year will affect the depreciation expense (either
increasing or decreasing) for both that current year and future years through to the end of the
reassessed useful life.
If our forecasts and assumptions prove to be incorrect or circumstances change, we may be
required to impair the carrying value of our property, plant and equipment. Our impairment for
property, plant and equipment was A$69 million in fiscal 2006 compared with A$17 million in fiscal
2005. The increase in fiscal 2006 was mainly due to our decision to shut down certain networks and
platforms that are no longer considered recoverable as part of our transformation program. This
also includes our decision to cancel certain projects relating to the construction of property,
plant and equipment. We believe that as at 30 June 2006 our items of property, plant and equipment
are recoverable at the amounts at which they are stated in our consolidated financial statements.
Capitalisation of costs
Costs are classified as either operating or capital expenditure. We expense operating
expenditure to the income statement as it is incurred. We capitalise expenditure where it is
expected to generate future economic benefits. Capital costs are recorded as assets and reported in
our balance sheet based on the asset class considered most appropriate to those costs. Management
judgement is applied in determining costs to
be capitalised in relation to the following major asset categories:
Capitalisation of costs related to construction activities
The cost of our constructed property, plant and equipment includes directly attributable costs
such as purchased materials, direct labour and direct overheads required to bring the asset to the
location and condition necessary for its intended use. Satisfying the directly attributable
criteria requires an assessment of those unavoidable costs that, if not incurred, would result in
the asset not being constructed or installed.
The cost of our constructed property, plant and equipment also includes an allocation of
indirect overheads. Indirect overhead costs are directly attributable to the construction of
assets, but can only be allocated to specific projects on an arbitrary basis, as they do not
usually vary with construction activity volumes. Examples of indirect overhead costs include
planning and design of construction projects and the management of construction contracts.
Management judgement is applied in determining the indirect cost pool and allocating it to each
project.
Capitalisation of software assets developed for internal use
We capitalise costs associated with the development of network and business software for
internal use where future benefits embodied in the particular asset will eventuate and can be
reliably measured. Management applies judgement to assess the costs to be capitalised in the
development of software assets and the amortisation period applied.
Costs capitalised as software assets for internal use include:
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external direct costs of materials and services consumed; |
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payroll and direct payroll related costs for employees associated with a project; and |
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internal indirect costs directly attributable to the software asset being developed. |
Capitalised software assets totalled A$1,782 million as at 30 June 2006 compared with A$1,970
million as at 30 June 2005. The recoverability of capitalised software assets is assessed
semi-annually at each reporting date. If our estimates prove to be incorrect or circumstances
change, we may be required to impair the carrying value of our software assets.
The service lives of software assets are reviewed each year with reference to global industry
practices. Software assets have a weighted average life of six years in both fiscal 2006 and fiscal
2005, despite the changes resulting from the impact of transformation on certain software asset
lives in the current year. Major systems such as certain billing systems may have a longer life.
The net effect
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of the reassessment of the useful life of software assets for fiscal 2006 resulted in an increase
in amortisation expense of A$160 million in fiscal 2006 compared with A$nil in fiscal 2005,
reflecting the impact of transformation initiatives in the current year.
If these assumptions prove to be incorrect or circumstances change, we may be required to
impair the carrying value of capitalised software assets. Our impairment for capitalised software
assets was A$65 million in fiscal 2006 compared with A$nil in fiscal 2005. The increase in fiscal
2006 was led by our decision to shut down certain networks and platforms that are no longer
considered recoverable as part of our transformation program. This also includes our decision to
cancel certain projects relating to the development of software. We believe that as at 30 June
2006, our capitalised software assets are recoverable at the amounts at which they are stated in
our consolidated financial statements.
Deferred expenditure
Our deferred expenditure relates to costs deferred for basic access installation and
connection, major
service solution contracts and the generation of Yellow(R) and White Pages(R) revenue. In
addition, incentive and administration fees associated with acquisition of certain mobile
subscribers are also recorded as deferred expenditure.
We defer expenditure where it is probable that the future benefits embodied in the particular
asset will eventuate and can be reliably measured. As a result, we are required to identify future
benefits expected to arise from the deferral of expenses, which relate to the revenue that is to be
recognised in future periods. Each year we use management judgement to determine the average period
over which the related benefits of our deferred expenditure are expected to be realised. We also
review expenditure deferred in previous periods to determine the amount, if any, that is no longer
recoverable. The amount of deferred expenditure that is no longer recoverable is recorded as an
expense immediately in the income statement.
A substantial portion of our deferred expenditure relates to basic access installation and
connection costs. These costs are taken to the income statement in line with the release of
installation and connection fee revenues, which are deferred and recognised over the average
estimated customer life. Based on our reviews of historical information and customer trends, we
have determined that the average estimated customer life is five years for both fiscal 2006 and
fiscal 2005. Our deferred expenditure after amortisation was A$582 million as at 30 June 2006
compared with A$620 million as at 30 June 2005.
Defined benefit assets and actuarial gains/losses
We currently sponsor two post employment defined benefit plans. The Telstra Entity and some of
our Australian controlled entities participate in the Telstra Superannuation Scheme (Telstra
Super). Our controlled entity, CSL, participates in the HK CSL Retirement Scheme. We recognise a
defined benefit asset for the net surplus recorded in each of our post employment defined benefit
plans. The net surplus represents the fair value of the plan assets less the present value of the
defined benefit obligations, adjusted for contributions tax. The fair value of plan assets
approximates its net market values. Defined benefit obligations are based on expected future
payments required to settle the obligations arising from current and past employee services. This
obligation is significantly influenced by factors such as estimates on final salaries and employee
turnover.
All of the actuarial gains/losses associated with our defined benefit plans are recognised
directly in retained profits in the period in which they occur. For financial reporting purposes,
we engage an actuary to assist in the determination of our net defined benefit asset and the
associated actuarial gains/losses at each reporting date. The following represent the main
assumptions used in the actuarial calculations of the pension expense, plan assets and defined
benefit obligations:
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the discount rate to determine the defined benefit plan expense; |
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the discount rate used for reporting defined benefit obligations; |
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the rate of increase on future salary levels for both the defined benefit plan expense and the
defined benefit obligations; and |
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the expected long term rate of return on plan assets. |
The assumptions applied in our calculation have a significant impact on the reported amount of
our defined benefit plan assets of A$1,029 million as at 30 June 2006 and A$247 million as at 30
June 2005. In fiscal 2006, the increase was mainly due to higher investment returns than expected
and a reduction in accrued benefits as a result of a large number of defined benefit members
leaving the scheme, mainly reflecting the redundancies during the current year. In applying our
estimates, we have recorded an actuarial gain
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of A$962 million in fiscal 2006, compared with an actuarial loss of A$90 million in fiscal 2005,
directly in retained profits in accordance with the applicable accounting standard. Refer to note
28 to our consolidated financial statements for details on the assumptions applied to each of our
defined benefit plans, the method
of determining these assumptions and sensitivity analysis of a one percentage point decline in
these key assumptions on our defined benefit expense and asset.
If our current estimates proves to be incorrect, the carrying value of our defined benefit
assets as at 30 June 2006 may be materially impacted in the next reporting period. Additional
volatility may also be recorded in retained profits to reflect differences between actuarial
assumptions of future outcomes applied at the current reporting date and the actual outcome in the
next annual reporting period. Based on the assumptions applied at year end, we believe that as at
30 June 2006, our defined benefit assets are fairly stated in our consolidated financial
statements.
Valuation of receivables
We maintain allowances for doubtful debts based on an estimate of the inability of our
customers to pay amounts due to us for services rendered to them. These allowances are based on
historical trends and managements assessment of general economic conditions. An allowance for
doubtful debts is raised when it is considered that there is a credit risk, insolvency risk or
incapacity to pay a legally recoverable debt. We have adopted a number of methodologies depending
on the different customer portfolio to determine the appropriate allowance for doubtful debts in
each of our business segments. If the financial condition of our customers deteriorates, these
provisions may not be sufficient and may lead to an increase in bad and doubtful debt expenses. We
have no reason to believe that the allowances raised will not sufficiently cover bad debts arising
from the receivables we currently have on hand.
Our allowance for doubtful debts was A$144 million as at 30 June 2006 compared with A$159
million as at 30 June 2005. Trade debtors before any allowance for doubtful debts was A$2,565
million as at 30 June 2006 compared with A$2,434 million as at 30 June 2005.
Included in our receivables is the loan to REACH of A$210 million as at 30 June 2006 and A$204
million as at 30 June 2005. We fully provided for this loan to REACH in both fiscal 2006 and fiscal
2005 due to the uncertainty of repayment in the medium term.
Provisions
Our provision for employee benefits predominantly relates to the provisions for annual leave
and long service leave entitlements. The calculation of annual leave entitlements should be based
on remuneration rates expected to be paid when the obligation is settled. Ordinarily this would
require the provision for annual leave entitlements to use estimated remuneration rates at the time
leave is expected to be settled or taken. We use nominal remuneration rates in determining the
annual leave provision on the basis that the difference between the nominal rates and applying the
estimated future rates would not be material to our provision.
We accrue for long service leave entitlements not expected to be paid or settled within one
year of balance date at present values of the future amounts expected to be paid. The calculation
is actuarially determined and includes the following estimates:
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the projected increases in wage and salary rates over an average of ten
years; |
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the probability of employees reaching their long service leave
entitlement at year 10; |
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the employee leave taking rate; and |
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the weighted
average discount rate. |
In relation to the discount rate, we apply the weighted average government bond rate for the
one year period ended 30 June, rather than the government bond rate as at 30 June. This approach is
taken to limit the impact of volatility in government bond rates. Our provision for employee
benefits was A$892 million as at 30 June 2006 compared with A$946 million as at 30 June 2005.
We self-insure for workers compensation liabilities. A provision is taken up for the present
value of the estimated liability, based on an actuarial review of the liability. This review
includes an assessment of actual accidents and estimated claims incurred but not yet reported. Our
provision for workers
compensation was A$216 million as at 30 June 2006 compared with A$214 million as at 30 June
2005.
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Our provision for redundancy of A$186 million and provision for restructuring of A$209 million
was recorded in fiscal 2006 as part of our transformation program. A provision has been raised for
only those redundancy and restructuring costs where a detailed formal plan has been approved and we
have raised a valid expectation in those affected that the plan will be carried out. Management
judgement was applied in determining the extent that future transformation activities were likely
to result in restructuring costs and in estimating those future costs. These provisions extend
beyond a period of 12 months, and as a result we applied the pre-tax government bond rate for the
redundancy provision and the Telstra pre-tax weighted average cost of capital for the restructuring
provision as the discount rate to reflect the present value of these provisions as at 30 June 2006.
Derivative financial instruments and hedge accounting
Under A-IFRS, we are required to recognise the fair value of all our derivative financial
instruments on the balance sheet from 1 July 2005. As a result, we apply management judgement to
determine the application of an appropriate valuation technique, which includes references to
prices quoted in active markets, discounted cash flow analysis, recent arms length transactions
involving the same or similar instruments and option pricing models.
When using a discounted cash flow analysis, our assumptions are based on market conditions
existing at balance date and we use an appropriate market based yield curve, which is independently
derived and representative of our cost of borrowing.
We use various derivative financial instruments to hedge the following risks:
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changes in the fair value of our financial assets and liabilities; |
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variability of future cash flows attributable to foreign currency fluctuations; and |
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the foreign currency risk when we translate the net assets of our foreign investments. |
Revenue recognition
We recognise revenues when they are earned through the delivery of a product or service.
Telecommunications revenues are recorded at amounts billed plus an appropriate accrual for calls
made since the last billing date. Revenues that relate to more than one period are deferred and
amortised into sales revenue over the expected period of benefit.
All of our Yellow(R) and White Pages(R) print directory advertising revenues are recognised on
delivery of the published directories. We apply our management judgement to determine that our
directories are delivered when they have been published and delivered to our customers premises.
Revenue from online directories is recognised over the life of service agreements, which is on
average one year. Voice directory revenues are recognised at the time of providing the service to
customers.
Accrued revenue comprises mainly the recognition of unbilled amounts relating to telephone
usage, service and maintenance. Our major billing system generates most of the accrued revenue and
automatically accrues revenue for billing cycles that remain unbilled as at the reporting date.
Where multiple revenue generating deliverables are sold under a single arrangement each
deliverable that is considered to be a separate unit of accounting is accounted for separately. We
allocate the consideration from the revenue arrangement to the separate units based on the relative
fair values of each unit. If the fair value of the delivered item is not readily available, revenue
is allocated based on the difference between the total arrangement consideration and the fair value
of the undelivered items. We currently have a number of arrangements that are considered to be
distinguishable into separate units of accounting, including mobile handsets offered as part of a
mobile network contract or sold as part of a
prepaid package, broadband Internet installation kits where the modem is provided and
advertising in the Yellow(R) printed and online directories.
Management estimates and judgements applied in our US-GAAP reconciliation
We disclose our A-IFRS/US-GAAP reconciliation differences in detail in note 37 to our
consolidated financial statements. During fiscal 2006, the conversion to A-IFRS required us to
restate our fiscal 2005 comparative financial information, including our US-GAAP reconciliation.
The management estimates and judgments that we believe have the most significant impact on the
US-GAAP reconciliation are as follows:
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Capitalisation of indirect costs and borrowing costs before 1 July 1996 for property, plant and
equipment
Under previous AGAAP, we did not capitalise indirect costs and borrowing costs prior to 1 July
1996. In addition, under A-IFRS we no longer capitalise borrowing costs. However, under US-GAAP we
are required to capitalise borrowing costs and those indirect costs associated with operations and
personnel directly involved in the construction of our communication assets. This involved the use
of estimation techniques and the reconstructing of records as far back as 1980. Due to the fact
that we used estimation techniques to reconstruct the balances, the actual balance may have been
greater or less than the adjustment calculated. This impacts the adjustment made to property, plant
and equipment each fiscal year and the resulting annual depreciation expense in our US-GAAP
reconciliation.
Property, plant and equipment with a net book value of A$834 million as at 30 June 2006 and
A$894 million as at 30 June 2005 was capitalised for US-GAAP purposes, which was not capitalised
under A-IFRS. Additional depreciation and disposals have also been recorded of A$147 million in
fiscal 2006 and A$168 million in fiscal 2005 as a result of this difference.
Net pension asset/liability and actuarial gains/losses
We engage an actuary to assist in the determination of our prepaid pension asset/liability and
retirement benefit gains and losses. Many of the assumptions used under A-IFRS are also applied
under US-GAAP. These assumptions have a significant impact on the calculations and adjustments
made. The discount rate applied under US-GAAP is different to the discount rate applied under
A-IFRS due to the differing treatment of investment tax, with A-IFRS accounting for investment tax
of the fund by adjusting the pre-tax discount rate.
Under A-IFRS we have elected to recognise all our actuarial gains/losses directly in retained
profits. Under US-GAAP, the recognition of certain gains/losses are delayed in the income statement
using the corridor approach. Under this approach, the aggregated unrecorded gains and losses
exceeding 10% of the greater of the aggregated projected benefit obligation or the market value of
the plan assets are amortised over the average expected service period of active employees expected
to receive benefits under the plan.
As at 30 June 2006, the net pension liability for US-GAAP was A$167 million, comprising the
net deficit of Telstra Super of A$172 million, partially offset by a surplus of A$5 million in
relation to the HK CSL Retirement Scheme. Refer to note 37(f) for further details on the accounting
treatment under US-GAAP.
Impairment of goodwill
During fiscal 2006, the balance of our goodwill in CSL was impaired prior to the merger with
New World Mobility Group. Due to historical US-GAAP adjustments, our CSL goodwill balance for
US-GAAP has always been higher than under A-IFRS and previous AGAAP. For the purposes of recording
the impairment, we have applied management judgement with the assistance of external advisers, in
calculating an implied fair value of CSL and allocating that fair value to CSLs identifiable
assets and liabilities, including the intangible assets. The impairment of CSLs goodwill for
US-GAAP purposes does not impact the carrying value assessment of the goodwill recognised under
A-IFRS.
Changes in accounting policies
Australian entities reporting under the Corporations Act 2001 must prepare their financial
reports for financial years commencing on or after 1 January 2005 under A-IFRS as adopted by the
Australian Accounting Standards Board (AASB). This involved preparing our first full year set of
consolidated financial statements applying A-IFRS for the financial year ended 30 June 2006.
The transitional rules for first time adoption of A-IFRS require that we restate our
comparative financial report using A-IFRS applied as of 1 July 2004, except for AASB 132:
Financial Instruments: Disclosure and Presentation and AASB 139: Financial Instruments:
Recognition and Measurement, where comparative information was not required to be restated. In
addition, we have elected to early adopt AASB 7: Financial Instruments: Disclosures, which
supersedes the disclosure requirements of AASB 132.
For reporting in the current year, comparatives were remeasured and restated for the financial
year ended 30 June 2005. Most of the adjustments on transition were made to opening retained
profits at the beginning of the first comparative period (i.e., at 1 July 2004).
Our adoption of A-IFRS has significantly impacted the accounting policy and reported amounts of
the following items:
42
|
|
|
share based payments; |
|
|
|
|
business combinations; |
|
|
|
|
income
taxes; |
|
|
|
|
property, plant and
equipment; |
|
|
|
|
leases; |
|
|
|
|
employee
benefits; |
|
|
|
|
changes in foreign
exchange rates; |
|
|
|
|
borrowing
costs; |
|
|
|
|
investments in associates and joint
ventures; |
|
|
|
|
impairment of assets; and |
|
|
|
|
intangible assets. |
Under A-IFRS, our net profit after tax may be more volatile compared with previous Australian
accounting standards. The volatility in net profit after tax could be caused by the accounting
requirements in areas such as impairment of goodwill balances and hedging. However, the adoption of
A-IFRS has not affected our net cash flows, our ability to borrow funds or our capacity to pay
dividends to our shareholders. In note 36 to our consolidated financial statements, we have:
|
|
|
identified and explained the key differences in accounting policy; |
|
|
|
|
provided our differences on the date of transition (i.e., 1 July 2004) and for the current
comparative period (i.e., 30 June 2005); |
|
|
|
|
provided full reconciliations of our reported results under previous AGAAP to those comparatives
reported in our current year consolidated financial statements under A-IFRS; and |
|
|
|
|
provided qualitative information on the exemptions applied under AASB 1 on first time adoption of
A-IFRS. |
Other than the adoption of A-IFRS, we have had no significant change in accounting policy during
the two-year period.
43
Results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006/2005 |
|
|
|
(In A$ millions) |
|
|
|
|
|
|
(% change) |
|
Sales revenue |
|
|
22,750 |
|
|
|
22,161 |
|
|
|
589 |
|
|
|
2.7 |
% |
Other revenue (excl. finance income) |
|
|
22 |
|
|
|
20 |
|
|
|
2 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
22,772 |
|
|
|
22,181 |
|
|
|
591 |
|
|
|
2.7 |
% |
Other income |
|
|
328 |
|
|
|
261 |
|
|
|
67 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (excl. finance income) |
|
|
23,100 |
|
|
|
22,442 |
|
|
|
658 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excl. interest expense and
depreciation and amortisation |
|
|
13,521 |
|
|
|
11,884 |
|
|
|
1,637 |
|
|
|
13.8 |
% |
Share of net (gain)/loss from jointly controlled and
associated entities |
|
|
(5 |
) |
|
|
94 |
|
|
|
(99 |
) |
|
|
(105.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, income tax expense,
depreciation and amortisation (EBITDA)(1) |
|
|
9,584 |
|
|
|
10,464 |
|
|
|
(880 |
) |
|
|
(8.4 |
)% |
Depreciation & amortization |
|
|
4,087 |
|
|
|
3,529 |
|
|
|
558 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest & income tax expense (EBIT)(1) |
|
|
5,497 |
|
|
|
6,935 |
|
|
|
(1,438 |
) |
|
|
(20.7 |
)% |
Net finance costs |
|
|
936 |
|
|
|
880 |
|
|
|
56 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
4,561 |
|
|
|
6,055 |
|
|
|
(1,494 |
) |
|
|
(24.7 |
)% |
Income tax expense |
|
|
1,380 |
|
|
|
1,746 |
|
|
|
(366 |
) |
|
|
(21.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit for the year |
|
|
3,181 |
|
|
|
4,309 |
|
|
|
(1,128 |
) |
|
|
(26.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
30.3 |
% |
|
|
28.8 |
% |
|
|
|
|
|
|
1.5 |
% |
EBITDA margin on sales revenue |
|
|
42.1 |
% |
|
|
47.2 |
% |
|
|
|
|
|
|
(5.1 |
)% |
EBIT margin on sales revenue |
|
|
24.2 |
% |
|
|
31.3 |
% |
|
|
|
|
|
|
(7.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
A$ (cents) |
|
A$ (cents) |
|
A$ (cents) |
|
% change |
Basic earnings per share(2) |
|
|
25.7 |
|
|
|
34.7 |
|
|
|
(9.0 |
) |
|
|
(25.9 |
)% |
Diluted earnings per share(2) |
|
|
25.7 |
|
|
|
34.6 |
|
|
|
(8.9 |
) |
|
|
(25.7 |
)% |
Dividends paid or declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim dividend paid |
|
|
14.0 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
Special dividend paid with interim dividend |
|
|
6.0 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
Final dividend declared (2005 paid) |
|
|
14.0 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
Special dividend to be paid with final
dividend (2005 paid) |
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA reflects our profit prior to including the effect of interest revenue, borrowing costs,
income taxes, depreciation and amortisation. We believe that EBITDA is a relevant and useful
financial measure used by management to measure our operating profit. Our management uses EDITDA,
in combination with other financial measures, primarily to evaluate our operating performance
before financing costs, income tax and non-cash capital related expenses. In consideration of the
capital intensive nature of our business, EBITDA is a useful supplement to net income in
understanding cash flows generated from operations that are available for payment of income taxes,
debt service and capital expenditure. In addition, we believe EBITDA is useful to investors because
analysts and other members of the investment community largely view EBITDA as a key and widely
recognised measure of operating performance. EBITDA is not a US-GAAP measure of income or cash flow
from operations and should not be considered an alternative to net income as an indication of our
financial performance, or as an alternative to cash flow from operating activities as a measure of
our liquidity. EBIT is a similar measure to EBITDA, but takes into account the effect of
depreciation and amortisation. |
|
(2) |
|
Basic and diluted earnings per share are impacted by the effect of shares held in trust for
employee share plans and instruments held under executive remuneration plans. |
In fiscal 2006, sales revenue growth was driven by Internet & IP solutions, mobile revenues,
advertising
& directories, CSLs merger with New World PCS and pay TV bundling. Growth was partially
offset by a decline in revenues mainly from PSTN calling products, specialised data and ISDN
products. Sales revenue grew by 2.7% as we continue to manage the shift in customer demand from our
traditional products such as PSTN to our emerging products such as broadband.
In April 2006, CSL and New World Mobile Holdings Limited merged, however this had minimal
impact on the overall sales revenue in fiscal 2006. Apart from this transaction, there was little
activity in the mergers and acquisitions area in 2006.
44
Sales growth was marginally impacted by acquisitions that took place in fiscal 2005, with
current year revenue figures including a full twelve months of operation for acquired entities KAZ,
PSINet, Universal Publishers Pty Ltd (Universal Publishers) and Telstra Business Systems Pty Ltd
(formerly known as Damovo (Australia) Pty Ltd).
Our expenses have been impacted by the initial stages of our transformation strategy and our
focus continues to be on executing our strategy as announced to the market in November 2005. Our
total expenses increased due to higher labour costs, in particular redundancy costs, higher goods
and services purchased supporting revenue growth, and higher other expenses, primarily as a result
of the transformation program. These expense categories were also impacted by the recognition of a
provision at year end for redundancy and restructuring of A$427 million to cover activity in future
years relating to our business transformation. Depreciation and amortisation also increased,
primarily due to accelerated depreciation after a review of asset service lives impacted by our
transformation strategy.
As a result of these factors, our profit before income tax expense was A$4,561 million in
fiscal 2006 compared with A$6,055 million in fiscal 2005, and our net profit decreased by 26.2% in
fiscal 2006.
Operating revenues
In the following discussion, we analyse revenue for each of our major products and services.
The principal areas of operating revenue growth for fiscal 2006 were:
|
|
|
mobiles; |
|
|
|
|
internet and IP solutions; |
|
|
|
|
advertising and
directories; and |
|
|
|
|
pay TV
bundling. |
In fiscal 2006, our sales revenue growth was partially offset by a 6.7% decline in PSTN
product revenues as customers continue to move towards new products and services to satisfy their
requirements and competition further intensifies in the market.
Competition has continued to intensify and, as a result, we have seen our revenues decline in
a number of areas despite increasing volumes. We have also experienced a continued shift in revenue
from our traditional higher margin retail operations (such as our PSTN products) to our lower
margin retail products (such as mobiles and broadband). We have continued to concentrate on product
bundling initiatives and managing the migration of customers to other products. In the second half
of fiscal 2006, we introduced our first subscription price based offers into the consumer market to
help address the decline of our traditional product revenues and to make pricing easier for our
customers. We have also introduced market based management to enable us to better serve our
customers needs.
We expect that there will be continued competitive pressure in some of our traditional product
areas. However, the volume of telecommunications services purchased in Australia has increased and
the range of products and services offered continues to expand.
Categorisation of our operating revenue
We categorise revenue from the products and services we derive from wholesale customers
according to the nature of the product or service provided. For example, we categorise operating
revenue from interconnect and access charges relating to PSTN and mobiles, within those categories
as appropriate. Products resold are also within the relevant product categories. This is a revised
approach from how interconnect and access charge revenues were presented in the prior year.
We are actively promoting alternative access services that are faster and have more
capabilities than our basic access service. As more of our customers purchase these alternative
services, operating revenue will continue to move from one category to another. For example, as our
customers continue to switch from buying basic access services to buying other forms of access
services, such as ADSL, operating revenue from some customers will shift from the basic access
category to the Internet and IP solutions category.
The rates we charge our retail customers are subject to regulated retail price controls
45
The rates we charge our retail customers for selected fixed network telephony products are
subject to retail price controls. The retail price control regime, set by the Commonwealth, applies
to us and no other telecommunications provider. The new price control regime commenced on 1 January
2006.
These retail price controls require us to:
|
|
|
ensure parity in the local call prices offered to regional and metropolitan customers; |
|
|
|
|
ensure there is a package of PSTN services targeted and available to low income customers; |
|
|
|
|
notify and seek the consent of the ACCC when price increases to residential line rental rates are
proposed; and |
|
|
|
|
report on compliance to the ACCC no later than three months after 30 June 2007 and subsequently
each year until 30 June 2009. |
|
|
In addition, we are required to apply the following price controls: |
|
|
|
|
the price of a bundle of services including basic access, local calls, national long distance
calls, fixed-to-mobile calls and international calls will not increase; |
|
|
|
|
basic residential and business access charges will not increase by more than the consumer price
index (CPI) with current basic residential access charges maintained until 30 June 2007; |
|
|
|
|
charges for connections capped to increases in CPI; |
|
|
|
|
the charge for charity organisations not to be increased to a level which exceeds the price of
the standard residential line rental rate; |
|
|
|
|
the price for local calls made from one of our public payphones will not exceed A$0.50 (GST
included) per call; and |
|
|
|
|
the price for untimed local calls and dial-up Internet calls are capped at A$0.22 (GST included)
per call, except for untimed local or dial-up calls which form part of a subscription pricing
package or a discounted line rental arrangement. |
Despite these restrictions, we have been able to innovate and recently introduced a range of
calling plan options, including new capped calling plans. We continue to reduce prices on a range
of telephony services in order to respond to customer needs and market conditions. We also monitor
our pricing to ensure that we comply with the price control requirements.
The previous price control determination that applied up until 31 December 2005 had required
our
revenues from line rentals and calling products to be separately measured. These price
controls imposed a cap of CPI plus 4% for line rental, and CPI minus 4.5% on a basket of calls
comprising local, long distance, international and fixed-to-mobile. The previous regime also
required the price for local calls made from one of our public payphones not to exceed A$0.40 (GST
included) per call. Business customers on negotiated contractual arrangements are excluded from the
new price controls.
46
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006/2005 |
|
|
|
(In A $ millions) |
|
|
|
|
|
|
(% change) |
|
PSTN Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access |
|
|
3,318 |
|
|
|
3,362 |
|
|
|
(44 |
) |
|
|
(1.3 |
)% |
Local calls |
|
|
1,023 |
|
|
|
1,284 |
|
|
|
(261 |
) |
|
|
(20.3 |
)% |
PSTN value added services |
|
|
246 |
|
|
|
250 |
|
|
|
(4 |
) |
|
|
(1.6 |
)% |
National long distance calls |
|
|
913 |
|
|
|
1,013 |
|
|
|
(100 |
) |
|
|
(9.9 |
)% |
Fixed to mobile |
|
|
1,491 |
|
|
|
1,566 |
|
|
|
(75 |
) |
|
|
(4.8 |
)% |
International direct |
|
|
201 |
|
|
|
234 |
|
|
|
(33 |
) |
|
|
(14.1 |
)% |
Fixed interconnection |
|
|
286 |
|
|
|
309 |
|
|
|
(23 |
) |
|
|
(7.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PSTN |
|
|
7,478 |
|
|
|
8,018 |
|
|
|
(540 |
) |
|
|
(6.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobiles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services Retail |
|
|
3,846 |
|
|
|
3,736 |
|
|
|
110 |
|
|
|
2.9 |
% |
Mobile services Wholesale |
|
|
36 |
|
|
|
24 |
|
|
|
12 |
|
|
|
50.0 |
% |
Mobile services
Interconnection |
|
|
623 |
|
|
|
547 |
|
|
|
76 |
|
|
|
13.9 |
% |
Mobile handsets |
|
|
467 |
|
|
|
381 |
|
|
|
86 |
|
|
|
22.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mobiles |
|
|
4,972 |
|
|
|
4,688 |
|
|
|
284 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrowband |
|
|
220 |
|
|
|
275 |
|
|
|
(55 |
) |
|
|
(20.0 |
)% |
Retail broadband |
|
|
730 |
|
|
|
463 |
|
|
|
267 |
|
|
|
57.7 |
% |
Wholesale broadband |
|
|
461 |
|
|
|
261 |
|
|
|
200 |
|
|
|
76.7 |
% |
Internet direct |
|
|
143 |
|
|
|
123 |
|
|
|
20 |
|
|
|
16.3 |
% |
IP solutions |
|
|
285 |
|
|
|
207 |
|
|
|
78 |
|
|
|
37.7 |
% |
Other |
|
|
68 |
|
|
|
48 |
|
|
|
20 |
|
|
|
41.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Internet and IP solutions |
|
|
1,907 |
|
|
|
1,377 |
|
|
|
530 |
|
|
|
38.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISDN products |
|
|
807 |
|
|
|
890 |
|
|
|
(83 |
) |
|
|
(9.3 |
)% |
Specialised data |
|
|
884 |
|
|
|
966 |
|
|
|
(82 |
) |
|
|
(8.5 |
)% |
Advertising and directories |
|
|
1,711 |
|
|
|
1,585 |
|
|
|
126 |
|
|
|
7.9 |
% |
Intercarrier services |
|
|
351 |
|
|
|
290 |
|
|
|
61 |
|
|
|
21.0 |
% |
Inbound calling products |
|
|
449 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
Solutions management |
|
|
989 |
|
|
|
931 |
|
|
|
58 |
|
|
|
6.2 |
% |
HKCSL New World |
|
|
830 |
|
|
|
734 |
|
|
|
96 |
|
|
|
13.1 |
% |
TelstraClear |
|
|
620 |
|
|
|
625 |
|
|
|
(5 |
) |
|
|
(0.8 |
)% |
Offshore services revenue |
|
|
295 |
|
|
|
252 |
|
|
|
43 |
|
|
|
17.1 |
% |
Payphones |
|
|
104 |
|
|
|
121 |
|
|
|
(17 |
) |
|
|
(14.0 |
)% |
Pay TV bundling |
|
|
320 |
|
|
|
263 |
|
|
|
57 |
|
|
|
21.7 |
% |
Customer premises equipment |
|
|
274 |
|
|
|
231 |
|
|
|
43 |
|
|
|
18.6 |
% |
Other sales & service |
|
|
759 |
|
|
|
741 |
|
|
|
18 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue |
|
|
22,750 |
|
|
|
22,161 |
|
|
|
589 |
|
|
|
2.7 |
% |
Other revenue |
|
|
22 |
|
|
|
20 |
|
|
|
2 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
22,772 |
|
|
|
22,181 |
|
|
|
591 |
|
|
|
2.7 |
% |
Other income |
|
|
328 |
|
|
|
261 |
|
|
|
67 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
23,100 |
|
|
|
22,442 |
|
|
|
658 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
PSTN Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006/2005 |
|
|
|
(In A$ millions) |
|
|
(% change) |
|
Basic access revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
2,592 |
|
|
|
2,725 |
|
|
|
(133 |
) |
|
|
(4.9 |
)% |
Domestic wholesale |
|
|
726 |
|
|
|
637 |
|
|
|
89 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basis access revenue |
|
|
3,318 |
|
|
|
3,362 |
|
|
|
(44 |
) |
|
|
(1.3 |
)% |
Local call revenue |
|
|
1,023 |
|
|
|
1,284 |
|
|
|
(261 |
) |
|
|
(20.3 |
)% |
PSTN value added services revenue |
|
|
246 |
|
|
|
250 |
|
|
|
(4 |
) |
|
|
(1.6 |
)% |
National long distance call revenue |
|
|
913 |
|
|
|
1,013 |
|
|
|
(100 |
) |
|
|
(9.9 |
)% |
Fixed to mobile revenue |
|
|
1,491 |
|
|
|
1,566 |
|
|
|
(75 |
) |
|
|
(4.8 |
)% |
International direct revenue |
|
|
201 |
|
|
|
234 |
|
|
|
(33 |
) |
|
|
(14.1 |
)% |
Fixed interconnection |
|
|
286 |
|
|
|
309 |
|
|
|
(23 |
) |
|
|
(7.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PSTN revenue |
|
|
7,478 |
|
|
|
8,018 |
|
|
|
(540 |
) |
|
|
(6.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access lines in service (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
5.46 |
|
|
|
5.60 |
|
|
|
(0.14 |
) |
|
|
(2.5 |
)% |
Business |
|
|
2.32 |
|
|
|
2.45 |
|
|
|
(0.13 |
) |
|
|
(5.3 |
)% |
Total Retail |
|
|
7.78 |
|
|
|
8.05 |
|
|
|
(0.27 |
) |
|
|
(3.4 |
)% |
Domestic wholesale |
|
|
2.16 |
|
|
|
2.07 |
|
|
|
0.09 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total access lines in service |
|
|
9.94 |
|
|
|
10.12 |
|
|
|
(0.18 |
) |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of local calls (in millions) |
|
|
7,432 |
|
|
|
8,469 |
|
|
|
(1,037 |
) |
|
|
(12.2 |
)% |
National long distance minutes (in
millions)(1) |
|
|
7,215 |
|
|
|
7,743 |
|
|
|
(528 |
) |
|
|
(6.8 |
)% |
Fixed to mobile minutes (in millions) |
|
|
4,491 |
|
|
|
4,375 |
|
|
|
116 |
|
|
|
2.7 |
% |
International direct minutes (in millions) |
|
|
534 |
|
|
|
580 |
|
|
|
(46 |
) |
|
|
(7.9 |
%) |
|
|
|
Note: statistical data represents managements best estimates. |
|
(1) |
|
Includes national long distance minutes from our public switched telephone network (PSTN) and
independently operated payphones. Excludes minutes related to calls from non-PSTN networks, such as
ISDN and virtual private networks. |
Total PSTN products revenue in fiscal 2006 was A$7,478 million, which declined by 6.7% or
A$540 million from fiscal 2005. This compares with a decline of 3.6% in fiscal 2005 (inclusive of
fixed interconnection).
There has been a general reduction in PSTN volumes, with a decline in retail basic access
lines, and volume reductions across local calls, national long distance calls, international direct
calls and fixed interconnection. Yields have also declined in local calls, national long distance,
fixed-to-mobile, international direct and fixed interconnection due to competitive pricing
pressure. The decline in the first half of the fiscal year was 7.6% which was slowed to 5.8% for
the second half of the fiscal year.
Work continues on the integration of mobile, fixed and broadband services to add value to the
fixed line. This is aimed at arresting the decline in fixed line use.
Late in the second half of the year, we introduced subscription pricing plans for our PSTN
customers, which offer greater choice and value from the home phone, including untimed national
long distance calls and low or no charge local calls. These plans did not have any significant
impact on our PSTN revenues in fiscal 2006 with the benefits expected to be seen in the next fiscal
year.
Basic access
Our basic access revenue includes monthly rental fees, installation charges and connection
charges, from telephone service connections between a customers premises and our PSTN network.
Basic access revenues are affected by:
|
|
|
housing growth; |
|
|
|
|
competition; |
48
|
|
|
demand for telephone services and additional lines; |
|
|
|
|
regulatory constraints in relation to wholesale basic access; |
|
|
|
|
migration to other products such as Broadband and mobiles; and |
|
|
|
|
price changes. |
Under our basic access pricing structure, we have a range of access and call pricing packages
to give our residential and business customers choice in the plan they select, along with a range
of reward options. These pricing packages are reviewed regularly to reflect the changing needs of
customers. For the most part, wholesale customers receive the pricing plan which only incorporates
the basic telephone service with local call rates, excluding long distance and fixed-to-mobile
calls (with a residential and business differentiation still applying).
Our operating revenue from basic access services was also affected by competition during
fiscal 2006. During fiscal 2006, the number of retail residential and business basic access lines
decreased due to strong competition and migration to alternative products such as broadband and
mobiles. Domestic wholesale basic access lines in service grew, reflecting the increased
penetration of our competitors into the retail basic access market. In the retail segment, we saw a
decline of 270,000 lines in service or 3.4%, mainly driven by the migration to other technologies
which is underpinning the retail trend across PSTN revenues. This decline was partially offset by
an increase of 90,000 lines in service or 4.3% in the wholesale market.
Overall our operating revenue from basic access services decreased by A$44 million or 1.3%.
During fiscal 2006, we introduced various basic access packages, which reduced the decline in
revenue in this area, despite an overall decrease in basic access lines in service.
Rental revenue increased due to a rise in line rental price charges from December 2005, which
included a rise in basic access prices for wholesale and non preselected retail residential
customers. In addition, penetration of higher value HomeLine plans including HomeLine Ultimate, a
new subscription based plan introduced in April 2006, is also expected to contribute positively.
Partly offsetting this was an increase in the discounts to Whole of Business customers and
pensioners.
Local calls
Our local call revenue from local call charges, consists of revenue from local calls on our
PSTN network and includes revenue from our megapop product which allows ISPs to offer untimed local
call PSTN dial up access for their customers via a single national dial up 019 number. For the most
part we charge for local calls without a time limit.
Our local call revenue is affected by:
|
|
|
the number of basic access lines in service and customers moving from our basic access
service to our other access services, such as mobiles and broadband; |
|
|
|
|
competition; |
|
|
|
|
increasing use of email; |
|
|
|
|
customers migrating to mobile and fixed-to-mobile calling; and |
|
|
|
|
pricing changes and regulatory retail price restrictions. |
Local call revenue decreased by A$261 million or 20.3% in fiscal 2006, with both our retail
and wholesale revenues being negatively impacted by ongoing product substitution from fixed calling
to mobile voice calls and SMS, which is accelerated by the take up of capped mobile plans currently
being heavily promoted by competitors. Substitution of data local calls continues to occur due to
the migration of dial up Internet customers to broadband. The price in the wholesale market also
declined as a result of a rise in volume discounts.
49
Generally, call volumes have continued to fall during fiscal 2006, reflecting the impact of
customers migrating to other products, such as mobiles, fixed-to-mobile, and broadband products, and fewer basic
access lines in service. This is highlighted by the fact that the number of local calls reduced by
12.2% during the year.
PSTN value added services
Our revenue from PSTN value added services declined by A$4 million or 1.6% during fiscal 2006.
This decrease was driven by a reduction in a number of mature products, such as Indial, Siteline,
Enhanced faxstream and other access products nearing the end of their lifecycle. Customers are also
migrating to product offerings such as Internet products and premium voice communication
applications.
Messaging and call completion products increased marginally during fiscal 2006. Calling number
display continued to grow due to attractive packaging discounts resulting in subscriber numbers
increasing by 10%. This has been partially offset by call return revenue which declined by 14% due
to lower overall call volumes and substitution to other products.
National long distance calls
Our operating revenue from national long distance consists of revenue from national long
distance calls made from our PSTN network to the fixed network.
We generally charge for national long distance calls based on the time of day, day of week,
destination and duration of the call, but packages are also offered on a capped price basis and
under subscription pricing arrangements. A variety of promotions and pricing options are offered to
encourage our customers to use our service and to inform them about the price and value of our
service. The majority of our operating revenue from national long distance calls comes from our
residential and small business customers.
General economic conditions and customer perceptions about the cost and value of our service
relative to competitor alternatives, largely drive our national long distance call revenue.
Competitive activity continues to negatively affect this revenue category directly through override
and preselection, and indirectly through competition for access lines. In addition, national long
distance calls are impacted by customers migrating to mobile, broadband and fixed-to-mobile
calling.
Our operating revenue from national long distance calls declined by A$100 million or 9.9% in
fiscal 2006 compared with fiscal 2005. Competitor activity in the fixed line market continues to be
high and most carriers have a fixed or mobile cap, or a combination of both, in the market. This is
having a direct impact on our national long distance revenues, particularly where competitors are
bundling these calls with broadband offerings. Volumes are down as a result of lower basic access
services in operation and the impact of fixed-to-mobile substitution and other calling options
available to customers. We have increased discounts compared to fiscal 2005 in order to retain and
win back customers.
We continue to respond to competition with competitively priced packages. However, with the
strong growth in mobile and Internet services in the Australian market, we expect national long
distance call revenue to continue to be negatively impacted by ongoing migration of customers to
mobile and Internet products, and by the continued growth of subscription pricing plans.
Fixed-to-mobile calls
Our fixed-to-mobile revenue is generated by calls originating on our fixed networks and
terminating on any mobile network. We generally charge for fixed-to-mobile calls based on time of
day and mobile carrier, however packages are also offered on a capped price basis. Our operating
revenue for fixed-to-mobile calls is approximately split evenly between business and residential
customers. The growth of the Australian mobile telecommunications market has driven revenue
expansion in this product category in recent times. However, the introduction of capped plans in
the mobile market has now impacted the volume of fixed-to-mobile activity as customers continue to
slowly move their usage from our PSTN products. The fixed-to-mobile environment is influenced by
fixed-to-mobile preselection, whereby the carriage service provider (CSP) selected by a customer
for national long distance calls automatically becomes the customers provider for fixed-to-mobile
calls.
During fiscal 2006, fixed-to-mobile revenue declined by A$75 million or 4.8%. We experienced a
decline of A$114 million due to lower revenue per minute resulting from higher discounts from
ongoing competitive pressure, including incorporating fixed-to-mobile calls in reward offerings and
the changing mix in services in operation (SIOs) from PSTN to ISDN and CustomNet. This increase
in the level of discounting is representative of our increased campaign activity aimed at reducing
customer churn to other providers and win customers in the market place.
50
This decline in revenue was partially offset by growth in call volumes mainly due to the
continued expansion of mobile services in the Australian market. The positive volume growth for
fiscal 2006 contributed A$38 million due to higher calls and minutes of use. This growth is
consistent with the growth in the total market mobile SIOs, meaning there is a higher number of
mobiles on which fixed calls can terminate, and hence a higher number of calls.
International direct calls
Our operating revenue from international direct relates to revenue we generate from
international calls made from Australia to a destination outside Australia (outbound). This revenue
is largely driven by general economic conditions, customer perceptions about the cost and value of
our service, competition, migration to broadband alternatives and promotion and advertising.
Our international direct revenue declined by 14.1% to A$201 million in fiscal 2006 primarily
as a result of lower volumes and continued competitive pressure on price. Factors which have
influenced this trend include the competitive pressures from calling cards, fixed-to-mobile
substitution and the growth of Voice over IP in the market place. Despite major international
events and the occurrence of unfortunate circumstances which have provided short term stimulus to
call traffic, international direct minutes declined 7.9% for the year.
Fixed Interconnection
Fixed interconnection is made up of local and non local PSTN/ISDN access interconnection
services provided to other carriers. This category is a highly regulated area of the Australian
telecommunication market. Our operating revenue from fixed interconnection decreased by 7.4% to
A$286 million during fiscal 2006 driven by reduction in both volume and price. Volume declines are
in line with cross company trends in PSTN traffic and have been particularly impacted by migration
to mobiles and, to a smaller degree, ULL build.
Mobiles
Our operating revenue from mobiles consists of revenue from access fees and call charges, as
well as value added services comprising international roaming, mobile MessageBank(R) and mobile
data. It also includes revenue from the sale of mobile handsets and interconnection charges where
calls from other carriers customers terminate on our network.
During
fiscal 2006, we commenced the construction of our new NEXT G(TM) wireless network. We
launched this network on 6 October 2006. Until recently, we operated two primary mobile networks,
GSM and CDMA. Over time we will migrate our customers from our old networks onto our new NEXT G(TM)
wireless network. We continue to offer 3G services to our customers over our existing 3G 2100
network, a network jointly owned through our joint venture with Hutchison Telecommunication
(Australia) Limited (Hutchison).
The mobile telecommunications market continued to grow during fiscal 2006, although at a lower
rate of growth than in the prior year. The growth was slowed by the increase in capped price plans
by all the major mobile competitors, heightened campaign activity particularly around 3G services,
and the increasing use of mobile data services such as Blackberry and EVDO. While voice continues
to be the largest contributor to mobiles revenue, value added services, including mobile data, is
the fastest growing, now representing 25.4% of mobile services revenue in fiscal 2006. With
competition intensifying, we have introduced a comprehensive and broad reaching program of segment
based customer management to enable us to provide the best service and solutions to all of our
customers.
51
Mobiles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A$ millions) |
|
(% change) |
Access fees and call charges |
|
|
2,703 |
|
|
|
2,765 |
|
|
|
(62 |
) |
|
|
(2.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value added services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International roaming |
|
|
266 |
|
|
|
243 |
|
|
|
23 |
|
|
|
9.5 |
% |
Mobile messagebank |
|
|
199 |
|
|
|
187 |
|
|
|
12 |
|
|
|
6.4 |
% |
Short message service (SMS) |
|
|
494 |
|
|
|
457 |
|
|
|
37 |
|
|
|
8.1 |
% |
Other mobile data |
|
|
184 |
|
|
|
84 |
|
|
|
100 |
|
|
|
119.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value added services |
|
|
1,143 |
|
|
|
971 |
|
|
|
172 |
|
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile services revenue retail |
|
|
3,846 |
|
|
|
3,736 |
|
|
|
110 |
|
|
|
2.9 |
% |
Mobile services revenue wholesale |
|
|
36 |
|
|
|
24 |
|
|
|
12 |
|
|
|
50.0 |
% |
Mobile services revenue mobiles interconnection |
|
|
623 |
|
|
|
547 |
|
|
|
76 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile services revenue |
|
|
4,505 |
|
|
|
4,307 |
|
|
|
198 |
|
|
|
4.6 |
% |
Mobile handset sales |
|
|
467 |
|
|
|
381 |
|
|
|
86 |
|
|
|
22.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile goods and services revenue(1) |
|
|
4,972 |
|
|
|
4,688 |
|
|
|
284 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3G mobile SIO (thousands) |
|
|
317 |
|
|
|
|
|
|
|
317 |
|
|
|
|
|
GSM mobile SIO (thousands) |
|
|
6,468 |
|
|
|
6,894 |
|
|
|
(426 |
) |
|
|
(6.2 |
)% |
CDMA mobile SIO (thousands) |
|
|
1,703 |
|
|
|
1,333 |
|
|
|
370 |
|
|
|
27.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile SIO (thousands) |
|
|
8,488 |
|
|
|
8,227 |
|
|
|
261 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Wireless EVDO SIO (thousands) (included in CDMA SIO
above) |
|
|
60 |
|
|
|
19 |
|
|
|
41 |
|
|
|
215.8 |
% |
Prepaid mobile SIO (thousands) |
|
|
3,597 |
|
|
|
3,570 |
|
|
|
27 |
|
|
|
0.8 |
% |
Postpaid mobile SIO (thousands) |
|
|
4,891 |
|
|
|
4,657 |
|
|
|
234 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile SIO (thousands) |
|
|
8,488 |
|
|
|
8,227 |
|
|
|
261 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDMA wholesale mobile SIO (thousands) |
|
|
73 |
|
|
|
62 |
|
|
|
11 |
|
|
|
17.7 |
% |
GSM wholesale mobile SIO (thousands) |
|
|
46 |
|
|
|
21 |
|
|
|
25 |
|
|
|
119.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale mobile SIO (thousands) |
|
|
119 |
|
|
|
83 |
|
|
|
36 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of SMS sent (in millions) |
|
|
3,019 |
|
|
|
2,289 |
|
|
|
730 |
|
|
|
31.9 |
% |
Deactivation rate |
|
|
23.4 |
% |
|
|
19.2 |
% |
|
|
|
|
|
|
4.2 |
% |
Mobile voice telephone minutes (in millions)(2) |
|
|
7,311 |
|
|
|
6,746 |
|
|
|
565 |
|
|
|
8.4 |
% |
Average revenue per user per month A$s(3) |
|
|
38.35 |
|
|
|
39.33 |
|
|
|
(0.98 |
)% |
|
|
(2.5 |
)% |
Average prepaid revenue per user per month A$s(3) |
|
|
10.85 |
|
|
|
12.24 |
|
|
|
(1.39 |
) |
|
|
(11.4 |
)% |
Average postpaid revenue per user per month A$s(3) |
|
|
58.99 |
|
|
|
59.06 |
|
|
|
(0.07 |
) |
|
|
(0.1 |
)% |
Average mobile data revenue per user per month(4) |
|
|
6.77 |
|
|
|
5.70 |
|
|
|
1.07 |
|
|
|
18.8 |
% |
|
|
|
Note: statistical data represents managements best estimates. |
|
(1) |
|
Excludes revenue from: |
|
|
|
calls from our fixed network which we categorise as fixed-to-mobile; and |
|
|
|
CSL New World which is recognised separately as controlled entity revenue. |
|
(2) |
|
Includes all calls made from mobile telephones including long distance and
international calls, excludes data, MessageBank(R), international roaming and CSL New
World. |
|
(3) |
|
Average retail revenue per user per month is calculated using average retail SIO and
includes mobile data, MessageBank(R) and roaming revenues. It excludes interconnection and
wholesale revenue. |
|
(4) |
|
Includes mobile wireless EVDO revenue, excludes BigPond(R) wireless. |
During fiscal 2006, mobile service revenue increased by A$198 million or 4.6% mainly due to
the continued growth in the number of mobile telephone subscribers and expanding minutes of use,
offset by continued pressure on prices. In addition, we experienced strong growth in our value
added services revenue for example MessageBank(R), SMS, Blackberry and EVDO.
Access fees and call charges declined by 2.2% to A$2,703 million in fiscal 2006 reflecting a
decrease in GSM revenues partially offset by an increase in CDMA revenues. Both technology
categories have been impacted during the year by the competitive environment and the growth in
capped price plans which has directly impacted yields. CDMA prepaid was also impacted by lower
52
revenues attributable to a promotion which gave CDMA subscribers half price calls for a year.
During the year we moved from 1% of our mobile customers on capped plans to 4.3% on capped plans.
SIOs increased overall, but it was CDMA that drove the growth with a 27.8% increase while GSM
(including 3G) reduced marginally by 1.6%. The CDMA revenues benefited from increased activations
during the first half of fiscal 2006 and the availability of more competitively priced handsets.
Call minutes generally increased for each technology, but these benefits did not outweigh the
impact on price for the period. Average revenue per user (ARPU) dropped by A$0.98 over the year led
by a reduction in prepaid ARPUs by 11.4% or A$1.39, with postpaid ARPUs stable.
Revenue from international roaming grew by 9.5% to A$266 million in fiscal 2006. The rise was
primarily due to an increase in outbound roaming minutes and a marginal increase in revenue per
call. In addition, inbound roaming revenue remained steady as price increases offset decreased
usage.
Revenue from MessageBank(R) increased by 6.4% to A$199 million in fiscal 2006 primarily due to
growth in minutes resulting from higher mobile usage and SIOs.
During fiscal 2006, SMS and Multimedia Messaging Services (MMS) revenues increased by 8.1% to
A$494 million after a significant increase in the number of messages sent. There is a component of
migration from voice communication to message communication which is evident in the reported growth
rates. This was stimulated by a A$0.01 text offer and other rewards and bonus options offered
during the year. In addition, mobile data growth was also experienced in the corporate segment
through the Blackberry and Telstra Mobile Broadband TM products on the CDMA network. This
is reflected in the average mobile data revenue per user per month increasing over fiscal 2006.
Revenue from handset sales increased by 22.6% to A$467 million in fiscal 2006 primarily due to
growth in the number of GSM mobile handsets sold. This growth was attributed to an increase in
marketing campaign activity focusing on the sale of 3G handsets, particularly in the second half of
the year.
Mobiles interconnection revenue has grown 13.9% to A$623 million during fiscal 2006. The main
product driving this growth is GSM wholesale domestic roaming which grew in fiscal 2006 by A$43
million after Hutchison 3G roaming commencing in April 2005. This corresponds directly to an A$8
million drop in CDMA roaming after Hutchison introduced their 3G product as an alternative to CDMA.
SMS interconnect has grown A$17 million due to an increase in traffic resulting from growth in
mobile SIOs as well as a continued increase in the popularity of text messaging as a cheaper
alternative to mobile voice calling. In addition, mobiles terminating revenue grew by A$24 million
due to a 12% increase in termination volumes, partially offset by price reductions resulting from
regulatory pricing pressures on mobile terminating rates. The increase in termination volumes has
resulted from growth in retail SIOs, particularly in CDMA and pre-paid services.
Wholesale mobile service revenue increased in fiscal 2006 by 50.0% or A$12 million due to
growth in the wholesale GSM resale product introduced in fiscal 2005. It enabled resellers to
develop and market their own branded mobile solutions including voice, text, multimedia messaging
and MessageBank(R) on the GSM network which they could only previously do on the CDMA network.
Minutes of use have grown significantly since this product was introduced.
The level of deactivations increased by 4.2% which was driven by prepaid activity. After we
changed systems for managing prepaid SIOs in fiscal 2005, all relevant prepaid SIOs were
automatically given a recharge period of 12 months, extended from the normal 6-month period, to
ensure no customers were disadvantaged while we consolidated the new system. In the last quarter of
fiscal 2006, these SIOs reached the end of this period and many were subsequently deactivated. This
contributed to the deactivation of 1.1 million prepaid SIOs in fiscal 2006. This change in recharge
period has not impacted the year on year growth rate but has impacted the timing of deactivations
occurring throughout the year.
Internet and IP solutions
Our operating revenue from Internet and IP solutions is driven primarily by:
|
|
|
demand for capacity to support business networking; |
|
|
|
|
the increased use of IP services by business customers (small to medium enterprises); |
53
|
|
|
the introduction of new products to meet customer needs; |
|
|
|
|
the movement of our customers from basic access and associated calling products to
other access services such as ADSL; and |
|
|
|
|
demand for greater bandwidth services such as broadband. |
While the IP and Internet markets have been experiencing growth, competition has put pressure
on our prices. We expect that these trends will continue.
Internet and IP solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Narrowband |
|
|
220 |
|
|
|
275 |
|
|
|
(55 |
) |
|
|
(20.0 |
)% |
Retail broadband(1) |
|
|
730 |
|
|
|
463 |
|
|
|
267 |
|
|
|
57.7 |
% |
Wholesale broadband |
|
|
461 |
|
|
|
261 |
|
|
|
200 |
|
|
|
76.6 |
% |
Internet direct |
|
|
143 |
|
|
|
123 |
|
|
|
20 |
|
|
|
16.3 |
% |
IP solutions |
|
|
285 |
|
|
|
207 |
|
|
|
78 |
|
|
|
37.7 |
% |
Other |
|
|
68 |
|
|
|
48 |
|
|
|
20 |
|
|
|
41.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total internet & IP solutions revenue |
|
|
1,907 |
|
|
|
1,377 |
|
|
|
530 |
|
|
|
38.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband subscribers retail (in thousands)(1) |
|
|
1,476 |
|
|
|
856 |
|
|
|
620 |
|
|
|
72.4 |
% |
Broadband subscribers wholesale (in thousands) |
|
|
1,427 |
|
|
|
888 |
|
|
|
539 |
|
|
|
60.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total broadband subscribers (in thousands) |
|
|
2,903 |
|
|
|
1,744 |
|
|
|
1,159 |
|
|
|
66.5 |
% |
Narrowband subscribers retail (in thousands) |
|
|
1,027 |
|
|
|
1,205 |
|
|
|
(178 |
) |
|
|
(14.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total online subscribers |
|
|
3,930 |
|
|
|
2,949 |
|
|
|
981 |
|
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per retail broadband subscriber per month (A$s) |
|
|
52.16 |
|
|
|
60.10 |
|
|
|
(7.94 |
) |
|
|
(13.3 |
)% |
|
|
|
Note: statistical data represents managements best estimates. |
|
(1) |
|
Telstra mobile broadband and Telstra internet direct (Retail ADSL) are not included in
retail broadband revenue and subscriber numbers. |
Our narrowband products allow customers to connect to the Internet from any telephone line in
Australia. Our broadband products allow customers to experience an always on connection to the
Internet, although this is not available to all lines due to technology limitations. In fiscal
2006, continued demand for capacity combined with competitive pricing has resulted in customers
migrating their narrowband services to broadband. This trend placed additional price pressure on
our dial-up products and resulted in a decline in our narrowband revenues.
We offer a range of Internet products and packages under our BigPond(R) brand. Telstra
BigPond(R) home and business packages offer dial-up modem services to residential and business
customers across Australia. Telstra BigPond(R) broadband provides broadband Internet services to
consumer and business customers via HFC cable, ADSL, satellite and mobile access technologies.
During fiscal 2006, our Internet and IP solutions revenue grew by 38.5% or A$530 million to
A$1,907 million, despite a reduction in prices. The subscriber base for our broadband products grew
significantly during this time, partially due to migration from narrowband products but also due to
growth in the overall online market. As at 30 June 2006, we had approximately 2.9 million broadband
customers of which nearly 1.5 million were retail customers. There has been a significant rise in
demand resulting from competitive pricing strategies.
Narrowband revenue decreased by 20.0% to A$220 million in fiscal 2006. This decline highlights
the growing impact of dial-up to broadband migration as the dial-up market proceeds with its
decline. We expect this trend to continue with further price adjustments likely to occur as
broadband prices fall and customers require higher speeds.
Retail broadband revenue increased by 57.7% to A$730 million in fiscal 2006, mainly due to
strong increases in SIOs. SIO growth has occurred across all technologies but ADSL has been the key
driver of the growth. We have introduced a number of key price and value campaigns to stimulate
broadband take up including a combination of discounting access and installation offers. We have
also introduced new products and plans including a wireless EVDO offer and enhanced focus on our
cable offerings. The Australian
54
Governments Higher Bandwidth Incentive Scheme (HiBIS) and broadband regional connect packages have
also enabled affordable broadband and higher bandwidth to be provided to regional and remote
locations and encourage take up in those areas. Given this strong take up, increased competition
and resultant price offerings, average revenue per user has declined.
Wholesale broadband revenue increased by 76.6% to A$461 million in fiscal 2006 driven by a
continuing strong market demand for high bandwidth services and increased demand at the retail
level. Wholesale DSL Internet grade has grown by A$180 million driven by volume increases with a
60.7% growth in SIOs.
Internet direct is our business oriented Internet access product with a range of data access
options and features to meet the needs of business. Internet direct revenue increased by 16.3%
during fiscal 2006 to A$143 million. The result was driven by our virtual ISP product which
increased by A$14 million, mainly because of a new commercial deal signed resulting in a
significant increase in data usage. SIOs for this product category increased by 258% in fiscal
2006.
IP solutions revenue increased by 37.7% to A$285 million in fiscal 2006, mainly due to the
products in this category being in the growth phase of their lifecycle. Fiscal 2006 saw an increase
of A$48 million in IP MAN/Ethernet, our next generation data access services which provide high
speed IP and Ethernet access solutions respectively for large and medium corporate enterprises. The
government sector has been the key user and driver of this product. IP WAN grew by A$29 million,
after growth was stimulated through competitive pricing and improved network performance. It is
also evident that customers now appear more willing to move towards IP based solutions.
Other Internet and IP solutions revenue grew by A$20 million in fiscal 2006 due to growth in
wholesale Internet and data traffic, in particular in our Wholesale Ethernet product, and increased
revenue from our wholly owned entity, Chief Entertainment, which is a media production house that
provides Internet content.
ISDN
ISDN is a flexible, switched network based on digital technology. It can support many
applications at one time (such as voice, data and video) while using a single access point to the
network. ISDN services are offered to residential and business customers across Australia. Our ISDN
products revenue is impacted by offerings and packages in the broadband market, growth in the
number of DSL enabled exchanges and migration to advanced data products such as IP solutions.
ISDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Access |
|
|
418 |
|
|
|
421 |
|
|
|
(3 |
) |
|
|
(0.7 |
)% |
Data calls |
|
|
118 |
|
|
|
165 |
|
|
|
(47 |
) |
|
|
(28.5 |
)% |
Voice calls |
|
|
271 |
|
|
|
304 |
|
|
|
(33 |
) |
|
|
(10.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total calls |
|
|
389 |
|
|
|
469 |
|
|
|
(80 |
) |
|
|
(17.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ISDN revenue |
|
|
807 |
|
|
|
890 |
|
|
|
(83 |
) |
|
|
(9.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISDN access lines (basic access line equivalents (in thousands))(1) |
|
|
1,214 |
|
|
|
1,208 |
|
|
|
6 |
|
|
|
0.5 |
% |
|
|
|
Note: statistical data represents managements best estimates. |
|
(1) |
|
Statistical data we have adjusted comparative data to show a more accurate reflection
of the market. Conversion factors have been adjusted in calculating ISDN access lines. |
ISDN access revenue has declined marginally to A$418 million in fiscal 2006. Growth in access
lines has slowed in recent years from 3.3% in fiscal 2005 to 0.5% in the current year. Data access
line declines in the consumer segment have been driven by customer movement to broadband, while
declines in the business segment have arisen as a result of the migration to alternative
technologies such as ADSL and symmetrical HDSL. Data access line declines have been offset by voice
access line growth, driven by customers taking up ISDN as a stepping stone towards a full IP
environment. Whole of customer discounts in the enterprise segment have also impacted the result in
the current year.
ISDN voice calls revenue, which is made up of local, national and international voice calls
made on the integrated services digital network, declined by 10.9% or A$33 million in fiscal 2006,
mainly due to declines in the local and national categories. National voice
55
calls revenue was negatively impacted by competitor price pressure during the year. Local voice
calls revenue was negatively impacted by a decrease of 14% in minutes of use primarily because
calls on our Priority(R) One3 and 1300 A Party products have been reclassified from ISDN to inbound
calling revenues. This reclassification amounted to A$13 million in fiscal 2006.
ISDN data calls revenue declined in fiscal 2006 by 28.5% or A$47 million. Both ISDN local and
national data calls contributed to the decline. ISDN local data and ISDN national local data calls
revenue declined by 28% and 32% respectively due to customers migrating to alternative products
such as ADSL and symmetrical HDSL, as a result of improved bandwidths at reduced prices in each of
these products.
Specialised data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
| |
|
(% change) |
Frame Relay |
|
|
305 |
|
|
|
351 |
|
|
|
(46 |
) |
|
|
(13.1 |
)% |
ATM |
|
|
90 |
|
|
|
89 |
|
|
|
1 |
|
|
|
1.1 |
% |
Digital data services |
|
|
198 |
|
|
|
227 |
|
|
|
(29 |
) |
|
|
(12.8 |
)% |
Leased lines |
|
|
229 |
|
|
|
235 |
|
|
|
(6 |
) |
|
|
(2.6 |
)% |
International private lines |
|
|
30 |
|
|
|
26 |
|
|
|
4 |
|
|
|
15.4 |
% |
Other specialised data |
|
|
32 |
|
|
|
38 |
|
|
|
(6 |
) |
|
|
(15.8 |
)% |
Total data revenue |
|
|
884 |
|
|
|
966 |
|
|
|
(82 |
) |
|
|
(8.5 |
)% |
Domestic Frame access ports (in thousands) |
|
|
30 |
|
|
|
34 |
|
|
|
(4 |
) |
|
|
(11.8 |
%) |
Note: statistical data represents managements best estimates.
Specialised data revenue is comprised mainly of revenue from frame relay, digital data
services and leased lines. Frame relay offers high speed data transmission from 64kb to 45Mb per
second to customers connecting any number of sites to other national or international locations. It
is frequently used as a building block to construct corporate wide area networks. Digital data
services provide high quality, leased line digital data transmission offering dedicated bandwidth
from 1.02Kb to 1,984Kb per second, which may be used for communication between all major capital
cities, and most regional and country areas in Australia. Analogue leased lines provide high
quality, low cost, low bandwidth and dedicated end-to-end connections between customer sites.
During fiscal 2006, total specialised data revenue decreased to A$884 million, reflecting a
decline in mature products such as frame relay, digital data and leased line services. This decline
has been driven by product substitution to more technologically advanced IP and DSL based product
options, included with our Internet and IP solutions revenue category.
Frame relay revenue decreased as this product enters the declining stages of its product life
cycle with customers migrating to new technologies such as Business DSL which offers the same
coverage and similar assurance, but at a lower price. In addition, we introduced price discounting
to retain existing customers. Reduced frame relay revenue was due to a combination of a reduction
in ports by 11.8% with a similar reduction in revenue per customer.
Digital data services are mature products that declined 12.8% to A$198 million during fiscal
2006 primarily due to customers transferring to newer technologies and price pressures experienced
from alternative products.
Leased line revenues experienced a 2.6% reduction to A$229 million, mainly due to customers
with voice graded dedicated lines moving to DSL, wireless or IP telephony based solutions. Other
high capacity products such as wideband have grown. New business has also been generated by
offering premium packages in combination with Internet Direct but they tend to be short distance
services which are low revenue generating.
Advertising and directories
Our advertising and directories revenue is predominantly derived from our wholly owned Sensis
group. Sensis provides innovative advertising and local search solutions through a print, online,
voice, wireless and satellite navigation network.
The majority of Sensis revenue is derived from its print and online directories Yellow(R)
and White Pages(R) which have grown steadily overall due to the introduction of new print and
directory advertising initiatives.
56
Product innovation and customer demand continue to drive growth in our broader online and
electronic advertising and non-directories advertising business.
Advertising and directories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Advertising and Directories revenue |
|
|
1,711 |
|
|
|
1,585 |
|
|
|
126 |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yellow(R) revenue increased by 5.8% to A$1,172 million in fiscal 2006, primarily due to the
strong performance in our non-metropolitan books and 54% growth in Yellow(R) OnLine revenue to
A$124 million. The growth in non-metropolitan books has been driven by new category guides and
subheadings, higher uptake of half page advertisements and the release of three new local
directories. Online performance was driven by a 25% rise in Yellow OnLine display customer numbers
and higher uptake of Platinum advertising, leading to increased revenue per customer.
During fiscal 2006, White Pages(R) revenue grew by 12.2% to A$302 million, reflecting
continued growth in both print and online, with improved sales force effectiveness through better
go to market strategies. Growth has continued with the success of coloured listings and logos
resulting in higher revenue per customer.
Our emerging businesses delivered 17.1% revenue growth, driven by strong growth in Whereis(R)
location-based search revenues and in MediaSmart(R). Fiscal 2006 includes a full year of revenue
for our mapping and travel related products company Universal Publishers (purchased December 2005).
Overall revenue performance was impacted by a decline in classifieds revenue over the period.
This was driven by competition and economic weakness in the Sydney and Melbourne markets. However,
we regard our advertising and directories business as a growth area, with improving margins
especially online, and strong market presence accounting for almost 14% of the Australian main
media advertising market.
Sensis Trading Post(R) business is experiencing strong growth in online classifieds revenues
while print based classifieds revenues are declining. This trend is expected to continue, and as a
result the achievement of continued online revenue growth is critical to the future performance of
the business.
Intercarrier services
Our operating revenue from intercarrier services comprises a number of products and services
relating to the provision of telecommunications services to other carriers (including REACH), CSPs
and ISPs. The majority of this revenue base is derived from interconnect and access services which
is a highly regulated area of the Australian telecommunications market. Interconnection revenues
relating to our PSTN and mobile products are included in those product categories.
The remaining revenue component in intercarrier services is derived from wholesale specific
product offerings such as facilities access, wholesale transmission and ULL which, while they are
subject to significant price pressures resulting from ongoing oversupply of capacity in the market
place, are a focus for delivering incremental revenue growth for us in the coming years. This
growth, however, will be negatively impacted by the recent interim determinations by the ACCC
regarding a reduction in the amount we can charge wholesale customers for ULL access.
Intercarrier services revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Intercarrier services revenue |
|
|
351 |
|
|
|
290 |
|
|
|
61 |
|
|
|
21.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercarrier Services revenue has grown by 21.0% to A$351 million during fiscal 2006 due to
increases in facilities access, wholesale transmission solutions and other wholesale revenues
mainly consisting of ULL.
57
Our growth in facilities access was 39.8% or A$24 million during fiscal 2006 for the year
largely driven by demand for equipment building and mobile tower access as other carriers and
service providers have sought to expand their infrastructure over time.
Growth in wholesale transmission relates to leased transmission services led by a rise in
demand from Internet service providers for backhaul transmission to expand their DSL network
coverage. Partly offsetting these increases in intercarrier revenue was the unfavourable impact of
a backdated rate adjustment for MCI Worldcom in September 2005 as well as a decline in services
leased by the same customer.
Other wholesale intercarrier revenue growth of A$18 million was due to ULL driven by a number of
factors such as:
|
|
|
carriers have reached customer density thresholds on wholesale DSL and resale PSTN to
be able to undertake viable ULL; and |
|
|
|
|
falling equipment prices have reduced the capital required by carriage service
providers to undertake ULL build. |
Inbound calling products
Our operating revenue from inbound calling products consists principally of the fees we charge
our business customers for the provision of inbound calling numbers:
|
|
|
for Freecall(TM) 1800, the cost of the call, charged to the party called, with no cost
incurred by the caller; |
|
|
|
|
for Priority(R) 1300 and Priority(R) One3: |
|
|
|
|
the calling party from a PSTN service incurs a cost of A$0.25 (including GST) from
anywhere in Australia. Different charges apply for calls made from ISDN, mobiles and
payphones; and |
|
|
|
|
the service owner incurs the other components of the call charges as applicable. |
Also included is revenue from enhanced call centre products using network voice processing,
which provides access to advanced call handling capabilities, without customers having to purchase
and maintain their own networks.
Our inbound calling products revenue therefore is driven by two different streams, the caller
(A party) and the lessee of the inbound service (B party). The A party revenues are affected by
substitution to other voice products such as mobiles and the Internet. B party revenues are
affected by increased customer competition impacting prices.
Revenue from inbound calling products remained steady at A$449 million in fiscal 2006 mainly
due to an increase in Priority(R) One3 and 1300 A Party products offset by Priority(R) One3 and
1300 B Party products.
Inbound calling products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Inbound calling products revenue |
|
|
449 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Party minutes (in millions) |
|
|
2,922 |
|
|
|
2,773 |
|
|
|
149 |
|
|
|
5.4 |
% |
A Party calls (in millions) |
|
|
1,012 |
|
|
|
940 |
|
|
|
72 |
|
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,934 |
|
|
|
3,713 |
|
|
|
221 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates. |
Our overall revenue from PriorityOne3 and 1300 B Party products declined in fiscal 2006 due to
very competitive market pressures resulting in lower returns. Minutes of use and services in
operation have actually increased in this category of calls, but large customers are being won or
retained at lower prices resulting in reduced revenues. This is offset by higher call volumes on
our Priority(R) One3 and 1300 A Party products after calls from our ISDN and Siteline products to
these numbers were reclassified in the current year to inbound calling. This amounted to A$13
million in fiscal 2006. There is also an increasing trend for calls to these numbers from mobile
phones which are recorded as mobiles revenue.
58
Revenue
from Freecall(TM) 1800 has declined mainly due to intense price competition leading to
reduced price and a declining customer base. Our other inbound calling products, such as Enterprise
Speech Solutions, have continued to grow strongly throughout fiscal 2006.
Solutions management
Our operating revenue from solutions management is derived from managing all or part of a
customers communications and IT solutions and services covering:
|
|
|
managed network services, which is network based voice and data products, including IP
based networks and IP telephony, CPE management, radio networks and new wireless based
technologies; |
|
|
|
|
IT services, which is managed customer infrastructure (e.g. desktop and end user
devices), managed storage and security services, in addition to hosting and application
development. IT services also includes the provision of professional consulting and
deployment services; and |
|
|
|
|
other refers to our eBusiness solutions and global data centre. |
Solutions management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Managed network services |
|
|
337 |
|
|
|
337 |
|
|
|
|
|
|
|
|
|
IT services |
|
|
632 |
|
|
|
572 |
|
|
|
60 |
|
|
|
10.5 |
% |
Other |
|
|
20 |
|
|
|
22 |
|
|
|
(2 |
) |
|
|
(9.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solutions management revenue |
|
|
989 |
|
|
|
931 |
|
|
|
58 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2006, solutions management revenue increased 6.2% or A$58 million mainly due to increases
in IT services.
IT services grew by 10.5% or A$60 million in the current year, mainly due to our wholly owned
entity KAZ winning major contracts, one of which was a five-year contract for an estimated A$200
million to provide the Department of Defences Central Office IT Infrastructure Support Services.
Fiscal 2006 IT services revenue also included an additional A$12 million due to a full 12 months of
results for KAZ compared to only 11 months in the previous fiscal year. Managed professional
services revenue also contributed to the growth in IT services, with an increase of A$16 million
due mainly to increased project work on an existing contract.
In addition to increases in IT services, managed data, managed WAN and managed radio, which
are in managed network services, all contributed positively to the revenue growth due mainly to
increases in a number of contracts. Managed voice however offset this growth in revenue, declining
due to a reduction in contracts in this area.
Offshore controlled entities
The offshore controlled entities category relates to our offshore subsidiaries, which provide
a variety of products and services within their various regions of operation. Included in this
category are the following significant offshore controlled entities:
|
|
|
CSLNW, which generates its revenues from the Hong Kong mobiles market. CSLNW was
formerly known as CSL. In March 2006, this entity merged with Hong Kong based mobile
company New World PCS. As result of this transaction, we now own 76.4% of the merged
entity; |
|
|
|
|
TelstraClear, which generates its revenues from providing full integrated services to
the New Zealand market; and |
|
|
|
|
other offshore controlled entities predominantly in the Telstra Enterprise and
Government segment, which mainly generate revenues from the provision of global
communication solutions to multinational corporations through our interests in the United
Kingdom, Asia and North America. |
59
Offshore controlled entities revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
CSL New World |
|
|
830 |
|
|
|
734 |
|
|
|
96 |
|
|
|
13.1 |
% |
TelstraClear |
|
|
620 |
|
|
|
625 |
|
|
|
(5 |
) |
|
|
(0.8 |
)% |
Other offshore controlled entities |
|
|
295 |
|
|
|
252 |
|
|
|
43 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total offshore controlled entities revenue |
|
|
1,745 |
|
|
|
1,611 |
|
|
|
134 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue from offshore controlled entities increased in fiscal 2006 by 8.3% to
A$1,745 million primarily due to the following factors:
|
|
|
CSLNW experienced revenue growth across the majority of its revenue streams, except for
local voice which continues to be impacted by sustained pricing pressure. The merger
between CSL and New World PCS resulted in increased revenue in the current year of A$66
million. Excluding this component, revenue has grown in both prepaid and postpaid
categories after increased subscribers and handset revenue due to recent promotional
activity. Revenue growth was also assisted by a A$11 million favourable foreign exchange
rate impact. |
|
|
|
|
TelstraClear experienced a net decline in revenue of 0.8% to A$620 million. There were
significant declines in calling revenues largely due to price erosion and pricing plan
reductions in the Internet and IP business due to heavy retail competition. Revenue was
also negatively impacted by the NZ$/A$ exchange rate, causing a A$22 million decline. These
declines were mostly offset by strong growth in the business sector and an increased
contribution from a full years ownership of the Sytec business. There were also a number
of one-off implementation revenues from the provision of new and/or additional services to
a number of key customers. |
|
|
|
|
The 17.1% growth in revenue to A$295 million from other offshore controlled entities
was mainly due to growth in Europe, Asia and the US. In Europe, the inclusion of a full 12
months ownership of PSINet contributed A$15 million in revenue growth. Both Telstra
Singapore and Telstra Hong Kong started to grow revenue by selling the full suite of
international data products in the Asian market. KAZ also exhibited strong growth in the
same region due to the synergies gained by combining this business with our
telecommunications business in one bundle to customers. Growth in the US of A$15 million
was mainly the result of a major contract to provide telecommunications solutions over an
integrated global IP-based network, contributing A$12 million to revenue growth. |
For further detail regarding our major off shore subsidiaries CSLNW and TelstraClear refer to the
business summaries that follow.
Payphones
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Payphone revenue |
|
|
104 |
|
|
|
121 |
|
|
|
(17 |
) |
|
|
(14.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra owned and operated payphones (thousands) |
|
|
30 |
|
|
|
31 |
|
|
|
(1 |
) |
|
|
(3.2 |
)% |
Privately owned and operated payphones (thousands) |
|
|
27 |
|
|
|
30 |
|
|
|
(3 |
) |
|
|
(10.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of payphones (in thousands) |
|
|
57 |
|
|
|
61 |
|
|
|
(4 |
) |
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates. |
Payphone revenue declined by 14.0% to A$104 million in fiscal 2006, impacted by substitution
to other products, particularly prepaid mobile phones and competitors prepaid calling cards. As a
result of this migration, we removed a number of low usage phones resulting in a 3.2% reduction in
the number of Telstra owned and operated payphones.
There has also been a decline in privately owned and operated payphones of 10.0%, as private
operators removed their support for unprofitable payphones. Telstra owned and operated payphones
also reduced due to the loss of some payphones to private operators and lower demand in new growth
locations.
60
Pay TV bundling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Pay TV Bundling revenue |
|
|
320 |
|
|
|
263 |
|
|
|
57 |
|
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Pay TV Bundling subscribers (thousands) |
|
|
292 |
|
|
|
280 |
|
|
|
12 |
|
|
|
4.3 |
% |
Austar Pay TV Bundling subscribers (thousands) |
|
|
51 |
|
|
|
55 |
|
|
|
(4 |
) |
|
|
(7.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pay TV Bundling subscribers (thousands) |
|
|
343 |
|
|
|
335 |
|
|
|
8 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates. |
Total pay TV bundling revenue grew by A$57 million, comprising increases in revenue for FOXTEL
of A$46 million and AUSTAR of A$11 million.
FOXTEL bundled services revenue grew by 20.0% or A$46 million during fiscal 2006 after an
increase in subscribers and higher revenue per user. As customers have migrated from analogue to
digital services, discount plans have been phased out and customers are upgrading their packages.
It is intended that full customer migration will be completed by March 2007. The growth in
subscribers was driven by low price installation/upgrade offers made to the market along with the
FOXTEL 10th Anniversary promotion, which targeted both new customers and existing customers through
digital migration. FOXTEL IQ, an interactive digital feature available to all FOXTEL digital
subscribers also performed well, aided by a low installation price point campaign. At 30 June 2006,
analogue services in operation represented 14.7% of FOXTEL bundled customers compared with 36.8% at
the start of the year.
Austar bundled services revenue growth for fiscal 2006 of A$11 million was driven by an
increase in the average revenue per user after a change in the subscription offerings.
Subscriptions, however, fell due to lower advertising activity, which resulted in slower sales
rates while the disconnection rate remained consistent.
Customer premises equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Customer premises equipment revenue |
|
|
274 |
|
|
|
231 |
|
|
|
43 |
|
|
|
18.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPE revenue increased by 18.6% to A$274 million during fiscal 2006 mainly driven by strong
growth in the sales of PBX equipment and communication packages known as Telstra Business Systems
(TBS) packages. TBS sales more than tripled in the current fiscal year due to an expansion of the
vendor base combined with new carriage pricing plans and investment made in support tools that
enabled improved processing and reduced transaction time.
The current years revenue also includes a full 12 months of operations for Telstra Business
Systems Pty Ltd (formerly known as Damovo (Australia) Pty Ltd) as it was acquired September 2004.
We also acquired Converged Networks Pty Ltd, Western Australias largest CPE dealer in April 2006.
This growth was partially offset by an A$11 million decline in first phones/extensions due to
continued substitution of rental phones due to sales of CPE and mobiles.
Other sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Telstra information and connection services |
|
|
120 |
|
|
|
134 |
|
|
|
(14 |
) |
|
|
(10.4 |
)% |
Customnet and spectrum |
|
|
110 |
|
|
|
112 |
|
|
|
(2 |
) |
|
|
(1.8 |
)% |
Virtual private network |
|
|
17 |
|
|
|
15 |
|
|
|
2 |
|
|
|
13.3 |
% |
Card services |
|
|
50 |
|
|
|
59 |
|
|
|
(9 |
) |
|
|
(15.3 |
)% |
Security products |
|
|
34 |
|
|
|
33 |
|
|
|
1 |
|
|
|
3.0 |
% |
HFC cable usage |
|
|
84 |
|
|
|
65 |
|
|
|
19 |
|
|
|
29.2 |
% |
Conferlink |
|
|
48 |
|
|
|
47 |
|
|
|
1 |
|
|
|
2.1 |
% |
Commercial and recoverable works |
|
|
57 |
|
|
|
58 |
|
|
|
(1 |
) |
|
|
(1.7 |
)% |
External construction |
|
|
108 |
|
|
|
85 |
|
|
|
23 |
|
|
|
27.1 |
% |
Other |
|
|
131 |
|
|
|
133 |
|
|
|
(2 |
) |
|
|
(1.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other sales and services revenue |
|
|
759 |
|
|
|
741 |
|
|
|
18 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
In fiscal 2006, operating revenue from other sales and services increased by 2.4% or A$18
million mainly due to HFC cable usage and external construction revenue.
HFC cable usage includes revenue received from FOXTEL for carriage services, cable
installations and service calls. Revenue increased by A$19 million this year due to FOXTEL
promotional activity which resulted in an increase in services in operation. There was also a
scheduled FOXTEL contract rate increase during the period.
External construction, which delivers communications network infrastructure solutions, had
revenue growth of 27.1% or A$23 million in fiscal 2006. This growth can be mainly attributed to
increased activity relating to the construction of the 3G 2100 network in conjunction with our
joint venture partner, Hutchison.
The above increases were partially offset by a A$14 million decline in information and
connection services revenue as a result of lower call volumes. Also, card services declined by
15.3% or A$9 million. This was due to products such as Homelink 1800 and telecard being mature
products and impacted by substitution to more cost effective convenient products such as pre-paid
cards and mobiles.
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Proceeds from sale of property, plant and equipment |
|
|
46 |
|
|
|
51 |
|
|
|
(5 |
) |
|
|
(9.8 |
)% |
Proceeds from sale of investments |
|
|
93 |
|
|
|
252 |
|
|
|
(159 |
) |
|
|
(63.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/investment sales |
|
|
139 |
|
|
|
303 |
|
|
|
(164 |
) |
|
|
(54.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of property, plant & equipment |
|
|
(23 |
) |
|
|
(42 |
) |
|
|
19 |
|
|
|
(45.2 |
)% |
Cost of investment |
|
|
(31 |
) |
|
|
(173 |
) |
|
|
142 |
|
|
|
(82.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of asset/investment sale |
|
|
(54 |
) |
|
|
(215 |
) |
|
|
161 |
|
|
|
(74.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain/loss on assets/investment sale |
|
|
85 |
|
|
|
88 |
|
|
|
(3 |
) |
|
|
(3.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO Levy Receipts |
|
|
58 |
|
|
|
63 |
|
|
|
(5 |
) |
|
|
(7.9 |
)% |
Government subsidies |
|
|
135 |
|
|
|
71 |
|
|
|
64 |
|
|
|
90.1 |
% |
Miscellaneous income |
|
|
50 |
|
|
|
39 |
|
|
|
11 |
|
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
243 |
|
|
|
173 |
|
|
|
70 |
|
|
|
40.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
328 |
|
|
|
261 |
|
|
|
67 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2006, total other income increased by 25.7% or A$67 million.
In fiscal 2006 proceeds from sale of investments of A$93 million were due mainly to the sale
of Xantic B.V and Fundi Software Pty Ltd, with Xantic yielding a net gain of approximately A$58
million. In fiscal 2005, proceeds from the sale of our investments was mainly made up of the sale
of our interests in Intelsat Limited, Infonet Services Corporation and the redemption of the
convertible note issued by PCCW.
The majority of the growth in government subsidy revenue was sourced from Higher Bandwidth
Incentive Scheme (HiBIS) receipts and the broadband Connect Australia scheme, which can be
attributed to an increase in the provision of broadband services to regional, rural and remote
areas of Australia. Refer to the Internet and IP products section for further details regarding
HiBIS.
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Labour expense |
|
|
4,364 |
|
|
|
3,858 |
|
|
|
506 |
|
|
|
13.1 |
% |
Goods and services purchased |
|
|
4,730 |
|
|
|
4,211 |
|
|
|
519 |
|
|
|
12.3 |
% |
Other expenses |
|
|
4,427 |
|
|
|
3,815 |
|
|
|
612 |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,521 |
|
|
|
11,884 |
|
|
|
1,637 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of net (gain)/loss from jointly controlled and associated entities |
|
|
(5 |
) |
|
|
94 |
|
|
|
(99 |
) |
|
|
(105.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,516 |
|
|
|
11,978 |
|
|
|
1,538 |
|
|
|
12.8 |
% |
Depreciation and amortization |
|
|
4,087 |
|
|
|
3,529 |
|
|
|
558 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
17,603 |
|
|
|
15,507 |
|
|
|
2,096 |
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
In fiscal 2006, our total operating expenses (including share of net (gain)/loss from jointly
controlled and associated entities) was A$17,603 million, compared with A$15,507 million in fiscal
2005. One of the major drivers of the 13.5% increase was the inclusion of a restructuring and
redundancy provision of A$427 million, which has impacted all three of the expense categories. Our
operating expenses have been impacted by the following factors:
|
|
|
costs associated with transformational initiatives and certain project write-offs; |
|
|
|
|
increased costs associated with network rehabilitation; |
|
|
|
|
higher redundancy expense as a result of reduced staff numbers as efficiencies have been implemented; |
|
|
|
|
higher goods and services purchased costs due to increased marketing campaign
activities and new offers aiming to stimulate sales growth in a range of our products and
services; |
|
|
|
|
the benefit of ongoing cost control programs, including the consolidation of vendors
and IT systems; |
|
|
|
|
growth in our communications plant asset base, along with the impact of a service life
review of our asset base to align with the transformation program, has increased our
depreciation and amortisation expense during fiscal 2006; and |
|
|
|
|
the consolidation of additional operating expenses in fiscal 2006 from our acquisition
activity, including the merger between CSL and New World PCS, as well as the inclusion of a
full fiscal year of expenses relating to entities we acquired in fiscal 2005. These
included Universal Publishers from December 2004, Telstra Business Systems (formerly Damovo
(Australia) Pty Ltd) from September 2004, PSINet from August 2004, and KAZ from July 2004. |
Labour expense
|
|
|
salary, wages and related on-costs, including superannuation costs, share based
payments, workers compensation, leave entitlements and payroll tax; |
|
|
|
|
costs of engaging contractor labour and agency costs; and |
|
|
|
|
restructuring costs, including redundancy expenses. |
In the table below, our domestic full time employees include domestic full time staff,
domestic fixed term contracted staff and expatriate staff in overseas subsidiary entities. Domestic
full time employees do not include employees in our offshore subsidiary entities, or casual and
part time employees. Our full time employees and equivalents include the total of our domestic and
offshore full time employees, and casual and part time employees measured on an equivalent basis.
Our total workforce includes domestic and offshore full time, casual and part time employees as
well as contractors and staff employed through agency arrangements measured on an equivalent
basis.
Labour expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Labour expense |
|
|
4,364 |
|
|
|
3,858 |
|
|
|
506 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic full time employees (whole numbers)(1) |
|
|
37,599 |
|
|
|
39,680 |
|
|
|
(2,081 |
) |
|
|
(5.2 |
)% |
Full-time employees and employed equivalents (whole numbers)(2) |
|
|
44,452 |
|
|
|
46,227 |
|
|
|
(1,775 |
) |
|
|
(3.8 |
)% |
Total workforce, including contractors and agency staff (whole numbers)(3) |
|
|
49,443 |
|
|
|
52,705 |
|
|
|
(3,262 |
) |
|
|
(6.2 |
)% |
Reduction in total workforce in fiscal 2006 |
|
|
(3,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in total workforce in fiscal 2006 excluding impact of New World
merger |
|
|
(3,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates |
|
(1) |
|
Excludes offshore, casual and part time employees. |
|
(2) |
|
Includes all domestic and offshore employees, including those of our subsidiary
entities. |
63
|
|
|
(3) |
|
Includes all domestic and offshore employees, including subsidiary entities as well as
contractors and agency staff. |
During fiscal 2006, our total workforce decreased by 6.2% or 3,262 full time equivalent staff,
contractors and agency staff. This decrease is predominantly due to specific efforts across the
business to rationalise the number of people working for the Telstra Group as part of our business
transformation initiatives. During the year, CSL merged with New World PCS, which resulted in the
Telstra Group acquiring 597 new employees. Excluding the impact of the New World PCS merger on
staff numbers, our total full time equivalent staff, contractors and agency staff reduced by 3,859
full time equivalent staff.
We incurred redundancy expenses of A$348 million in fiscal 2006 compared with A$91 million in
fiscal 2005. The higher redundancy expense reflects the implementation of cost control initiatives
to improve the efficiency of our operational structure. In addition, a further A$186 million of
redundancy expense is included as part of a restructuring and redundancy provision as at year end
to account for redundancies expected to occur as part of the restructuring over the next two years.
Our labour expense increased by 13.1% in fiscal 2006 mainly due to:
|
|
|
the increased levels of redundancy and the redundancy provision referred to above; |
|
|
|
|
salary increases averaging between 2% and 4% for employees as specified in our
enterprise agreements and as per the normal annual salary review process; and |
|
|
|
|
a full year of ownership of several subsidiaries acquired part way through fiscal 2005
(such as KAZ and Telstra Business Systems), and acquisition of new entities such as the New
World Mobility group and a controlling interest in Adstream. |
The above increases in labour expense were partially offset by cost reductions associated with
the 6.2% decrease in the number of employed staff, contractors and agency staff.
Excluding the impact of redundancy expense, labour expense increased by 1.7%.
Based on the latest detailed actuarial report provided on the financial position of Telstra
Super as at 30 June 2003, we have reported that a surplus in this superannuation fund continues to
exist. In accordance with the recommendations within the actuarial investigation, we were not
expected to, and did not make employer contributions to Telstra Super during fiscal 2006 and fiscal
2005. The detailed actuarial report is undertaken every three years. The next detailed actuarial
investigation of Telstra Super is due to be completed by 30 June 2007 based on the schemes
financial position as at 30 June 2006.
As at 30 June 2006, the vested benefits index (the ratio of fund assets to members vested
benefits) of the defined benefit divisions of Telstra Super was 115%. Our contributions to Telstra
Super will recommence when the vested benefit index of the defined benefit divisions falls to 103%.
The continuance of our contribution holiday is dependent on the performance of the fund and the
level of contributions required to meet employer obligations, and we are monitoring the situation
on a monthly basis. Based on the latest actuarial advice, we do not expect to make any
contributions to Telstra Super during fiscal 2007.
In fiscal 2006, we recognised A$185 million of pension costs in our labour expenses compared
with A$203 million in fiscal 2005. This expense is due to the relevant A-IFRS standard requiring us
to recognise the actuarially determined movement in our defined benefit pension plans in our
operating results.
Goods and services purchased
Goods and services purchased includes core costs of our business that vary according to
business activity. The largest component of this expense category is network payments, which are
payments made to other carriers to terminate international and domestic outgoing calls and
international transit traffic. Other significant items include the costs of mobile handsets and
Internet modems, costs of mobile sales (including subsidy costs, usage commissions and dealer
incentives), managed services costs (including service contractors, sub-contractors and leases),
service fees (predominantly in relation to our pay television services) and paper purchases and
printing costs.
64
Goods and services purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Cost of goods sold |
|
|
917 |
|
|
|
726 |
|
|
|
191 |
|
|
|
26.3 |
% |
Usage of commissions |
|
|
281 |
|
|
|
289 |
|
|
|
(8 |
) |
|
|
(2.8 |
)% |
Handset subsidies |
|
|
504 |
|
|
|
424 |
|
|
|
80 |
|
|
|
18.9 |
% |
Network payments |
|
|
2,002 |
|
|
|
1,904 |
|
|
|
98 |
|
|
|
5.1 |
% |
Service fees |
|
|
319 |
|
|
|
273 |
|
|
|
46 |
|
|
|
16.8 |
% |
Managed Services |
|
|
242 |
|
|
|
190 |
|
|
|
52 |
|
|
|
27.4 |
% |
Dealer performance commissions |
|
|
113 |
|
|
|
41 |
|
|
|
72 |
|
|
|
175.6 |
% |
Paper purchases and printing |
|
|
147 |
|
|
|
159 |
|
|
|
(12 |
) |
|
|
(7.5 |
)% |
Other |
|
|
205 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goods and services purchased |
|
|
4,730 |
|
|
|
4,211 |
|
|
|
519 |
|
|
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our goods and services purchased increased by 12.3% to A$4,730 million in fiscal 2006 mainly
due to higher cost of goods sold, mobile handset subsidies, network payments and dealer performance
commissions. Increases were experienced across most categories within goods and services purchased
except for usage commissions and paper costs. Additionally, a restructuring provision of A$54
million has been raised in relation to the replacement of EVDO cards and additional customer and
dealer costs associated with the shut down of our CDMA network in the future.
Our goods and services purchased increased by 12.3% to A$4,730 million in fiscal 2006 due to the
following factors:
|
|
|
the inclusion of the full financial year of expenses relating to our subsidiary
entities acquired part way through the prior fiscal year, including KAZ, Telstra Business
Systems (formerly Damovo (Australia) Pty Ltd), PSINet and Universal Publishers. In fiscal
2006, CSL merged with New World PCS, the consolidation of which has caused an increase of
goods and services purchased expense of A$29 million; |
|
|
|
|
a rise in cost of goods sold mainly due to higher sales volumes for mobile handsets,
primarily driven by increased market campaign activity, strong BigPond(R) broadband demand,
costs of supporting the Commonwealth Games, together with sales growth in other product
categories such as EVDO, CPE for small business customers, Managed WAN equipment and voice
related products. Also contributing to the increase are payments made to Brightstar, in
accordance with our procurement agreement with them to centrally source wireless devices
from global suppliers with a view to achieving cost savings. Inclusive of these payments,
the Brightstar arrangement has provided net savings of approximately A$70 million,
primarily relating to handset costs; |
|
|
|
|
an increase in mobile handset subsidies, attributable to a rise in the take up of
handsets on subsidised plans as well as higher average subsidies offered, especially
following a significant campaign undertaken in the last quarter, whereby a greater range of
handsets are being subsidised. As a result, our average subscriber acquisition cost has
increased from A$120 to A$137. In addition, the CSLNW has implemented a more aggressive
handset subsidy policy in order to increase handset sales. In fiscal 2006, we have also
made an A-IFRS accounting policy change to expense handset subsidies as incurred, as
opposed to previously deferring and amortising them over the contract period. The prior
year comparative figure has been adjusted to allow a like for like comparison; |
|
|
|
|
network payments continued to grow due to volume increases of domestic mobile and SMS
traffic terminating on other carriers networks, partially offset by a reduction in the
average mobile terminating rate. Additionally, expansion and growth in our UK, USA and
Asian operations, which drove both growth in our offshore outpayments and higher outbound
roaming revenue, partly offset by a reduction of costs through routing traffic to overseas
carriers that offer lower prices and favourable foreign exchange variations in our New
Zealand operations. Additional Network Access Charges were also incurred as a result of our
3G 2100 partnership activities with Hutchison; |
|
|
|
|
service fees increased by 16.8% to A$319 million in fiscal 2006 led by a rise in
bundling of pay TV services due to growth in bundled FOXTEL subscribers; |
|
|
|
|
managed services costs grew by 27.4% to A$242 million in fiscal 2006, mainly
attributable to increased third party maintenance and service costs for the support of
customer contracts. There are also a number of reclassifications from other expenses such
as service contracts, service fees and consultancy amounting to A$26 million. Offsetting
these increases are decreases due to lease renegotiations; |
65
|
|
|
increase in dealer performance commissions, mainly attributable to increased proactive
sales activity in our personal calling program. New dealer payments resulting from the
implementation of the new dealer remuneration model have also contributed to the growth;
and |
|
|
|
|
an increase in other goods and services purchased due to the inclusion of a
restructuring provision of A$54 million in fiscal 2006, offset by a decrease in commercial
project payments as described below. |
These increases were partially offset by a decrease in other goods and services expenses such
as usage commissions, commercial project payments and paper purchases and printing costs.
|
|
|
usage commissions decreased by A$8 million mainly as a result of the discontinuation of
commission payments to Keycorp following our acquisition of their Transaction Network
Solutions business during the year. This was partly offset by increased dealer commissions
mainly associated with non-mobile related products, including BigPond(R) products; |
|
|
|
|
commercial project payments declined from A$59 million in fiscal 2005 to A$34 million
in fiscal 2006 mainly relating to a lower level of deferral and amortisation of its basic
access installation costs. The expense fluctuates in accordance with our installations over
the five prior years. An equivalent amount is
amortised into revenue and hence there is no EBIT impact. Also contributing to the decline
was a change in the line usage billing arrangement for outsourced faxstream costs; and |
|
|
|
|
paper purchase and printing costs decreased from A$159 million in fiscal 2005 to A$147
million in fiscal 2006 due to savings achieved through printing contract discounts,
together with a reclassification of expenses into cost of goods sold. There was also a
reduction in printing costs relating to superannuation industry contracts after a push
towards the use of online notifications. |
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Property and IT rental expense |
|
|
559 |
|
|
|
572 |
|
|
|
(13 |
) |
|
|
(2.3 |
)% |
Net foreign currency conversion losses/(gains) |
|
|
2 |
|
|
|
(40 |
) |
|
|
42 |
|
|
|
(105.0 |
)% |
Audit fees |
|
|
8 |
|
|
|
7 |
|
|
|
1 |
|
|
|
14.3 |
% |
Service contracts and other agreements |
|
|
1,836 |
|
|
|
1,556 |
|
|
|
280 |
|
|
|
18.0 |
% |
Promotion and advertising |
|
|
356 |
|
|
|
330 |
|
|
|
26 |
|
|
|
7.9 |
% |
General and administration |
|
|
793 |
|
|
|
806 |
|
|
|
(13 |
) |
|
|
(1.6 |
)% |
Other operating expenses |
|
|
544 |
|
|
|
394 |
|
|
|
150 |
|
|
|
38.1 |
% |
Impairment and diminution expenses |
|
|
329 |
|
|
|
190 |
|
|
|
139 |
|
|
|
73.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
4,427 |
|
|
|
3,815 |
|
|
|
612 |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our other expenses were A$4,427 million in fiscal 2006 and A$3,815 million in fiscal 2005,
representing a 16.0% increase year on year. A restructuring provision of A$137 million was raised
at year end mainly relating to property rationalisation, cancellation of server leases, the
decommissioning of certain IT platforms and operational and business support systems and related
stock obsolescence. Excluding the impact of the provision, our total other expenses grew by 12.5%
to A$4,290 million.
Our other expenses in fiscal 2006 include an additional A$17 million of expenses attributable
to the merger of CSL with New World PCS during the period. In addition, a full twelve months of
expenses have been included in fiscal 2006 for KAZ, PSINet, Universal Publishers, and Telstra
Business Systems (formerly Damovo (Australia) Pty Ltd), which were acquired part way through fiscal
2005.
The movement in the significant categories of other expenses is discussed below.
The largest component within this expense category is service contracts and other agreements.
This expense increased from A$1,556 million in fiscal 2005 to A$1,836 million in fiscal 2006,
mainly driven by the following factors:
|
|
|
increased network maintenance and rehabilitation activity; |
|
|
|
|
costs associated with transformational initiatives; |
66
|
|
|
maintenance of the existing 3G 2100 MHZ network and the operational expenditure
relating to the construction of our new NEXT G(TM) wireless network; |
|
|
|
|
volume based increases including installations for digital pay television, as well as
increased activations and fault rectifications for BigPond(R) products due to product
growth; and |
|
|
|
|
a rise in consultancy costs associated with our transformation strategy and increased
market research activity due to a focus on understanding customer needs. |
The above increases are partly offset by savings from the renegotiation of a major vendor
contract, a reduction in mainframe server lease charges as well as the completion of consulting
work from fiscal 2005.
General and administration expenses decreased from A$806 million in fiscal 2005 to A$793
million in fiscal 2006. This was driven by lower IT costs resulting from savings achieved in
repairs and maintenance through continued infrastructure consolidation. The closure of an IT system
and the decommissioning of an IT platform have also contributed to reduced IT related costs.
Discretionary costs such as seminars and conferences, travel and entertainment costs have decreased
in fiscal 2006 as a result of a strong focus on cost reduction. Legal costs have however risen in
the year due to increased litigation and other legal work, especially around the C7 case (refer to
note 27 of the annual report for further details), operational separation issues and various
project initiatives.
Other operating expenses increased from A$394 million to A$544 million during fiscal 2006
primarily due to the provision for restructuring of A$105 million raised in this category.
Excluding the impact of the provision, our other operating expenses increased by A$45 million. This
was largely driven by lower construction activity resulting in higher operations and maintenance
activity being expensed.
Property and IT rental expense decreased by 2.3% to A$559 million during fiscal 2006, mainly
due to reduced PC leasing costs driven through a consolidation of server leases, which has enabled
us to negotiate contracts at a more competitive rate. The decommissioning of an old IT platform and
the consolidation of various vendor contracts have also contributed to the decrease in IT rental
costs.
Our promotion and advertising costs increased by 7.9% to A$356 million during fiscal 2006
mainly due to increased spend during the Commonwealth Games, as well as more marketing activity in
the face of increased competition and efforts to stimulate revenue.
Our impairment and diminution expense has increased from A$190 million in fiscal 2005 to A$329
million in fiscal 2006, mainly attributable to the retirement of a number of IT assets and
increased costs associated with the cancellation of partially completed capital projects after a
review of project direction as part of our transformation strategy. Also included in fiscal 2006
was a provision relating to business restructure of A$32 million. Our inventory write down expense
also rose due to increased write-offs in our construction business, as well as the impact of our
active promotion of mobile handsets, causing slow moving stock to be written off more quickly. This
increase was partly offset by the decrease in our bad and doubtful debts, which decreased from
A$150 million in fiscal 2005 to A$139 million in fiscal 2006. Improved credit management
performance has led to lower provision requirements and write-offs, as well as fewer payments to
external debt collection agents.
Net foreign currency conversion costs represents the remaining foreign currency exposure after
taking into account our hedging activities. The loss of A$2 million in fiscal 2006 compared with a
gain of A$40 million in fiscal 2005 is mainly due to an A-IFRS accounting adjustment relating to
the REACH capacity prepayment, which was processed in fiscal 2005.
67
Share of net (gain)/loss from jointly controlled and associated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Share of net
(gain)/loss from
jointly controlled
and associated
entities |
|
|
(5 |
) |
|
|
94 |
|
|
|
(99 |
) |
|
|
(105.3 |
)% |
Our share of net (gain)/loss from jointly controlled and associated entities includes our
share of both profits and losses from equity accounted investments.
In fiscal 2005, we entered into an agreement with our joint venture entity, REACH, which
included a commitment to fund half of REACHs committed capital expenditure for a period until
2022. Under A-IFRS, this transaction was deemed to be part of our investment in REACH and resulted
in equity accounted losses being recognised in fiscal 2005. REACH contributed A$102 million in
equity accounted losses in fiscal 2005.
The current year equity accounting gain has arisen after improved performance from our joint
venture entity Xantic prior to its sale.
Depreciation and amortisation
Our depreciation and amortisation expense remains a major component of our cost structure,
reflecting our expenditure on capital items.
Depreciation and amortisation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Depreciation |
|
|
3,183 |
|
|
|
2,876 |
|
|
|
307 |
|
|
|
10.7 |
% |
Amortisation |
|
|
904 |
|
|
|
653 |
|
|
|
251 |
|
|
|
38.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
|
4,087 |
|
|
|
3,529 |
|
|
|
558 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our depreciation and amortisation expense has risen by 15.8% to A$4,087 million in fiscal
2006. During fiscal 2006, we have undertaken a strategic review of the service lives of our assets
as part of the transformation strategy. As a result, we have accelerated depreciation and
amortisation by A$422 million mainly in relation to adjusting service lives of the CDMA network,
our switching systems, certain business and operational support systems and related software.
Excluding the impact of the accelerated depreciation, our depreciation and amortisation grew
by 3.9% to A$3,665 million, mainly attributable to:
|
|
|
growth in our communications plant asset base, which is consistent with our level of
capital expenditure over recent years; and |
|
|
|
|
consolidation of A$16 million of depreciation and amortisation expenses from our newly
merged entity, CSLNW, along with the inclusion of a full 12 months of depreciation and
amortisation expenses relating to entities acquired in fiscal 2005. |
Net finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Finance costs |
|
|
1,002 |
|
|
|
963 |
|
|
|
39 |
|
|
|
4.0 |
% |
Finance income |
|
|
(66 |
) |
|
|
(83 |
) |
|
|
17 |
|
|
|
(20.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
|
936 |
|
|
|
880 |
|
|
|
56 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our borrowing costs are influenced by:
|
|
|
our debt level; |
|
|
|
|
interest rates; |
68
|
|
|
our debt maturity profile; |
|
|
|
|
our interest payment profile; and |
|
|
|
|
our level of cash assets (affects net debt). |
In fiscal 2006, our net debt levels increased from A$11,771 million to A$13,057 million. This
increase was driven by our cash requirements to fund the payment of the fiscal 2005 final dividend
and the fiscal 2006 interim dividend, both of which included a 14c per share ordinary dividend and
a 6c per share special dividend. This level of dividend payments is higher than in previous periods
and hence, required an increase in our borrowing levels.
The higher level of net debt has driven an increase in our net finance costs despite the fact
that our net cost of debt has declined marginally during the year. The reason for the decline in
average cost of debt is that long term bonds which were issued at historically high interest rates
are maturing and being refinanced at the current, comparatively lower, interest rates.
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
Income Tax Expense |
|
|
1,380 |
|
|
|
1,746 |
|
|
|
(366 |
) |
|
|
(21.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
30.3 |
% |
|
|
28.8 |
% |
|
|
|
|
|
|
1.5 |
% |
In fiscal 2006, our income tax expense decreased by 21.0% to A$1,380 million. The primary
driver of the reduction in tax expense is lower profits for the year compared to fiscal 2005.
In fiscal 2006, the effective tax rate increased to 30.3% compared with the effective tax rate
of 28.8% in fiscal 2005. The higher effective tax rate is due to a change in the taxation
adjustments for items that have different treatments for accounting and taxation purposes, such as
equity accounted FOXTEL losses and the depreciation of certain items of plant and equipment. In
addition, the current year tax expense includes an amount for under provision of tax in the prior
year that is A$34 million higher than the amount included in fiscal 2005 for under provision in
fiscal 2004.
Major subsidiaries financial summaries
Below is a summary of the major reporting lines for our three largest subsidiaries: Sensis,
TelstraClear and CSLNW. This information is in addition to the product analysis previously provided
in the document and is intended to show these businesses as stand alone entities.
Sensis financial summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Sales revenue |
|
|
1,826 |
|
|
|
1,708 |
|
|
|
118 |
|
|
|
6.9 |
% |
Total income |
|
|
1,827 |
|
|
|
1,708 |
|
|
|
119 |
|
|
|
7.0 |
% |
Total expenses |
|
|
(917 |
) |
|
|
(863 |
) |
|
|
(54 |
) |
|
|
6.3 |
% |
EBITDA |
|
|
1,001 |
|
|
|
908 |
|
|
|
92 |
|
|
|
10.2 |
% |
EBIT |
|
|
910 |
|
|
|
845 |
|
|
|
65 |
|
|
|
7.7 |
% |
CAPEX |
|
|
100 |
|
|
|
83 |
|
|
|
17 |
|
|
|
20.5 |
% |
EBITDA margin |
|
|
54.8 |
% |
|
|
53.2 |
% |
|
|
|
|
|
|
1.6 |
% |
Amounts included for Sensis represent the contribution included in Telstras consolidated result.
We are a leading provider of advertising and search services through our advertising business
Sensis and its respective subsidiaries. Sensis provides advertising and local search solutions
through a print, online, voice, wireless and satellite navigation network.
The 6.9% increase in sales revenue to A$1,826 million during fiscal 2006 has primarily been
driven by advertising and directories revenue as described in the Advertising and Directories
product discussion. The growth in this area has been driven by good performance in White Pages and
Yellow print and online. The inclusion of acquired entities in fiscal 2006 has also contributed to
growth in the current year.
69
Operating expenses increased by 6.3% due mainly to the following:
|
|
|
Labour expenses grew by A$18 million during fiscal 2006 due to organic growth of the
workforce, redundancy costs and a A$10 million write back of a deferred expense provision. |
|
|
|
|
Cost of goods sold increased by A$14 million after the inclusion of a full 12 months of
results from Universal Publishers acquired mid way through fiscal 2005; and |
|
|
|
|
Increased depreciation and amortisation expense by A$27 million after commissioning new
software, the inclusion of amortisation for Universal Publishers and Adstream and the
revision of certain software service lives as part of our transformation strategy. |
Cost management and growing yields and margins in print and online led to underlying EBITDA growth
of 10.2% in fiscal 2006.
CSL New World Mobility Group financial summary
In February 2001, we acquired a 60% ownership interest in CSL. We paid A$3,085 million,
including incidental acquisition costs, to acquire this controlling interest. In June 2002, we
acquired the remaining 40% ownership interest in CSL as part of our redemption of a convertible
note from PCCW. In March 2006, we merged the CSL entity with New World PCS to form CSLNW. This
transaction involved us exchanging a 23.6% share in CSL and receiving a controlling interest in the
merged entity of 76.4%.
CSLNW operates in the highly competitive Hong Kong mobile market and has delivered revenue
growth in fiscal 2006 despite a difficult operating environment, characterised by significant
market competition and local voice price erosion. CSL and New World PCS have retained their own
brandings as they target different market segments. CSL remains Hong Kongs premium provider of
mobile voice and data services while New World PCS targets value conscious customers with a low
cost business model. The merged entity provides a much broader customer base for growth.
CSL New World financial summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
|
A$m |
|
A$m |
|
% |
|
HK$m |
|
HK$m |
|
% |
Total income |
|
|
833 |
|
|
|
735 |
|
|
|
13.3 |
% |
|
|
4,831 |
|
|
|
4,308 |
|
|
|
12.1 |
% |
Total expense |
|
|
(757 |
) |
|
|
(648 |
) |
|
|
16.8 |
% |
|
|
(4,145 |
) |
|
|
(3,583 |
) |
|
|
15.7 |
% |
EBITDA |
|
|
240 |
|
|
|
217 |
|
|
|
10.6 |
% |
|
|
1,390 |
|
|
|
1,272 |
|
|
|
9.3 |
% |
EBIT |
|
|
77 |
|
|
|
87 |
|
|
|
(11.5 |
)% |
|
|
686 |
|
|
|
725 |
|
|
|
(5.4 |
)% |
CAPEX |
|
|
98 |
|
|
|
128 |
|
|
|
(23.4 |
)% |
|
|
568 |
|
|
|
755 |
|
|
|
(24.8 |
)% |
EBITDA margin |
|
|
28.8 |
% |
|
|
29.5 |
% |
|
|
(0.7 |
)% |
|
|
28.8 |
% |
|
|
29.5 |
% |
|
|
(0.7 |
)% |
Note: Amounts presented in HK$ have been prepared in accordance with A-IFRS.
Amounts presented in A$ represent amounts included in our consolidated result including additional
depreciation and amortisation arising from consolidation fair value adjustments.
Amounts include three months of New World PCS in fiscal 2006.
Total income increased by 12.1% or HK$523 million in fiscal 2006. The majority of the increase
resulted from the inclusion of the New World PCS business from March 2006. This resulted in an 8.7%
increase in total income year on year. The remaining revenue growth was driven by rising data,
international voice, and prepaid revenues offset by a decline in local voice revenues after
sustained pressure on prices. Mobile handset revenue also increased after recent handset
promotions.
70
Total operating expenses increased by 15.7% mainly due to the following:
|
|
|
the incorporation of costs after the merger with New World PCS; |
|
|
|
|
increased subsidies as part of heightened promotional activity to drive sales; and |
|
|
|
|
higher offshore outpayments associated with higher international voice revenues. |
Depreciation and amortisation expense increased as CSLNW is now carrying higher network assets
due to the roll out of its 3G network. EBITDA increased by 9.3% or HK$118 million while EBIT
decreased by 5.4% or HK$39 million due to the impact of higher depreciation.
CSLNW continues to enhance its 3G network and promote 3G services through the deployment of
pioneering technology and innovative applications. In February 2006, we announced the launch of
Hong Kongs first 3G Mobile TV service enabling customers to enjoy a variety of news and
infotainment stations.
TelstraClear financial summary
TelstraClear, the second largest full service carrier in New Zealand, has been operating in
its current form since December 2001. In December 2001, we merged our 50% owned joint venture,
TelstraSaturn and CLEAR Communications, to form TelstraClear. As part of this transaction, we
acquired an additional 8.4% interest in the merged entity and began the consolidation of 58.4% of
TelstraClears results. In April 2003, we acquired the remaining 41.6% interest in TelstraClear and
consolidated 100% of TelstraClears results from that date.
TelstraClear financial summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
|
A$m |
|
A$m |
|
% |
|
HK$m |
|
HK$m |
|
% |
Total income |
|
|
620 |
|
|
|
625 |
|
|
|
(0.8 |
)% |
|
|
693 |
|
|
|
676 |
|
|
|
2.5 |
% |
Total expense |
|
|
(645 |
) |
|
|
(648 |
) |
|
|
(0.5 |
)% |
|
|
(713 |
) |
|
|
(695 |
) |
|
|
2.6 |
% |
EBITDA |
|
|
111 |
|
|
|
112 |
|
|
|
(0.9 |
)% |
|
|
124 |
|
|
|
122 |
|
|
|
1.6 |
% |
EBIT |
|
|
(25 |
) |
|
|
(24 |
) |
|
|
4.2 |
% |
|
|
(20 |
) |
|
|
(19 |
) |
|
|
5.3 |
% |
CAPEX |
|
|
126 |
|
|
|
115 |
|
|
|
9.6 |
% |
|
|
141 |
|
|
|
125 |
|
|
|
12.8 |
% |
EBITDA margin |
|
|
17.8 |
% |
|
|
18.0 |
% |
|
|
(0.2 |
)% |
|
|
17.9 |
% |
|
|
18.0 |
% |
|
|
(0.1 |
)% |
|
|
|
Note: |
|
Amounts presented in NZ$ represent the New Zealand business excluding intercompany
transactions and have been prepared in accordance with A-IFRS. |
Amounts presented in A$ represent amounts included in our consolidated result and include the
Australian dollar value of adjustments to consolidate TelstraClear into the Group result.
In fiscal 2006, revenue increased by 2.5% to NZ$693 million for the following reasons:
|
|
|
the full year impact of the national HomePlan offering in the consumer segment; and |
|
|
|
|
the current year included the first whole year of Sytec Resources Limited and its
controlled entities (Sytec) revenue after its acquisition in November 2004. |
These increases were offset by:
|
|
|
access and call revenue declines in the wholesale and small to medium enterprise
segments due to price erosion caused by competition in the market. This was moderated by
growth in our customer bases in those segments; and |
|
|
|
|
Internet revenues have declined, particularly in the second half, as reduced pricing
plans have impacted yield in the consumer segment. |
71
Total operating expense increased by 2.6% to NZ$713 million due to the following:
|
|
|
an increase in outpayments due to higher revenue; and |
|
|
|
|
a small increase in labour expenses driven by the inclusion of a full year of Sytec costs. |
TelstraClears acquisition of local ICT service provider, Sytec in November 2004 and its
controlled entities was an important step to leverage TelstraClears existing service capability
and provided growth and opportunities in this segment in fiscal 2006. New Zealand is a
strategically important market for our trans-Tasman customers and the combination of TelstraClear
and Telstra enables us to provide customers on both sides of the Tasman with seamless communication
and IT solutions.
REACH
REACH is primarily focused on meeting the increasing needs of its shareholders, Telstra and
PCCW, as well as third party voice and satellite services. We are the premier provider of
international voice and satellite services in Asia via the operation and management of the most
diverse high-speed network in the region.
In February 2001, we sold our global wholesale business, including certain offshore controlled
entities, to REACH in exchange for 50% ownership in REACH.
Since the original transaction, REACH has been operating in a difficult environment. Prices
for international voice and data carriage have fallen, but growth in usage has not been sufficient
to compensate for the loss in revenue caused by the price reductions. Consequently, we have
previously been required to write down our investment, reducing the carrying value to nil. Equity
accounting was suspended at that date and remains suspended. As a result, our share of net
profits/(losses) in relation to REACH are not booked in the Telstra Group results.
Fiscal 2006 operational performance of the business continued to track according to plan with
a focus on consolidation of a new operating model. Data volumes continue to grow strongly and voice
business volumes are stable. REACH has also recently signed a memorandum of understanding (MOU)
with a consortium of entities to plan and develop a proposal to build an international undersea
cable linking South East Asia with the United States of America. In addition, in October 2005,
REACH announced the launch of the first stage of its international IP enabled Next Generation
Network.
Cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A$ millions) |
|
(% change) |
Receipts from customers |
|
|
25,229 |
|
|
|
24,526 |
|
|
|
703 |
|
|
|
2.9 |
% |
Payments to suppliers/employees |
|
|
(14,785 |
) |
|
|
(13,848 |
) |
|
|
(937 |
) |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated by operations |
|
|
10,444 |
|
|
|
10,678 |
|
|
|
(234 |
) |
|
|
(2.2 |
)% |
Income tax paid |
|
|
(1,882 |
) |
|
|
(1,718 |
) |
|
|
(164 |
) |
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities(1) |
|
|
8,562 |
|
|
|
8,960 |
|
|
|
(398 |
) |
|
|
(4.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities(1) (see table below) |
|
|
(4,012 |
) |
|
|
(3,766 |
) |
|
|
(246 |
) |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow less investing cash flow(1) |
|
|
4,550 |
|
|
|
5,194 |
|
|
|
(644 |
) |
|
|
(12.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements in borrowings/finance leases |
|
|
493 |
|
|
|
1,393 |
|
|
|
(900 |
) |
|
|
(64.6 |
)% |
Employee share loans |
|
|
24 |
|
|
|
19 |
|
|
|
5 |
|
|
|
26.3 |
% |
Dividends paid |
|
|
(4,970 |
) |
|
|
(4,124 |
) |
|
|
(846 |
) |
|
|
20.5 |
% |
Share buy-back |
|
|
|
|
|
|
(756 |
) |
|
|
756 |
|
|
|
|
|
Finance costs paid |
|
|
(940 |
) |
|
|
(879 |
) |
|
|
(61 |
) |
|
|
6.9 |
% |
Purchase of shares for employee share plans |
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities(1) |
|
|
(5,399 |
) |
|
|
(4,347 |
) |
|
|
(1,052 |
) |
|
|
24.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash |
|
|
(849 |
) |
|
|
847 |
|
|
|
(1,696 |
) |
|
|
(200.2 |
)% |
|
|
|
(1) |
|
Due to the implementation of A-IFRS, we have revised the presentation of the cash flow
summary and our statutory reported statement of cash flows. This has resulted in some
reclassifications between our key cash flow totals (net cash provided by operating
activities, net cash used in investing activities and net cash used in financing
activities). Consequently, the 2005 comparative totals disclosed for these lines have
changed from the amounts disclosed as at 30 June 2005. The most significant change is the
reclassification of our finance costs paid from operating into financing, and the
reclassification of interest received from operating into investing. |
72
Net cash provided by operating activities
Our primary source of liquidity is cash generated from our operations. Net cash provided by
operating activities includes receipts from trade and other receivables, payments to suppliers and
employees, income tax paid, and GST received, paid and remitted to the Australian Taxation Office.
During fiscal 2006, net cash provided by operating activities decreased by 4.4% to A$8,562
million. Higher revenue and lower working capital items were offset by higher expense payments. The
key drivers of our increased revenue were our mobiles and broadband products. Our higher expense
payments were mainly due to increased labour costs, in particular redundancy payments, our variable
operating expenditure items that increase with revenue and our service contracts and agreements
expenditure.
In addition, our cash paid to the Australian Taxation Office was A$164 million higher in
fiscal 2006 than in fiscal 2005 due to a low tax instalment rate requiring us to make a larger
final tax payment in respect of fiscal 2005. The final payment in respect of fiscal 2005 was made
in fiscal 2006.
Net cash used in investing activities
Net cash used in investing activities represents amounts paid for capital assets and
investments, offset by cash receipts from the sale of capital assets and investments, and other
cash receipts from our investing activities.
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A $ millions) |
|
|
|
|
|
(% change) |
Switching |
|
|
452 |
|
|
|
338 |
|
|
|
114 |
|
|
|
33.7 |
% |
Transmission |
|
|
426 |
|
|
|
358 |
|
|
|
68 |
|
|
|
19.0 |
% |
Customer access |
|
|
800 |
|
|
|
870 |
|
|
|
(70 |
) |
|
|
(8.0 |
)% |
Mobile telecommunications networks |
|
|
1,043 |
|
|
|
497 |
|
|
|
546 |
|
|
|
109.9 |
% |
International assets |
|
|
338 |
|
|
|
279 |
|
|
|
59 |
|
|
|
21.1 |
% |
Capitalised software |
|
|
556 |
|
|
|
523 |
|
|
|
33 |
|
|
|
6.3 |
% |
Specialised network functions |
|
|
237 |
|
|
|
291 |
|
|
|
(54 |
) |
|
|
(18.6 |
)% |
Other |
|
|
340 |
|
|
|
377 |
|
|
|
(37 |
) |
|
|
(9.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating capital expenditure |
|
|
4,192 |
|
|
|
3,533 |
|
|
|
659 |
|
|
|
18.7 |
% |
Other intangibles |
|
|
63 |
|
|
|
6 |
|
|
|
57 |
|
|
|
950.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure before investments |
|
|
4,255 |
|
|
|
3,539 |
|
|
|
716 |
|
|
|
20.2 |
% |
Add: investment expenditure |
|
|
48 |
|
|
|
590 |
|
|
|
(542 |
) |
|
|
(91.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure and investments |
|
|
4,303 |
|
|
|
4,129 |
|
|
|
174 |
|
|
|
4.2 |
% |
Sale of capital equipment, investments and other proceeds |
|
|
(139 |
) |
|
|
(244 |
) |
|
|
105 |
|
|
|
(43.0 |
)% |
Proceeds from other investments |
|
|
(86 |
) |
|
|
(76 |
) |
|
|
(10 |
) |
|
|
13.2 |
% |
Repayment of loans to jointly controlled and associated entities |
|
|
|
|
|
|
37 |
|
|
|
(37 |
) |
|
|
|
|
Interest received |
|
|
(66 |
) |
|
|
(78 |
) |
|
|
12 |
|
|
|
(15.4 |
)% |
Dividend received |
|
|
|
|
|
|
(2 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
4,012 |
|
|
|
3,766 |
|
|
|
246 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2006, our expenditure on operating capital, intangibles and investments amounted to
A$4,303 million, an increase of 4.2% on the previous fiscal year. This growth was driven by our
next generation network transformation program, which is part of our ongoing strategy of
transforming the business.
The increases in our operating capital expenditure were across most capital expenditure
categories, with the exception of minor decreases in customer access and specialised network
functions. The drivers of our operating capital expenditure for fiscal 2006 were as follows:
|
|
|
higher domestic switching as a result of our fixed line transformation program, which
involves building a new IP core and the next generation ethernet transmission network.
Further expenditure was also incurred to cater for increasing demand for broadband ADSL and
specialised wideband services; |
|
|
|
|
higher transmission expenditure to support the new NEXT G(TM) wireless network and to
provide capacity to support increased broadband demand for digital subscriber line (DSL)
technology; |
73
|
|
|
lower expenditure on customer access due to the achievement of operational efficiencies
and the use of new IP ADSL technology at a lower unit cost; |
|
|
|
|
significantly higher expenditure on our mobile networks, primarily due to two items:
payments to Hutchison amounting to A$312 million for the purchase of a 50% share of its 3G
2100 network, acquired in fiscal 2005 with payments deferred until fiscal 2006 and fiscal
2007; and costs incurred in relation to the roll out of our NEXT G(TM) wireless network.
Most of the expenditure incurred on the NEXT G(TM) wireless network relates to installing
and updating our base stations to enable them to carry the new network. During fiscal 2006
we installed 3,500 base stations out of an intended long term program in excess of 5,000
base stations; |
|
|
|
|
higher expenditure on international assets, predominantly related to the purchase of
additional international transmission capacity to facilitate increased Internet traffic
with the United States; |
|
|
|
|
marginally higher expenditure on capitalised software as we embark on a three to five
year program of transformation projects. In this early stage of the program we have been
through a process of rationalising and streamlining our software applications; and |
|
|
|
|
lower expenditure on specialised network functions due to the postponement of a number
of projects as we undergo a review to ensure that each project is aligned to our
transformation initiatives. The expenditure we incurred during the year was mainly in
relation to improving the reliability and robustness of the network and on improving the IP
telephony network infrastructure platform. |
Our expenditure on investments and other intangibles amounted to A$111 million in fiscal 2006,
compared with A$596 million in fiscal 2005. Investment expenditure was significantly higher in
fiscal 2005 predominantly due to our acquisitions of KAZ and PSINet.
In fiscal 2006 our cash payments for investments and intangibles resulted from the following items:
|
|
|
A$56 million for the acquisition of the TNS business assets and customer bases from our
associated entity Keycorp Limited; |
|
|
|
|
A$21 million for the acquisition of a further 25% of the issued share capital of
Adstream Australia Limited, to increase our shareholding to 58% making Adstream a
controlled entity; |
|
|
|
|
A$5 million cash contribution to our joint venture entity FOXTEL; and |
|
|
|
|
other minor investments. |
|
|
In fiscal 2005, our cash payments for investments resulted from the following items: |
|
|
|
|
A$340 million for the acquisition of 100% of the issued share capital of KAZ; |
|
|
|
|
A$124 million for the acquisition of 100% of the issued share capital of PSINet; |
|
|
|
|
A$66 million for the acquisition of 100% of the issued share capital of ESA Holding Pty
Ltd and its controlled entity Damovo (Australia) Pty Ltd (now known as Telstra Business
Systems), and Damovo HK Limited; and |
|
|
|
|
A$46 million for the acquisition of 100% of the issued share capital of Universal
Publishers. |
Our proceeds from the sale of capital equipment, sale of investments and other proceeds
amounted to A$139 million in fiscal 2006, compared with A$244 million in fiscal 2005.
Our cash proceeds from asset sales in fiscal 2006 included the following:
|
|
|
the sale of our share of Xantic B.V. of A$89 million; and |
|
|
|
|
sale of property, plant and equipment amounting to A$50 million. |
74
Our cash proceeds from asset sales in fiscal 2005 included the following:
|
|
|
the sale of our 1.7% shareholding in Intelsat Limited for A$69 million; |
|
|
|
|
proceeds from sale of property, plant and equipment of A$68 million; and |
|
|
|
|
the sale of our 5.3% shareholding in Infonet Services Corporation for A$65 million. |
During fiscal 2006 and fiscal 2005 we also received cash from other investment transactions. These
included:
|
|
|
receipt of A$42 million as part of the settlement of the merger transaction with New
World PCS in fiscal 2006; |
|
|
|
|
receipt of A$18 million from a share buy-back performed by Xantic prior to our disposal
of our interest in Xantic in fiscal 2006; |
|
|
|
|
receipt of A$16 million from our associated entity Keycorp, due to a return of capital
in fiscal 2006; and |
|
|
|
|
the redemption of the converting note issued by PCCW with a cash consideration of A$76
million in fiscal 2005. |
Our capital expenditure in fiscal 2007 is expected to be between A$5,400 million and A$5,700
million. This is significantly higher than our traditional expenditure levels which is largely due
to transformational expenditure, including further construction of
our new NEXT G(TM) wireless
network, and upgrading our customer access network by delivering a new fixed line IP core in the 5
major capital cities.
We also expect to incur future capital expenditure in the following areas:
|
|
|
meeting ongoing customer demand for existing products and services, while ensuring
service levels are improved; |
|
|
|
|
developing new products and services to meet the changing needs of our customers; |
|
|
|
|
asset lifecycle management; |
|
|
|
|
further development of our broadband and online infrastructure to meet future growth; |
|
|
|
|
providing telecommunications services to rural and remote areas; and |
|
|
|
|
internal business support infrastructure to ensure continued productivity improvements,
operational efficiencies and customer relationship process improvements. |
We believe our cash flow from operating activities and available borrowings will be sufficient
to meet our anticipated capital expenditure and investment requirements.
Net cash used in financing activities
Our net cash used in financing activities increased in fiscal 2006 by 24.2%.
A significant portion of our net financing cash outflows related to the payment of dividends
and, in fiscal 2005, a share buy-back. The amount paid to shareholders in fiscal 2006 was largely
consistent with the combined amount paid by way of dividends and the share buy-back in fiscal 2005.
In fiscal 2006, shareholders received the payment of two special dividends of A$0.06 each per
share, amounting to A$1,492 million, one was the final dividend for fiscal 2005 and the other was
the interim dividend for fiscal 2006.
We also receive and repay significant amounts in relation to our borrowings to fund our
working capital requirements and other business needs.
The net increase in cash used in financing activities is due to higher dividends and a share
buy-back in fiscal 2005, partially offset by a higher net level of proceeds from our debt issuances
in fiscal 2005. Our net proceeds from debt were high during fiscal 2005 due to the refinancing of
debt which matured during the year and our need to increase our level of liquidity to fund working
capital.
75
During the year, we received A$8,641 million in borrowed funds and repaid A$8,141 million. In
fiscal 2005, we received A$7,416 million in borrowed funds and repaid A$6,007 million. This
resulted in a net increase in cash of A$1,909 million over the two-year period, which assisted in
funding the outflows from the payment of dividends and finance costs.
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
2006 |
|
2005 |
|
Change |
|
2006/2005 |
|
|
(In A$ millions) |
|
(% change) |
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
689 |
|
|
|
1,548 |
|
|
|
(859 |
) |
|
|
(55.5 |
)% |
Other current assets |
|
|
4,190 |
|
|
|
4,034 |
|
|
|
156 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
4,879 |
|
|
|
5,582 |
|
|
|
(703 |
) |
|
|
(12.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
23,622 |
|
|
|
22,891 |
|
|
|
731 |
|
|
|
3.2 |
% |
Intangibles goodwill |
|
|
2,073 |
|
|
|
2,037 |
|
|
|
36 |
|
|
|
1.8 |
% |
Intangibles other |
|
|
4,050 |
|
|
|
4,292 |
|
|
|
(242 |
) |
|
|
(5.6 |
)% |
Other non current assets |
|
|
1,551 |
|
|
|
409 |
|
|
|
1,142 |
|
|
|
279.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non current assets |
|
|
31,296 |
|
|
|
29,629 |
|
|
|
1,667 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
36,175 |
|
|
|
35,211 |
|
|
|
964 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
1,969 |
|
|
|
1,507 |
|
|
|
462 |
|
|
|
30.7 |
% |
Other current liabilities |
|
|
5,917 |
|
|
|
4,905 |
|
|
|
1,012 |
|
|
|
20.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,886 |
|
|
|
6,412 |
|
|
|
1,474 |
|
|
|
23.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
11,409 |
|
|
|
10,941 |
|
|
|
468 |
|
|
|
4.3 |
% |
Other non current liabilities |
|
|
4,048 |
|
|
|
4,200 |
|
|
|
(152 |
) |
|
|
(3.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
15,457 |
|
|
|
15,141 |
|
|
|
316 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
23,343 |
|
|
|
21,553 |
|
|
|
1,790 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
12,832 |
|
|
|
13,658 |
|
|
|
(826 |
) |
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
12,586 |
|
|
|
13,656 |
|
|
|
(1,070 |
) |
|
|
(7.8 |
)% |
Minority interests |
|
|
246 |
|
|
|
2 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
12,832 |
|
|
|
13,658 |
|
|
|
(826 |
) |
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We continue to maintain a strong financial position with net assets of A$12,832 million as at
30 June 2006 and A$13,658 million as at 30 June 2005. The decrease in net assets in fiscal 2006 of
A$826 million was due to an increase in total liabilities of A$1,790 million, offset by higher
total assets of A$964 million.
The movement in total assets of A$964 million was primarily due to:
|
|
|
cash assets decreased by A$859 million partially due to the proceeds on our EUR1
billion bond issue being received just prior to 30 June 2005, which was subsequently
invested in the short term money market. The current level of cash is more reflective of
our normal cash holdings; |
|
|
|
|
our property, plant and equipment increased by A$731 million, largely due to high
capital expenditure on our network and our new fixed line IP core driven by our next
generation network transformation projects; |
|
|
|
|
other intangibles decreased by A$242 million, due mainly to the amortisation of our
software assets exceeding expenditure on new software during the year as we rationalised
and streamlined many of our software applications as part of our business transformation;
and |
|
|
|
|
other non current assets increased by A$1,142 million mainly due to an increase in the
actuarially determined value of our defined benefit pension asset. |
The movement in total liabilities of A$1,790 million was primarily due to:
76
|
|
|
total borrowings, current and non-current, increased by A$930 million. This increase
reflected our need to increase our level of liquidity to fund our working capital and
business requirements, along with two special dividend payments made during the fiscal
year; |
|
|
|
|
other current liabilities increased by A$1,012 million primarily due to an increase in
our trade creditors and accruals, reflecting the large amount of activity, in particular
construction activity, undertaken close to the end of the fiscal year. In addition, current
and non-current liabilities include a provision for restructuring and redundancy expenses
planned to be incurred as part of our transformation of the business mainly over the next
two years; and |
|
|
|
|
other non-current liabilities decreased by A$152 million primarily due to a change in
our cross currency swap position in line with currency movements and our hedging
requirements. |
Liquidity and capital resources
Capitalisation
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2006 |
|
|
A$ million |
|
US$ million(1) |
Cash and cash equivalents |
|
|
689 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
Short term debt(2)(3) |
|
|
|
|
|
|
|
|
Bank loans |
|
|
111 |
|
|
|
82 |
|
Bills of exchange and commercial paper |
|
|
1,457 |
|
|
|
1,082 |
|
Other loans |
|
|
394 |
|
|
|
293 |
|
Finance leases |
|
|
7 |
|
|
|
5 |
|
Derivative financial instruments (net)(4) |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
1,960 |
|
|
|
1,455 |
|
|
|
|
|
|
|
|
|
|
Long term debt(3) |
|
|
|
|
|
|
|
|
Telstra bonds |
|
|
2,613 |
|
|
|
1,939 |
|
Other loans (unsecured) |
|
|
8,748 |
|
|
|
6,494 |
|
Finance leases |
|
|
48 |
|
|
|
36 |
|
Derivative financial instruments (net)(4) |
|
|
377 |
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
Total long term debt |
|
|
11,786 |
|
|
|
8,749 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Share capital |
|
|
5,569 |
|
|
|
4,134 |
|
Reserves |
|
|
(160 |
) |
|
|
(119 |
) |
Retained profits(5) |
|
|
7,177 |
|
|
|
5,327 |
|
Minority interests |
|
|
246 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
12,832 |
|
|
|
9,525 |
|
|
|
|
|
|
|
|
|
|
Total capitalisation(6) |
|
|
26,578 |
|
|
|
19,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Translated at the noon buying rate on 30 June 2006 of A$1.00 = US$0.7423.
|
|
(2) |
|
Includes the current portion of long term debt. |
|
(3) |
|
No borrowings are guaranteed by third parties. All of our significant borrowings were
unsecured, except for finance leases which are secured, as the rights to the leased assets
revert to the lessor in the event of default. |
|
(4) |
|
The presentation of our short term and long term debt is consistent with note 18 to our
consolidated financial statements, except for derivative financial instruments which are
separately disclosed in note 16 and note 20 respectively. |
|
(5) |
|
On 10 August 2006, we declared a fully franked final dividend of A$1,739 million,
payable on 22 September 2006. This dividend was not deducted from retained profits as at 30
June 2006 and was disclosed as a post balance date event, refer to note 34 to our
consolidated financial statements for further detail. |
|
(6) |
|
Total capitalisation consists of short term debt, long term debt and equity, including
minority interests. |
Cash and cash equivalents as at 30 June 2006 was A$689 million compared with A$1,548 million
as at 30 June 2005. Cash and cash equivalents are predominantly held in Australian dollars. As at
30 June 2006, our total debt (including derivative financial instruments) was A$13,746 million
compared with A$13,319 million as at 30 June 2005. After deducting cash and cash equivalents,
77
net debt as at 30 June 2006 was A$13,057 million compared with A$11,771 million as at 30 June 2005.
In fiscal 2006, the net debt position increased largely due to higher debt holdings to fund our
working capital requirements. We believe our balance sheet continues to have strong capital
settings.
The majority of our total debt consisted of foreign currency denominated borrowings sourced
from a variety of foreign currency markets. These borrowings are generally swapped into Australian
dollars at draw down through to maturity to generate Australian dollar obligations. Our current
borrowings (including derivative financial instruments) that mature in less than 12 months amount
to A$1,960 million maturing within the fiscal 2007 year, representing approximately 14.3% of our
total debt.
As at 30 June 2006, we had access to A$625 million, HK$51 million and US$200 million of
committed standby bank lines. These comprise bilateral arrangements of approximately one year
duration with ten major banks that fall due for renewal at various times throughout the year.
We have four commercial paper programs with a total nominal borrowing capacity of A$2 billion,
US$4 billion, EUR4 billion and NZ$0.5 billion (the New Zealand dollar facility is technically
unlimited, but we estimate a practical limit of around NZ$0.5 billion based on the efficient
capacity of the New Zealand market). In each case, we issue commercial paper through dealers on a
quotation (non underwritten) basis. Our commercial paper facilities are not committed and do not
provide guaranteed access to funds. As at 30 June 2006, we had borrowed A$1,123 million under our
Australian dollar facility and NZ$406 million under our New Zealand dollar facility. We had no
borrowings under our United States dollar and Euro commercial paper facilities at year end.
Generally, our facilities are operational unless we default on any terms applicable under the
relevant agreements or we become insolvent.
A key objective with our short term facilities is to provide ready and efficient access to
substantial borrowings capacity in order to ensure that we can comfortably meet any reasonable
unforeseen demands for funding. We have established commercial paper programs as outlined above
that provide diverse and reliable sources of funding. The maturity of our total debt portfolio is
generally structured in consideration of expected cash flows from business investments and
activities.
Our current liabilities are typically in excess of our current assets, as is common with most
incumbent telecommunications companies. We had negative working capital of A$3,007 million as at 30
June 2006 compared with A$830 million as at 30 June 2005. We define our working capital as the
difference between current assets and current liabilities. We believe that our negative working
capital position does not create a liquidity risk because we can delay the timing of discretionary
capital expenditure should cash inflows from our diverse customer base
diminish at any point in time. In addition, our commercial paper programs and standby bank
lines provide us with readily available sources of liquidity at short notice when the need arises.
As a result, these contributing factors and our existing working capital enables us to meet our
present and future expenditure obligations, including the potential realisation of any
contingencies, as required.
In fiscal 2006, the increase in our negative working capital position to A$3,007 million was
mainly due to a decrease in our cash and cash equivalents, together with an increase in our trade
and other payables. The decrease in cash and cash equivalents was mainly due to a higher cash
position at 30 June 2005 after the receipt of a substantial Euro borrowing late in June 2005, which
generated a one off large cash surplus. This borrowing just prior to year end was not repeated in
fiscal 2006. The increase in trade and other payables reflects additional accrued expenditure
associated with the roll out of the NEXT G(TM) wireless network.
In fiscal 2006, net cash provided by operating activities amounted to A$8,562 million compared
with A$8,960 million in fiscal 2005. Operational cash flows continue to be our primary source of
liquidity and generate funding for capital expenditure, investment acquisitions and dividend
payments to our shareholders. Our operating cash flows continue to remain strong and relatively
consistent each month. The major spikes in cash flows across our business arise from significant
receipts such as asset and investment sales, and from significant outgoings such as the acquisition
of large assets and investments, dividend payments and tax instalments. In general, we use our cash
generated and other liquid assets, as well as our short term debt, to cover our major outgoings.
Refer to Operating and Financial Review and Prospects Cash flow for further discussion.
The majority of our funding is generated by the operations of Telstra Corporation Limited, the
parent entity in the group. As a result, we are not reliant on dividends from controlled entities
for our liquidity needs. We are not aware of any restrictions on the payment of dividends apart
from those specified in the Corporations Act 2001, common law requirements or through local
jurisdictional obligations.
During fiscal 2006, we undertook several new long term private placement borrowings that included:
78
|
|
|
a JPY5 billion loan that will mature in September 2013; |
|
|
|
|
JPY1 billion, JPY4 billion and JPY3 billion note that will mature in November 2012,
November 2015 and June 2016 respectively; and |
|
|
|
|
a USD$20 million and USD$150 million note that will mature in December 2011 and
December 2015 respectively. |
During fiscal 2005, we undertook several new long term borrowings that included:
|
|
|
a EUR500 million ten year bond that will mature in July 2014; |
|
|
|
|
two A$500 million domestic bonds of eight and ten years duration that will mature in
November 2013 and April 2015 respectively; |
|
|
|
|
two NZD$100 million bonds of seven and ten years that will mature in November 2011 and
November 2014 respectively; |
|
|
|
|
a CHF300 million eight year bond that will mature in April 2013; and |
|
|
|
|
a EUR1,000 million bond, comprising a EUR500 million tranche that will mature in June
2010 and a further EUR500 million tranche that will mature in July 2015. |
In future reporting periods, we believe capital expenditure will continue to be financed
largely from our cash flow from operations. Maturing long term debt of A$401 million in fiscal 2007
is expected to be principally re-financed by new debt. While borrowings will increase in fiscal
2007 to fund our working capital requirements, including dividend payments, we continue to be
confident of remaining within our financial parameters.
Our borrowings profile is managed centrally by our treasury department, which is part of our
Finance and Administration business unit. For additional information regarding our borrowings
profile, refer to note 18 to our consolidated financial statements.
Our activities result in exposure to a number of financial risks including market risk
(interest rate risk, foreign currency risk and other price risk), credit risk, operational risk and
liquidity risk. Our overall risk management program seeks to mitigate these risks and reduce
overall volatility on our financial performance. We enter into derivative transactions in
accordance with Board approved policies to manage our exposure to market risks and volatility of
financial outcomes that arise as part of our normal business operations. These derivative
instruments create an obligation or right that effectively transfers one or more of the risks
associated with an underlying financial instrument, asset or obligation.
We maintain a portfolio of derivative contracts to manage risks that arise from our business.
The derivatives are principally forward foreign currency contracts, interest rate swaps and cross
currency swaps. Under A-IFRS, these instruments are consolidated on our balance sheet. As at 30
June 2006, our net derivative financial instruments resulted in a net liability of A$368 million
recorded in our consolidated financial statements.
Our derivative instruments are managed centrally by our treasury department, which is part of
our Finance and Administration business unit. For additional information regarding the nature,
business purposes and importance of our derivative instruments, see Quantitative and qualitative
disclosures about market risk and note 35 to our consolidated financial statements.
Our credit ratings by the three major rating agencies are currently:
|
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|
|
|
|
|
|
|
Long Term |
|
Short Term |
|
Outlook |
Standard and Poors
|
|
A
|
|
A1
|
|
negative |
Moodys
|
|
A2
|
|
P1
|
|
negative |
Fitch
|
|
A+
|
|
F1
|
|
negative |
During fiscal 2006, Standard and Poors, and Moodys Investors Service both adjusted their long
term ratings down by one grade to reflect the decline in PSTN revenues, the uncertain regulatory
outlook and the repositioning of target key financial parameters during the financial year
(detailed below). All three rating agencies have Telstra on a negative outlook. Ratings are not a
recommendation to purchase, hold or sell securities, and may be changed, superseded or withdrawn at
any time.
79
We continually review our capital structure and associated financial flexibility in light of
our environment, overall operating conditions and future outlook. Factors considered include:
|
|
|
the strength of our operating cash flows; |
|
|
|
|
requirements for capital expenditure and investments; |
|
|
|
|
access to funding from the capital markets; |
|
|
|
|
our gearing and associated credit rating; and |
|
|
|
|
the regulatory environment and its potential impact. |
The Board has approved a set of target levels for selected key financial parameters, which
indicate comfort zones that we consider consistent with the financial flexibility required in light
of our overall business and objectives. These parameters are continually reviewed and subject to
change at any point. The parameters were last changed at our strategic review announcement on 15
November 2005 and are detailed below:
|
|
|
debt servicing of 1.7 to 2.1 times, representing our net debt divided by earnings
before interest, income tax expense, depreciation and amortisation (EBITDA); |
|
|
|
|
net debt gearing of 55.0% to 75.0%, representing net debt divided by total
capitalisation (net debt plus equity); and |
|
|
|
|
interest cover of greater than 7 times, representing EBITDA divided by net finance
costs. |
Under our previous capital management policy, the Board intended to return an additional
A$1,500 million to shareholders for three consecutive fiscal years ending fiscal 2007 through
special dividends and share buy-backs, subject to us maintaining our target financial parameters.
In November 2005 as part of our company wide strategic review, we decided not to proceed with the
A$1,500 million capital return in the third year of the program. We are now directing those funds
to our transformation program.
During the two-year period, we returned the following additional capital returns to our
shareholders, in addition to our ongoing ordinary dividends:
|
|
|
during fiscal 2006, we paid a special dividend of A$0.06 per share (A$746 million) in
March 2006 with our interim dividend for fiscal 2006; |
|
|
|
|
during fiscal 2006, we paid a special dividend of A$0.06 per share (A$746 million) in
October 2005 with our final dividend for fiscal 2005; |
|
|
|
|
during fiscal 2005, we paid a special dividend of A$0.06 per share (A$746 million) in
April 2005 with our interim dividend for fiscal 2005; and |
|
|
|
|
during fiscal 2005, we completed an off-market share buy-back of 185,284,669 ordinary
shares in November 2004. The cost of the share buy-back comprised purchase consideration of
A$750 million and associated transaction costs of A$6 million. |
It is the current intention of the Board to declare ordinary dividends of A$0.28 per share for
fiscal 2007. This assumes that we continue to be successful in implementing our transformation
strategy and there are no further material adverse regulatory outcomes during fiscal 2007. The
Board will make their final decision on the future amount of dividends in its normal cycle having
regard to our earnings and cash flow as well as future regulatory impacts and all other factors
that affect our operations.
80
Contractual obligations and commercial commitments
In the ordinary course of business we enter into agreements for the supply of products and
services to support our business needs. While the liability under these agreements only arises on
supply, we have a commitment to acquire the particular products and services under the relevant
agreements. In addition, we are obligated to meet our long term debt requirements.
Contractual obligations and commercial commitments as at 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Expiration per Period |
|
|
Total |
|
|
|
|
|
Within |
|
Within |
|
Within |
|
Within |
|
|
|
|
Amounts |
|
Within |
|
1-2 |
|
2-3 |
|
3-4 |
|
4-5 |
|
After |
|
|
Committed |
|
1 Year |
|
Years |
|
Years |
|
Years |
|
Years |
|
5 Years |
|
|
(In A$ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure commitments:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditure |
|
|
776 |
|
|
|
665 |
|
|
|
62 |
|
|
|
32 |
|
|
|
9 |
|
|
|
6 |
|
|
|
2 |
|
Intangible commitments |
|
|
305 |
|
|
|
159 |
|
|
|
130 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancellable operating leases(2) |
|
|
1,530 |
|
|
|
424 |
|
|
|
290 |
|
|
|
201 |
|
|
|
139 |
|
|
|
118 |
|
|
|
358 |
|
Finance leases |
|
|
55 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
4 |
|
|
|
2 |
|
|
|
28 |
|
FOXTEL commitments(3) |
|
|
1,677 |
|
|
|
144 |
|
|
|
113 |
|
|
|
93 |
|
|
|
95 |
|
|
|
92 |
|
|
|
1,140 |
|
Other expenditure commitments |
|
|
704 |
|
|
|
337 |
|
|
|
123 |
|
|
|
83 |
|
|
|
120 |
|
|
|
19 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations and commercial commitments |
|
|
5,047 |
|
|
|
1,736 |
|
|
|
725 |
|
|
|
432 |
|
|
|
367 |
|
|
|
237 |
|
|
|
1,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt obligations:(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt obligations |
|
|
11,791 |
|
|
|
394 |
|
|
|
1,373 |
|
|
|
581 |
|
|
|
1,315 |
|
|
|
2,642 |
|
|
|
5,486 |
|
Unamortised discount |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,755 |
|
|
|
394 |
|
|
|
1,373 |
|
|
|
579 |
|
|
|
1,313 |
|
|
|
2,642 |
|
|
|
5,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations and commercial
commitments (including long term debt
obligations) |
|
|
16,802 |
|
|
|
2,130 |
|
|
|
2,098 |
|
|
|
1,011 |
|
|
|
1,680 |
|
|
|
2,879 |
|
|
|
7,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The presentation of our commitments is consistent with note 26 to our consolidated
financial statements. |
|
(2) |
|
In addition to our non-cancellable leases, we have commitments under cancellable
operating leases amounting to A$356 million. |
|
(3) |
|
On 31 July 2006, FOXTEL entered into a new A$600 million syndicated secured term loan
facility to fund the refinancing of previous loan facilities. Refer to Operating and
Financial Review and Prospects Related party transactions FOXTEL for further details.
As a result, we no longer have a share of FOXTELs commitments relating to digital set top
box units, which reduced our share of the commitments by A$141 million. |
|
(4) |
|
Our long term debt obligations include the current portion of long term debt, however
it excludes our derivative financial instruments and our finance leases. Our finance lease
commitments are included separately in the above table. Additional details regarding the
split of our long term debt obligations is provided in note 18 to our consolidated
financial statements. Refer to Liquidity and capital resources for further discussion
regarding our debt obligations. |
Our property, plant and equipment expenditure commitments mainly relate to committed
expenditure to build and improve our networks, enhance our network software and meet our future
hardware requirements. Our commitments for intangibles mainly relate to committed expenditure for
future business software requirements and license obligations. Our commitments include expenditure
relating to our transformation program.
Our operating lease commitments primarily relate to lease agreements we have entered into for the
following:
|
|
|
rental of land and buildings, over an average term of seven years; |
|
|
|
|
rental of motor vehicles, caravan huts, trailers and mechanical aids over an average
term of between two and twelve years, depending on the type of vehicle; and |
|
|
|
|
rental of personal computers and related equipment over an average term of three years. |
Our finance lease commitments mainly relate to capitalised property leases and leases for IT
equipment to support our client requirements for managed service solutions. In addition to our
finance lease commitments, we have previously entered into US finance leases with several entities
incorporated in the Cayman Islands relating to communications exchange equipment. We have
81
provided guarantees over the performance of these entities under defeasance arrangements, whereby
lease payments are made on our behalf by the entities over the remaining term of the finance
leases. Refer to note 26 and note 27 to our consolidated financial statements for further details.
The FOXTEL commitments primarily relate to our 50% share of the FOXTEL partnerships
commitment to acquire subscription television programming that is subject to minimum subscriber
guarantee levels. The minimum subscriber payments fluctuate in accordance with price
escalation/reduction formulae contained in the agreements, as well as foreign currency movements.
In addition, FOXTEL has other commitments for satellite transponder costs and digital set top box
units. Due to the joint and several nature of the FOXTEL partnership agreements, we are also
contingently liable to the extent of our FOXTEL partners share of certain commitments should
FOXTEL and/or the other FOXTEL partners default on their payment obligations under these
agreements.
Our other expenditure commitments of A$704 million relate to various commitments for
engineering and operational support services, information technology services and building
maintenance. In particular, these commitments include the following items:
|
|
|
commitments relating to service contracts for general maintenance and support of our
hardware and software; |
|
|
|
|
commitments relating to the purchase of wavelengths to enhance our international
operational capabilities, amounting to A$70 million; |
|
|
|
|
commitments to provide our call centre partners with a minimum number of calls during
the duration of our contracts with these partners, amounting to A$133 million; and |
|
|
|
|
commitments for future sponsorship and advertising expenditure in our marketing area,
amounting to A$44 million. |
Off balance sheet arrangements
As at 30 June 2006, we had provided indemnities, performance guarantees, financial support and
other arrangements to various entities. Our off balance sheet arrangements include:
|
|
|
arrangements with our joint venture entities such as REACH, FOXTEL and the 3GIS
Partnership; and |
|
|
|
|
guarantees over the performance of third parties incorporated in the Cayman Islands
under defeasance arrangements, whereby finance lease payments for communications exchange
equipment are made on our behalf by the third parties. |
The features and counterparties involved in our indemnities, performance guarantees, financial
support and other arrangements are detailed in note 27 to our consolidated financial statements. We
do not have any other significant off balance sheet arrangements, other than those disclosed in
note 27 to our consolidated financial statements.
Related party transactions
The following discussion summarises our significant transactions with related parties, other
than our controlled entities and key management personnel. For discussion on our related party
transactions with controlled entities and key management personnel, refer to note 33 to our
consolidated financial statements.
REACH
In fiscal 2001, we formed REACH, a 50/50 joint venture with PCCW Limited (PCCW), which merged
our respective international infrastructure assets. REACH is a major carrier of international voice
traffic. It provides outsourcing services in support of Telstras and PCCWs international voice
and data services. In addition, it also provides third party voice and satellite services to
customers other than PCCW and us. Upon the formation of REACH, we agreed with PCCW to enter into
contractual arrangements with the jointly controlled entity for the provision of voice, data and
Internet connectivity services. We use these services primarily in connection with our retail
international telecommunications business.
Our purchases from REACH were A$198 million in fiscal 2006 compared with A$226 million in
fiscal 2005. These amounts were mainly for both the purchase of, and entitlement to, capacity and
connectivity services. The purchases were made in line with market prices. We also made sales to
REACH for international inbound call termination services, construction and consultancy of
82
A$61 million in fiscal 2006 and A$71 million in fiscal 2005. These transactions are in the ordinary
course of business and are on normal commercial terms and conditions.
During fiscal 2005, REACH made several improvements to its operating model including the
decision that its data capacity would be consumed entirely by its shareholders. PCCW and Telstra
continue to experience significant traffic growth in recent years, which will see both companies
utilising virtually all of REACHs capacity. REACH continues to provide its third party voice and
satellite services to consumers other than PCCW and us.
As part of these improvements, REACH allocated its international cable capacity between PCCW
and us, via an indefeasible right of use (IRU) agreement. As consideration for the IRU, we
discharged our rights under a previous capacity prepayment arrangement and the accrued interest on
the prepayment. As a result, the total consideration
amounted to A$205 million (US$157 million). For the Telstra Group, the IRU is deemed to be an
extension of our investment in REACH resulting in the IRU having a carrying value of A$nil in the
consolidated financial statements reflecting the recognition of equity accounted losses in REACH.
Over the period of the IRU, we pay REACH an outsourcing fee for managing our cable usage on a cost
plus mark up basis.
As part of the acquisition of the IRU, we agreed to fund half of the committed capital
expenditure that REACH is contractually obliged to pay to its capacity providers until fiscal 2022.
We have recognised a provision in our balance sheet of A$52 million in fiscal 2006 and A$90 million
in fiscal 2005. In fiscal 2006, the decrease in the provision was due to amounts drawn down by
REACH for expenditure and the unwinding of the discount rate arising from the passage of time. PCCW
has committed to fund the other half of REACHs capital expenditure. In the event that PCCW fails
to make the payments under their commitment, we have no obligation to fund PCCWs share of the
commitment.
Together with PCCW, we previously bought out a loan facility owed to a banking syndicate by
REACH and its controlled entity, Reach Finance Ltd. Our share of the acquisition cost was US$155.5
million, which was recognised as a receivable at the date of the transaction. We provide for the
non recoverability of this receivable as we do not consider that REACH is in a position to repay
the loan in the medium term. Due to the restructuring of our arrangements with REACH in fiscal
2005, the terms of the maturity were altered such that the facility is now an interest free loan
and repayable on or after 31 December 2010 upon the giving of 6 months notice by both PCCW and us.
In addition, we previously agreed with PCCW to provide a US$50 million revolving working
capital facility to REACH to assist it in meeting their ongoing operational requirements. Our share
of this facility is US$25 million. Draw downs under this facility must be repaid at the end of each
interest period and fully repaid by 31 December 2007. As at 30 June 2006, REACH had not made any
draw down under this facility. We have no joint or several liability relating to PCCWs US$25
million share of the working capital facility.
The revised loan facilities and working capital arrangements in fiscal 2005 provided REACH
with greater flexibility and a more viable capital structure. It also certified our ongoing
ownership of this core infrastructure, ensuring that we have the continued capacity to meet our
international carriage service requirements.
FOXTEL
Our 50% owned pay television joint venture FOXTEL uses capacity on our HFC cable network. As
part of the arrangements with our joint venture partners, News Corporation Limited, and Publishing
and Broadcasting Limited, we are the exclusive long term supplier of cable distribution services
for FOXTELs subscription television services in our cabled areas. We also receive a share of
FOXTELs cable subscription television revenues. Further details about our arrangements with FOXTEL
are included in the Information on the Company Subscription television.
We have entered into arrangements with FOXTEL, whereby we are able to bundle and resell FOXTEL
services to our customers, including pay television content, as part of our ongoing product
bundling initiatives. Our purchases from FOXTEL of pay television services were A$250 million in
fiscal 2006 compared with A$218 million in fiscal 2005. The increase in fiscal 2006 was primarily
driven by growth in bundled FOXTEL subscribers. The purchases enabled us to resell FOXTEL services
to our customers and facilitate product bundling initiatives. In fiscal 2006, we generated HFC
cable related revenue from FOXTEL of A$84 million compared with A$65 million in fiscal 2005, which
includes revenue for carriage services, cable installations and service calls. The increase in
fiscal 2006 was mainly due to additional promotional activity which increased services in operation
and a scheduled FOXTEL contract rate increase. These transactions are in the ordinary course of
business and are on normal commercial terms and conditions.
83
FOXTEL has other commitments amounting to A$3,354 million as at 30 June 2006 of which we have
a 50% share amounting to A$1,677 million. The majority of these commitments relate to minimum
subscriber guarantees for pay television programming agreements, as well as the partnership
commitments for satellite transponder costs
and digital set top box units. Due to the joint and several nature of the FOXTEL partnership
agreements, we are also contingently liable to the extent of our FOXTEL partners share of the
commitments for minimum subscriber guarantees and satellite transponder costs should FOXTEL and/or
the other FOXTEL partners default on their payment obligations under these agreements. Our
contingent liability as at 30 June 2006 amounted to A$1,531 million. During the two-year period,
FOXTEL has continued to meet its obligations under these arrangements and as a result, we have not
paid any significant amounts to meet the minimum subscriber guarantees and other FOXTEL
commitments. Refer to Operating and Financial Review and Prospects Contractual obligations and
Operating and Financial Review and Prospects commercial commitments and note 26 and note 27 to
our consolidated financial statements for further information.
Previously, FOXTEL entered into a A$550 million bank facility arrangement to fund its full
digital conversion and launch of new digital services. As part of this arrangement, we and FOXTELs
other ultimate shareholders entered into an Equity Contribution Deed (ECD) whereby FOXTEL is
required to call on a maximum of A$200 million in equity contributions in certain specified
circumstances, as necessary, to avoid default of a financial covenant. These equity contributions
are based on ownership interests and as a result, our maximum contingent liability is A$100
million. We have no joint and several liability relating to our partners obligations under the
ECD.
On 31 July 2006, FOXTEL entered into a new A$600 million syndicated secured term loan facility
to fund the refinancing of previous loan facilities (including the A$550 million syndicated
facility previously detailed), and to enable it to meet future cash flow and expenditure
requirements.
The ECD entered into by us and FOXTELs other ultimate shareholders has been terminated. Under
this new arrangement, recourse to our controlled entity Telstra Media Pty Ltd, as a FOXTEL partner,
is limited to the assets of the FOXTEL Partnerships.
3GIS Partnership
During fiscal 2005, we established a joint venture partnership with Hutchison 3G Australia Pty
Ltd (H3GA), a subsidiary of Hutchison Telecommunications (Australia) Limited, to jointly own and
operate H3GAs existing 3G radio access network (RAN) and fund network development. The H3GA RAN is
the core asset of the joint venture, known as the 3GIS partnership. In return for 50% ownership of
the asset, we paid H3GA A$450 million in instalments over two years ending 3 July 2006. We paid
A$312 million in fiscal 2006 and A$22 million in fiscal 2005 for the acquisition of these assets.
The balance outstanding as at 30 June 2006 was settled on 3 July 2006 and is reflected in our trade
and other payables at 30 June 2006.
During the two-year period, we provided interest free funding to 3GIS for operational
expenditure purposes. As a result, we have recognised our share of the loan outstanding by the 3GIS
partnership amounting to A$14 million as at 30 June 2006 and A$32 million as at 30 June 2005. The
loan is classified as a non current receivable in our consolidated financial statements.
Research and development
Our research and development activities cover diverse areas of our business and focus on
developing:
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new competitive products for our customers; |
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product innovation and differentiation; |
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service quality improvements; and |
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long term strategic positioning. |
Our research and development expenditure includes amounts expensed in the income statement and
amounts capitalised in software developed for internal use and property, plant and equipment. Items
include:
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research and development carried out directly by us in our research laboratories; |
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research and development expenditure contracted out by us, for which the resultant
intellectual property is owned by the contractor; |
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research and development expenditure incurred in the development of certain software;
and |
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support and other research and development expenditures. |
For the purposes of this Form 20-F, we estimate the amount of research and development
expenditure incurred over the past year. The amount of the actual expenditure is not determined
until we complete our research and development assessment process in the following April of each
fiscal year. For fiscal 2005, we estimated expenditure of A$148 million, which later was determined
to be A$157 million. For fiscal 2006, we estimate that we have spent A$146 million. We have
included A$23 million in fiscal 2006 and A$29 million in fiscal 2005 of this total amount spent in
the income statement as research and development expenses.
In future years, we expect our research and development to include expenditure on the following key
activities:
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broadband access provision (both fixed and mobile); |
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convergence of mobile and online services; |
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IP networks; and |
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network and service management |
Segment information
Business segments
Our business is organised and managed by business unit, as described under Information on the
Company Organisational structure. This internal structure provides the initial basis for
determining our business segments. Our business segments are predominantly distinguishable by the
different type of customers we deliver our key products and services to.
The main adjustments from our internal management reporting structure to our reported business
segments are in relation to certain offshore operations. For internal management reporting
purposes, our TelstraClear group (TelstraClear) is included with Telstra Enterprise and Government,
CSLNW is a business unit in its own right, and the International Head Office group is included with
Strategic Marketing. For segment reporting purposes, these offshore operations are reported as part
of a segment that we have called Telstra International.
Our reportable business segments as at 30 June 2006 were:
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Telstra Consumer Marketing and Channels; |
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Telstra Business; |
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Telstra Enterprise and Government; |
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Telstra Wholesale; |
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Sensis; |
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Telstra International; and |
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Telstra Operations. |
In addition, various business units that do not qualify as business segments in their own
right have been aggregated into an Other category for segment reporting purposes. The Other
category consists of Telstra Country Wide(R), Telstra BigPond(R), Telstra Media and the Strategic
Marketing business units, as well as our corporate areas. Please refer to note 5 to our
consolidated financial statements for details of the major products and services provided by each
of our business segments.
During fiscal 2006, we have restructured our business segments as follows:
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we created a new business segment named Telstra Business. The Telstra Business group
was drawn from the Telstra Consumer Marketing and Channels (formerly known as Telstra
Consumer and Marketing), Telstra Country Wide(R) and the Telstra Enterprise and Government
(formerly known as Telstra Business and Government) business segment; |
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we created a new business segment named Telstra Operations. This group combined Telstra
Services (formerly known as Infrastructure Services), Telstra Technology, Innovation and
Products, and Operations Support which moved from being reported within our corporate
areas; and |
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we created a new business unit named Strategic Marketing. This group was drawn from
various business units across Telstra comprising mainly Telstra Consumer Marketing and
Channels. This business unit forms part of the Other category. |
In addition, we restructured our existing business unit, Telstra Country Wide(R) during fiscal
2006. In prior years, our segment policy was to recognise the results of our consumer, small
business, enterprise and some government customers residing outside the mainland state capital
cities, in outer metropolitan areas, and in Tasmania and Northern Territory in the Telstra Country
Wide(R) business segment. In fiscal 2006, the results of Telstra Country Wide(R) were allocated to
the Telstra Consumer Marketing and Channels, Telstra Business and Telstra Enterprise and Government
business units depending on the type of customer served.
Analysis of segment results
We have discussed the segment results of each reportable segment separately over the two-year
period. A detailed discussion and analysis of the changes in revenue for each of our major product
groups and principal operating expense categories is provided in
Operating revenue and
Operating expenses respectively.
The following table provides a summary of our revenue and EBIT for each of our business
segments. For additional detailed financial information on our business segment results, including
intersegment revenues, see note 5 to our consolidated financial statements.
During fiscal 2006, we changed our segment accounting policy on interconnection revenue. In
previous financial years, our segment accounting policy was to recognise revenue relating to
interconnection entirely in our Telstra Wholesale business segment. In fiscal 2006, some parts of
the revenue earned from interconnection were allocated to the Telstra Consumer Marketing and
Channels, Telstra Business and Telstra Enterprise and Government business segments to match the
revenue recognised with the associated expense. As a result, revenue in Telstra Wholesale decreased
by A$633 million and revenue increased in Telstra Consumer Marketing and Channels by A$500 million,
Telstra Business by A$52 million and Telstra Enterprise and Government by A$81 million in fiscal
2005 to reflect this change in policy.
We have restated all our comparative information to reflect the current reporting position as
if all our new business segments and segment accounting policies existed in the prior year.
For segment reporting purposes, we have reallocated certain items between the respective
business segments pursuant to the definitions of segment revenues and segment expenses contained in
the applicable accounting standard, where a reasonable allocation basis exists. Where no reasonable
allocation basis exists, we have not reallocated individual items to alternative segments as
outlined below. For segment reporting purposes, these items are reported within the same business
segment as for internal management reporting.
Currently, sales revenue associated with mobile handsets for Telstra Consumer Marketing and
Channels, Telstra Business and Telstra Enterprise and Government are allocated totally to the
Telstra Consumer Marketing and Channels segment, with the exception of some products sold in
relation to small to medium enterprises which are allocated to Telstra Business. Ongoing prepaid
and postpaid mobile revenues derived from our mobile usage is recorded in Telstra Consumer
Marketing and Channels, Telstra Business and Telstra Enterprise and Government depending on the
type of customer serviced. In addition, the majority of goods and services purchased associated
with our mobile revenues are allocated to the Telstra Consumer Marketing and Channels segment.
These allocations reflect managements accountability framework and internal reporting system and
accordingly no reasonable basis for reallocation to the respective business segments exist.
In addition, revenue derived from our BigPond(R) Internet products is recorded in the customer
facing business units of Telstra
Consumer Marketing and Channels, Telstra Enterprise and Government and Telstra Business. Certain
distribution costs in relation to
86
these products are also recognised in these business segments. Telstra Operations recognises
expenses in relation to the installation and running of the HFC cable network. In accordance with
our application of the definition of business segment per the applicable accounting standard, we
have not reallocated these items to the Telstra BigPond(R) business segment.
Segment summary results
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Year Ended 30 June |
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2006 |
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2005 |
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2006/2005 |
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(In A$ millions) |
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(% change) |
Revenue from external customers |
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Telstra Consumer Marketing and Channels |
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8,897 |
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8,931 |
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(0.4 |
) |
Telstra Business |
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3,053 |
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3,099 |
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(1.5 |
) |
Telstra Enterprise and Government |
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4,607 |
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4,570 |
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0.8 |
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Telstra Wholesale |
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2,607 |
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2,267 |
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15.0 |
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Sensis |
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1,826 |
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1,708 |
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6.9 |
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Telstra International |
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1,450 |
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1,360 |
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6.6 |
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Telstra Operations |
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226 |
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161 |
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40.4 |
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Other(1) |
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106 |
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85 |
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24.7 |
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Total revenue |
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22,772 |
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22,181 |
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2.7 |
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Earnings/(loss) before interest and income tax expense (EBIT)(2)(3) |
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Telstra Consumer Marketing and Channels |
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5,721 |
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6,248 |
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(8.4 |
) |
Telstra Business |
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2,412 |
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2,488 |
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(3.1 |
) |
Telstra Enterprise and Government |
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2,706 |
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2,812 |
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(3.8 |
) |
Telstra Wholesale |
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2,693 |
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2,283 |
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18.0 |
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Sensis |
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864 |
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812 |
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6.4 |
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Telstra International |
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156 |
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11 |
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1,318.2 |
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Telstra Operations |
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(4,175 |
) |
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(3,371 |
) |
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(23.9 |
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Other(1) |
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(4,909 |
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(4,351 |
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(12.8 |
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Eliminations |
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29 |
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3 |
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866.7 |
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Total EBIT |
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5,497 |
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6,935 |
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(20.7 |
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(1) |
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Revenue for our Other segment primarily relates to revenue earned by Telstra Media
for our share of FOXTEL cable subscriber revenue and for services provided to FOXTEL. The
Asset Accounting Group is the main contributor to the segment result for this segment,
which is primarily depreciation and amortisation charges. The Asset Accounting Group
centrally manages all of the Telstra Entitys fixed assets, including network assets. EBIT
loss grew for the Other segment mainly due to increased deprecation and amortisation
reflecting the strategic review of the service lives of our assets as part of the
transformation strategy. |
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(2) |
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Most internal charges between business segments are charged on a direct cost recovery
basis. For segment reporting purposes, transfer pricing is not used within Telstra. EBIT
reflects our intercompany and external charges. |
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(3) |
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During fiscal 2006, we recognised a one off restructuring and redundancy provision of
A$427 million to be incurred as part of the business transformation, as we have provided in
this year for future restructuring. This provision was mainly recorded in Telstra Consumer
Marketing and Channels of A$171 million and Telstra Operations of A$236 million. |
Telstra Consumer Marketing and Channels
Telstra Consumer Marketing and Channels revenue decreased by 0.4% to A$8,897 million in fiscal
2006. This segment experienced revenue increases in mobile services, primarily international
roaming, mobile data usage and handset sales. In addition, strong growth in BigPond(R) broadband
and pay television services were experienced due to increased marketing activities and improved
retention of existing customers through bundling initiatives. Offsetting this growth in revenue was
a decline in PSTN revenue as a result of competition, product substitution and decreased consumer
usage.
Telstra Consumer Marketing and Channels EBIT decreased by 8.4% to A$5,721 million in fiscal
2006 driven by increased use of BigPond(R) broadband and a reduced use of high margin PSTN
services. The change in customer mix and use of products and a continued shift to higher use of
mobiles resulted in expense growth in mobile handsets, dealer costs, network payments and labour in
line with revenue and customer growth in emerging products and services. In addition, EBIT was
impacted by meeting competition
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and adjusting to customer needs in line with customer preferences, and one off costs associated
with renegotiating dealer contracts and redundancy and restructuring costs resulting from our
transformation initiatives.
Telstra Business
Telstra Business revenue declined by 1.5% to A$3,053 million in fiscal 2006 primarily due to a
decline in PSTN revenue. This segment experienced growth in mobile products including voice, data,
MessageBank(R) and international roaming, which partially offset the decrease in PSTN revenues. In
addition, Internet and IP products revenue grew in fiscal 2006 reflecting the increase in broadband
subscribers.
Telstra Business EBIT decreased by 3.1% to A$2,412 million in fiscal 2006 predominantly due to
a decline in revenues and an increase in expenses. Expenses grew mainly due to a rise in network
payments, cost of goods sold and other directly variables costs associated with product offerings.
This segment continues to be adversely impacted by a change in product mix from higher margin
products such as PSTN to lower margin products such as broadband.
Telstra Enterprise and Government
Telstra Enterprise and Government revenue increased by 0.8% to A$4,607 million in fiscal 2006
due to strong growth in domestic information and communication technology (ICT) services, Internet
and IP products, and offshore revenues. This increase has been partially offset by reductions in
sales revenue from the underlying core carriage business, consisting mainly of a decline in
traditional PSTN and ISDN revenues. This segment continues to experience change in usage patterns
with traditional product usage migrating to alternative access offerings such as wireless,
broadband and other IP product offerings.
Telstra Enterprise and Government EBIT decreased by 3.8% to A$2,706 million in fiscal 2006
reflecting a changing product mix, which resulted in reductions in sales volumes of higher margin
core access technologies, and growth in lower margin ICT services and offshore revenues.
Telstra Wholesale
Telstra Wholesale revenue increased by 15.0% to A$2,607 million in fiscal 2006 driven by
continuing demand for broadband and data services and an increase in wholesale basic access
revenues. Telstra Wholesale experienced significant revenue growth in several products such as
facilities access as a variety of carriers extend their DSL capabilities in preparation for
building their own infrastructure via unconditioned local loop and spectrum sharing. Data and
Internet service revenues also showed solid growth, which was mainly driven by wholesale broadband
offerings and associated ISP related data carriage and transmission services. Growth in revenue was
partly offset by a decrease in local call revenues due to ongoing product substitution to mobiles
and broadband.
Telstra Wholesale EBIT increased by 18.0% to A$2,693 million in fiscal 2006 driven by revenue
growth and a decrease in expenses. The expense decline consisted of a decrease in Telstra
Wholesales allocated share of domestic outpayments, reflecting lower rates and a decrease in
international voice traffic expenses, which was assisted by an appreciating Australian dollar.
Lower labour costs were due to the decrease in staff numbers as part of our transformation project
and the movement of staff to other areas in Telstra as part of overall business restructure. In
addition, service contract costs were lower due to the discontinuation of a number of contracted
activities. The expense decline was partly offset by increased IT professional services costs
driven by growth in system support and automation costs to deliver ongoing operational productivity
and revenue growth.
Sensis
Sensis revenue increased by 6.9% to A$1,826 million in fiscal 2006 driven by growth in White
Pages(R) and Yellow(R) print and online services. Growth in Sensis emerging businesses included
strong results from Whereis(R) and Mediasmart, and a full year of results for Universal Publishers.
Overall, online sites continued their improved growth driven by rising usage and customer numbers,
leading to increased yields. This growth was partially offset by a decline in revenue from
classifieds driven by competition and economic weakness in the Sydney and Melbourne markets.
Sensis EBIT increased by 6.4% to A$864 million in fiscal 2006 as the improved revenue was
partly offset by growth in expenses. EBIT growth was supported by higher revenue, strategic
re-alignment and a renewed focus on costs. An increase in labour expenses was attributable to
growth in staff numbers, higher redundancy costs and a reversal of a deferred expense provision. In
fiscal 2006,
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amortisation expense was also higher as a result of the revision of certain software service lives
reflecting the transformation initiatives. For further information, refer to Operating and
Financial Review and Prospects Sensis financial summary.
Telstra International
Telstra International revenue increased by 6.6% to A$1,450 million mainly due to the CSLNW
merger partially offset by a small decline in revenues from TelstraClear. CSLNW revenues grew due
to the inclusion of the New World PCS business from March 2006, and rising data, international
voice, mobile handset and prepaid mobile revenues partially offset by decreased local voice
revenues reflecting sustained competitive pressure on prices. TelstraClears revenue primarily
decreased as a result of adverse foreign exchange movements. TelstraClear recorded increases in
revenue reflecting the full year impact of their national HomePlan offering in the consumer
segment, and their controlled entity, Sytec after its acquisition in November 2004. The increase
was partially offset by access and call revenue declines in the wholesale and small to medium
enterprise segments due to price erosion caused by competition, which was moderated by growth in
our customer bases in those segments, and a decline in Internet revenues as reduced pricing plans
have impacted business yield in the consumer segment.
Telstra International EBIT improved by A$145 million to A$156 million due to increased EBIT in
our International Head Office Group partially offset by a decline in the CSLNW and TelstraClear.
The growth in the International Head Office Group was due to the sale of our shareholding in Xantic
B.V. in fiscal 2006 and the recognition of a provision for Reachs committed capital expenditure in
fiscal 2005. Expenses increased in the CSLNW following the incorporation of costs after the merger
with New World PCS, increased subsidies as part of
heightened promotional activity to drive sales, and larger offshore outpayments associated
with higher international voice revenues. In addition, depreciation and amortisation expense was
higher due to the rollout of their 3G network. Expenses increased in TelstraClear due to larger
outpayments due to higher revenue, and growth in labour expenses driven by the inclusion of a full
year of Sytec costs. For further information regarding our significant offshore controlled
entities, refer to Operating and Financial Review and Prospects CSL New World Group financial
summary and Operating and Financial Review and Prospects TelstraClear financial summary.
Telstra Operations
Telstra Operations revenue increased by 40.4% to A$226 million in fiscal 2006 driven by
additional revenue received for maintenance activities, revenue for digital migration of FOXTEL
subscribers from analogue to digital services and higher fees for overdue accounts. Operations
revenue is essentially limited to cost recovery as afforded by regulatory and commercial
arrangements. Product revenue is earned by the customer facing segments.
Telstra Operations EBIT is a net cost as this segment does not recover all the costs it incurs
on behalf other segments. This reflects our one factory approach to delivering the
infrastructure, services and systems which support the customer experience. EBIT loss grew by 23.9%
to A$4,175 million in fiscal 2006 due to significant redundancy and restructuring costs being
recognised in the current year associated with our concerted effort to reduce staff numbers and
planning for the transformation of our future business. Also, there were other one off
transformation costs in the current year associated with the closure of old platforms and project
write offs due to the cancellation of certain capital program initiatives. Additionally, expenses
grew due to the increased sales activity of our growth products such as broadband, as well as
increased costs associated with the FOXTEL digital expansion. The expense increase was partly
offset by managements continued focus on lower discretionary spending and cost reduction
initiatives.
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Quantitative and Qualitative Disclosures about Market Risk
The potential for change in the market value of our financial assets and liabilities is
referred to as financial market risk. We sometimes enter into financial instruments to manage our
exposure to financial market risk such as interest rates and foreign currency rates that arise as
part of our normal business operations.
Derivatives are financial instruments such as interest rate swaps, futures, foreign exchange
forwards, options, and cross-currency swaps that derive their value from specified assets, indices,
reference rates or a combination of these factors. We use derivative financial instruments, in
accordance with Board-approved policies, to hedge the market risks and volatility of financial
outcomes arising from the underlying physical business or balance sheet exposure.
We are exposed to interest rate risk due to our borrowings
Our borrowings are generally for maturities of up to ten years and we manage our debt in
accordance with targeted, currency, interest rate, liquidity and debt portfolio maturity profiles.
Our target currency is principally A$ matching our principal currency of operation. Our
borrowings are derived both from A$ and foreign currency sources with foreign currency borrowings
in most cases swapped into A$ at commencement through to maturity. A relatively small proportion of
our foreign currency borrowings are not swapped into A$, principally where they are used as natural
hedges against our translation foreign exchange risk to offshore business investments.
Where the actual interest rate profile on the physical debt differs substantially from our
desired target, we use derivatives, principally interest rate swaps, to adjust the net interest
rate position towards the target. Our net debt portfolio includes both physical borrowings (such as
bonds and commercial paper) and associated derivative instruments (such as cross-currency and
interest rate swaps).
Our interest rate risk is assessed as the interest rate exposure on our total net debt
portfolio, after offsetting any holdings of financial assets whose value is sensitive to interest
rates and after applying related derivatives.
The interest rates on a proportion (approximately A$3.1 billion equivalent face value) of our
borrowings is subject to the possibility of a limited increase through coupon step-up clauses
that would be triggered by credit ratings downgrades from Standard & Poors and/or Moodys Investor
Service. The interest rates on this debt will increase by 0.25% up to a maximum of 0.50% per annum
if our minimum credit rating falls to A- or below (S&P) and A3 or below (Moodys) depending on the
particular trigger points of each borrowing and the extent of the rating change. The interest rate
increase will step-down again for some borrowings if the minimum credit rating was to subsequently
increase above the previously mentioned trigger points. Our current ratings are A Negative Outlook
(S&P) and A2 Negative Outlook (Moodys).
We have exposure to foreign currency risk due to our normal business operations and borrowings
Foreign currency exchange risk arises from:
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firm or anticipated transactions for receipts and payments for international
telecommunications services settled in or dependent on foreign currencies; |
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purchase commitments for material and supplies with prices dependent on foreign
currencies; investments (both business and financial) denominated in foreign currencies;
and |
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borrowings that are denominated in foreign currencies. |
We manage the foreign exchange risk on the major part of our foreign currency-denominated
borrowings by effectively converting them to A$ borrowings at drawdown by applying cross-currency
swaps to maturity. Where foreign currency borrowings are used to hedge a specific underlying
foreign exchange exposure, they are not swapped to A$ (e.g. to hedge financial investments in
foreign currency-denominated securities and borrowings raised for offshore ventures).
Foreign exchange risks that arise from the purchase of goods and services are managed
principally through the use of forward foreign currency derivatives.
90
We manage our translation foreign exchange risk to offshore business investments with a
combination of foreign currency denominated borrowings (either physical or synthetic) in the
currency of the entity concerned and forward foreign currency derivatives. Our economic foreign
exchange risk is assessed for each individual currency, calculated by aggregating the net exposure
for that currency.
Our economic exposure to movements in market risks is assessed and measured on a market value basis
Two methods used to assess and present our overall estimated market risk are:
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sensitivity analysis; and |
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value-at-risk or VaR. |
These are undertaken to assess the potential impacts of adverse movements in the market value
of the relevant portfolio at the reporting date as shown below. Since market rates move in both
directions, these can be advantageous as well as adverse. Hedging to protect against a downside
risk can, in its establishment, remove or diminish the potential for upside benefits.
Sensitivity analysis
We undertake a sensitivity analysis on our net debt and foreign exchange exposure portfolios
after application of all hedging transactions. This is based on an instantaneous adverse
proportional movement of 10% in interest rates and exchange rates.
The probability of this occurring is not factored into this sensitivity analysis. Also, the
diverse nature of the portfolios is not taken into account and concurrent adverse movements in all
exchange rates and interest rates are assumed.
For these reasons, the analysis may be conservative and may not represent likely market
volatility since based on historical movements it is unlikely that there would in the future be a
concurrent adverse movement across all factors.
The numbers in the following tables represent market value movement in the areas concerned
after all underlying exposures and related hedges are taken into account. Market value movements
can contain profit and loss statement or balance sheet movements or a combination of both.
Adverse proportional movement of 10% across risk categories
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|
|
|
|
As at 30 June |
Market Value Risk |
|
2006 |
|
2005 |
|
|
(A$m approximate) |
Risk Categories |
|
|
|
|
|
|
|
|
Interest rates |
|
|
238 |
|
|
|
286 |
|
Foreign currency rates |
|
|
264 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
502 |
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
The foreign currency rate numbers include the translation exposure movements generated from
our overseas investments which include CSL New World Mobility Group (CSL New World) and
TelstraClear. A proportion of both these exposures is hedged using a combination of foreign
currency borrowings and foreign currency derivatives. This sensitivity analysis assumes that the
HKD and USD are free to move in opposite directions against the AUD (i.e., that the peg, where
the HKD is held to approximately 7.8 to the USD, no longer is in place). If it is assumed that the
HKD and USD peg continues and the USD and HKD both move in the same direction against the AUD, then
the foreign currency sensitivity quoted in the table above drops from A$264m to A$152m.
VaR
VaR is used to assess the potential adverse economic outcome due to market movements over a
defined time horizon and with a specified confidence level based on historical volatilities. This
potential component is calculated using the current statistical volatility relevant to the
particular instrument derived from representative market wide data.
91
For the VaR numbers reported below, a one month time horizon and a 99% confidence level were
used. This one-month time horizon differs from many financial institutions who hedge for trading
purposes and where a shorter one day period may be more appropriate. We consider a one-month
holding period appropriate since our hedging activities are of a non-trading nature.
The monthly figures quoted can be approximately converted to daily assessments by multiplying
by 0.22 or to 12 monthly estimates by multiplying by 3.5, these conversion factors assume that the
portfolio continues with the same basic profiles such as maturity and debt mix. For example, the
VaR monthly result for foreign exchange of $61 million converts to an annual equivalent of
approximately $214 million. We derive the potential market value impact by applying historical
volatility measures to the identified current market risk.
Unlike the sensitivity analysis, our overall VaR analysis takes into account the diversified
nature of our net debt and net foreign exchange exposure portfolios and incorporates historical
correlation between the markets. This projection based on historical volatility is, however, only
an estimation of future volatility. The actual future volatility may be substantially different.
We arrived at the VaR numbers by using a Monte Carlo simulation model developed by our
consulting actuaries, Mercer Finance & Risk Consulting which is part of Mercer Human Resources
Consulting Pty Ltd, which uses recognised market wide based data sets and volatility calculation
methodology. The data sets comprise:
|
|
|
interest rate and foreign exchange rate volatilities; and |
|
|
|
|
correlations between and within interest rates and foreign exchange rates. |
The simulation model determines the distribution of the market value of our debt portfolio and
foreign exchange portfolio plus related hedges at future rates. This is undertaken by simulating
interest and foreign exchange movements against our actual transaction portfolio. In deriving the
VaR numbers, 50,000 simulations have been undertaken to ensure the production of stable, robust
results.
The VaR is the difference between the median expected value of the portfolio and the value at
the 99% confidence level assuming an adverse movement (i.e., there is a 1% chance that the result
arising from an adverse movement will be more adverse than the VaR).
VaR
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
Market Value Risk (One-month holding period) |
|
2006 |
|
2005 |
|
|
(A$m) |
|
|
|
|
Risk categories |
|
|
|
|
|
|
|
|
Interest rates |
|
|
130 |
|
|
|
175 |
|
Foreign currency rates |
|
|
61 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
191 |
|
|
|
207 |
|
Diversification effect(1) |
|
|
(31 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
160 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Equals the difference between the total composite monthly VaR and the sum of the
monthly VaRs for the two risk categories assessed independently. |
VaR calculations were undertaken for portfolio balances (which dynamically change throughout
the year) at the end of each quarter during fiscal 2006. The following table shows the high, low
and average amounts of the combined total portfolio of interest rates and foreign currency rates at
these quarterly points through the year. Note that the compositions of the individual portfolios
change throughout the year and that the high or low for each of the two component portfolios (i.e.,
interest rate or foreign exchange rate) may not arise at the same time that the overall combined
portfolio is at a high or low value.
92
VaR analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2006 |
Market Value Risk (One-month holding period) |
|
High |
|
Low |
|
Average(2) |
|
|
(A$m) |
|
|
|
|
|
|
|
|
Risk categories |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates |
|
|
172 |
|
|
|
130 |
|
|
|
148 |
|
Foreign currency rates |
|
|
63 |
|
|
|
61 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
235 |
|
|
|
191 |
|
|
|
215 |
|
Diversification effect(1) |
|
|
(35 |
) |
|
|
(31 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
200 |
|
|
|
160 |
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Equals the difference between the total composite monthly VaR and the sum of the
monthly VaRs for the two risk categories assessed independently. |
|
(2) |
|
The high and low quarterly portfolio is defined at the total portfolio level and
therefore there may be instances where the average for individual risk categories is either
higher than the high or lower than the low for that category. |
Additional information regarding our market risks is provided in note 35 to our consolidated
financial statements.
93
Information on the Company
History and development of the Company
Our origins date back to 1901, when the Postmaster-Generals Department was established by the
Commonwealth to manage all domestic telephone, telegraph and postal services, and to 1946, when the
Overseas Telecommunications Commission was established by the Commonwealth to manage international
telecommunications services. Since then, we have undergone many changes and been renamed several
times as follows:
|
|
|
the Australian Telecommunications Commission, trading as Telecom Australia, in July 1975; |
|
|
|
|
the Australian Telecommunications Corporation, trading as Telecom Australia, in January 1989; |
|
|
|
|
the Australian and Overseas Telecommunications Corporation Limited in February 1992; |
|
|
|
|
Telstra Corporation Limited in April 1993, trading internationally as Telstra; and |
|
|
|
|
trading domestically as Telstra in 1995. |
We were incorporated as an Australian public limited liability company in November 1991.
Following the opening of Australias telecommunications markets to full competition in July 1997,
we underwent a partial privatisation in November 1997 under which the Commonwealth sold
approximately 33.3% of our issued shares to the public. Following the initial privatisation, those
of our shares that are not held by the Commonwealth are quoted on the ASX and NZSX. A further
global offering by the Commonwealth of up to 16.6% of our issued shares was completed in October
1999. In November 2006 the Commonwealth completed a further sale of approximately 35% of our issued
shares.
Organisational structure
Our organisational structure has evolved over recent years to meet our business needs and the
needs of our customers. The organisational structure currently consists of strategic business units
and corporate centre business units as outlined below.
Strategic business units
|
|
|
Telstra Consumer Marketing and Channels is responsible for serving our consumer
customers with our full range of products and services including fixed lines, mobiles,
Internet access and pay TV services. It also has responsibility for mass marketing channels
including Telstras call centres, Telstra shops and the dealer network. |
|
|
|
|
Telstra Business is responsible for serving the needs of Australias small to medium
enterprises with fixed line, mobile, broadband, as well as data and Internet solutions
tailored for business. |
|
|
|
|
Telstra Enterprise and Government is responsible for providing innovative ICT solutions
to large corporate and government customers in Australia and New Zealand. It is also
responsible for KAZ and TelstraClear. KAZ and Telstra service our Enterprise and Government
customers IT needs. TelstraClear is New Zealands second largest full service
telecommunications company, providing innovative market leading products and services to
the business, government, wholesale and residential sectors. Telstra Enterprise and
Government is also responsible for our Global Business operations, recently renamed Telstra
International. |
|
|
|
|
Telstra Country Wide(R) provides telecommunications and information technology services
to customers in outer metropolitan, regional, rural and remote parts of Australia. |
|
|
|
|
Telstra BigPond(R) is responsible for the management and control of our retail Internet
products, BigPond(R) brand and marketing, services and content, contact centres, customer
relations and associated functions, for broadband and dial-up delivery. |
|
|
|
|
Sensis is our advertising, search and information services business. Sensis manages
three important Telstra brands Yellow(TM) (formerly Yellow Pages(R)), White Pages(R) and
Trading Post(R), along with the CitySearch(R) online city guide, the Whereis(R) online,
mobile and satellite navigation services, the GoStay(TM) print guide and complementary
website, the |
94
|
|
|
sensis.com.au search engine, the Sensis(R) 1234 voice service, and the 51% (on a fully
diluted basis) owned SouFun investment, a real estate and home furnishings website in China. |
|
|
|
|
Strategic Marketing is responsible for Corporate Strategy, Mergers & Acquisitions, and
our overall marketing, pricing, brand, sponsorship, promotions and advertising direction.
Strategic Marketing is also responsible for Telstra Asia, which manages our international
interests in the region and directs our offshore strategy, with a current focus on
enhancing the value of our existing investments, profitably rationalising non-core-assets
and positioning us to capture high growth opportunities, particularly in China and South
East Asia. |
|
|
|
|
Telstra Media is responsible for our FOXTEL investment. |
|
|
|
|
Telstra Operations has responsibility for the core or shared elements of our
infrastructure and related support units. Using a one factory approach to improve our
customer service delivery and customer satisfaction, the group includes Telstra Services,
Network and Technology, Wireless, IT Services, Product Management, Procurement, Strategic
Supplier Relations, Credit Management, Billing and the corporate Program Office. The
Program Office identifies and prioritises opportunities for streamlining, implementing and
coordinating all aspects of our transformation strategy. |
|
|
|
|
Telstra Wholesale provides a wide range of wholesale products and services to the
Australian domestic market, including fixed, wireless, data and Internet, transmission and
IP, interconnection, access to our network facilities, and retail/rebill products. It also
serves global wholesale markets to satisfy growing Internet and high bandwidth needs. |
Corporate centre business units
|
|
|
Finance & Administration is responsible for corporate policy and support functions
including finance, risk management and assurance, shared services for processing functions,
treasury, company secretary, investor relations and other administration services. It is
also responsible for the financial management of the majority of our fixed assets,
including network assets. |
|
|
|
|
Legal Services provides operational and strategic legal support and advice across
Telstra, with lawyers from Legal Services serving clients in all strategic and corporate
centre business units. |
|
|
|
|
Public Policy & Communications manages corporate communications and public affairs
across Telstra including media relations, employee communications, corporate social
responsibility (including the Telstra Foundation), corporate content on the Telstra website
(www.telstra.com), Telstras website (www.nowwearetalking.com.au) and external relations.
Its external relations responsibility includes government relations and regulatory
positioning and negotiation, including assessment of regulatory risks, advice and counsel
to business units, preparation of submissions to industry regulators, and the facilitation
of regulatory compliance through advisory services and the management of a regulatory
compliance assurance program. |
|
|
|
|
Human Resources is responsible for developing and implementing our people, culture and
capability strategy and providing strategic and operational support and advice to business
managers about all human capital matters. This includes organisational design, culture
change, employee engagement, leadership development, talent management, performance
management, policy, employment, recruitment and health, safety and environment. |
A list of our controlled entities is provided in note 29 to our consolidated financial
statements. Our jointly controlled and associated entities are listed in note 30 to our
consolidated financial statements.
Marketing and customer service
We use customer analytics to formulate marketing strategies based on customer needs. This
provides a better understanding of customer behaviour and improved customer relationships. Overall,
we believe needs-based marketing will provide us with a competitive advantage in the market.
Market-based management puts customers at the core of our business focus. We have conducted
extensive research that informs us about customers needs, priorities and expectations. As a result
of this knowledge, we have
grouped our residential and small-medium business customers into segments which reflect their
specific characteristics. This knowledge forms the basis of a relationship with our customers
around which we organise our processes and procedures. Market-based management is used to formulate
our marketing
95
strategies for our various strategic business units, and to offer and deliver products and services
tailored to customers needs across these business units.
Residential customers and small-medium businesses
We have organised the management structures of Telstra Consumer Marketing and Channels and
Telstra Business by those segments.
We segment our residential customers based upon their usage and lifestyle patterns. We segment
our small-medium enterprise customers according to the type of business they operate and the way
they interact with their customers. This information on customers by segment is used to tailor our
marketing campaigns.
This information on customers by segment is then used to tailor segment specific value
propositions by product sets and applications, by channels and by service experience which results
in microsegments around each of our product and service areas.
We are also implementing customer relationship management (CRM) technologies to deliver
these segment differentiated value propositions. The combination of detailed understanding of
customer needs with CRM capabilities enables a customer to experience a personalised and meaningful
experience at every touch point, from initial investigation of service through ongoing care.
We enable customers to interact with us online, through door-to-door sales representatives,
telephone sales channels and face to face via our account managed sales team, Telstra shops and
Telstra licensed stores as well as indirectly through approximately 4,000 retail outlets nationwide
in conjunction with our retail partners.
We anticipate that changing from a product to a customer segment focus will enable us to
uncover previously unseen growth potential as we drive segment-related benefits across product
lines that were previously operated in silos.
Enterprise and government customers
The Enterprise and Government customer base comprises some of our largest customers. All of
Telstra Enterprise and Government customers are sophisticated users of ICT. We segment these
customers into Integrated (Large ICT outsourcing customers), Multinational and Industry and
Government customers with a predominant Trans Tasman or Australian domestic focus. Further customer
segmentation in Industry and Government is on the basis of geography and industry verticals. The
verticals include Retail, Finance & Insurance, Manufacturing, Media, Business Services & IT,
Resource & Utilities, Health, Public Safety & Justice and Local Government. We provide account
management and customised solution development along with enhanced service delivery. Our sales team
takes a consultative approach with our customers, focusing on delivering enhanced business results
through ICT solutions, leveraging the capabilities of KAZ, our ICT services arm.
We have 20 offices around the world including Asia Pacific, Europe and the USA supporting the
global telecommunications requirements of our multi-national customers and global service
providers. We provide our customers with managed network solutions including Global WAN, Internet,
Back-up and Storage, Security, Mobility, Enhanced voice solutions and more. Other value added
solutions include managed CPE, network reporting, consulting, planning, project management and
customer support seven days a week.
Regional, rural and remote customers
Telstra Country Wide(R) was established to improve service levels, business performance and to
strengthen relations with customers and communities in regional, rural and remote areas of
Australia. In 2003, this area was expanded to include outer metropolitan areas. In addition, the
local management model was further extended in January 2006 to incorporate the metropolitan cities
of Adelaide, Brisbane and Perth. Area General Managers are located throughout Australia to address
the sales, marketing and service needs of our customers.
Wholesale customers
Our wholesale customers include licensed carriers, CSPs and ISPs. Telstra Wholesale provides
products and services to more than 500 customers, including more than 400 ISPs (about 80 of which
offer broadband digital subscriber line (DSL) services).
96
Wholesale customers typically buy products and services from Telstra Wholesale, add their
own inputs and then sell to the retail market under their own brand.
Advertising customers
Sensis provides advertising solutions to more than 400,000 Australian businesses (small and
medium enterprises (SMEs) and large corporates) and Government through a network of print,
online, voice and wireless services. Sensis also serves the advertising needs of personal sellers
through its print and online classifieds business.
Products and services
We offer a broad range of telecommunications and information products and services to a
diverse customer base. The following table shows our total income by major product and service
category and as a percentage of total income for the last two fiscal years. See also Operating and
Financial Review and Prospects for a discussion of the performance of our products and services
during the last two fiscal years.
Income by product and service category, including the percentage of total income contributed by
each product and service category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
A$m |
|
|
% of Total |
|
|
A$m |
|
|
% of Total |
|
PSTN products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access |
|
|
3,318 |
|
|
|
14.4 |
|
|
|
3,362 |
|
|
|
15.0 |
|
Local calls |
|
|
1,023 |
|
|
|
4.4 |
|
|
|
1,284 |
|
|
|
5.7 |
|
PSTN value added services |
|
|
246 |
|
|
|
1.1 |
|
|
|
250 |
|
|
|
1.1 |
|
National long distance calls |
|
|
913 |
|
|
|
4.0 |
|
|
|
1,013 |
|
|
|
4.5 |
|
Fixed to mobile |
|
|
1,491 |
|
|
|
6.5 |
|
|
|
1,566 |
|
|
|
7.0 |
|
International direct |
|
|
201 |
|
|
|
0.9 |
|
|
|
234 |
|
|
|
1.0 |
|
Fixed interconnection |
|
|
286 |
|
|
|
1.1 |
|
|
|
309 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,478 |
|
|
|
32.4 |
|
|
|
8,018 |
|
|
|
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobiles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services |
|
|
4,505 |
|
|
|
19.5 |
|
|
|
4,307 |
|
|
|
19.2 |
|
Mobile handsets |
|
|
467 |
|
|
|
2.0 |
|
|
|
381 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,972 |
|
|
|
21.5 |
|
|
|
4,688 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and Internet services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP Solutions |
|
|
1,907 |
|
|
|
8.3 |
|
|
|
1,377 |
|
|
|
6.1 |
|
ISDN products |
|
|
807 |
|
|
|
3.5 |
|
|
|
890 |
|
|
|
4.0 |
|
Specialised data |
|
|
884 |
|
|
|
3.8 |
|
|
|
966 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,598 |
|
|
|
15.6 |
|
|
|
3,233 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and directories |
|
|
1,711 |
|
|
|
7.4 |
|
|
|
1,585 |
|
|
|
7.1 |
|
Customer premises equipment |
|
|
274 |
|
|
|
1.2 |
|
|
|
231 |
|
|
|
1.0 |
|
Payphones |
|
|
104 |
|
|
|
0.5 |
|
|
|
121 |
|
|
|
0.5 |
|
Intercarrier services |
|
|
351 |
|
|
|
1.5 |
|
|
|
290 |
|
|
|
1.3 |
|
Inbound calling products |
|
|
449 |
|
|
|
1.9 |
|
|
|
449 |
|
|
|
2.0 |
|
Solutions management |
|
|
989 |
|
|
|
4.3 |
|
|
|
931 |
|
|
|
4.1 |
|
Offshore controlled entities |
|
|
1,745 |
|
|
|
7.6 |
|
|
|
1,611 |
|
|
|
7.2 |
|
Pay TV bundling |
|
|
320 |
|
|
|
1.4 |
|
|
|
263 |
|
|
|
1.2 |
|
Other sales and services |
|
|
759 |
|
|
|
3.2 |
|
|
|
741 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,702 |
|
|
|
29.0 |
|
|
|
6,222 |
|
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales revenue |
|
|
22,750 |
|
|
|
98.5 |
|
|
|
22,161 |
|
|
|
98.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (1) (excluding finance income) |
|
|
22 |
|
|
|
0.1 |
|
|
|
20 |
|
|
|
0.1 |
|
Other income |
|
|
328 |
|
|
|
1.4 |
|
|
|
261 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (excluding finance income) |
|
|
23,100 |
|
|
|
100.0 |
|
|
|
22,442 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other revenue excludes finance income, which is included in net finance costs. |
97
Sales revenues are derived from domestic and international sales as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 June |
|
|
2006 |
|
2005 |
|
|
% |
|
% |
Australia |
|
|
92.3 |
|
|
|
92.7 |
|
Hong Kong |
|
|
3.7 |
|
|
|
3.3 |
|
New Zealand |
|
|
2.7 |
|
|
|
2.8 |
|
Other International |
|
|
1.3 |
|
|
|
1.2 |
|
PSTN products
PSTN includes basic fixed-line access, local calls, value added services, national long
distance, fixed-to-mobile and international direct.
Basic Access
Our Basic Access service includes installing and maintaining connections between customers
premises and our Public Switched Telephone Network (PSTN) and providing basic voice, facsimile
and Internet services. Basic Access does not include enhanced products like Integrated Services
Digital Network (ISDN) access and Asymmetric Digital Subscriber Line (ADSL) services.
Along with basic access services, we provide handsets for sale and rental to help customers
use our services more effectively. The latest rental phones have single button access to features
such as 3-way chat, Messagebank(R), call forward and SMS. We also develop products to assist our
customers with disabilities. This ranges from the very popular big button phone to Teletypwriter
(TTY) and TeleBraille products.
Local calls (including PSTN value-added services)
We provide local call services to more residential and business customers than any other
service provider in Australia, generally charging for calls on an untimed fee basis. The
geographical reach of our untimed local call zones, combined with our packages, access and pricing
offers, extend the value of our local call service. In addition, we provide value-added services
such as voicemail, call waiting, call forwarding, call conferencing and call return.
National long distance calls
We are the leading provider of national long distance services for residential and business
customers in Australia. This comprises national long distance calls made from our PSTN network to a
fixed network. Calls are generally charged on a timed basis after a call connection fee. Call
details such as duration, destination, time of day and day of the week generally determine charges
which are also offered on a fixed or capped price basis. We also offer options that let customers
choose between a range of offers to suit individual needs, including the recent addition of
subscription plans with included features and calls.
Fixed to mobile
Fixed to mobile are calls made from our PSTN/ISDN to a mobile network and are charged on a
timed basis after a call connection fee. Charges usually depend on the duration of the call and
whether the call is to a Telstra mobile service. Calls made within a capped calling option are
charged according to duration, time of day, day of week and terminating carrier. Capped calling
offers predominantly apply to calls to Telstra mobiles.
International direct
We are the leading provider of international telephone services in Australia, offering
international
telephone services to more than 230 countries and territories. Calls are typically charged on
a per-second basis after a call connection fee, depending on the duration and destination of the
call. REACH provides the connections we use to supply international services to both our retail and
wholesale customers. For more information regarding our arrangements with REACH, refer to
Operating and Financial Review and Prospects International business ventures.
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Mobile telecommunications services
We offer a wide range of mobile services to our customers, including voice calling and
messaging, text and multimedia messaging and a range of information, entertainment and connectivity
services.
NEXT G Wireless Network
In 2005, we announced that we would build a 3GSM 850 Mhz wireless network with our strategic
partner Ericsson. We launched this network, called NEXT G(TM), on 6 October 2006, and it provides
3G coverage to 98% of the Australian population. It is the largest 3G network in Australia.
Using multi-band handsets, customers will be able to access both our NEXT G(TM) wireless
network as well as our existing 3GSM 2100 MHz network.
3GSM 2100
Our existing 3GSM 2100 MHz network allows additional functionality such as video calling and
higher speed data access within its coverage boundary while offering access to the GSM network and
services outside of the 3G area. Our 3GSM 2100 MHz network sharing arrangement with Hutchinson
covers over 50% of the Australian population in a number of mainland capital cities including
Canberra.
GSM digital service
Our digital GSM network covers around 96% of the Australian population and we continue to
improve existing areas of coverage and expand this network, where commercially justified. We have
also improved depth of coverage in major cities, particularly in-building and underground coverage,
as well as offering international roaming in more than 140 countries and 300 networks.
CDMA digital service
Our existing CDMA network currently provides Australias largest cellular mobile phone
coverage, spanning more than 1.6 million square kilometres and covering around 98% of the
Australian population. The CDMA network will remain in place until our new NEXT G(TM) wireless
service has the same or better coverage as CDMA and until at least January 2008. Our CDMA 1X
technology service (1XRTT) which was Australias first commercial mobile network based on CDMA 1X
technology was launched in December 2002. By the end of 2005, CDMA 1X, was made available across
the entire CDMA network footprint of over 1.6 million square km covering around 98% of the
population.
We will continue to operate our CDMA network until our NEXT G(TM) wireless network provides the
same or better coverage than the CDMA network, and in any event at least until January 2008, and
the software upgrades are complete and any necessary Government approvals have been obtained.
Telstra Mobile Satellite
In 2002, we launched Telstra Mobile Satellite, a hand-held mobile satellite voice and data
service for people living, working or travelling in rural and remote Australia. The service
operates off the Iridium Low
Earth Orbit satellite system which provides global mobile satellite phone coverage wherever
there is a clear view of the sky. We have a service partner agreement to sell the Iridium service.
BigPond(R)
We offer a range of Internet products and packages under our BigPond(R) brand. Telstra
BigPond(R) Dial-Up offers dial-up modem and ISDN Internet services to residential and small and
medium business customers across Australia. Telstra BigPond(R) Broadband provides broadband
Internet services to consumer and small and medium business customers via hybrid fibre coaxial
cable, satellite, ADSL and wireless technologies.
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BigPond(R) Mobile Services
With BigPond(R) Mobile Services customers can browse and purchase a broad range of up-to-date
information and entertainment. With a 3G video mobile, customers can access 3D games, receive news
bulletins, stock quotes or sport scores, download ringtones, find directions, watch music videos
and send and receive emails.
Wireless Broadband Expansion
In August 2005, we introduced the BigPond(R) Wireless Broadband product and have expanded our
CDMA 1xEVDO network to provide greater coverage for our Wireless Broadband customers. The
BigPond(R) focus on the consumer market provides an addition to the existing business-oriented
Telstra Mobile Broadband solution. These two products provide solutions for wireless broadband
access. As we move towards closing our CDMA network, we plan to migrate customers from this service
to the wireless broadband services provided over our new NEXT G(TM) wireless network.
Content services
Telstra BigPond(R) provides online and mobile content services (including BigBlog( TM )
and BigPond(R) Movies, BigPond(R) Sport, BigPond(R) Games, BigPond(R) Kids, News and BigPond(R)
TV). These services include music, movies, games, sports entertainment, video on demand and DVD
rental offerings. All of these services are available from BigPond.com.
Internet and IP Services
In addition to our BigPond(R) services, we provide new generation data and Internet services
including:
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business grade Internet solutions; |
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IP Solutions; |
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Business DSL, that offers a broadband data service with symmetric data rates and
business grade service levels; |
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Connect IP solution range which is a standardised, end-to-end, IP-based WAN offering
that integrates network management and data connectivity with Customer Premises Equipment
(CPE), allowing for seamless data transfer between customer sites; and |
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IP Telephony, an open standard IP communications suite, which delivers hosted IP
telephony and IP applications to our corporate customers. |
Data Services
We also provide data and specialised services, including ISDN, digital data services, voice
grade dedicated lines, transaction/EFTPOS services and video and audio network services, as well as
domestic and international frame relay and ATM products.
Telstra Internet Direct also provides business customers with dedicated Internet access within
Australia at access transmission rates up to one gigabyte per second (Gbps).
We also provide wholesale Internet access products for use by licensed carriers, ISPs and CSPs.
Other services
We offer other data services, in some cases with business partners, including:
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collaboration services that provide audio, video and web-based conferencing
(including the Conferlink(R) product range); |
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e-commerce solutions including e-trading, e-payments, EFTPOS/ATM network services and
straight-through processing services; |
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Online Customer Management Facility (OCMF) providing a self-service capability for
customers to manage user access to their IP networks; |
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Digital Video Network (DVN) initiative allowing our media customers to share
content such as news or sporting arena access; |
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Managed Wide Area Networks services (WANs) including design, CPE sales and
installation, network establishment and maintenance. |
Advertising and directories
We are a leading provider of advertising and search services through our advertising business
and wholly owned subsidiary, Sensis. Sensis popular information services include Yellow(TM), White
Pages(R), Trading Post(R), CitySearch(R) and Whereis(R).
The Yellow(TM) print directory is Australias leading business directory, while White Pages(R)
print directory maintains its position as a leading information source. The Yellow(TM) and White
Pages(R) print directories also feature comprehensive Information Pages, providing valuable
information about emergency and community services, activities and resources within the area of
coverage. The Yellow(TM) OnLine site and the White Pages(R) OnLine site extend the print
directorys capabilities.
Whereis(R) maps and directions complement and combine with other Sensis products-including
Yellow(TM) OnLine and White Pages(R) OnLine directories, and the CitySearch(R) site-to deliver
location orientated services across Internet and WAP channels.
The CitySearch(R) site provides a range of editorial content, business listings and
entertainment and event information in major cities around Australia.
The Trading Post(R) is published throughout Australia, providing a classifieds service to most
of the Australian population. In addition to print editions, the Trading Post(R) also has an online
site located at tradingpost.com.au.
During fiscal 2006, Sensis has continued to focus on developing and providing solutions to
meet the needs of both consumers and advertisers. In April 2006, Sensis entered the travel and
accommodation market with the launch of GoStay(TM). With more than 5,500 ads and a national
distribution to 3 million households, the GoStay(TM) print guide has the largest distribution of
any printed Australian travel guide. Complementing the GoStay(TM) Accommodation Guide is a
comprehensive website gostay.com.au where consumers can search, select and book and pay for
accommodation at thousands of properties across Australia.
In February 2006, Sensis became a majority shareholder of Adstream Australia. This has opened
up new advertising options for Sensis small and medium enterprise (SME) customers, helping
Adstream Australias customers reach a wider audience through the joint Sensis and Telstra online
network, and extending Sensis advertising agency relationships to a much deeper level.
On 31 August 2006, we purchased a 51 per cent shareholding in SouFun, a leading real estate
and home
furnishings web-site in China.
Wholesale services (including inter-carrier services)
In addition to providing products for resale, we provide a range of other products
specifically tailored for wholesale customers. These include:
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interconnection services, including originating and terminating access to our fixed
and mobile networks, preselection services and access to our network facilities such as
ducts, towers and exchange space; |
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domestic and international transmission services; |
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broadband, IP backbone and traditional data services; and |
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both GSM and CDMA mobile products and services. Telstra Wholesale has advised
customers of the closure of the CDMA network, with the earliest possible closure date
being 28 January 2008. |
We also manage and deliver a range of customer processes for wholesale customers. These
include product and service provisioning, ordering and activation, billing, fault reporting and
end-user and product transfer. In addition, we provide a range of web-based business-to-business
services to our customers.
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Inbound calling products
We offer inbound call services including:
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Telstra Freecall(R) 1800, a reverse-charge call service used widely by small and
large businesses to extend market reach and attract sales; |
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Priority(R) One3, a shared-cost service offering a six-digit national number used by
larger businesses as a front-door to contact centres and franchise operations for service
calls; |
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Priority(R) 1300 services, a shared-cost service offering a 10-digit number, similar
to the Priority(R) One3 service, where a short-number format is not required; |
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Contact centre enablement services, including network-based speech recognition and
interactive voice response solutions, computer telephony integration, call routing
services and speech recognition; |
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InfoCall(R) 190, a telephone premium-rate service where we bill the calling customer
for both content and carriage on our bill and receive a fee from the content provider for
these payment and carriage services; and |
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Phone Words, an inbound number derived from the alphabetic translation of a number, provided by
1300 Australia Pty Ltd. |
ICT Solutions, Services and Outsourcing
KAZ, a wholly owned subsidiary, partners with us in the market to service our medium and large
Enterprise and Government customers in Australian and Asia Pacific markets. The combination of
KAZs IT capabilities and our telecommunications strengths gives us capabilities in the provision
of end-to-end ICT services and solutions from within our own group of companies.
The repositioning of KAZ over the past two years as our ICT Services arm has enabled the
business to achieve revenue growth from services such as:
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Applications development, management and maintenance; |
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Systems Integration: particularly focusing on the integration of our ICT solutions
and partner applications in the client environment; |
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ICT and Business Process Outsourcing: covering servers, desktops, peripherals and
other portable devices for some of Australias largest companies as well as non core
business processes such as credit card processing and cheque processing; |
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ICT Consulting: designed to support our core business and focusing on ICT Strategy,
Network
Consulting & Integration, Mobility & Wireless and Security & Business Continuity as well as
Information Intelligence and Business Process; |
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The provision of ICT services supporting our managed voice, data and mobility
solutions including IP-based networks and IP Telephony; and |
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Managed IT Services: covering a range of solutions such as security, hosting, data centre
management and managed storage. |
On 31 August 2006, we sold AAS, the superannuation administration business of our KAZ Group
subsidiary to Link Market Services Limited for A$215 million. In addition, we took out A$35.5
million in cash from AAS prior to settlement. The transaction was completed after a competitive
public sale process had been undertaken. A decision was made to sell AAS after it was determined
that it was no longer strategic and not a core part of our business. KAZ continues to be a crucial
part of our Information and Communication Technology strategy and service delivery.
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Payphones
We are the leading provider of payphones in Australia. As at 30 June 2006, we operated
approximately 30,000 public payphones. Our Universal Service Obligation requires us to make
payphone services reasonably accessible throughout Australia including in non-metropolitan and
rural areas.
Customer premises equipment
As part of our customer voice, data, mobile and service solutions, we provide customer
premises equipment for rental or sale to our residential, consumer, business and Government
customers. In relation to Telstra rental phones, modern new standard and calling number display
rental phones are available, making phones and phone features easier to use.
We acquired the Converged Networks Group (CN) in March 2006. CN services the Western
Australian market as Telstra Business Sales exclusive franchise in Western Australia. CNs
principal product sets are Ericsson Enterprise (its core business) and more recently, IBM and
Nortel. The acquisition effectively allows us to operate in our own right in Western Australia
rather than as a reseller to CN.
Other sales and services
The principal components of operating revenue that we record in other sales and services
relate to information and connection services, external construction and various other minor
products and services.
Subscription television
We own 50% of FOXTEL, with Publishing & Broadcasting Ltd (PBL) and The News Corporation
Limited (News Corporation) each owning 25%. The FOXTEL partners have committed, with very limited
exceptions, to confine their involvement in the provision of subscription television services in
Australia to participation in FOXTEL. PBL and News Corporation have also made programming
commitments to FOXTEL. Each of these commitments expires in November 2008.
FOXTEL is Australias leading provider of subscription television services, with over one and
a quarter million subscribers (including our resale subscribers and those receiving FOXTEL
programming through Optus Television and others). FOXTEL markets its services to more than 5
million homes, split approximately equally between those homes passed by our hybrid fibre co-axial
cable (HFC) and those covered by a satellite distribution.
FOXTEL
Digital(TM) offers customers access to around 130 digital channels, superior picture
and sound quality, a comprehensive and easy to use electronic program guide (EPG), interactive
sports and news applications and FOXTEL Box Office(R) (near video on demand). FOXTEL continues to
enhance FOXTEL Digital(TM), launching new channels and interactive features, including additional
news, sports
and weather applications, as well as launching the FOXTEL iQ(TM) in February 2005. The FOXTEL
iQ(TM) is a personal digital recorder (PDR) designed to change the way viewers watch television
by enabling subscribers to record two programs simultaneously, even while watching a previously
recorded program.
Under arrangements with the FOXTEL partners, FOXTEL may provide, in addition to subscription
television services, a range of information and other services. FOXTEL currently only provides
subscription television services.
We are the exclusive long-term supplier of cable distribution services for FOXTELs cable
subscription television services in our cabled areas and we receive a share of FOXTELs cable
subscription television revenues. We can independently, or through partnerships and alliances,
provide a broad range of communications, data and information services to other parties using our
broadband network.
FOXTEL has entered into various program supply arrangements, including some with minimum
subscriber fee commitments. Refer to Operating and Financial Review and Prospects Contractual
obligations and commercial commitments for further details regarding our exposure to these
commitments.
We also resell Austar United Communications Limited (AUSTAR) subscription television
services, which are eligible for inclusion in the Telstra Rewards Options plan. The bundling and
reselling of both the FOXTEL and AUSTAR services broadens the range of telecommunication and
entertainment services we offer to our customers. These arrangements allow us to provide a
residential subscription television package to most areas in Australia regardless of geography.
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A discussion of competition in the subscription television services market is contained in
Competition Subscription television.
International investments
Our major international investments include:
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CSL New World Mobility Group, Hong Kongs leading mobile operator of which we own
76.4%. It has around 2.6 million customers, equating to approximately 32% of Hong Kongs
mobile market. CSL New World Mobility has retained all CSL and New World brands thereby
addressing all mobile market segments; |
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TelstraClear, our wholly-owned subsidiary, is the second largest full-service carrier
in New Zealand. TelstraClear provides voice, data, Internet, mobile resale, managed
services and cable television products and services to the New Zealand market. New Zealand
is a an important market for our trans-Tasman customers, and this investment enables these
customers to receive end-to-end services; |
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REACH, a 50/50 joint venture with PCCW, which provides outsourcing services in
support of Telstras and PCCWs international voice and data services. REACH is also one
of the worlds top carriers of international voice traffic. REACH operates and maintains
or uses voice and data switching platforms, satellite earth stations and a network of over
forty submarine cable and international satellite systems, together with associated
landing rights, backhaul, operating licences and bilateral agreements in most
international markets; |
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Last year Telstra and PCCW reported a number of improvements to the REACH operating model, whereby
REACH would provide voice and data services to the two shareholders in return for an outsourcing
fee on a cost plus mark-up basis. This year has focused on a consolidation of the new operating
model. Data volumes continue to grow strongly and voice business volumes are stable. |
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Telstra and REACH will continue to focus on a range of initiatives aimed at securing comprehensive
international voice and data services at low unit cost; and |
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SouFun, a leading real estate and home furnishing website in China, which we purchased a 51
per cent shareholding in on 31 August 2006 as part of our growth strategy for Sensis. |
We also have a 46.9% equity interest in Australia-Japan Cable Holdings Limited, a network
cable provider, which owns and operates a fibre optic cable between Australia and Japan.
Our 35% equity interest in the satellite communications operator, Xantic B.V. (formerly
Station 12 B.V.) was divested in fiscal 2006.
Capital Expenditures and Divestitures
For a discussion of the significant capital expenditures and divestitures we made in the
preceding two-year period, refer to Operating and Financial Review and Prospects Cash flow.
Research and development
We continue to make significant investment in research and development. In fiscal 2006, the
estimated spend was A$146 million. We review our project expenditure annually to determine its
actual spend on research and development. The expenditure was determined to be A$157 million in
fiscal 2005. For a detailed discussion of our research and development, refer to Operating and
Financial Review and Prospects Research and development.
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Networks and systems
Transformation Simplifying our infrastructure
Next-generation network (NGN)
In November 2005, we outlined our plans to build a next-generation network and rationalise the
more than 300 different network platforms provided by an array of vendors. On 7 August 2006 we
announced that we had reached an impasse with the ACCC and as a result the FTTN component of the
NGN remains on hold.
Our current plan is to reduce our network platforms by 60% in three years and 65% in five
years. As at 30 June 2006, we had capped or exited 48 of our network platforms exceeding our
December 2006 target.
Over the next five years the NGN initiative aims to remove network duplication and the high
level of complexity by transforming our network infrastructure in Australias five major cities of
Melbourne, Sydney, Adelaide, Brisbane and Perth. The transformation will include:
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an Internet Protocol (IP) core network which will replace todays dual cores and
add new capacity, greater capability, improved reliability and lower cost per unit; |
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an Ethernet network which will aggregate all traffic onto the new IP core supporting
what we anticipate to be high throughput demands of next-generation applications and
services; |
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a multi service edge, providing common services for customers regardless of access
network and connectivity for business services including Frame Relay, ATM and Ethernet; |
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high capacity soft switch platforms which will support voice services and features
over the common IP core, provide high capacity and high flexibility platforms. |
We believe the NGN will provide customers a simpler experience, fewer outages, faster services
and a consistent experience across multiple devices and networks. This new network will also enable
customer access to new and innovative services such as broadband Internet access many times faster
than current speeds, multi-channel TV delivered over the Internet and video conferencing.
This next-generation network will continue to be monitored and supported through a largely
centralised global operations centre, which has a recovery plan that enables network management to
be transferred to an alternate location in the event of an unforeseen disaster.
Mobile telecommunications networks
We currently own and operate two mobile network platforms, GSM and CDMA. Together, these cover
around 98% of the Australian population and serve more than 8 million SIOs. Through CSL New World
Mobility Group we also operate mobile services in Hong Kong.
In November 2005, we committed to simplify our Australian mobile infrastructure and announced
the plan to build a national 3GSM 850 MHz wireless network and, therefore, remove duplicate cost of
maintaining and upgrading two networks. We launched our 3GSM 850 MHz or NEXT G(TM) wireless network
on 6 October 2006.
The NEXT G(TM) wireless network operates on our GSM platform and uses the 850 MHz radio
frequency spectrum. The GSM platform will provide access to higher data speeds, better applications
and provide economies of scale. The CDMA network will remain in place until the national NEXT G(TM)
wireless network has the same or better coverage than the CDMA network coverage and until at least
January 2008. The new network provides coverage to 98% of the Australian population.
Our GSM digital network operates in the 900MHz and 1800MHz spectrum bands. As at 30 June 2006,
our GSM network had approximately 4,750 base stations nationally. We are continuing to expand the
capacity and coverage of the GSM network, with just under 500 new base stations established in
fiscal 2006.
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Our existing 3GSM service operates in the 2100 MHz spectrum band and with multi-band handsets
it is compatible with our NEXT G(TM) wireless network.
Other current networks & infrastructure
Transmission infrastructure
Our national transmission infrastructure consists of both terrestrial and non-terrestrial
transmission systems. Our domestic terrestrial systems are almost exclusively digital and use
approximately 4 million kilometres of optical fibre. Our major transmission routes incorporate
Synchronous Digital Hierarchy (SDH) technology.
Our international switching and transmission requirements are provided by REACH, which owns
international gateway switches in Sydney and an expanding network of switches across Asia, North
America and Europe to augment its state-of-the-art global data/IP system. REACH uses satellite
communication systems to supplement international traffic capacity where undersea cables are not
feasible and to provide route diversity and circuit redundancy, as well as specialist
satellite-based applications. REACH utilises satellite earth stations in Australia and Hong Kong,
including the largest satellite teleport in Asia.
Public Switched Telephone Network (PSTN)
Our PSTN or fixed network supports voice, facsimile and dial-up data products and we continue
to deploy new infrastructure as residential and business areas expand.
Australias geographic characteristics provide unique challenges for the provision of
nationwide digital PSTN coverage, overcome by our innovative application of a range of modern
technologies. Some 286 digital switching nodes connect customers with each other through a
combination of copper, fibre optic, radio and satellite technologies.
Our network supports a range of switch features which include features such as Call Waiting,
Call Return, Abbreviated Dialling and Virtual Private Networks (VPN). New types of telephones and
customer premises equipment which make these features more accessible and easy to use are
continually entering the market.
The PSTN supports many operator assisted service products such as directory assistance and
CallConnect. We are planning to enhance these services with higher levels of automation including
the latest in advanced voice recognition technology. The PSTN is also Australias lifeline to
Emergency 000 services.
Our PSTN infrastructure in the five major capital cities is expected to evolve over the next
five years, from the current technologies to increasingly utilising an IP core network and IP
access switching to replace our traditional exchanges.
We utilise CDMA-based wireless local loop technology in regional Australia as part of our
contract with the Commonwealth to improve communications in extended zones. With the deployment of
3G mobile network technology we will have a similar capability after the CDMA network is phased out
in early 2008 to ensure continuation of this type of service. In more remote areas satellite will
continue to be used for providing calling and internet services.
Integrated Services Digital Network (ISDN)
ISDN is a flexible, switched digital network. The integrated nature of this network means that
ISDN can support many applications at the same time while using a single access point to the
network, including traditional telephony as well as various data applications such as
videoconferencing, Internet access and EFTPOS.
The ISDN network is available to approximately 96% of the Australian population. ISDN provides
an end-to-end digital connection that allows us to deliver minimum 64Kbps connections to customers.
Intelligent Network (IN) platforms
We operate a number of IN platforms that support a range of services across fixed, mobile and
messaging services including:
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inbound services such as Telstra Freecall(R) 1800, Priority(R) One3, Priority(R) 1300 and
InfoCall(R) 190; |
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Telstra prepaid mobile, Pre-paid Plus; |
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calling cards (Telecard(R)); |
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prepaid cards (Phoneaway(R), Say Gday(R)); |
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information services numbers; |
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number portability; |
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mobile VPN, mobile voicemail; |
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advanced network routing; and |
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screening functions. |
Our inbound services are important to our major business customers because they support their
call centre and customer service operations. Our Contact centre enablement services, include
network-based speech recognition, interactive voice response solutions, computer telephony
integration and advanced call routing services.
Data networks
We operate a number of data networks including a:
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Switched Data Network (SDN); |
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National Transaction Switching Network; and |
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Digital Data Network (DDN). |
Our SDN comprises approximately 857 switches linked to access multiplexers at more than 130
sites around Australia. It is the backbone for numerous IP WAN services, supporting a range of
access types from the fixed ATM and frame services for domestic and global use to Dynamic Dial,
ADSL, wireless services and value-added features including firewalls, hosting, Messenger, IP Voice
and IP Video.
Our retail customers use ATM and frame relay data services on the SDN to build wide-area
corporate data networks. Our wholesale customers use the SDN as an element of their own retail
offerings.
Our National Transaction Switching Network is suitable for electronic funds transfer and
inventory applications. This network provides dedicated and dial-up access in a secure environment,
suitable for transmitting transactions.
Our DDN, with its fully integrated management system, provides dedicated secure site-to-site
transmission at speeds ranging from 1200bps up to 2Mbps. This network has extensive coverage, with
more than 2,500 points of presence nationally across Australia for both Telstra retail DDS and
Telstra Wholesale Data Access Radial (DAR) products.
In addition, the DDN is the underlying access infrastructure for our Accelerated Frame Relay
product using our large network reach over multiple access technologies such as G.Shdsl, HDSL and
optic fibre to enable customer access into the SDN core network.
The DDN and SDN will be replaced and customers migrated to new products as part of our
transformation strategy.
Internet Protocol /Multiprotocol Label Switching (IP/MPLS) networks
We operate a national Internet full IP routed network, which provides the backbone for all of
our Telstra Internet Direct services and all Telstra BigPond(R) Internet offerings, as well as
Telstra Wholesales Internet products. Our Internet backbone network
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connects to the rest of the Internet via the international links provided by REACH and connects
domestically via peering links with peer ISPs.
We also operate an MPLS (Multiprotocol Label Switching) based Routed Data Network (RDN)
which supports both our internal IP network as well as our suite of IP Products under the name of
IP Solutions. The RDN is also used to deliver IP Metropolitan Area Network (IPMAN) and Ethernet
MAN services along with our interstate IP Wide Area Network (IPWAN). We offer a Government IP
solution providing a direct fibre-based IP Network for use by Government agencies in Metropolitan
and regional locations.
The RDN supports the delivery of retail and wholesale Ethernet based products nationally.
As part of the transformation, our Internet backbone network and the RDN will be replaced by a
single IP/MPLS core.
IP Voice Solutions
We have provided a hosted open-standards IP Telephony solution for our corporate customers since
2003.
The IP Voice Solutions are delivered using a common Internet Protocol network utilising a
Next-generation Network architecture.
Broadband network
We deliver broadband capability through HFC, ADSL, Wireless and satellite services. Our HFC
broadband network passes approximately 2.8 million homes and businesses. The optic fibre component
of this broadband network consists of two forward and one return path fibre. The HFC network is
designed to provide two-way transmission for interactive services and high-speed data downloads,
currently up to 17Mbps via BigPond(R) Cable Extreme service.
ADSL is a broadband technology using the existing copper line technology that also delivers
PSTN services. ADSL deployment commenced in August 2000 and we achieved our target coverage for
fiscal 2006 with over 2,300 ADSL enabled exchanges sites.
We also offer satellite broadband services via both a two-way satellite service and a
satellite download/dial-up backchannel in areas of Australia for customers who are unable to access
broadband via cable, ADSL or Wireless.
Digital Video Network
Our Digital Video Network is an optical fibre network used by video broadcasters and
aggregators for the transmission and distribution of their content. The capabilities of the network
allow for seamless sharing of content between approved broadcasters as well as transmission of the
content by means of high grade encoding techniques.
Electromagnetic energy (EME)
Certain reports have suggested that EME emissions from mobile phone base stations and radio
communications facilities (including handsets) may have adverse health consequences for users and
the community. We rely on the expert advice of national and international health authorities such
as the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA) and the World Health
Organisation (WHO) for overall assessments of health and safety impacts of EME. The current
consensus is that there is no substantiated scientific evidence of health effects from the EME
generated by radio frequency technology, including mobile phones and base stations, when used in
accordance with applicable standards.
We are committed to being open and transparent on all issues relating to EME emissions. We
comply with all relevant radio frequency standards and have comprehensive policies and procedures
to protect the health and safety of the community and our employees.
Together with other Australian mobile carriers, through the Mobile Carriers Forum (MCF), we
have implemented a process to help ensure compliance with the Australian Communications Media
Authority (ACMA) electromagnetic radiation framework and the Australian Communications Industry
Forum (ACIF) code of practice for radio communications infrastructure deployment. We developed
tools to assist compliance, such as the National Site Archive and National Antenna database, which
have been adopted by the MCF.
108
We have developed base station EME software that calculates environmental emission levels in a
matter of seconds. Our RF-MAP(TM) software enables operators, local authorities and community
groups to assess the environmental impacts of mobile phone base stations and confirm compliance
with safety standards. We have given copies of our RF-MAP(TM) software to national and
international health authorities as well as community and Government organisations, reflecting our
commitment to sharing expertise and providing the community with easy to use solutions.
We are also active participants on national and international EME standards bodies and research
institutions.
Property, plant and equipment
Overview
A large part of our network is constructed on land occupied under our statutory powers and
immunities. We also own and occupy land that includes strategic sites, such as the properties on
which our telephone exchanges are located. As at 30 June 2006, we owned 5,233 freehold sites and
occupied 8,870 sites on a leasehold or other basis. Most of our sites are related directly to our
telecommunications operations and are used for housing network equipment of various types, such as
telephone exchanges, transmission stations, microwave radio equipment and mobile radio repeater
equipment. Some of our operational sites are on leased land or land that we have access to by
statutory right or other formal or informal arrangement. In addition to our operational sites, we
own or lease a range of properties used for office accommodation, storage and other miscellaneous
purposes which are discussed in Operating and Financial Review and Prospects-Contractual
obligations and commercial commitments.
Land access powers and immunities
The land access powers and immunities conferred on carriers by the Telecommunications Act 1997
(Cwth) (Telecommunications Act) are limited specific activities involving inspection and survey of
land, maintenance of facilities and installation of low impact facilities as prescribed by the
Telecommunications Low Impact Facilities Determination 1997. For activities not covered by the land
access powers and immunities regime, we must obtain all necessary consents, including the consent
of the relevant town planning authority as well as from the owner of the land, before network
construction activities may commence. Where the network-related activities are to occur in areas of
indigenous cultural heritage or on land where native title exists the relevant stakeholders are
consulted. In areas of environmental significance, the Department of Environment and Heritage are
also consulted and notified. The consultation period must be considered when determining activity
timeframes. We have comprehensive land access procedures and systems to enable staff and
contractors to comply with relevant legislation when undertaking network related activities.
Environmental issues
Environmental aspects covering the handling and storage of dangerous goods, noise from fixed
plant, visual amenity and disposal of waste (including obsolete and decommissioned equipment) are
required to be managed as part of operating and maintaining plant and equipment on occupied sites.
We manage the potential risks associated with these environmental aspects through various control
procedures. Incident processes are in place to minimise the potential impacts of environmental
incidents. New equipment undergoes an environment assessment before being implemented into the
network. Sites to be divested undergo environmental assessment and, if appropriate, remediation,
prior to sale.
We are aware of no current significant environmental issues that impede the utilisation or
integrity of our network operation.
Legal Proceedings
C7 litigation
In November 2002, Seven Network Limited and C7 Pty Limited (Seven) commenced litigation
against us and various other parties (the respondents) in relation to the contracts and
arrangements between us and some of those other parties relating to the right to broadcast the
Australian Football League and National Rugby League, the contract between FOXTEL and us for the
provision of broadband HFC cable services (the Broadband Co-operation Agreement) and other
matters.
Seven seeks damages and other relief, including that some of these contracts and arrangements
are void. Seven also seeks orders which would, in effect, require a significant restructure of the
subscription television/sports rights markets in Australia. Expert reports
109
filed by Seven were at one time used to suggest that Seven sought total damages of around A$1.1
billion. However, some significant components of this expert evidence have since been ruled
inadmissible by the
trial judge and many of the facts on which Sevens loss claim is based are contested. In addition
to denying liability at all, the respondents have filed expert reports to the effect that, even if
liability were found to exist, damages should be assessed at a very significantly lesser amount. If
Seven obtained any order for damages or legal costs affecting us, the liability arising from that
order may subsequently be apportioned between the relevant respondents, with us bearing only a
portion of the total liability. Final oral submissions were completed in early October and we are
awaiting judgement. In light of the progress of this case to date, we consider that it is unlikely
to have any material effect on our overall business or financial position.
Shareholder class action
In January 2006, a shareholder commenced a representative proceeding in the Federal Court
against us. The statement of claim alleges that we breached the Corporations Act and the ASX
Listing Rules between 11 August and 7 September 2005 by failing to disclose to the ASX or in our
fiscal 2005 full year accounts (1) that our CEO, Mr Trujillo had formed an opinion that there had
been past deficiencies in operating expenditure and capital expenditure on telecommunications
infrastructure, (2) that our CEO had forecast a significant and accelerating decline in our PSTN
business, and (3) that we had communicated these matters to the Commonwealth. The claim seeks
orders for compensation for the class of shareholders who bought shares between 11 August and 7
September 2005. The proceeding is at an early stage, and is considered unlikely to have any
material effect on our overall business or financial position. We are vigorously defending the
claim.
Competition notice regarding line access
Refer Regulation Conduct regulation.
Other
We are also involved in routine litigation. Governmental authorities and other parties
threaten and issue legal proceedings against us from time to time.
We do not consider that there are any current proceedings that could materially adversely
affect our overall business or financial position.
Employees
We are one of Australias largest employers. As at 30 June 2006, the Telstra Group employed
40,996 full-time employees. We also engage employees under flexible work arrangements including
casual, supplementary and part-time employees. As at 30 June 2006, the Telstra Group had engaged
the equivalent of 3,456 full-time employees under these flexible arrangements. In total, as at 30
June 2006, the Telstra Groups full-time equivalent (FTE) employee total was 44,452 which is 1,775
less than at the same time in 2005, where the equivalent FTE employee number totalled 46,227.
We also use contractors and agency arrangements to round out our total workforce. Including IT
contractors, non-IT contractors, staff on agency arrangements, full-time employees and employed
equivalents, we had a total workforce of 49,443 as at 30 June 2006 and a total workforce of 52,705
as at 30 June 2005.
More than 90% of our employees work in Australia. However, we also have international
interests, with employees in New Zealand, Asia and other locations as follows:
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
2006 |
|
2005 |
New Zealand |
|
|
1,395 |
|
|
|
1,508 |
|
Asia |
|
|
1,884 |
|
|
|
1,060 |
|
Other |
|
|
233 |
|
|
|
298 |
|
The following table summarises full-time employees and equivalents in Australia and overseas for
the past five financial years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Full-time Australian based employees of
the Telstra Group |
|
|
37,599 |
|
|
|
39,680 |
|
|
|
35,774 |
|
|
|
36,781 |
|
|
|
40,084 |
|
Full-time equivalent total for the Telstra Group |
|
|
44,452 |
|
|
|
46,227 |
|
|
|
41,488 |
|
|
|
41,620 |
|
|
|
44,595 |
|
110
Superannuation
Our employees receive superannuation contributions that are either more generous than or
comply with our legal obligations. The majority of our Australian employees are members of the
Telstra Superannuation Scheme, our default fund, or in the case of some employees who were employed
prior to 1990, the Commonwealth Superannuation Scheme. Refer Relationship with the Commonwealth
The Commonwealth as shareholder.
During fiscal 2006, we implemented Choice of Superannuation Fund in accordance with the
legislation, which came into effect in July 2005. While the legislation allows for certain
categories of our employees to be exempted, we extended this flexibility to as many employees as
possible, subject to other legislative restrictions.
Employee Relations
In September 2005, a new Enterprise Agreement (EA) was certified by the Australian
Industrial Relations Commission. This EA covers approximately 50% of our employees, has a nominal
expiry date of September 2008 and provides pay increases of 2.5% each year over a three-year
period.
Amendments to the Workplace Relations Act 2006 (Work Choices) were enacted on 27 March 2006.
We have adjusted relevant terms and conditions of employment in accordance with the new Work
Choices requirements.
Occupational Health and Safety
We believe that the successful prevention of work-related injury and illness is achieved
through a balance of robust management systems, engaged employees and committed managers. Telstra
Care, our health and safety management system, focuses on leadership in safety, together with
measurable accountabilities, through all levels of management. Each year we undertake an extensive
schedule of occupational health and safety audits with the aim of continually improving safety at
work. For the last nine years, the results have shown year-on-year improvement, which has a high
correlation to our decrease in Lost Time Injuries.
Under our Telstra Care health and safety management system, in fiscal 2006 we have:
|
|
|
completed more than 57 external occupational health and safety audits across office
and field based areas throughout Australia, taking the total to over 723 since the audit
program commenced in December 1997; |
|
|
|
|
included in this are 8 audits of our contractor management systems |
|
|
|
|
further enhanced and simplified our successful office health, safety and environment
planning to
assist managers in achieving safe workplaces; |
As a result of the continuous improvement through the Telstra Groups activities, during fiscal
2006:
|
|
|
Lost-Time Injuries (LTIs) reduced by 21% to 157; |
|
|
|
|
The 12 month moving average of Lost-Time Injury Frequency Rate (measured by the
number of LTIs per million hours worked) reduced from 3.2 to 2.7; and |
|
|
|
|
The number of open claims has been reduced to 1796. This is a significant milestone
as it is the first time since 1988, when we became a self-insurer that the number of open
claims has fallen below 2000. |
In line with Commonwealth OHS Reporting, the following work-related incidents were reported in
fiscal 2006:
|
|
|
42 employees were absent from work as a result of an incident for more than a month; |
|
|
|
|
68 employees required emergency medical treatment or treatment in a hospital; and |
|
|
|
|
201 dangerous occurrences were reported. These are work-related incidents that could
have caused death, serious injury or incapacity to a person, but did not. Notably, we have
a policy of reporting incidents quickly and often investigation reveals that the potential
severity of an incident was less than initially estimated. |
111
Our focus is to rigorously identify the risks to our people and to manage those risks
appropriately.
Annual general meeting
Telstras annual general meeting was held on 14 November 2006. The following items of business
were considered at that meeting:
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Chairman and CEO presentations; |
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|
|
Remuneration Report; |
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|
|
discussion of financial statements and reports; |
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|
|
election and re-election of directors; and |
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|
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|
proposed new constitution |
At the time of the annual general meeting, the Commonwealth held approximately 51.8% of Telstras
shares.
The results of the annual general meeting were as follows:
|
|
|
adoption of the Remuneration Report; |
|
|
|
|
election of Mr Geoffrey Cousins and re-election of the following persons as directors: |
|
1. |
|
Mr Charles Macek |
|
|
2. |
|
Dr John Stocker |
|
|
3. |
|
Mr Peter Willcox |
|
|
4. |
|
Mr John Zeglis |
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|
|
adoption of the proposed new constitution. |
112
Competition
Overview
Telstra operates in a number of highly competitive markets. There is no restriction on the
number of carriers or carriage service providers (CSPs) in the Australian market, or on the types
of products and services they may supply. Many of our competitors are subsidiaries of large,
foreign-owned multinationals. Their presence in the Australian market, along with a myriad of
smaller players (notably hundreds of ISPs), contributes to rigorous competition. There is not only
competition within specific product offerings, but between them, as customers are substituting one
method of communication for another, such as mobile for
basic access at home. While the overall communication market has grown in size, our market
share has declined due to competition. Further, the traditionally high-margin PSTN market is
shrinking.
In summary, as at 30 June 2006, we estimate our retail market shares in the products and services
we provide to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Market Share |
|
|
2006 |
|
2005 |
|
2004 |
Basic access services |
|
|
71 |
% |
|
|
73 |
% |
|
|
75 |
% |
Local calls |
|
|
71 |
% |
|
|
73 |
% |
|
|
74 |
% |
Domestic long distance minutes |
|
|
63 |
% |
|
|
62 |
% |
|
|
65 |
% |
International long distance minutes |
|
|
50 |
% |
|
|
51 |
% |
|
|
52 |
% |
Mobile services(1) |
|
|
43 |
% |
|
|
45 |
% |
|
|
46 |
% |
Internet services (retail broadband)(2) |
|
|
44 |
% |
|
|
41 |
% |
|
|
41 |
% |
Data revenue(3) |
|
|
62 |
% |
|
|
62 |
% |
|
|
64 |
% |
Subscription television services(4) |
|
|
60 |
% |
|
|
60 |
% |
|
|
58 |
% |
Sensis advertising(5) |
|
|
N/A |
|
|
|
13 |
% |
|
|
13 |
% |
|
|
|
(1) |
|
Based on Telstra, Optus, Vodafone and Hutchinson data. |
|
(2) |
|
Retail broadband includes BigPond(R) Broadband and retail business broadband services like
Telstra Mobile Broadband, Internet Direct and Hyperconnect. |
|
(3) |
|
Excludes ISDN but includes some wholesale revenues. |
|
(4) |
|
FOXTEL excludes services provided on a wholesale basis to other providers such as Optus TV. |
|
(5) |
|
2006 data not available as of the date of this Form 20-F. Figures are for 31 December. |
Basic access and local calls
Historically, we faced limited competition in basic access and local calls services. Today we
compete for business and residential customers primarily in large cities, because our competitors
have built networks or have access to networks in those areas. Local number portability has
contributed to facilities and network-based competition. We also face increasing competition from
fixed Voice over Internet Protocol (VoIP) call operators.
National long distance and international services
Our market share for national long distance and international telephone services has been
eroded by fierce competition as competitors build switching and build or lease transmission
capacity. In most cases, the PSTN originating and terminating access is purchased from us on a
wholesale basis. We also compete in this market with a number of operators who sell international
calling cards direct to the public via retail outlets.
Mobile telecommunications services
The mobile telecommunications market is highly competitive. Optus, Vodafone and Hutchison own
networks, and several CSPs specialise in the resale of mobile services. We estimate that market
penetration as of 30 June 2006 was 96%. The rate of growth in voice services in operation is
slowing considerably. Mobile service providers are looking to future growth in revenue from high
speed data usage by existing subscribers. We expect that our new high
speed NEXT G(TM) wireless
network will provide differentiation in the mobile market, through greater coverage, faster speeds
and new value-added services.
113
Spectrum is required for mobile services and is auctioned by ACMA from time to time. Limits
may be
imposed upon the amounts of spectrum we or other bidders may purchase.
Data access services
The Australian data access market is competitive. Customer demand for new growth data services
based on DSL, Ethernet or IP-based solutions is increasing. Competition is intense in these growth
areas, particularly across niche product solutions and specific geographic areas. Several DSL
network providers are offering DSL based VPN services as an alternative to frame relay or leased
line data connections. Others are offering Voice over DSL (VoDSL) and in the future will likely
offer integrated voice and data bundles. Nine of our competitors have outlined for consideration a
model to build a jointly owned FTTN network to deliver broadband services to a large number of
customers. The Commonwealth has announced a A$878 million scheme to subsidise Internet service
providers to supply broadband services in regional, remote and rural Australia. This scheme is
likely to increase facilities and network-based competition.
Internet access services
The ISP market in Australia is diverse and highly competitive with over 700 ISPs, ranging in
size from very small to substantial. For Internet access services, differentiation includes quality
of service, price, speed, voice bundles, value added services, content and availability of local
call access and associated information or transaction services.
We provide both dial-up and broadband Internet access services using a range of ADSL, cable,
wireless and satellite technologies.
Online services
We compete with domestic and international companies for online, content and web hosting
services. We seek to differentiate ourselves through factors including brand recognition and the
entertainment, educational and commercial value of our content. In response to increasing
competition in the market for content, we have formed alliances with providers of content such as
sport and music to deliver additional value to our customers.
Wholesale services
The wholesale market is becoming more competitive with 30 carriers including Optus and
PowerTel having invested in infrastructure which enables them to offer wholesale products and
services. Telstra Wholesale has more than 500 customers, including approximately 400 ISPs. Telstra
Wholesale is focused on the delivery of communication services to intermediaries operating in
Australia and offers approximately 40 wholesale-only products. Competition is strong in the
wholesale provision of transmission services. Wholesale prices are generally falling as new
competitors enter the wholesale services market.
Subscription television
FOXTEL (of which we own 50%) and Optus are the main providers of subscription television
services over cable in largely overlapping areas.
AUSTAR distributes subscription television through digital satellite systems in regional
areas. FOXTEL and AUSTAR compete only in limited areas.
FOXTEL is the leading subscription television provider in Australia. It has more than 1.25
million subscribers using both cable and satellite (aggregating FOXTELs retail and wholesale
customers). In fiscal 2006, FOXTEL increased its subscribers by more than 10%. Digital services
provide more choice to subscribers and greater revenue to FOXTEL. All FOXTEL services will be
digital by March 2007.
Subscription television providers compete with free-to-air television operators. Free-to-air
television
operators are given priority in the telecasting of most major sports programs. From 2007, they
will be allowed to broadcast an additional channel each.
114
Advertising, Directories and Information Services
Sensis, our directories and search business, operates within the highly competitive Australian
advertising market. We face competition in automotive, travel and general merchandise markets from
a number of print and online businesses. We also face competition from a variety of print and
online directories and search businesses. The brands and intellectual property of Sensis are very
important to its business and Sensis will consider all avenues open to it to defend those rights.
Competing directory providers have access to CSP subscriber contact details from the
Integrated Public Number Database (IPND) which we maintain as a requirement of our carrier
licence.
Payphones
Our payphones business faces increasing competition from new entrants, the increasing use of
calling cards that erode payphones revenues, and increased mobile usage.
115
Regulation
Overview
Current regulations were largely set in 1997 when the structure of the Australian
telecommunications market was substantially different than it is today. In our view, those
regulations significantly diminish shareholder value by increasing our costs and reducing the
opportunity for us to earn revenue and grow, and undermine the development of a sustainably
competitive and financially healthy industry. We face substantial regulatory risks in our business
which have had, and we expect will continue to have, a significant adverse effect on our operations
and financial performance. This is an issue with which management is seriously concerned and
committed to seek reform on behalf of our shareholders.
There are three key areas of regulatory impact:
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|
|
Access regulation: the ACCC can require compulsory competitor access to our networks at
prices arbitrated by the ACCC if the parties fail to agree. We believe that those prices have
been significantly less than our calculations of the efficient costs of supply and effectively
provide our competitors with heavily subsidised access to our investments. There is no right
to a merits review of ACCC decisions to require access or arbitrate prices. The ACCC may hold
a public inquiry at any time into whether compulsory competitor
access to our NEXT G(TM)
wireless network should be required. In addition, the uncertainty associated with the access
regime meant that we decided we were not able to build our proposed A$3 billion fibre to the
node (FTTN) network despite the substantial operational savings and incremental revenues for
us and the significant benefits for Australia in the widespread availability of high speed
broadband services; |
|
|
|
|
Conduct regulation: Telstra and the ACCC differ in critical instances in their views as to
what amounts to anti-competitive conduct in breach of the TPA. For example, the ACCC has
stated that it has reason to believe that, by raising our basic access prices to competitors
without a similar increase in retail prices, we have engaged in anti-competitive conduct. In
our view, an increase in access prices to allow a greater recovery of our costs is not
anti-competitive conduct. We believe that should the ACCC allege that we have engaged in
anti-competitive conduct, it will rely on the potential of very large fines in an endeavour to
have us modify what we consider to be normal commercial behaviour. |
|
|
|
|
The ACCC may in the future regard other of our conduct as a breach of the TPA. In addition, the
Communications Minister has a broad power to vary our operational separation plan subject only to
the aims and objects of the legislation which are very broad. Any such variation could allow the
Minister to determine the way we conduct our business; and |
|
|
|
|
Social regulation: as the former national telecommunications carrier, some
regulations are specific to us and do not apply to our competitors. For example, we are
subject to retail price controls and are obliged to make certain uneconomic services
available in rural and remote areas without in our view receiving a fair contribution to
costs from our competitors. |
We are regulated as a carrier and as a carriage service provider (CSP). A description of
principal industry regulators is set out at the end of this Regulation section.
Access regulation
Part XIC of the TPA is an access regime specific to the telecommunications industry.
Declaration of services
The ACCC may declare that a particular telecommunications service of a carrier or CSP is a
declared service and so must be supplied to access seekers upon request. A carrier or CSP is not
able to seek a merits review of such declarations.
The main services declared by the ACCC are:
|
|
|
PSTN originating and terminating access (PSTN OTA); |
|
|
|
|
mobile terminating access service (MTAS); |
|
|
|
|
transmission capacity (except links between mainland capital cities and some routes
between capital cities and regional centres) on various bandwidths; |
116
|
|
|
certain digital data access service; |
|
|
|
|
an unconditioned local loop service (ULLS) allowing access seekers exclusive use of
copper wires which connect customer premises; |
|
|
|
|
a spectrum sharing service (SSS) allowing an access seeker to supply broadband
services to customers while the access provider supplies voice services to the customer; |
|
|
|
|
local carriage services (LCS) (except in central business districts); |
|
|
|
|
wholesale line rental (WLR) (except in central business districts); and |
|
|
|
|
an analogue subscription television broadcast service. |
FTTN
On 15 November 2005, we announced our next-generation network including an extensive FTTN
network to provide high speed broadband services in Australias five largest cities. The rollout of
the FTTN network was, however, subject to obtaining what we viewed a reasonable regulatory outcome
including acceptable guarantees about what services would have to be provided to competitors under
the access regime and how much they would be required to pay. No such outcome was achieved, and
accordingly, on 7 August 2006, we announced that the discussions with the ACCC to allow this
investment to proceed had failed. We have made clear that we would not invest in an FTTN network
unless we were satisfied that our costs would be recognised (especially those we incur in providing
services to rural, regional and remote Australia) and could be recovered.
3G
The ACCC may hold a public inquiry at any time into whether mandated competitor roaming on or
other access to our NEXT G(TM) wireless network should be required, despite the market for mobile
services being highly competitive. If roaming or other access were mandated, we would lose the
competitive advantage of the wider coverage of our NEXT G(TM) wireless network, despite having made
a substantial investment in that network. A loss of this ability would have a substantial impact on
our mobile revenues. In fiscal 2006, we grew mobile revenues by A$284 million. We believe future
growth in mobile revenues would be severely compromised by mandated roaming as would our ability to
grow or even hold mobile
market shares. Further, depending on the extent to which competitors acquire mandated roaming
rather than invest in their own 3G network, this could result in significant additional mobile and
transmission network capital expenditure requirements on us.
LCS
In July 2006, the ACCC extended the declaration of LCS by three years and declared WLR for the
first time for the same period despite the growing level of facilities and network-based
competition and the fact that line rental had for many years been available from us on a commercial
basis.
Future declarations
If the ACCC believes that it would promote the long-term interests of end users, it may
declare other services, such as a high-speed broadband service using ADSL2+ or HFC cable network.
We believe that such declarations would be unwarranted.
Terms and conditions of access
Part XIC of the TPA also empowers the ACCC to determine the terms of access to the declared
services, taking into account such criteria as the long term interests of end users. For example,
the ACCC has issued Model Terms and Conditions (price and non-price) for core declared services,
such as the ULLS, PSTN OTA and LCS. It has also published pricing principles for various declared
services informing the industry of how prices for these services are likely to be determined by the
ACCC in an arbitration.
In most cases, the ACCC proposes that the prices of declared services should be cost based to
reflect the total service long run incremental cost (TSLRIC) of providing the service. In
applying the TSLRIC methodology, we have often disagreed with the
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ACCCs calculation of our TSLRIC costs of providing declared services. For some services, such as
the LCS and WLR, the ACCC has adopted a Retail Minus Retail Costs (RMRC) approach, which has for
some services the potential to deliver a price that is below our calculation of the TSLRIC of the
service.
The legislation also allows the Minister to make a pricing determination setting out
compulsory principles for establishing access prices that must be followed by the ACCC. To date, no
Ministerial pricing determination has ever been issued.
In relation to bilateral negotiations, Part XIC gives primacy to commercial negotiations;
however, if negotiations are unsuccessful, the ACCC has the power to arbitrate the terms and
conditions of access which are in dispute. The ACCC can issue interim and final determinations in
an arbitration. Final determinations may be backdated to the date negotiations between the parties
commenced. In addition, while arbitration proceedings are confidential between the parties, the
ACCC has the ability to publish any determination it makes.
An adverse outcome in an arbitration would harm us in terms of lower wholesale revenues and a
greater ability for our wholesale customers to be competitive in retail markets. It would also
weaken our position in negotiating access prices with other wholesale customers.
An access provider of a declared service may also lodge an undertaking with the ACCC, setting
out the terms and conditions upon which it proposes to provide a declared service. If that
undertaking is accepted by the ACCC, then any determination made by the ACCC in an arbitration must
be consistent with the terms of the accepted undertaking. While it is not possible to apply to the
Australian Competition Tribunal (ACT) for a merits review of an arbitral decision of the ACCC, we
have the right to a merits review by the ACT of a rejection by the ACCC of an access undertaking.
Unconditioned Local Loop Service (ULLS)
ULLS allows our competitors to install their equipment in our exchanges and provide voice and
broadband services to retail customers, bypassing much of our network and allowing them to compete
aggressively in the retail market place. As at 30 June 2006, our competitors had installed
equipment in over 80% of exchanges in band 2, giving them coverage of around 92% of PSTN lines in
band 2 exchanges. We estimate that this coverage in band 2 will increase to around 95% by 30 June
2007. In total, competitors have installed equipment in around 555 exchanges across Australia, and
we estimate that by 30 June 2007, this number will increase to over 1,000 exchanges across
Australia.
The ACCC has over time reduced the prices it believes we should charge for ULLS, although many
of our costs of providing ULLS (such as fuel, copper and labour) have increased significantly over
that time. In addition, the ACCC has indicated that we should charge different prices in different
areas for ULLS, despite the fact that we are effectively required to charge the same residential
and business retail prices for a basic line rental service throughout Australia. This will enable
our competitors to target customers in higher density areas where access prices are low, leaving us
to provide services to many customers in high cost, low density areas at the same retail price as
in metropolitan areas without what Telstra believes to be adequate compensation from the
universal service obligation regime (see below).
In December 2005, we submitted a ULLS access undertaking with a single (or averaged) price of
A$30 per month for all areas. On 28 August 2006, the ACCC issued a final decision, rejecting the
undertaking on the basis that it was not satisfied that our costs and the averaging of those costs
were reasonable. The ACCC did not give an indication of what prices it would regard as reasonable.
We have appealed that rejection to the ACT.
In addition, Primus, Optus, Chime, PowerTel, XYZed, Request, Macquarie and NEC are each in
arbitration with us claiming that our charges for ULLS are too high. In August 2006, the ACCC made
binding interim decisions in several of these arbitrations that prices remain deaveraged and that
the price in band 2 (the metropolitan area where the greatest number of ULLS services will be
provided) be reduced from A$22 per month to A$17.70 per month. There is a risk of the final
decisions setting a lower price. We will consider all avenues open to us to challenge any such
outcome.
Following these decisions, we revised our earnings outlook for fiscal 2007, with EBIT growth
revised to between 2% and 4% from between 4% and 6% (subject to various assumptions), illustrating
that adverse regulatory decisions by the ACCC can have an immediate and significant adverse effect
on Telstras business. Refer Operating and Financial Review and Prospects Outlook.
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As an illustration of the longer term impact of such an adverse regulatory decision,
management estimates that ULLS implemented in band 2 in accordance with the ACCCs interim pricing
would lead to an estimated A$2.5 billion reduction in Telstras enterprise value. This estimate
assumes that 20% of PSTN customers are served by ULLS by 2015 and a band 2 access price of A$17.70
per month as compared with the earlier price of A$22 per month. The calculation considers the first
order impacts of the price reduction for wholesale services and assumes a full flow through of the
reduced access price to retail PSTN and broadband prices by us and our competitors.
The impact of such ACCC pricing in subsequent years would be greater due to increased uptake of
ULLS by access seekers.
Spectrum Sharing Service (SSS)
The ACCC has applied TSLRIC pricing principles to the SSS. In December 2005, the ACCC rejected
our SSS monthly charges undertaking of A$9, which was consistent with the range of indicative
prices previously published by the ACCC for the service. We unsuccessfully appealed this rejection
to the ACT.
Primus, Chime, Request, Amcom, Agile and Adam Internet are each in arbitration with us
claiming that our charges for SSS are too high. The issues covered by these arbitrations relate to
the appropriate price payable for the monthly charge for SSS, the connection price for SSS, as well
as some non-price terms. On 6 October 2006, the ACCC issued two draft interim decisions reducing
the monthly charge to A$3.20. If
this significant reduction is confirmed, we believe there will be accelerated growth in SSS
enabling our competitors to provide broadband and VoIP services, placing retail pricing pressure on
us, while we are restricted to supplying basic access services.
PSTN Originating & Terminating Access (PSTN OTA)
The ACCC has published pricing principles for PSTN OTA, stating TSLRIC as the appropriate
methodology for determining the price of the service. We had an access undertaking accepted by the
ACCC for the price of PSTN OTA, which expired on 30 June 2006.
In March 2006, we filed a new undertaking with the ACCC, seeking new prices and a new pricing
structure for the service. The undertaking sets out new prices which would operate for two years
from 1 July 2006. The prices propose an increase from the previous prices that applied, reflecting
our efficient costs of providing the service, and recognizing the falling volume of traffic on the
network. In July 2006, the ACCC indicated in its draft indicative prices that the headline rate
should be A$0.01 per minute compared to a headline rate in our proposed undertaking of A$0.0218 per
minute. In September 2006, the ACCC gave a draft decision rejecting the undertaking.
Optus has notified an access dispute to the ACCC in relation to the price payable to us for PSTN
OTA.
Local Carriage Service (LCS) and Wholesale Line Rental (WLR)
In June 2005, our accepted undertaking for the price of the LCS expired. We filed a new
undertaking with the ACCC in conjunction with its PSTN OTA price, setting out a lower price for the
LCS, which would apply from 1 July 2006. The LCS price reflects our view of the RMRC approach the
ACCC might adopt in determining the LCS price for the period of the undertaking.
In July 2006, the ACCC indicated its draft view that the price of LCS should be A$0.1769 per
call, calculated on an RMRC basis, pending the implementation of a cost based pricing approach.
While this compares well with the price in our proposed undertaking of A$0.0928 per call, the LCS
is usually provided in conjunction with WLR and the ACCC has indicated its draft view that the
price of WLR should be A$23.57 per month residential and A$26.30 per month business, calculated on
an RMRC basis (pending the implementation of a cost based pricing approach) compared with our price
charged of A$27.60 residential and A$31.77 business per month. Rebalancing in this way by reducing
fixed charges and increasing usage charges would be detrimental to us. In September 2006, the ACCC
gave a draft decision rejecting the LCS undertaking.
Optus has notified access disputes to the ACCC in relation to the terms and conditions of
access for the supply by Telstra of LCS and WLR.
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Mobile terminating access service (MTAS)
The ACCC has published pricing principles for MTAS of A$0.15 per minute for calendar 2006 and
A$0.12 per minute for the first six months of 2007. MTAS is an input into the fixed-to-mobile and
mobile-to-mobile services provided by us to our customers. The ACCC has rejected undertakings by
Optus, Vodafone and Hutchison, each of which seek to claim prices in excess of the indicative
prices published by the ACCC (for example, Optus has sought A$0.17 per minute for calendar 2007).
Optus and Vodafone have appealed the ACCCs rejection of their undertakings to the ACT. We have
intervened in these proceedings, and the hearings commenced in August 2006. On 22 November 2006,
the ACT released its decision confirming the ACCCs decision to reject Optus undertaking. A
decision relating to Vodafones undertaking is expected by 21 January 2007.
We are also engaged in arbitrations against Optus, Vodafone and Hutchison, claiming that the
MTAS prices they are seeking to charge for calendar 2006 are too high. Recently, the ACCC issued
draft final decisions broadly consistent with the ACCCs pricing principles.
Transmission capacity
Chime has filed an arbitration against us, claiming our transmission capacity charges are too
high.
Conduct regulation
Competition rule
In addition to the general requirements of trade practices law, a carrier must not engage in
anti-competitive conduct in breach of the competition rule. A carrier may be in breach of the
competition rule if it:
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contravenes general trade practices rules relating to anti-competitive conduct in respect of a
telecommunications market (including the use of market power for an anti-competitive purpose); or |
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has a substantial degree of market power and takes advantage of that power with the effect or
likely effect of substantially lessening competition in any telecommunications market, taking into
account other conduct with such an effect. |
The ACCC can issue a Part A competition notice if it has reason to believe that a carrier has
contravened the competition rule.
The ACCC can also issue a Part B competition notice which will be more detailed than a Part A
notice; and it is the presumptive evidence of the information in it that can be used in court
proceedings against the carrier.
Any person (including competitors) may apply at any time to the Federal Court for an
injunction to restrain a contravention of the competition rule, whether or not a competition notice
has been issued.
A carrier may be liable to pay penalties imposed by the Federal Court of up to A$10 million
plus A$1 million per day of contravention or, if the contravention lasts for more than 21 days, up
to A$31 million plus A$3 million per day (up to a maximum period of one year), and may also be
liable for compensatory damages to affected competitors, if:
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it continues to engage in conduct that is the subject of a competition notice after
the notice comes into effect; and |
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the Federal Court finds that the conduct is in breach of the competition rule. |
In Telstras view, the amount of any penalty imposed by the Federal Court is likely to be
significantly less than the maximums set.
In December 2005, we increased our prices for line access provided to our competitors without
a similar increase in our retail prices, in order to price closer to our average costs of providing
that access. The ACCC appears to allege that these increases left insufficient margin for our
competitors in the retail market even though there is still a profit margin for our competitors in
reselling line rental as a part of a bundled package along with local, long distance and
fixed-to-mobile calls. The ACCC has argued that our conduct is taking advantage of substantial
market power which has or is likely to have the effect of substantially lessening competition in
the retail market, and that therefore we are in breach of the competition rule. On 12 April 2006,
the ACCC issued a competition notice against us to this effect. The ACCC may take us to the Federal
Court for this alleged breach. The maximum potential penalties
120
that the Federal Court could impose exceed A$470 million as at 30 September 2006 and are increasing
at A$3 million per day. Optus Networks Pty Ltd (ACN 008 570 330) has issued proceedings in the
Federal Court which, in part, rely on the competition notice and seek damages, a refund and an
injunction preventing us from charging the increased prices and recovering our costs. We will
vigorously defend these proceedings and any enforcement proceedings which may be brought by the
ACCC, on the basis that we
have not breached the competition rule simply by moving our prices closer to our average cost of
providing access.
We have also claimed that the competition notice should be set aside for uncertainty and that
the ACCC did not accord us procedural fairness by failing to properly consult with us prior to the
issue of the notice. The ACCC argues that it has complied with all of its duties of procedural
fairness and natural justice. If this challenge is successful, the ACCC will still be able to issue
a fresh competition notice but only after proper consultation.
Record-keeping rules
We are required by the ACCC to keep detailed financial statements in respect of several
wholesale and retail services. We must report periodically to the ACCC on imputation testing to
establish the adequacy of the margin, between our wholesale and retail prices as part of the
accounting separation provisions. If there is an inadequate margin the ACCC can investigate to see
if we have breached the competition rule. We are also required to keep detailed records and report
to the ACCC comparing our performance in providing and maintaining basic access and ADSL services
to retail and wholesale customers. Our imputation tests and performance reports are published by
the ACCC.
We estimate that compliance with the ACCC record-keeping rules costs us A$2.3 million per
annum. Most of this expense is associated with accounting separation. To date, there has been no
indication whether this requirement will be removed in light of the introduction of operational
separation.
Operational separation
While the Commonwealth has firmly rejected calls for the Telstra wholesale and resale
businesses to be placed in separate ownership, in September 2005, legislation was passed mandating
the operation of separate retail, wholesale and network business units (operational separation). We
prepared an operational separation plan which was adopted by the Communications Minister in June
2006. In general, the plan covers:
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the requirement to keep various business units separate; |
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measures we have adopted to ensure that the standard of delivery of services and
information to wholesale customers is equivalent to that for retail customers; |
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a price equivalence framework directed towards providing assurance that we are
behaving legitimately in the pricing of particular services; and |
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provisions to ensure that we provide equivalent operational quality, fault detection
and rectification and service activation and provisioning for retail and wholesale
customers of those services. |
We are also required to establish and publish notional contracts between our network services,
wholesale and retail business units as a means of achieving equivalence in operational quality,
fault detection and rectification and service activation and provisioning.
The operational separation provisions place an additional burden on us with numerous
restrictions imposed on the way we run our business. An important risk with operational separation
lies in the power of the Communications Minister to make such variations to our operational
separation plan as could allow the Communications Minister to determine the way we conduct our
business, subject only to the aims and objects of the legislation which are very broad.
Social Policy Regulations
Retail price restrictions
The Communications Minister has set retail price controls on some of our services that apply
until 30 June 2009. These price controls do not apply to our competitors.
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A basket of our line rentals, local, national, international and fixed-to-mobile calls is
subject to an overall price freeze. Up to 30 June 2007, some services are subject to a price cap of
1.5 × CPI, and, between 1 July 2007 and 30 June 2009 our basic line rental products and connection
services may be increased only by the rate of inflation. These caps may limit our ability to
increase line rental charges to recover their full cost and to rebalance our charging between line
rentals and call charges. We are required to offer a basic line rental service to residential and
business customers at the same price throughout Australia. In addition, we must offer a standard
line rental to residential customers, charity customers and schools.
In addition, we are subject to the following regulations:
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The ACCC has powers to monitor and report on our compliance with price controls and
has broad discretion to determine methodologies that specify how the price controls to
which we are subject are to operate. |
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We are not permitted to charge more than A$0.50 (including GST) for a local call from
a public payphone or (in most cases) more than A$0.22 (including GST) for an untimed local
call from any other service. |
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Our price for local calls provided in non- metropolitan areas must not exceed the
price charged by us in metropolitan areas. |
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We cannot charge more than A$0.22 (including GST) for certain calls made to an
Internet service provider using an 0198 access number. |
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We cannot impose or alter a charge for a directory assistance service without
notifying the Communications Minister who may disallow such changes. |
All CSPs must offer untimed calls to residential and charity customers for all local calls and
to business customers for local voice calls.
The extent to which we face facilities or network-based competition varies significantly
across the country. In many areas there is substantial alternative network investment reflecting
higher population densities. We are effectively required to charge the same price for a basic line
rental service for all retail customers across Australia, without what we believe to be adequate
compensation from the universal service obligation regime (see below).
Carrier licences
All carriers must as a condition of their carrier licence comply with the Telecommunications
Act, the Telecommunications (Consumer Protection and Service Standards) Act and their access
obligations under the TPA. The Communications Minister has broad powers to impose further
conditions on any carrier licence. Any breach of a licence condition is subject to a penalty of up
to A$10 million imposed by the Federal Court.
Local presence licence condition
In 2005, the Communications Minister issued a licence condition requiring us to maintain a
local presence in regional, rural and remote Australia, to the extent that this is broadly
compatible with our overall commercial interests and does not impose undue financial or
administrative burdens on us. The licence condition requires us to prepare a plan setting out how
we will fulfil the condition for approval by the Communications Minister. We are required to take
all reasonable steps to comply with our approved plan.
Universal service and digital data service obligations
We have an obligation to fulfil the universal service obligation (USO) and the Digital Data
Service Obligation (DDSO) throughout the whole of Australia. We must ensure that standard voice
services, payphones and a digital data service with a speed broadly equivalent to 64kbps are
reasonably accessible to all people in Australia on an equitable basis, wherever they reside or
carry on business. We must also take
into account the needs of customers with disabilities. We are required to submit plans to ACMA
and the Communications Minister for their approval which set out how we will fulfil the USO and
DDSO throughout Australia.
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Our net losses that result from supplying services under the USO and DDSO are required to be
shared among all carriers according to their size by revenue. The other participating carriers
typically pay around 30% of the net USO cost. The universal service subsidies are determined by the
Communications Minister and historically have been significantly less than our actual costs in
meeting the USO and DDSO and the costs last modelled by ACMA. The last time ACMA undertook a
detailed costing of the USO, it estimated the total USO cost to be A$548 million per annum,
although we estimate the cost to be significantly higher. The capped costs for fiscal 2006 to
fiscal 2008 are A$171.4 million, A$157.7 million and A$145.1 million respectively.
Customer service guarantee (CSG)
ACMA has made mandatory standards for CSPs in relation to the connection and repair of
standard voice telephone services and the keeping of customer appointments. From 31 October 2006,
the damages payable for CSG breach include: up to A$24.20 for a missed appointment and up to
A$24.20 for each working day of delay up to five working days and up to A$48.40 per working day of
delay after that for delayed connection or repair. Damages cannot exceed A$25,000 per customer for
each contravention.
We alone must also comply with a network reliability framework set by the Communications
Minister which imposes obligations for the monitoring, prevention and remedying of CSG faults.
Principal industry regulators
The Communications Minister is primarily responsible for telecommunications industry policy
and legislation and has very broad discretionary powers to make rules and licence conditions and to
give directions, a breach of which is subject to a penalty imposed by the Federal Court of up to
A$10 million.
The ACCC administers the TPA which regulates competition generally and includes specific
provisions governing conduct in the telecommunications industry and mandated access to certain
telecommunications services. The ACCC also administers retail price control arrangements that apply
only to us.
ACMA was formed on 1 July 2005, assuming the functions previously held by the Australian
Communications Authority and the Australian Broadcasting Authority. ACMA is responsible for
regulating the technical aspects of the telecommunications industry. Importantly, ACMA also
administers spectrum use policy and the issuing of spectrum licences, which are of critical
importance to mobile telecommunications.
ACMA may give written directions to carriers and CSPs requiring them to comply with various
provisions of the Telecommunications Act, the Telecommunications (Consumer Protection and Service
Standards) Act and their licence conditions. Breach of such a direction is subject to a penalty
imposed by the Federal Court of up to A$10 million.
The ACCC and ACMA are independent statutory agencies and the ACCC is in general not subject to
ministerial oversight or direction. The Telecommunications Industry Ombudsman is an industry-funded
body established to investigate and resolve retail customer complaints about telecommunications
services and carrier land access disputes. Participation is mandatory for all carriers and most
CSPs.
The industry also self-regulates through codes and standards. An industry body, the Australian
Communications Industry Forum (ACIF), has developed many codes regulating detailed technical and
operational aspects of the telecommunications industry in areas such as billing accuracy, churn,
credit management and customer transfer. On 1 September 2006, ACIF merged with the Service
Providers Association Incorporated (SPAN) and formed the Communications Alliance.
ACMA registers ACIF codes under the Telecommunications Act and has the power to direct
carriers or CSPs in breach of a code to comply. Breach of a direction is subject to a penalty of up
to A$250,000 imposed by the Federal Court.
Offshore subsidiaries
Our international operations are subject to regulation and licensing requirements in Hong
Kong, Japan, Singapore, New Zealand and the United Kingdom. We are also subject to regulation and
licensing requirements by the US Federal Communications Commission and state regulators in the
states of New York, Texas and California.
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Some of these licenses may require notification or approvals from the relevant regulators and
related governmental departments in respect of any change in control resulting from the completion
of the T3 Global Offering and the Commonwealths transfer of its shares in Telstra to the Future
Fund. Some of the consents required in relation to our United States and Singapore regulatory
licenses and related agreements may not be obtained when required, in which case fines and other
penalties may be imposed. There is a risk that these licenses and related arrangements may also be
cancelled. While we do not believe that the relevant businesses make a significant contribution to
our financial results, if one or more of REACHs licenses were cancelled, this could have a
significant effect on the carriage of our international voice and data traffic.
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Directors and Management
Directors
As of 29 November 2006, our directors were as follows:
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Year of Initial |
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Year Last |
Name |
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Age |
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Position |
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Appointment |
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Re-elected(1) |
Donald G McGauchie |
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56 |
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Chairman |
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1998 |
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2005 |
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Sol Trujillo(2) |
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55 |
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Chief Executive Officer |
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2005 |
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2005 |
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Geoffrey Cousins |
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62 |
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Director |
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2006 |
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Belinda J Hutchinson |
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53 |
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Director |
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2001 |
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2004 |
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Catherine B Livingstone |
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51 |
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Director |
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2000 |
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2005 |
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Charles Macek |
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59 |
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Director |
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2001 |
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2006 |
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John W Stocker |
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61 |
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Director |
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1996 |
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2006 |
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Peter J Willcox |
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61 |
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Director |
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2006 |
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John D Zeglis |
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59 |
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Director |
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2006 |
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Other than the CEO, one-third of directors are subject to re-election by rotation each year. |
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Sol Trujillo was appointed Chief Executive Officer 1 July 2005. |
A brief biography for each of the directors and the company secretary as of 29 November 2007, is
presented below:
Donald G McGauchie AO
Mr McGauchie joined Telstra as a non-executive director in September 1998 and was appointed as
chairman in July 2004. He is Chairman of the Nomination Committee and is a member of the
Remuneration Committee.
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Experience: Mr McGauchie has wide commercial experience within the food processing,
commodity trading, finance and telecommunication sectors. He also has extensive public
policy experience, having previously held several high-level advisory positions to the
government including the Prime Ministers Supermarket to Asia Council, the Foreign Affairs
Council and the Trade Policy Advisory Council. |
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Directorships of other listed companies current: Director, James Hardie Industries
NV (since 2003) and Nufarm Limited (since 2003). |
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Directorships of listed companies past three years: Deputy chairman, Ridley
Corporation Limited (1998-2004); director, National Foods Limited (2000-2005) and
Graincorp Limited (1999-2003). |
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Other: Current: director, Reserve Bank of Australia; Partner, C&E McGauchie Terrick
West Estate. Former: President of the National Farmers Federation (1994-1998); Chairman,
Rural Finance Corporation (2003-2004). Awarded the Centenary Medal for service to
Australian society through agriculture and business in 2003. Appointed an officer in the
general division of the Order of Australia in 2004. |
Solomon D Trujillo BSc, BBus, MBA, Hon Doctor of Law Degrees (University of Wyoming, University
of Colorado).
Mr Trujillo joined Telstra as CEO on 1 July 2005.
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Experience: Mr Trujillo has spent his career in the communications sector where he
managed fixed-line, wireless, broadband and directory businesses and served as a leader in
the shift to market-based management. He most recently served as CEO of Orange SA, one of
Europes leading wireless companies. Mr Trujillo was Chairman and CEO of US West until he
retired in July 2000 after the companys merger with Qwest Communications. |
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Directorships of other listed companies current: Target Corporation (since 1994). |
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Directorships of listed companies past three years: Director, Electronic Data
Systems Corporation (EDS) (2005-2005), |
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PepsiCo Inc. (2000-2005), Orange SA (2001-2005) and Gannett Co Inc (2002-2006).
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Other: Current: Member, World Economic Forum (since 2005) and UCLAs School of Public
Affairs (since 2000); Trustee, Boston College; Director, Tomas Rivera Policy Institute
(since 1991). Recipient, the Ronald H. Brown Corporate Bridge Builder Award in 1999 from
President Clinton for his lifetime commitment as an advocate of workplace diversity. |
Geoffrey Cousins
Mr Cousins was elected as a non-executive director of Telstra at the companys annual general
meeting held on 14 November 2006.
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Experience: Mr Cousins has more than 26 years experience as a company director. Mr
Cousins was previously the Chairman of George Patterson Australia and is a former Director
of Publishing and Broadcasting Limited, the Seven Network, Hoyts Cinemas group and NM
Rothschild & Sons Limited. He was the first Chief Executive of Optus Vision and before
that held a number of executive positions at George Patterson, including Chief Executive
of George Patterson Australia. |
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Directorships of other listed companies current: Insurance Australia Group Limited
(since 2000). |
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Directorships of listed companies past three years: Globe International Limited
(2001-2003). |
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Other: Mr Cousins was previously a consultant to the Prime Minster and is a director
of the Cure Cancer Australia Foundation. |
Belinda J Hutchinson BEc, FCA
Ms Hutchinson joined Telstra as a non-executive director in November 2001. She has been a
member of the Audit Committee since February 2005.
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Experience: Ms Hutchinson has had a long association with the banking industry and
has been associated with Macquarie Bank since 1993 where she was an executive director.
She was previously a Vice President of Citibank Ltd. |
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Directorships of other listed companies current: Director, QBE Insurance Group
Limited (since
1997) and Coles-Myer Ltd (since 2005). |
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Directorships of listed companies past three years: Director, TAB Limited
(1997-2004) and Crane Group Limited (1997-2004). |
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Other: Current: Director, St Vincents and Mater Health Sydney Limited (since 2001);
President, Library Council of New South Wales (since 2005) (member since 1997); and
Consultant, Macquarie Bank Limited (since 1997). Former: Director of Energy Australia
Limited (1997-2005). |
Catherine B Livingstone BA (Hons), FCA, FTSE
Ms Livingstone joined Telstra as non-executive director in November 2000. She is a member of
the Audit Committee and the Technology Committee.
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Experience: Ms Livingstone has a degree in accounting and has held several finance
and general management roles predominantly in the medical devices sector. Ms Livingstone
was the Chief Executive of Cochlear Limited (1994-2000). |
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Directorships of other listed companies current: Director, Macquarie Bank Limited
(since 2003). |
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Directorships of listed companies past three years: Director, Goodman Fielder Ltd
(2000-2003) and Rural Press Limited (2000-2003). |
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Other: Current: chairman, CSIRO (2001- ); Member, Business/Industry/Higher Education
Collaboration Committee (BIHECC). |
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Former: Chairman and Director Australian Business Foundation (2000-2005); |
126
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Director, Sydney Institute (1998-2005); former Member, Department of Accounting and Finance
Advisory Board Macquarie University. |
Charles Macek BEc, MAdmin, FAICD, FCPA, FAIM, SF Fin, FCA
Mr Macek joined Telstra as a non-executive director in November 2001. He is a member of the
Audit Committee and Nomination Committee and is Chairman of the Remuneration Committee.
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Experience: Mr Macek has a strong background in economics and has had a long association with
the finance and investment industry. His former roles include 16 years as founding Managing
Director and Chief Investment Officer and subsequently Chairman of County Investment
Management Ltd. |
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Directorships of other listed companies current: Director, Wesfarmers Ltd (since 2001) and
Living Cell Technologies Limited (since 2006). |
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Directorships of listed companies past three years: Chairman and director, IOOF Holdings
Ltd (2002-2003). |
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Other: Current: Chairman, Sustainable Investment Research Institute Pty Ltd (since 2002) and
Financial Reporting Council (FRC) (since 2003); Director, Williamson Community Leadership
Program Limited (since 2004); Victorian councillor, Australian Institute of Company Directors;
Member, New Zealand Accounting Standards Review Board and Investment Committee of Unisuper
Ltd. |
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Former: Chairman, Centre for Eye Research Australia Ltd (1996-2003); director of Famoice
Technology Pty Ltd (2001-2004) and Vertex Capital Pty Ltd (2004-2006). |
John W Stocker AO, MB, BSc, BMedSc, PhD, FRACP, FTSE
Dr Stocker joined Telstra as a non-executive director in October 1996. He is Chairman of the
Audit Committee and Technology Committee.
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Experience: Dr Stocker has had a distinguished career in pharmaceutical research and
extensive experience in management of research and development, and its commercialisation
including in his roles as Chief Executive of CSIRO (1990-1995) and subsequently as chief
scientist for the Commonwealth of Australia (1996-1999). |
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Directorships of other listed companies current: Chairman, Sigma Pharmaceuticals
Ltd (since 2005); director, Circadian Technologies Ltd (since 1996) and Nufarm Limited
(since 1998). |
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Directorships of listed companies past three years: Chairman, Sigma Company Ltd
(1998-2005); director, Cambridge Antibody Technology Group plc (1995-2006). |
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Other: Current: Principal, Foursight Associates Pty Ltd. |
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Former: Chairman, Grape and Wine Research and Development Corporation (1997-2004). |
Peter J Willcox MA, FAICD
Mr Willcox joined Telstra as a non-executive director on 17 May 2006.
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Experience: Mr Willcox holds a masters degree in physics from Cambridge University
and following a 28 year career in the international petroleum industry was appointed as
CEO of BHP Petroleum Limited, from 1986 to 1994. He has wide and diverse experience as a
director and Chairman of Australian and American listed companies. He sits on the advisory
board of CVC Asia Pacific (Australia) Limited. |
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Directorships of other listed companies current: Chairman, Mayne Pharma (since
2005). |
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Directorships of listed companies past three years: Director, AMP Limited (2002-
2005) and Mayne Group Ltd (2002-2005). |
127
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Other: Current: Director, CSIRO (2006- ). |
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|
Former: Director, Energy Developments Ltd (1994-2002), Lend Lease Corporation
(1994-2000); F.H. Faulding & Co Ltd (1996-2001), James Hardie Industries Ltd (1992-2001),
North Ltd (1994-2000), Schroders (Australia) Ltd (1994-1999), BHP Ltd (1988-1994) and
Woodside Petroleum (1986-1993). |
John D Zeglis BSc Finance, JD Law
Mr Zeglis joined Telstra as a non-executive director on 17 May 2006.
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Experience: Mr Zeglis has a legal background, and became partner with the law firm
Sidley & Austin in 1978. His qualifications include a BSc in finance from the University
of Illinois, and a JD in law from Harvard. Mr Zeglis has had a long and distinguished
career in the US telecommunications sector. He joined AT&T in 1984, and was elected as
President of AT&T in 1998 and Chairman and CEO of the AT&T Wireless Group in 1999. He
continued as CEO of AT&T Wireless until retiring in November 2004 following the companys
sale to Cingular Wireless. |
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Directorships of other listed companies current: Director, Helmerich & Payne
Corporation (since 1989). |
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Directorships of listed companies past three years: Director, Georgia Pacific
Corporation (2001-2005). |
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Other: Current: director, AMX Corporation; (since 2005) and State Farm Automobile
Insurance (since 2004). |
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Former: director, Sara Lee Corporation (1998-2000) and Illinois Power Company (1992-1996). |
The following directors resigned or retired during fiscal 2006:
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John E Fletcher resigned as a director on 30 June 2006; |
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John T Ralph retired as a director on 11 August 2005; |
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Anthony J Clark retired as a director on 11 August 2005; and |
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Zygmunt E Switkowski resigned as a director on 1 July 2005. |
Qualifications and experience of our company secretary
Douglas C Gration FCIS, BSc, LLB (Hons), GDip AppFin
Mr Gration was appointed as our company secretary in August 2001. Before joining us, Mr
Gration was a partner in a leading national law firm. He specialised in corporate finance and
securities law, mergers and acquisitions and joint ventures and other commercial contracts, and
played a key role in the T1 and T2 privatisations. Mr Gration also advised on telecommunication
regulatory matters. Other roles previously held in Telstra include deputy group general counsel and
Infrastructure Services and Wholesale General Counsel.
128
Senior executives
As of 29 November 2006, the senior executives who are not directors are:
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Year |
|
Year |
|
|
|
|
Appointed to a |
|
Appointed to |
Name |
|
Position |
|
GMD Position |
|
Telstra |
Bruce Akhurst |
|
Group Managing Director Telstra Media Services & CEO, Sensis |
|
1999 |
|
1996 |
Geoff Booth |
|
Group Managing Director, Telstra Country Wide(R) |
|
2006 |
|
1973 |
Phil Burgess |
|
Group Managing Director, Public Policy & Communications |
|
2005 |
|
2005 |
Andrea Grant |
|
Group Managing Director, Human Resources |
|
2005 |
|
2005 |
Holly Kramer |
|
Group Managing Director, Telstra Product Management |
|
2005 |
|
2000 |
Kate McKenzie |
|
Group Managing Director, Telstra Wholesale |
|
2006 |
|
2004 |
Justin Milne |
|
Group Managing Director, Telstra BigPond(R) |
|
2005 |
|
2002 |
David Moffatt |
|
Group Managing Director, Telstra Consumer Marketing & Channels |
|
2001 |
|
2001 |
Michael Rocca |
|
Group Managing Director, Telstra Services |
|
2002 |
|
1968 |
Deena Shiff |
|
Group Managing Director, Telstra Business |
|
2004 |
|
1998 |
John Stanhope |
|
Group Managing Director, Finance & Administration and Chief Financial Officer |
|
2003 |
|
1967 |
William Stewart |
|
Group Managing Director, Strategic Marketing |
|
2005 |
|
2005 |
David Thodey |
|
Group Managing Director, Telstra Enterprise and Government |
|
2001 |
|
2001 |
Greg Winn |
|
Chief Operations Officer |
|
2005 |
|
2005 |
A brief biography of each of the fourteen Group Managing Directors, including the seven key
management personnel who are not directors, as of 29 November 2006 is as follows:
Bruce J Akhurst LLB, BEc (Hons)
Bruce Akhurst is the Group Managing Director of Telstra Media Services and Chief Executive
Officer of Sensis. Bruce also has management responsibility for our digital media strategy, which
includes our 50% interest investment in FOXTEL. In March 2005, Bruce was appointed Chairman of the
FOXTEL board. Prior to his appointment as CEO of Sensis, Bruce was Group Managing Director, Telstra
Wholesale, BigPond(R) and Media Services and he also headed our Legal and Company Secretariat group
and was Telstras Group General Counsel. Bruce joined Telstra as General Counsel in 1996 and became
Group Managing Director in 1999. Before joining Telstra, he was the Managing Partner at a national
law firm. He has an Economics degree with Honours, as well as his legal qualification.
Geoff Booth
Geoff Booth was appointed Group Managing Director of Telstra Country Wide on 1 January 2006
after a 33-year career with Telstra. He served as a Regional Managing Director of Telstra Country
Wide since its formation in June 2000, with responsibility for whole-of-business performance in
Western Australia, South Australia (for all areas outside Perth and Adelaide) and the Northern
Territory. Before moving to Telstra Country Wide, Geoff was National General Manager Business and
Government Energy and Resources, responsible for the sales force that account-managed Telstras
largest customers in this sector. Prior to this,
Geoff was the State Sales Manger, Business and Government in Western Australia.
Phil Burgess PhD
Phil Burgess was appointed Group Managing Director, Public Policy & Communications on 15
August 2005. Phil has a long record of leadership in public policy and communications with broad
experience as an academic, business executive, media commentator and writer on economic, political
and cultural trends in the US and around the world. Prior to his appointment with Telstra, Phil has
served most recently as President & Chief Executive of the National Academy of Public
Administration in Washington, D.C. Phil also served as President of the Annapolis Institute, a US
think tank established in 1993 to help leaders manage change at every level in both the public
and private sectors. Phil also serves as a Visiting Professor of Policy Studies at UCLAs public
policy school, where he teaches in the graduate program on communications and culture.
129
Andrea Grant B.Ed, DipTch
Andrea Grant was appointed Group Managing Director, Human Resources on 31 October 2005. Andrea
joined Telstra from GM Holden where she was Executive Director, Human Resources, a position she
held since 2001. Before joining GM Holden, Andrea was Human Resources Director of Merck, Sharp &
Dohme (New Zealand) Limited. Andrea began her career in human resources in 1984 and has over twenty
years experience in the field, working in both Australian and global businesses. Andrea holds a
Bachelor of Education Degree and a Post Graduate Diploma in Teaching. In addition she is a graduate
of the London Business Schools Advanced Development Programme.
Holly Kramer BA (Hons), MBA Mktg (Hons)
Holly Kramer is the Group Managing Director, Telstra Product Management. Most recently, Holly
held the role of Managing Director of Products, Wireless & Mobility, where she was accountable for
the development and lifecycle management of Telstras wireless and mobility products and networks.
In her previous position as Chief of Marketing for Telstra Retail, Holly was accountable for the
strategic direction and implementation of marketing plans for the consumer and business markets.
Before joining Telstra, Holly was General Manager of Marketing and Communications at eCorp. Prior
to that, she spent three years as General Manager of Marketing with Ford Australia and five years
in various marketing management positions with Ford Motor Company, USA. Holly has a BA (Hons) from
Yale University and an MBA Mktg (Hons) from Georgetown University. She is Chair of the Australian
Mobile Telecommunications Association (AMTA) and sits on the Boards of mNet Corporation and
TelstraClear Limited.
Kate McKenzie BA, LLB
Kate McKenzie was appointed Group Managing Director, Telstra Wholesale on 16 January 2006.
Kate joined Telstra in August 2004 as head of Telstra Regulatory. Within a year she was promoted to
the role of Deputy Group Managing Director, Public Policy & Communication. Prior to joining
Telstra, Kate was Director General of the NSW Department of Commerce. She previously held positions
as the Director General of the NSW Department of Industrial Relations, General Manager of the
WorkCover Authority of NSW, and Deputy Director General of the NSW Cabinet Office. During her
career, Kate has been involved in the development and implementation of competition policy, energy
reform, corporatisation and privatisation and Commonwealth/State negotiations on a range of complex
policy issues. Kate holds a Bachelor of Arts/Bachelor of Laws from the University of Sydney.
Justin Milne BA
Justin Milne was appointed Group Managing Director of BigPond(R) in December 2005, following
three years as BigPond(R) Managing Director. He is responsible for driving the growth of
BigPonds(R)brand and Telstras Internet content. Under his direction, BigPond(R) has led the
market in developing online content and applications. These efforts have been recognised with
several national awards including the 2005 best ISP award at the Australian Telecom Awards. Prior
to his career at Telstra, Justin was CEO of OzEmail, formerly Telstras biggest ISP competitor, and
Managing Director of the Microsoft Network in Australia. Justin is a former board member and past
president of the Internet Industry Association. He holds a Bachelor of Arts from Flinders
University.
David Moffatt BBus (Mgt), FCPA
David Moffatt was appointed Group Managing Director of the Consumer & Channels on 1 October
2003. The groups activities encompass the provision of the full range of telecommunication
products, services and communication solutions to consumer customers in Australia. The group also
manages the mass market channels including inbound and outbound call centres, Telstra shops and
Telstra dealers. David joined Telstra in February 2001 as Chief Financial Officer and Group
Managing Director, Finance and Administration. Prior to joining Telstra, David was Chief Executive
Officer General Electric, Australia and New Zealand and CEO of GE Capital in Australia and New
Zealand. He joined General Electric in 1991. David is a graduate of Queensland University of
Technology, with a Bachelor of Business (Management).
Michael Rocca MBA, DipEng, FAICD
Michael Rocca is the Group Managing Director for the Telstra Services business unit. Michael
was appointed Group Managing Director in August 2002 an appointment that builds on three decades
of experience in telecommunications over a variety of senior executive roles. Telstra Services
comprises of approximately 17,000 Telstra staff as well as an extensive contract workforce, and is
responsible for the end to end delivery of service to Telstras approximately 11 million customers
over all of Telstras networks,
130
including fixed line, mobile and satellite. Michael holds a Master of Business Administration, a
Diploma of Engineering, as well as a range of qualifications in management. He is also a fellow of
the Australian Institute of Company Directors.
Deena Shiff B.Sc (Econ) Hons; B.A. (Law) Hons
Deena was appointed to the role of Group Managing Director, Telstra Business in January 2006.
Prior to that, Deena held the role of Group Managing Director, Telstra Wholesale. Deena started her
career in telecommunications with the former OTC Ltd in 1989. Deena held a number of positions in
Telstra, including General Manager Corporate Affairs in the International Business Unit. Between
1995 and 1998, Deena was a partner in the Corporate Advisory Section of the law firm Mallesons
Stephen Jaques. Deena rejoined Telstra in 1998 as Director of Regulatory. Deena has held a number
of non-executive directorships in both the telecommunications industry and other sectors. Deena has
a degree from the London School of Economics and a law degree from Cambridge University. She was
admitted to the Bar in London in 1981.
John Stanhope B Com (Economics and Accounting), FCPA, FCA, FAICD, FAIM
John Stanhope was appointed to the role of Chief Financial Officer and Group Managing
Director, Finance & Administration from 1 October 2003. He is responsible for finance, treasury,
risk management and assurance, corporate planning, reporting and analysis, business services,
investor relations and the Office of the Company Secretary. John previously served as Director,
Finance. In this role, which he assumed in 1995, he contributed to T1 and T2, cost reduction
programs, growth strategies, debt raising, capital management and organisational restructures.
Since joining Telstra in 1967, John has held a range of senior financial management positions
including General Manager, Strategy and Finance Special Business Products; General Manager,
Finance and Business Planning Network Products; and Executive General Manager Business Support
Services. In 2003, John was elected as National President to the
Group of 100 for a two year period. He was also appointed as a member of the CPA Australias
Professional Education Board for a three year term and is chairman of the Business Coalition for
Tax Reform. John is a director of Telstra Super, TelstraClear, Sensis Pty Limited and the Telstra
Foundation, and is Chairman of CSL New World Mobility Ltd, 3GIS, and REACH. John was appointed as a
member of the Financial Reporting Council in 2006.
William J Stewart B.Sc (Mathematics & Physics)
Bill Stewart was appointed Group Managing Director of Strategic Marketing in July 2005. Prior
to his appointment at Telstra, Bill was Executive Vice President of Strategic Marketing at Orange
SA, based in London. Bill has over twenty-five years experience in the communications industry,
including positions at Harris Corporation, GTE Corporation and US West. Bill has an excellent
record of achievement in driving customer-focused strategies and world class marketing in the US
and Europe.
David Thodey BA, FAICD
David Thodey joined Telstra in April 2001 as Group Managing Director of Telstra Mobile. He was
appointed to the position of Group Managing Director, Telstra Enterprise and Government in December
2002 and is now responsible for our corporate, government and large business customers. Before
joining Telstra, David was Chief Executive Officer of IBM Australia/New Zealand and previously held
several senior executive marketing and sales positions within IBM. David is the chairman of
TelstraClear in New Zealand, and is also the chairman of the KAZ Group. He holds a Bachelor of Arts
in Anthropology and English from Victoria University in New Zealand. David attended the Kellogg
Post-Graduate School General Management Program at Northwestern University in Chicago.
Greg Winn
Greg Winn was appointed Telstras Chief Operations Officer (COO) on 11 August 2005. His
responsibilities include Telstra Services, Product Management, Billing, Credit Management,
Procurement, Strategic Supplier Relations and Network, Information and Wireless Technologies. Greg
also manages the cross company Program Office, and serves as a director of FOXTEL. Greg Winn has
more than 30 years experience in the telecommunications industry, with more than ten years
experience as a senior operations officer. Prior to joining Telstra, Greg served as Executive Vice
President, Operations and Technologies at US West, where he established and led major initiatives
to increase productivity through process and technology improvements. Greg held positions in
network services, corporate finance, small business services, product management, marketing and
sales. Greg attended Arizona State University.
For a full discussion of the remuneration and benefits we paid our directors and officers, who
are our key management personnel, see Directors and Management Remuneration.
131
Directors and senior executives shareholdings in Telstra
As at 29 November 2006, the directors and key management personnels shareholdings in Telstra
are:
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares/IRs Held |
|
|
Direct Interest |
|
Indirect Interest(1) |
|
Total |
Donald G McGauchie |
|
|
29,666 |
|
|
|
71,278 |
|
|
|
100,944 |
|
Sol Trujillo |
|
|
250,000 |
|
|
|
|
|
|
|
250,000 |
|
Geoffrey Cousins |
|
|
|
|
|
|
|
|
|
|
|
|
Belinda J Hutchinson |
|
|
38,912 |
|
|
|
195,426 |
|
|
|
234,338 |
|
Catherine B Livingstone |
|
|
21,637 |
|
|
|
37,800 |
|
|
|
59,437 |
|
Charles Macek |
|
|
|
|
|
|
103,704 |
|
|
|
103,704 |
|
John W Stocker |
|
|
2,953 |
|
|
|
124,135 |
|
|
|
127,088 |
|
Peter J Willcox |
|
|
|
|
|
|
44,397 |
|
|
|
44,397 |
|
John D Zeglis |
|
|
16,500 |
|
|
|
1,897 |
|
|
|
18,397 |
|
|
|
|
(1) |
|
Shares in which the director does not have a relevant interest, including shares held by
director related entities, are excluded from indirect interests. |
Key Management Personnel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares/IRs Held |
|
|
Direct Interest |
|
Indirect Interest(1) |
|
Total |
Bruce Akhurst |
|
|
4,880 |
|
|
|
17,000 |
|
|
|
21,880 |
|
Kate McKenzie |
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
364,722 |
|
|
|
|
|
|
|
364,722 |
|
Deena Shiff |
|
|
5,680 |
|
|
|
|
|
|
|
5,680 |
|
John Stanhope |
|
|
121,674 |
|
|
|
|
|
|
|
121,674 |
|
David Thodey |
|
|
173,604 |
|
|
|
800 |
|
|
|
174,404 |
|
Greg Winn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares in which the director does not have a relevant interest, including shares held by
director related entities, are excluded from indirect interests. |
Remuneration
Refer to the Remuneration Report filed as part of this Form 20-F.
Corporate Governance and Board Practices
The Telstra Board is committed to best practice in the area of corporate governance. Our main
corporate governance and board practices in place during fiscal 2006 are described in this section
and, where appropriate, elsewhere in the Form 20-F, as indicated.
We regularly review and update our corporate governance practices. The Board evaluates and,
where appropriate, implements relevant proposals with the aim of ensuring that we maintain best
practice in corporate governance, having regard to developments in market practice as well as new
corporate governance requirements and guidance notes issued by the ASX.
We comply with the ASX Corporate Governance Councils Principles of Good Corporate Governance
and Best Practice Recommendations released in March 2003.
132
The Board of Directors
Role and responsibilities of the Board
The directors are accountable to shareholders for managing the business of the Company and the
Board is responsible to shareholders for our overall strategy, governance and performance. The
Boards role
includes:
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determining the corporate objective which is the foundation for all the actions and
decisions of the Board and management; |
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providing strategic direction to Telstra by approving the corporate strategy and
associated performance objectives, monitoring developments and approving any variations; |
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approving significant business decisions; |
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approving the annual corporate plan; |
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overseeing the review and update of corporate governance practices and procedures as
necessary to support its commitment to best practice corporate governance in Australia and
globally; |
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appointing, assessing the performance of and determining the remuneration of the CEO,
overseeing the performance of senior management and reviewing management succession plans
and senior management remuneration arrangements; |
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overseeing shareholder reporting and communications; |
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requiring appropriate compliance frameworks and controls to be in place and operating
effectively; |
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monitoring the integrity of internal control and reporting systems and monitoring
strategic risk management systems; |
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reviewing and approving our statutory accounts and overseeing our financial position;
and |
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|
approving decisions concerning our capital, including capital restructures and share
buy-backs, and determining our dividend policy. |
The Board has adopted a charter that details the role and responsibilities of the Board and its
members.
The Board has delegated responsibility for day-to-day management of Telstra to the CEO and has
put a formal delegations structure in place which sets out the powers delegated to the CEO and
those specifically retained by the Board.
Board membership, size and composition
Our constitution provides for a minimum of three directors. The maximum number of directors is
to be fixed by the directors, but may not be more than 13 unless Telstra in general meeting
resolves otherwise. The directors must not determine a maximum which is less than the number of
directors in office at the time the determination takes effect. We currently have nine directors on
the Board.
The directors may appoint an individual to be a director, either as an addition to the
existing directors or to fill a casual vacancy up to the maximum number of directors. Any new
director appointed by the Board is subject to election at the next annual general meeting following
his or her appointment.
The
tenure of the CEO as a director is linked to his executive office. Under our constitution,
no other director may hold office for more than three years or beyond the third annual general
meeting following the directors appointment (whichever is the
later) without re-election. We must hold an election of directors
each year. If no director would otherwise be required to
submit for election or re-election, the director to retire at the annual general meeting is the
director who has been longest in office since their last election or appointment (decided by lot as
between directors who were last elected or appointed on the same day).
133
Prior to each annual general meeting, the Board will determine if the Board will recommend to
the shareholders that they vote in favour of the re-election of the directors due to stand for
re-election, having regard to those directors annual performance reviews and any other matters it
considers relevant.
The Nomination Committee may negotiate the retirement or resignation of individual directors
after consultation with the Board. However, the Boards general policy on Board membership for
non-executive directors is that, in general, directors are encouraged to retire at 72 years of age
and the maximum tenure is 12 years (usually four terms of three years).
A brief biography for each director setting out their experience and expertise, together with
details of the year of initial appointment and re-election (where applicable) of each director, is
outlined in Directors and Management Directors.
Role of the chairman
The chairman is an independent director and is appointed by the Board. The chairmans
principal responsibilities are to ensure that the Board fulfils its obligations under the Board
Charter and as required under the relevant legislation and to provide appropriate leadership to the
Board and Telstra. The chairman also has specific responsibilities which include:
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representing the views of the Board to all shareholders and maintaining appropriate
ongoing contact with major shareholders to ensure the Board understands their views; |
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establishing the timetable and working with the CEO and company secretary to agree
the agenda for Board meetings; |
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chairing Board meetings and shareholder meetings; |
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facilitating Board discussions with the aim of ensuring that: |
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|
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the discussions are conducted in an open and professional manner where directors are
encouraged to express their views, leading to objective, robust analysis and debate; and |
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the core issues facing us are addressed; |
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working with the CEO to ensure that the CEO provides the Board with the information
it requires to contribute effectively to the Board decision making process and to monitor
the effective implementation of Board decisions; |
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guiding and promoting the on-going effectiveness and development of the Board and
individual directors; and |
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ensuring that the meetings of shareholders are conducted in an open and proper manner
with appropriate opportunity to ask questions. |
Director Independence
It
is the Boards current policy that the CEO is the only executive director. It is also the
Boards current intention that the non-executive directors are also independent directors as
defined in the Board Charter. With the exception of the CEO, all directors are non-executive
directors. With the exception of Mr. Geoffrey Cousins who only
recently joined the Board on 14 November 2006, each non-executive
director is considered by the Board to be independent. The Board has
not yet assessed Mr. Cousins' independence.
Generally speaking, an independent director is a director who is independent of management and
free of any interest and business or other relationship that could, or could reasonably be
perceived to, materially interfere with the exercise of the directors unfettered and independent
judgment, and ability to act in our best interests.
The Board, at least annually, assesses the independence of each director. In assessing each
directors independence, the Board considers the effect of a directors business and other
relationships and interests from both our perspective and that of the director and has regard to a
specific set of criteria set out in the Board Charter. These criteria are consistent with the
definition of independence set out in the best practice recommendations of the ASX Corporate
Governance Council and the requirements of the NYSE. Materiality is assessed on a case-by-case
basis from both our perspective and that of the relevant director and having regard to the
directors individual circumstances.
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Meetings of the Board
The Board meets for both scheduled meetings and on other occasions to deal with specific
matters that require attention between scheduled meetings. The regular business of the Board
includes strategic matters, governance, oversight, senior executive appointments, performance and
remuneration, financial matters, risk management, compliance, and relationships with stakeholders
including the Commonwealth. The
Board also liaises with senior management as required and may consult with other Telstra
employees and advisers and seek additional information.
Performance Evaluation
The Board regularly reviews its performance (including its performance against the
requirements of the Board Charter), the performance of individual committees and the performance of
individual directors. In fiscal 2006, the Board engaged an external consultant to facilitate this
review.
As noted earlier, the Board makes recommendations to shareholders regarding the re-election of
directors having regard to the outcome of such reviews.
Declaration of Interests
Directors are required to take all reasonable steps to avoid actual, potential or perceived
conflicts of interest.
The Corporations Act, our constitution and the Board Charter require directors to disclose any
conflicts of interest and, in certain circumstances, to abstain from participating in any
discussion or voting on matters in which they have a material personal interest. A director who
believes he or she may have ceased to be independent, or who believes that he or she may have a
conflict of interest or material personal interest in a matter, is required to disclose the matter
in accordance with the relevant Corporations Act and constitutional requirements and follow the
procedures developed by the Board to deal with such circumstances.
Board access to management and independent professional advice
Directors have complete access to our senior management through the chairman, CEO or company
secretary at any time. In addition to regular presentations by senior management to Board and Board
committee meetings, directors may seek briefings from senior management on specific matters.
The Board has the authority to conduct or direct any investigation required to fulfil its
responsibilities and has the ability to retain, at our expense, such legal, accounting or other
advisers, consultants or experts as it considers necessary from time to time in the performance of
its duties. Further, each director has the right to seek independent professional advice at our
expense, subject to the prior approval of the chairman. All committees of the Board have access to
independent professional advice on this basis.
Committees of the Board
The Board committees assist the Board in the discharge of its responsibilities. The role of
Board committees is to advise and make recommendations to the Board. There are four standing
committees:
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Audit Committee; |
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Nomination Committee; |
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Remuneration Committee; and |
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Technology Committee. |
Details of the members of the Board committees during fiscal 2006 and their qualifications,
committee meetings held in fiscal 2006 and the attendance of each committee member are set out in
the Directors report included in this Form 20-F. Following each committee meeting, the Board
receives a report from the committee on its activities.
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Each committee operates in accordance with a written charter approved by the Board. The Board
appoints the members and the chairman of each committee. Membership of the Audit, Nomination and
Remuneration Committees is confined to directors who are determined by the Board to be independent
as defined in the Board Charter.
The role, function, charter, performance and membership of each committee are reviewed on an
annual basis as part of the Boards evaluation process. Each committee:
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undertakes an annual assessment of its performance against the requirements of its
charter and provides that information to the Board; and |
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reviews and assesses the adequacy of its charter annually, discusses any required
changes with the Board and ensures any revisions to the charter are approved by the Board. |
In accordance with its policy of regular review, revisions to the charters for the Board and
each committee were approved by the Board in June 2006.
Audit Committee
Role and responsibilities of the Audit Committee
The Audit Committee is a committee of the Board established to:
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assist the Board in discharging its responsibilities by monitoring and advising on: |
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financial reporting including: |
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the integrity, truth and fairness of the view given by our
consolidated financial statements; |
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the integrity of our financial systems and processes; and |
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the appropriateness of our accounting policies and practices and
consistency with current and emerging accounting standards; |
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our overall risk management process and the management of specific risk areas as
directed by the Board; |
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the effectiveness and operation of our internal controls over financial operations
and reporting; |
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the effectiveness and operation of other aspects of our internal control environment
as it sees fit; |
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compliance with legal and regulatory requirements and company policies; |
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the external audit including the external auditors qualifications, scope,
independence and performance and the non-audit services disclosures to be made in our
annual report including the reasons for being satisfied that the auditors independence
was not compromised by the provision of these services; |
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the objectivity and performance of the internal audit function; and |
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the structure and operation of our corporate governance framework and related disclosures; |
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provide a forum for communication between the Board, management and both the internal
and external auditors; and |
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provide a conduit to the Board for external advice on audit, risk management and
compliance matters. |
The Audit Committee approves the provision of recurring audit services as part of the annual
approval of the audit plan. Additional audit and non-audit services are pre-approved by the Audit
Committee provided they fall within a defined list of services specified by the Audit Committee.
Those additional audit and non-audit services that are not listed have to be specifically approved
by the Audit
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Committee prior to the commencement of any engagement. In addition, all non-audit services with a
value over A$100,000 must be separately approved by the Audit Committee, even if the service is
listed as a pre-approved service.
Composition and membership of the Audit Committee
It is Board policy that the Audit Committee is comprised of at least three Board members, all
of whom are independent as defined in the Board Charter and who will not, other than in his or her
capacity as a member of the Board, Audit Committee or any other Board committee:
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accept directly or indirectly any consulting, advisory or other compensatory fee from
us or any of our subsidiaries or any Board committee; or |
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be an affiliated person of us or any of our subsidiaries. |
Each member is required to:
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be financially literate (i.e.; able to read and understand financial statements) and
have sufficient financial knowledge to allow them to discharge their duties and actively
challenge information presented by management, internal and external auditors; |
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have a reasonable knowledge of us, the industries in which we operate and our risks
and controls; and |
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have the capacity to devote the required time and attention to prepare for and attend
committee meetings. |
In addition, the chairman of the Audit Committee must not be the chairman of the Board and no
director may serve as a member of the Audit Committee if that director serves on the audit
committee of more than two other public companies.
The Board has determined that Charles Macek is an audit committee financial expert. The
Board has also determined that Mr Macek is independent under Rule 10A-3 promulgated by the SEC
under the Securities Exchange Act of 1934. Although the Board has determined that this individual
has the requisite attributes defined under the rules of the SEC, his responsibilities are the same
as those of the other Audit Committee members. He is not an auditor or an accountant of Telstra,
does not perform field work for Telstra and is not a full-time employee of Telstra. The SEC has
determined that an audit committee member who is designated as an audit committee financial expert
will not be deemed to be an expert for any purpose as a result of being identified as an audit
committee financial expert. The Audit Committee is responsible for oversight of management in the
preparation of Telstras financial statements and financial disclosures. The Audit Committee
relies on the information provided by management, the Auditor-General of Australia and the
external auditor.
Meetings of the Audit Committee
Scheduled Audit Committee meetings are held on a regular basis, as determined annually in
advance by the Board, scheduled to correspond with our financial reporting cycle. Additional
meetings are also held as required.
Other members of the Board are entitled to attend Audit Committee meetings and the Audit
Committee may ask management, the external auditors and/or others to attend meetings and provide
such input and advice as required. The Audit Committee regularly meets with the internal auditor
and the external auditors in the absence of management.
Relationship with external auditor
During fiscal 2006 it was a legislative requirement that the Auditor-General of Australia be
our auditor for the purposes of the Australian Corporations Act. The Auditor-General appointed an
agent, Ernst & Young, to assist in performing independent external audit duties.
Following the sale by the Commonwealth of its shares in Telstra in the T3 Global Offering in
November 2006, the Auditor-General has resigned as our auditor. Telstra has appointed Ernst & Young
as auditor for Australian Corporations Act purposes subject to confirmation at our 2007 Annual
General Meeting.. The following sections describe the arrangements in place with the
Auditor-General and Ernst & Young as they applied during fiscal 2006.
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The Audit Committee has the authority and responsibility to select, evaluate and, where
appropriate, replace the external auditor for filings outside of Australia. Through the Audit
Committee, we have
appointed Ernst & Young as our external auditor for filings outside Australia and in this
respect and for the purposes of these audits, Ernst & Young is responsible for financial reporting
purposes rather than the Auditor-General.
The Auditor-General, as our auditor, owes duties to us and our shareholders as a whole. The
Auditor-General also owes statutory duties as an independent officer of the Commonwealth. Ernst &
Young, as the external auditor appointed by us for filings outside Australia, is accountable to the
Board, the Audit Committee and shareholders.
Restrictions on performance of non-audit services and auditor independence
The Audit Committee approves the provision of recurring audit services as part of the annual
approval of the audit plan. Additional audit and non-audit services are pre-approved by the Audit
Committee provided they fall within a defined list of services specified by the Audit Committee.
Those additional audit and non-audit services that are not listed have to be specifically approved
by the Audit Committee prior to the commencement of any engagement. In addition, all non-audit
services with a value over A$100,000 must be separately approved by the Audit Committee, even if
the service is listed as a pre-approved service. The Auditor-General does not provide non-audit
services. Ernst & Young does provide non-audit services, but is specifically prohibited from
performing any of the following services: (i) bookkeeping services and other services related to
preparing Telstras accounting records or financial statements, (ii) financial information system
design and implementation services, (iii) appraisal or valuation services, fairness opinions, or
contribution in kind reports, (iv) actuarial services, (v) internal audit services, (vi) management
function or human resources, (vii) broker or dealer, investment adviser, or investment banking
services, (viii) taxation advice of a strategic or tax planning nature and (ix) legal services or
expert services unrelated to the audit.
In addition, Ernst & Young may only provide non-audit services if the performance of the
non-audit service will not cause the total annual revenue to Ernst & Young from non-audit work to
exceed the aggregate annual amount of Ernst & Youngs audit fees. The Audit Committee will not
approve the provision of a non-audit service by Ernst & Young if the provision of the service would
compromise Ernst & Youngs independence. The provision of non-audit services by Ernst & Young is
monitored by the Audit Committee via bi-annual reports to the Audit Committee. In addition, where
engagements involve services from the defined list of services, these are reported to the Audit
Committee at the following meeting. The Audit Committee expects the Auditor-General and requires
Ernst & Young to submit annually to the Audit Committee a formal written report delineating all
relationships between the Auditor-General, Ernst & Young and the Telstra Group. This includes: (i)
a listing of all audit and non-audit fees billed by the Auditor General and Ernst & Young in the
most recent fiscal year, (ii) a statement on whether the Auditor General and Ernst & Young are
satisfied that the provision of the audit and any non-audit services is compatible with auditor
independence and (iii) a statement regarding the Auditor Generals and Ernst & Youngs internal
quality control procedures.
The Audit Committee submits annually to the Board a formal written report detailing the nature
and amount of any non-audit services rendered by Ernst & Young during the most recent fiscal year
and an explanation of why the provision of these non-audit services is compatible with auditor
independence. If applicable, the Audit Committee recommends that the Board take appropriate action
in response to the Audit Committees report to satisfy itself of Ernst & Youngs independence.
Details of amounts paid or payable to the auditor for non-audit services provided during the year
are located in note 8 to our consolidated financial statements.
External Auditor Rotation
As noted above, until recently it was a legislative requirement that the Auditor-General be
our auditor for the purposes of the Australian Corporations Act, As a result, the Auditor-General
was not subject to rotation. During fiscal 2004 we, together with the Auditor-General, conducted a
tender process in respect of our audit requirements and Ernst & Young was reappointed as the
Auditor-Generals sub-contractor to assist the Auditor-General with our audit functions in
Australia and as our auditor for our US and other overseas auditing requirements. It is our policy
that a competitive tender for audit services is conducted
every three to five years. The last rotation of the lead audit partner of our audit also
occurred in fiscal 2004.
External Auditors Attendance at Annual General Meeting
Our external auditors attend our annual general meeting and are available to answer
shareholder questions about the conduct of our audit and the preparation and content of the
auditors report.
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Audit Committee Processes
The Audit Committee:
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at least annually meets separately with our external auditors to discuss any matters
that the Audit Committee or our auditors believe should be discussed privately; |
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reviews the Directors report section of our annual report and considers whether the
information is clearly understood and consistent with the Audit Committees knowledge
about us and our operations. In addition, prior to release, the Audit Committee reviews
key elements of other related regulatory filings and discusses them with the external
auditors as appropriate; and |
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reviews the interim and annual consolidated financial statements and preliminary
announcements and discusses them with the external auditors prior to their release to
determine whether they are complete, reflect appropriate accounting principles, contain
appropriate disclosures and are consistent with the information known to the Audit
Committee. |
Nomination Committee
Role and responsibilities of the Nomination Committee
The Nomination Committee is a committee of the Board established to assist the Board in
discharging its responsibilities by monitoring and advising on:
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composition and performance of the Board; |
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director independence; and |
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appointment of the CEO. |
Composition and membership of the Nomination Committee
It is Board policy that the Nomination Committee is comprised of at least three Board members
including the chairman of the Board, all of whom are independent as defined in the Board Charter.
Each member is expected to:
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have a reasonable knowledge of us and the industries in which we operate; and |
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have the capacity to devote the required time and attention to prepare for and attend
committee meetings. |
Meetings of the Nomination Committee
Meetings are held on a regular basis, as determined annually in advance by the Board.
Additional meetings are also held as required.
Other members of the Board are entitled to attend Nomination Committee meetings and the
Nomination Committee may invite other people including any of our employees to its meetings, as it
deems necessary. However, if a person has a material personal interest in a matter that is being
considered at a meeting, he/she must not be present for consideration of that matter.
Remuneration Committee
Role and responsibilities of the Remuneration Committee
The Remuneration Committee is a committee of the Board established to assist the Board in
discharging its responsibilities by monitoring and advising on:
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remuneration of the Board; |
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performance and remuneration of the CEO; |
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performance and remuneration of senior management; |
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remuneration strategies, practices and disclosures generally; and |
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employee share and option plans. |
The Committee also exercises the administrative powers delegated to it by the Board under our
share option plans and, in certain circumstances, makes offers to employees under those plans.
Composition and membership of the Remuneration Committee
It is Board policy that the Committee is comprised of at least three Board members including
the chairman of the Board, all of whom are independent as defined in the Board Charter.
Each member is expected to:
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be familiar with the current legal and regulatory disclosure requirements in relation
to remuneration; |
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have adequate knowledge of executive remuneration issues, including executive
retention and termination policies, and short-term and long-term incentive arrangements; |
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have a reasonable knowledge of us and the industries in which we operate; and |
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have the capacity to devote the required time and attention to prepare for and attend
committee meetings. |
Meetings of the Remuneration Committee
Meetings are held on a regular basis, as determined annually in advance by the Board,
scheduled to correspond with our remuneration review and reporting cycle. Additional meetings are
also held as required.
Other members of the Board are entitled to attend Remuneration Committee meetings and the
Remuneration Committee may invite other people including any of our employees to its meetings, as
it deems necessary. However, if a person has a material personal interest in a matter that is being
considered at a meeting, he/she must not be present for consideration of that matter.
Our Remuneration Framework
Information in relation to our remuneration framework (including information regarding our
remuneration strategy and policies and their relationship to our performance), together with
details of the remuneration paid to Board members and senior executives who were our key management
personnel during fiscal 2006, can be found in Directors and Management Remuneration.
Each year, the Board reviews our CEOs performance against agreed measures and considers the
CEOs compensation and entitlement to performance based remuneration. Each year, the CEO undertakes
a similar exercise in relation to senior management. The results of the CEOs annual performance
review of senior management are considered by the Board.
Technology Committee
The Technology Committee is a committee of the Board established as a forum for the Board to
review
technology developments relevant to us and the industries in which we operate in greater
detail than is possible at Board meetings. The Committees purpose is educative only.
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Risk oversight and management
We are committed to the management of risks throughout our operations. The role of the Board
includes monitoring the integrity of internal control and reporting systems and monitoring the
effectiveness of our management of strategic, financial, operational and compliance risks. The
Audit Committee provides advice to the Board on the status of our business risks. The Audit
Committee relies on the work undertaken by the risk management and assurance function, which
independently assesses the adequacy and operating effectiveness of the controls in place
surrounding the management of risk.
Primary responsibility for risk oversight and management lies with our management, who
periodically review and update their significant business risks. The risk management and assurance
function also plays a key role in this process by developing, promoting and transferring a common
language and approach to the business units. This enables management to proactively identify,
manage and control their risks. The Audit Committee regularly receives reports independently
prepared by the risk management and assurance function on significant business risks with an
evaluation as to the adequacy and effective operation of controls that are in place surrounding the
strategies applied by business units to manage these risks.
The financial risk arising from our underlying business activities is largely managed through
a central treasury function which applies a prudential approach. The central treasury function
manages the liquidity, cash flow, foreign exchange, interest rate, borrowing and other financial
terms and conditions, financial support arrangements, counterparty credit risk and derivatives. The
treasury functions principal objectives are to minimise the volatility of economic and financial
outcomes and to establish sound operational controls.
We use insurance to transfer significant risk exposures arising in the key areas of property,
public and product liability, and directors and officers liability and this is also managed on a
group basis through the central treasury function. In view of our size, we accept substantial
excess levels and do not insure for risks that we can readily accommodate. Some risks cannot be
effectively insured such as potential claims in relation to electromagnetic energy and business
interruption.
Evaluation of disclosure controls and procedures
We have established:
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a Management Certifications Committee that reports to the CFO and, through him, to
the CEO; and |
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a Continuous Disclosure Committee that makes recommendations on our periodic
disclosures to the CEO and CFO who have ultimate responsibility for those disclosures. |
These committees are comprised of members of senior management and together have responsibility for
considering the materiality of information and making recommendations to the CEO and CFO on our
disclosure obligations on a timely basis.
In fiscal 2006, these committees adopted detailed and documented procedures for reviewing and
evaluating our disclosure controls and procedures and on a regular basis briefed and obtained the
input of the CFO and, through him, the CEO on progress and issues arising from these procedures. In
addition, regular reports on these procedures and relevant findings were provided to the Audit
Committee. The design and operation of these procedures was reviewed and assessed by our internal
audit function, and as part of the due diligence procedures for the T3 Global Offering or other
means involving external third party experts as appropriate.
Our management, including the CEO and CFO, have reviewed and evaluated the effectiveness of our
disclosure controls and procedures as of the end of fiscal 2006. Based on that review and
evaluation, the
CEO and CFO have concluded that our disclosure controls and procedures are effective in providing
them with all material information required to be disclosed in accordance with the US Securities
Exchange Act of 1934, on a timely basis.
Changes in internal controls over financial reporting
There have been no changes in our internal control over financial reporting during the period
covered by this Form 20-F that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting, other than that in the course of their review of
disclosure controls and procedures outlined above, the CEO & CFO noted that, in response to the
implementation of A-IFRS, changes were made in relation to the internal controls over financial
reporting for Treasury transactions with the introduction of monthly and quarterly IFRS
reconciliations, quarterly valuation of borrowings based on market yields, and quarterly
effectiveness testing.
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Telstra Values, Telstra Business Principles and company policies
We provide guidance to our directors, senior management and employees on the practices,
principles and standards of corporate and personal behaviour required of all of our officers and
employees in performing their daily business activities through our Company Values, the Telstra
Business Principles and our company policies (including our Code of Conduct). The Telstra Business
Principles, the Code of Conduct and other company policies reinforce the standards of appropriate
business and ethical behaviour we expect from all employees. We have a mandatory training program
for all employees to reinforce these standards.
Our Code of Conduct and guidelines for expected behaviour are available on our website at
www.telstra.com.au/abouttelstra/investor/docs/pers_responsibility.pdf
Whistleblower policy and service
We have in place a whistleblower policy and confidential whistleblower service which provides
our staff with an avenue to raise concerns they might have with behaviour that is potentially
illegal, improper or unethical. The whistleblowing process is supported by an independent service
provider who specialises in receiving sensitive reports or disclosures. All reports or disclosures
are treated as confidential and reports can be made anonymously. Reports are referred to our Ethics
Committee, the management committee which oversees the investigation and implementation of any
recommendations considered appropriate. In addition to generally supporting our ethical
foundations, the Ethics Committee charter confirms that part of its role is to oversee our
whistleblowing policy and process. Our whistleblowing policy reflects the Telstra Values of
Accountability, Integrity, and Leadership, supports our Code of Conduct and complements existing
management structures and functions.
Share trading
We have in place a share trading policy that prohibits directors, the CEO, senior management
and certain other employees (and their associates) from engaging in short-term trading of our
securities (including the acquisition of derivatives and financial and other products issued or
created over our shares by us or any third party). This policy also restricts the buying or selling
of our securities to three window periods (between 24 hours and 1 month following the release of
our annual results, the release of our half-yearly results and the close of our annual general
meeting) and at such other times as the Board permits. Trading during these window periods is
subject to the overriding requirement that buying or selling of our securities is not permitted at
any time by any person who possesses price-sensitive information which is not generally available
in relation to those securities.
In addition, directors, the CEO, senior management and relevant employees must notify the
company secretary before they or their close relatives buy or sell our securities. Changes to the
interests of directors in our securities are, as required by law, notified to the ASX.
Our share trading policy also prohibits our directors, the CEO, senior management, other
employees and
contractors from buying or selling securities of other companies (including shares,
derivatives and financial and other products issued or created over those securities by us or any
third party) when in possession of price-sensitive information relating to that other company which
is not generally available. This is so if the information is price-sensitive to the other company
(and not generally available), even though it may not be price-sensitive information to us.
Further, directors, the CEO, senior management and relevant employees are also restricted from
entering into arrangements which effectively operate to limit the economic risk of their security
holdings in shares allocated under our share plans during the period the shares are held in trust.
Market disclosure
We have established procedures intended to ensure that we comply with our market disclosure
obligations. In particular, we have in place a comprehensive continuous disclosure procedure which
is reviewed and updated on a regular basis. The aim of this procedure is to ensure that we release
price-sensitive information in a timely fashion to the various stock exchanges on which our shares
and debt securities are listed.
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Our procedure provides that:
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ultimate management responsibility for continuous disclosure rests with the CEO and
the Chief Financial Officer (CFO); |
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the responsibilities of the Continuous Disclosure Committee (the Committee), which
is chaired by the company secretary, include: |
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ensuring that there is an adequate system in place for the disclosure of all material
information to the ASX; |
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advising the CEO and the CFO in relation to the disclosure of information reported to
the Committee; |
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the Committees membership includes the company secretary, a representative of Public
Policy & Communications, the General Counsel Finance & Administration, a representative
from Finance & Administration and the General Manager Investor Relations or their
delegates; |
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senior management (including Group Managing Directors other than the CFO and their
direct reports, all financial controllers and certain legal and regulatory counsel) must
immediately inform the Committee of any potentially price-sensitive information or
proposal as soon as they become aware of it; |
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in cases where material information has originated in the office of the CEO or the
CFO or has been reported directly to them, the CEO or CFO may, in his or her discretion,
seek the advice of, or a recommendation from, the Committee in deciding whether to make or
approve an ASX announcement in relation to that material information; |
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if the matter is disclosable, an announcement is prepared and immediately sent via
the company secretarys office electronically to all relevant stock exchanges. |
We implement several practices internally to reinforce the importance of our continuous
disclosure obligations and the need to keep the Committee informed about potentially disclosable
matters. These practices are reviewed regularly and include the following:
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every director is made aware of our continuous disclosure obligations upon taking
office and each member of senior management undertakes training with the General Counsel
Finance and Administration, in relation to our continuous disclosure obligations; |
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a weekly email is sent to all senior management reminding them to notify the
Committee immediately if they become aware of any potentially price-sensitive information
or proposals; |
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the Committee maintains a list of issues which, although not yet disclosable, are
monitored in case they become disclosable; |
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all proposed media releases and external speeches and presentations to be made by
senior management are reviewed by internal legal counsel to determine whether they should
be disclosed; |
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a specific information paper is prepared for each Board meeting summarising ASX
announcements and details of significant matters considered by the Committee but judged
not to be disclosable; and |
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the Office of the Company Secretary maintains a record of all market announcements
made. The announcements are also posted on our website after market release is confirmed. |
We also have in place an investor relations policy governing communications and the provision
of information to external parties, including shareholders, brokers and analysts. The aim of this
policy is to ensure that we provide investors and the financial community with appropriate and
timely information while at the same time ensuring that we fulfil our statutory reporting
obligations under the Corporations Act and the ASX Listing Rules.
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Compliance with NYSE requirements
The NYSE has corporate governance requirements for companies listed on the NYSE. The NYSE has
granted foreign private issuers such as Telstra a home country exemption from most of these
requirements. We are, however, required to provide a brief description of the material differences
between our corporate governance practices and the NYSE corporate governance requirements. These
differences are described below.
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Corporate Governance Committee
Under the NYSE listing rules, each listed company must have a nominating/corporate governance
committee with a written charter that requires the committee to, among other matters, develop and
recommend to the board of directors a set of corporate governance principles applicable to us. We
have determined that this function is best served by the Board of directors as a whole supported by
our Audit Committee, rather than our Nomination or Remuneration Committees. Accordingly, our
Nomination and Remuneration Committees charters do not require the Committees to perform this
function.
Equity Compensation Plans
Under the NYSE listing rules, each listed company must give its shareholders the opportunity
to vote on the adoption of, or material revisions to, equity compensation plans. Under the ASX
Listing Rules, shareholders are only provided with the opportunity to vote on new equity
compensation plans or material revisions to existing equity compensation plans in limited
circumstances, including an issue of shares under an employee incentive scheme to a director. In
accordance with the home country exemption, we only seek shareholder approval in relation to equity
compensation plans in the circumstances required under Australian law.
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Exchange Controls and Foreign Ownership
Absence of exchange controls
The consent of the Reserve Bank of Australia will be required for the movement of funds into
and out of Australia if the funds are to be paid to, or received from:
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specified supporters of the former Government of the Federal Republic of Yugoslavia
(including certain government agencies and authorities); |
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specified ministers and senior officials of the Government of Zimbabwe; or |
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specified entities and an individual associated with the Democratic Peoples Republic of Korea. |
There are also currently general prohibitions on:
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making payments to, or receiving payments from persons prescribed as having a
connection with terrorism; and |
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dealing with the financial resources of the previous government of Iraq, Saddam
Hussein and
other senior officials of his regime and their immediate families. |
At the present time, the Reserve Bank of Australia has not imposed any exchange controls or
limitations on the remittance of dividends, interest or other payments by Telstra to non-Australian
holders of its securities, other than those described above.
Restrictions on foreign ownership
The Foreign Acquisitions and Takeovers Act prohibits the acquisition of an interest in the
shares of an Australian company in certain circumstances. There are also specific provisions
dealing with restrictions on foreign ownership in the Telstra Act.
Telstra Act
The Telstra Act provides that an unacceptable foreign ownership situation will exist in
relation to Telstra if foreign persons and their associates hold, in total, a particular type
of stake in us of more than 35% of shares held by persons other than the Commonwealth (the
Aggregate Limit) or if any foreign person and its associates hold a particular type of stake in
Telstra of more than 5% of shares held by persons other than the Commonwealth (the Individual
Limit). Foreign person, associate, group, particular type of stake, direct control
interest and interest in a share are all defined in the Telstra Act and are summarised below
under Definitions.
Where an acquisition of shares or interests in shares in any company results in:
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an unacceptable foreign ownership situation in relation to Telstra; |
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an increase in the total of any type of stake held by any group of foreign persons in
Telstra where there exists a breach of the Aggregate Limit; or |
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an increase in any type of stake in Telstra held by any foreign person who is already
in breach of the Individual Limit; |
and the person acquiring the shares knew or was reckless as to whether the acquisition would have
that result, that person is guilty of an offence punishable on conviction by a fine not exceeding
A$44,000.
A persons stake in us is calculated on the assumption that the only shares in us are shares
held by persons other than the Commonwealth. While the Commonwealth owned approximately 51.8% of
us, the Aggregate Limit was effectively 16.87% and the Individual Limit was effectively 2.41%.
Assuming all of the shares currently held by the Commonwealth were sold or transferred to the
Future Fund, the effective Aggregate Limit will be 35% rather than 16.87% and the effective
Individual Limit will be 5% rather than 2.41%.
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The Communications Minister or Telstra may apply to the Federal Court for remedial orders
where an unacceptable foreign ownership situation exists, including orders requiring the disposal
of shares, restricting the exercise of rights attaching to shares or prohibiting or deferring
receipt of sums due on shares. In addition, we are required under the Telstra Act to take all
reasonable steps to ensure that an unacceptable foreign ownership situation does not exist in
relation to us.
Our constitution and the instalment receipt trust deed (trust deed) contain provisions to
enable us and the instalment receipt trustee (trustee) (while instalment receipts remain on issue
(the IR period)) to monitor and enforce the foreign ownership restrictions. These provisions in
our constitution are binding on all shareholders. Our Board has adopted rules to implement these
provisions. These are outlined below. They may be amended at any time by resolution of our board.
The instalment receipt trustee will publish procedures regulating foreign ownership of
instalment receipts which parallel our rules and which will bind all instalment receipt holders.
The trustee will be obliged to comply with such procedures under the trust deed and may only change
them at the relevant Ministers direction.
On or after registration of a transfer or transmission application for a share or an
instalment receipt, when the acquirer first becomes a shareholder or instalment receipt holder, the
acquirer must generally notify us or the trustee (during the IR period) whether it is either:
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a person with an interest in a share or instalment receipt who is either a foreign
person or an associate of a foreign person; or |
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a person who holds a share or instalment receipt in which a foreign person or an
associate of a foreign person has an interest, |
(in either case, a foreign holder).
The information derived from these notifications will be reflected in a register by means of a
foreign coding. Telstra may include in its register information relating to foreign ownership
recorded in the foreign ownership register of instalment receipts maintained by the trustee. The
foreign ownership rules and procedures will permit us and the trustee to maintain a joint foreign
register of shares and instalment receipts.
Systems have been established for shares or instalment receipts traded on the ASX so that
notifications are given by brokers as part of routine provision of ASX settlement information. The
Depository or its custodian under the American Depository Receipts (ADR facility) is
automatically treated as a foreign holder, as are all holders of shares on the New Zealand share
register. In the case of other transfers or transmission applications, the onus is on the acquirer
to notify us if it is a foreign holder.
All shares or instalment receipts held by foreign holders will be treated as foreign unless
the holder notifies the trustee that some of its shares or instalment receipts are ones in which a
foreign person or associate of a foreign person has an interest (foreign shares or instalment
receipts) whereas others are not and either:
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divides its holding into separate Holder Identification Numbers or Security Holder
Reference Numbers (under the ASXs CHESS system or an issuer sponsored subregister
respectively), one for foreign shares or instalment receipts and one for shares or
instalment receipts which are not foreign; or |
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the directors decide to treat the foreign holder as if the foreign holder was two
separate members, one with domestic shares and the other with a foreign holding. |
Where a person has notified the trustee that it is a foreign holder with respect to instalment
receipts, we may treat that person as a foreign holder with respect to shares. The trustee may also
treat a foreign holder of shares as a foreign holder with respect to instalment receipts under its
procedures.
We may send notices to registered holders of shares with a view to determining whether they
are foreign holders or not, and requesting details of any foreign persons or associates of foreign
persons having interests in the relevant shares, and any other information relating to foreign
ownership which may be requested. Such notices must be answered within the time specified in the
notice. The trustee has similar powers with respect to registered holders of instalment receipts
during the IR period. The rules and procedures permit us and the trustee to send notices jointly.
If we determine, as a result of information obtained from the notifications and responses to
notices referred to above, that an unacceptable foreign ownership situation exists in relation to
us, we have the power to require divestment of shares to remedy this
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situation. The trustee has power to direct the disposal of instalment receipts in the same
circumstances in which we would otherwise direct the trustee to dispose of shares to remedy the
situation. We may direct the trustee to require divestment of instalment receipts in such
circumstances. In exercising these divestment powers, we and the trustee are entitled to rely on
foreign codings in the relevant register and upon the notifications and responses to notices
referred to above. We and the trustee will notify the ASX, NZX and
NYSE if the level of foreign ownership comes within five percentage points of the Aggregate Limit,
and after that at one percentage point intervals.
The divestment powers are broadly framed, and we, our directors and the trustee and its
directors are not liable to shareholders or instalment receipt holders for the manner of their
exercise.
If we or the trustee believe that the Individual Limit has been breached, we or the trustee
may require that any shareholder or instalment receipt holder respectively whose shares or
instalment receipts are believed to form part of the contravening stake be divested within the
time specified in the notice requiring divestment (disposal notice).
If we believe the Aggregate Limit has been breached, the rules currently provide that disposal
notices will be given to all holders whose foreign shares became registered in their names or which
became coded as foreign, on the day that the aggregate number of foreign coded registrations on
the relevant register exceeded the limit. The position is similar with respect to foreign
instalment receipts under the procedures.
There are special provisions to prevent disposal notices being given in respect of foreign
instalment receipts issued in the T3 Global Offering and in the event disposal notices would, but
for these provisions, have been given in respect of such foreign instalment receipts (offer
instalment receipts) such notices shall not be given.
The recipient of a disposal notice is required to divest the shares or instalment receipts
that are the subject of the notice before the divestment date specified in the notice. The
divestment date will be the fifth business day of the month after the month in which the disposal
notice was issued unless that would be less than 30 days after the date of issue of the notice, in
which case the divestment date will be the fifth business day of the next month. However, in
relation to registrations of instalment receipts in the 30 days after instalment receipts were
first traded on the ASX in 2006, the divestment date will be the day six months after first
trading.
No divestment will be required on a divestment date if foreign shares or instalment receipts,
as shown on the relevant register on that date do not exceed the Individual Limit or the Aggregate
Limit (as applicable). If a disposal notice is not complied with, we or the trustee (as relevant)
may sell the relevant shares or instalment receipts on behalf of the holder on or after the
relevant divestment date (and the holder will lose the ability to transfer the shares or instalment
receipts itself after that date).
Transfers among foreign holders
Special arrangements apply to certain transfers from one foreign holder to another.
Disposal notices will not be given in respect of:
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foreign shares or instalment receipts acquired under a particular form of ASX
special crossing for transfers among foreign holders. Shares or instalment receipts can
only be transferred under such a special crossing if they are not, and are not liable to
become, the subject of a disposal notice; or |
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shares or instalment receipts registered on the New Zealand branch share register or
instalment receipt register or deposited in the ADR facility, though shares may only be
transferred onto the New Zealand branch share or instalment receipt register or ADR
facility if they are not, and are not liable to become, the subject of a disposal notice. |
NZSX trading will be only in instalment receipts or shares registered on the New Zealand
branch instalment receipt or share register.
The above summary does not purport to be complete and is subject to, and qualified by
reference to, the trust deed, our constitution, the rules and the procedures which have been
adopted by us and the trustee for administration of their foreign ownership provisions and the
Telstra Act. Copies of the trust deed, our
constitution, the rules and procedures and the Telstra Act are available for inspection
through the Company Secretary at the Telstra Centre, 242 Exhibition Street, Melbourne, Victoria
3000, Australia during normal business hours in Melbourne, Australia.
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Definitions
Foreign person is defined in the Telstra Act as:
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a foreign citizen (defined in the Telstra Act as a non-Australian citizen) not
ordinarily resident in Australia (a foreign citizen); |
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a company where a foreign citizen or a foreign company (defined in the Telstra Act as
an overseas incorporated company) holds a particular type of stake in the company of 15%
or more; |
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a company where a group of two or more persons, each of whom is either a foreign
citizen or a foreign company, holds, in total, a particular type of stake in the company
of 40% or more; |
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the trustee of a trust estate in which a foreign citizen or a foreign company holds a
substantial interest (essentially a 15% beneficial interest, including such foreign
citizens or foreign companys associates interests); or |
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the trustee of a trust estate in which two or more persons, each of whom is either a
foreign citizen or a foreign company, hold an aggregate substantial interest (essentially
a 40% beneficial interest including each such foreign citizens or foreign companys
associates interests). |
A particular type of stake in any company held by any person is defined as the aggregate of
the direct control interests of that type in that company held by that person and that persons
associates.
An associate of a person is defined to include:
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a wide range of direct and indirect relationships such as relatives, partners,
employees and employers of the person; |
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if the person is an employee of an individual, other employees of the individual; |
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if the person is a company, an officer of the company and, if the person is an
officer of a company, the company and other officers of the company; |
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the trustee of a discretionary trust where the person or an associate of the person
is a beneficiary; |
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a company whose directors are accustomed, or under an obligation, to act in
accordance with the wishes, directions or instructions of the person; |
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a company where the person is accustomed, or under an obligation, to act in
accordance with the companys wishes, directions or instructions; |
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a company in which the person has a particular type of stake of at least 15% or, if
the person is a company, a person who holds a particular type of stake of at least 15% in
it; and |
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an associate of an associate of the person. |
For purposes of determining foreign ownership of any company, a persons associates also
include any other person with whom the person has an arrangement enabling them to jointly control
any of the voting power of such company or certain types of power over, or over the appointment of,
the board of directors of such company.
Group, in relation to the foreign ownership limits, includes one person alone or a number of
persons, even if they are not in any way associated with each other or acting together.
A direct control interest of any person in any company is defined as the equivalent percentage
of:
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the total paid-up share capital of the company in which the person holds an interest; |
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the voting power in the company that the person is in a position to control; |
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the total rights to distributions of capital or profits of the company to its
shareholders on a winding up held by the person; and |
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the total rights to distributions of capital or profits of the company to its
shareholders, other than
on a winding up, held by the person. |
Interest in a share is defined to include:
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legal or equitable interests in a share; |
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certain rights under a contract to purchase a share; |
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options to acquire a share or an interest in a share; |
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a right to have a share transferred to the persons order; and |
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an entitlement to acquire a share or an interest in a share or to exercise or control
the exercise of a right attached to the share. |
However, certain interests in shares are disregarded, including:
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certain interests of lenders under or following enforcement of security arrangements; |
Approvals required for foreign investment in Telstra
Foreign investment in Australia is regulated principally under Commonwealth legislation
including the Foreign Acquisitions and Takeovers Act 1975 (FATA) and by the Australian Federal
Governments Foreign Investment Policy (Policy). This regulatory regime applies in addition to
the specific limits on foreign ownership of Telstra mentioned above.
For the FATA or the Policy to apply, the acquiring entity must be a foreign person, as
defined in the FATA. This concept is broader than the ordinary meaning of those words and is
extended to include companies incorporated within Australia or overseas with certain levels of
foreign shareholding, as prescribed in the FATA.
The FATA requires a foreign person to notify the Federal Treasurer prior to acquiring a
substantial interest (i.e. an interest of 15% or more, held by the foreign person, together with
any associates) in an Australian corporation where the total (not net) assets of the corporation
amount to A$50 million or more (or A$52 million or more for certain US investors investing in a
sensitive sector such as the telecommunications sector). It is an offence to:
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enter into an agreement to acquire a substantial interest without lodging a
notification (unless the agreement is made subject to an appropriate condition); or |
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once a notification is lodged, to proceed with the acquisition before receiving a
statement of no objections from the Federal Treasurer, unless the relevant statutory
period(s) has expired without an order being made. |
Investments in Telstra of less than 15% do not attract the compulsory notification
requirements of FATA. However, depending on the circumstances of the acquisition, they may activate
the Treasurers powers to make orders in respect of the acquisition (including the power to
prohibit the acquisition). In these circumstances it can be advisable to lodge a voluntary
notification under FATA, seeking a statement of no objections from the Treasurer. The issue of such
a statement has the effect of deactivating the Treasurers powers in respect of that acquisition.
Notifications made under FATA are assessed against the test of whether the proposal is
contrary to Australias national interest. There is no definition of the national interest. It is
assessed on a case by case basis.
Australias foreign investment regime is complex, and advice should be sought for your
specific circumstances, and for the circumstances of your proposed acquisition.
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Foreign ownership status
At 22 September 2006 the number of Telstra shares recorded as foreign on the Telstra register
was
868,845,773, equivalent to 14.49% of the total number of the then non-Commonwealth owned
Telstra shares on issue.
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Description of Shares and our Constitution
The following provides information on the shares and explains the material provisions of our
constitution. Our constitution prescribes many shareholder rights. Because this is a summary, it
does not contain all the information that is included in the constitution. The entire constitution
should be read for a more complete description of your rights as a shareholder.
We have 12,443,074,357 ordinary shares on issue. Currently we have two classes of shares,
being ordinary shares and instalment receipts. Because Australia has abolished the concept of
authorised share capital, there is no limit on the number of shares we may issue. In Australia,
there is also no longer any concept of a par or nominal value for a share. This means that we may
issue our shares at any price.
Share registers
Our Australian register of shares is electronic
The Australian register of shares is electronic. All our members, except those registered on
our New Zealand register, are registered on our Australian register. We are admitted to participate
in the Clearing House Electronic Subregister System (CHESS), under the ASX Listing Rules, the ASX
Settlement and Transfer Corporation Settlement Rules (ASTC Settlement Rules) and the Australian
Clearing House Clearing Rules (ACH Clearing Rules). Under this system, we maintain an electronic
issuer-sponsored subregister and an electronic CHESS subregister. These two subregisters make up
the Australian register of shares. You may inspect the register of shares without charge if you are
a member. You may also purchase a copy of the register of shares. The Corporations Act limits the
way in which the information on the register of shares may be used or disclosed by a shareholder.
The directors may determine not to issue share certificates, subject to any requirements of
any law or the ASX Listing Rules. Because we maintain an electronic register of shares all
shareholders will receive a statement of holding upon payment of the final instalment and
satisfaction of any related obligations such as payment of any taxes. The statement is similar to a
bank account statement and will state how many shares are owned by the shareholder. A shareholder
will receive a new statement of holding at the end of the month if there has been a change in its
holding on the register. A shareholder will not receive a share certificate for its shareholding.
If you hold shares on the CHESS sub-register, your statement of holding will set out your
Holder Identification Number (HIN). If you hold shares on the issuer-sponsored sub-register, your
statement of holding will set out your Security Holder Reference Number (SRN). You must quote
your HIN or SRN when dealing with a stockbroker or our share registrar.
The share registrar for the shares in Australia is Link Market Services Limited.
Our New Zealand register of shares is electronic
Persons purchasing shares in the New Zealand offer will be registered on the New Zealand
register. Telstra shares will be traded and registered under the Fully Automated Screen Trading and
Electronic Registration System (FASTER). When you first become a shareholder, including upon
payment of the final instalment and satisfaction of any related obligations such as payment of any
duties and taxes, you will receive a FASTER statement for your shareholding. You will not receive a
share certificate for your shareholding. The FASTER statement is similar to a bank account
statement and will tell you how many shares you own. You will also receive separately a FASTER
Identification Number (FIN). If you sell any of your shares or if you purchase more shares, you
will receive a new statement of holding at the end of the month.
The directors may determine which shares may be recorded, or will remain, on a branch register of
shares.
You may be able to transfer your holding between the Australian and New Zealand registers
If you wish to transfer your holding between the Australian and New Zealand registers, you
should contact our registrar for more information as restrictions may apply to movements between
these registers. For further information, you should also refer to the section below Our
securities are traded on the ASX and the NZSX and are quoted on the New York Stock Exchange and
Exchange Controls and Foreign Ownership.
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Transfer of shares
The following is a summary of how you may transfer your shares in Australia and New Zealand.
Transfer of shares in Australia
A shareholder may transfer shares if, in the case of an electronic transfer of shares, the
transfer is in accordance with the ACH Clearing Rules, the rules of any electronic system in which
we participate and which is established or recognised by the ASX Listing Rules, or in any other
case, by an instrument of transfer executed by the transferor and the transferee and stamped where
necessary. Our directors must register a transfer of shares which is in accordance with these
requirements subject to the Corporations Act, the ASX Listing Rules, and the ACH Clearing Rules,
our constitution and any other law including the Telstra Act.
The directors may ask the ACH to apply a holding lock to stop an electronic transfer under
certain circumstances.
Transfer of shares in New Zealand
A transfer of shares in New Zealand may be by a market transfer in accordance with the
electronic system for share trading established by the FASTER system or by a proper instrument of
transfer in writing.
Our securities are traded on the ASX and the NZSX and are quoted on the NYSE
Our securities are currently traded on the ASX, the NZSX and the NYSE. Unless you have made
special arrangements in advance with a stockbroker, you may not be able to trade your securities on
an exchange other than the exchange of the country in which the relevant register is located.
If shareholders wish to transfer holdings between the Australian and New Zealand registers,
shareholders should contact the Telstra registrar for more information as restrictions may apply to
movements between these registers.
There are restrictions on the level of foreign ownership of our shares
Foreign persons must not hold particular stakes in us, if the level of foreign ownership of
our shares exceeds certain individual or aggregate levels. This is because of requirements in:
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the Telstra Act; |
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our constitution; and |
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the instalment receipts trust deed. |
Acquisitions of interests in Australian companies by foreign interests are also regulated by
the Foreign Acquisitions and Takeovers Act 1975 of Australia. See Exchange Controls and Foreign
Ownership for an explanation of the restrictions.
Constitution and Documents on Display
Our constitution
The following is a summary of the material provisions of our constitution which may affect
shareholders.
Our constitution was adopted at the 2006 annual general meeting held on 14 November 2006.
Issue of further shares
Our Board may issue shares at their discretion. They must, however, act in accordance with our
constitution, the Corporations Act, the Telstra Act, the ASX Listing Rules and any special rights
conferred on holders of any shares.
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Calls
Our Board may only make calls on shareholders in respect of money unpaid on their shares. Our
shareholders have no other liability to further capital calls.
Preference Shares
Our Board may issue preference shares, which may include preference shares which are liable to be
redeemed or converted into ordinary shares.
Each preference share issued confers on the holder the right to receive preferential dividends and
winding up rights, but does not confer voting rights at general meetings, except in certain
circumstances.
Where a redemption notice is received in accordance with the terms of issue of a preference share,
our Company must pay the amount applicable on the preference share.
Restrictions on foreign ownership
The Telstra Act restricts the holding of particular foreign ownership stakes in us. Our
constitution contains provisions designed to enable us to monitor and enforce these restrictions.
We have adopted rules to implement these provisions which bind all shareholders. These are outlined
in the Exchange Controls and Foreign Ownership section of this Form 20-F.
Notification of holdings
If the total votes attached to voting shares in which a person (or their associate) has a relevant
interest is 5% or more of the total number of votes attached to voting shares in us, then that
person is required to notify the Australian Stock Exchange of that interest. In addition, certain
movements in this holding are also required to be notified.
Alteration of rights
The rights attaching to our shares may only be varied or abrogated with the written consent of
the holders of three quarters of the issued shares of that class or with the approval of a special
resolution passed at a separate meeting of the holders of the issued shares of that class.
General powers
Under the constitution, we can exercise any power, take any action or engage in any conduct which a
company limited by shares may exercise, take or engage in under law. Our constitution does not set
out
specific objects or purposes.
Borrowing powers
Our directors may exercise all of our borrowing powers in their absolute discretion. This
power may only be varied by amending our constitution which would require a special resolution to
be passed by our shareholders at a general meeting.
Shareholders approval required
The management of the business and affairs of the company is vested in our directors. However,
the approval of shareholders is required for certain important matters, such as the election of
directors, and the sale or disposal of our main undertaking.
Directors and shareholders may call a meeting
The directors may call a general meeting at their discretion. The directors must also call and
arrange to hold a general meeting on the request of:
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shareholders who hold at least 5% of the votes that may be cast at the general meeting; or |
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at least 100 shareholders who are entitled to vote at the general meeting. |
General meeting attendance and notice
All shareholders are notified of and may attend all general meetings. We send a notice of the
meeting to all shareholders at least 28 days before the meeting.
The chairman of a general meeting may take any action he or she considers appropriate to ensure the
safety of persons attending the general meeting and the orderly conduct of the meeting, including
restricting admission to the meeting in certain circumstances.
A person, (whether a member or not) that is requested by the directors or the chairman to attend a
general meeting is entitled to be present and to speak at the meeting if requested by the chairman.
If the chairman considers there is not enough room for all members attending the meeting to be
present in the main room, he or she may arrange for any person admitted to the general meeting to
observe or attend the meeting in a separate room.
If a separate meeting place is linked to the main place of a general meeting by an instantaneous
audio-visual link, provided that certain requirements are met, a member present via such technology
is entitled to exercise all rights as if he or she was present at the main meeting place.
Voting rights
Shareholders (whether residents or non-residents of Australia) may vote at a meeting of
shareholders in person or by proxy, attorney, or representative, depending on whether the
shareholder is an individual or a company.
Shareholders may also be able to vote directly on resolutions considered at a general meeting
by mailing their votes to us prior to the meeting. Permission to do this will be at the Boards
discretion. This option means that a shareholders vote can still be counted even where the
shareholder cannot attend personally and does not wish to appoint a proxy, attorney or
representative.
Three shareholders must be present in person or by proxy, attorney or representative to form a
quorum. If there is no quorum present at a meeting thirty minutes after the time set for the start
of the meeting, then:
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if the meeting was called by a shareholder or shareholders, the meeting must be
dissolved; or |
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in any other case, the meeting is adjourned to the same day, time and place in the
next week or to such other day, time and place as the directors present decide. The
adjourned meeting is dissolved if a quorum is not present within thirty minutes after the
time specified for the adjourned meeting. |
Shareholders present at the meeting must vote on a show of hands unless a poll is called. A
poll may be called either before a vote is taken or before or immediately after the voting results
on a show of hands are declared. A poll may be called by:
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the chairman of the meeting; |
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not less than five shareholders who may vote on the resolution; or |
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a shareholder or shareholders who together hold at least 5% of the votes that may be
cast on the resolution on a poll. |
If the demand for a poll is withdrawn, the vote is decided on a show of hands.
Subject to any rights or restrictions attaching to our shares, on a show of hands each
shareholder present in person or by proxy, attorney or representative has one vote and on a poll,
has one vote for each fully paid share held. Presently, we have only one class of fully paid
ordinary shares and these do not have any voting restrictions. If a call on a share is not fully
paid, the voting rights attached to those shares cannot be exercised.
An ordinary resolution is passed:
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on a show of hands, by a majority of shareholders present in person or by proxy,
attorney or representative voting in favour of the resolution; and |
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on a poll, by shareholders present in person or by proxy, attorney or representative
holding at least a majority of the votes cast in favour of the ordinary resolution. |
A special resolution is passed:
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on a show of hands, by at least 75% of shareholders present in person or by proxy,
attorney or representative voting in favour of the resolution; and |
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on a poll, by shareholders present in person or by proxy, attorney or representative
that represent at least 75% of the votes cast in favour of the special resolution. |
Dividends
Subject to any special rights attaching to our shares and to the terms of any issue of shares
to the contrary, shareholders receive dividends according to the number of shares held and the
amount paid up on those shares. Currently, no special rights attach to any of our shares.
Shareholders may elect to receive dividends by electronic transfer into their nominated
account. Any unclaimed dividend moneys will, in certain circumstances, be able to be re-invested in
our shares.
A dividend in respect of a share must be paid to a person entitled to be registered as the holder
of the share on the record date fixed by the directors, or where no record date is fixed, on the
date fixed for payment of the dividend. A transfer of shares that is not registered on or before
these dates is not effective to pass any right to the dividend.
Rights to profits
The power to declare dividends, pay dividends and fix the time for their payment is vested in the
Board.
Our directors may, before declaring or paying a dividend, set aside out of our profits any
amount that
they think should be applied as a reserve. Our directors may also carry forward profits which
they consider should not be distributed as a dividend, without transferring those profits to a
reserve.
A declaration by our directors as to the amount of the profits available for dividend is
conclusive and binding on all shareholders.
Documents to be sent to shareholders
Shareholders will receive a copy of any financial statements or other documents which we must
send to shareholders under our constitution, the Corporations Act or the ASX Listing Rules.
We also offer shareholders the opportunity to receive electronic copies of these documents via
email as an alternative to receiving hard copies.
Winding-up
If we are being wound up and the assets available for distribution among shareholders are more
than sufficient to pay all our debts and liabilities and the costs and expenses of winding up, the
excess must be divided:
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firstly, amongst the shareholders in proportion to the number of shares held by them;
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then among the shareholders in proportion to the number of restricted securities held
by them, irrespective of the amounts paid or credited as paid on the shares. |
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However, in calculating this excess, any amount unpaid on a share is to be treated as our
property of the Company, and the amount of excess that would otherwise be distributed to the holder
of a partly paid share must be reduced by the amount unpaid on that share at the date of the
distribution. If the effect of this reduction would result in a negative amount the shareholder
must contribute the amount to Telstra.
Number of directors
At all times, we must have between three and thirteen directors on the Board. Shareholders may
vote to increase the maximum number of directors.
Directors share qualification
Our directors are not required to hold Telstra shares.
Retirement of directors
We must have an election of directors each year, and all directors must retire at the third
annual general meeting after the director was elected or last re-elected. If no director is to
retire on the basis of being at the third annual general meeting since their appointment, the
director that must retire is the one who has been longest in office.
In addition, the Boards general policy on Board membership for non-executive directors is:
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in general, directors will be encouraged to retire at 72 years of age; and |
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the maximum tenure is 12 years (usually four terms of three years). |
Directors interests
A director who has a material personal interest in a proposal, arrangement or contract that is
being considered at a meeting of our directors has a limited right to be present at the relevant
meeting and to vote on the matter.
The power to be present and vote only exists in certain circumstances prescribed by the
Corporations Act. These are:
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when the Board has passed a resolution that identifies the director and his/her
interest and states that the other directors are satisfied that the interest should not
disqualify the director from voting or being present; or |
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where ASIC makes a declaration or class order that the director may be present and
vote notwithstanding his/her material personal interest. |
The directors power to vote on resolutions relating to their remuneration is permitted under the
constitution and the Corporations Act. These rules provide that the interest of a director arising
in relation to their remuneration as a director of the Company is not an interest which would
prevent them from being present while the matter is being considered at the meeting, or voting on
the matter.
Officers indemnity and insurance
Our constitution provides for us to indemnify each officer, to the maximum extent permitted by
law, against any liability incurred as an officer provided that:
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the liability is not owed to us or a related body corporate; |
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the liability is not for a pecuniary penalty or compensation order made by a court
under the Corporations Act; and |
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the liability does not arise out of conduct involving a lack of good faith. |
Our constitution also provides for us to indemnify each officer, to the maximum extent
permitted by law, for legal costs incurred in defending civil or criminal proceedings.
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If one of our officers or employees is asked by us to be a director or alternate director of a
company which is not related to us, our constitution provides for us to indemnify the officer or
employee out of our property for any liability he or she incurs. This indemnity only applies if the
liability was incurred in the officers or employees capacity as a director of that other company.
It is also subject to any corporate policy made by our CEO. Our constitution also allows us to
indemnify employees and outside officers in some circumstances. The terms officer, employee and
outside officer are defined in our constitution.
We may pay an insurance premium insuring a person who is or has been a director, secretary or
executive officer of us or of one of our related bodies corporate against certain liabilities
incurred by that person in such a capacity. The insurance will not cover liabilities which arise
out of conduct involving a wilful breach of that persons duty to us or a breach of their duty not
to improperly use their position or company information.
Commonwealth Specific Provisions
Provisions specific to the Commonwealths majority ownership in us are contained in a schedule
to the constitution. These include provisions:
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requiring the Commonwealth to be present as a shareholder in order for the quorum of
a meeting to be valid; |
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regarding Commonwealth representation at shareholder meetings; and |
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requiring the Board to consult the relevant Commonwealth Minister before appointing a
casual vacancy or an additional director to the Board. |
The provisions of this schedule fell away once the Commonwealth ceased to hold 50% or more of
the shares in Telstra which occurred on 24 November 2006.
Documents on display
It is possible to read and copy documents referred to in this Form 20-F that have been filed with
the SEC at the SECs public reference room located at 100 F Street, N.E., Washington, D.C. 20549.
Please contact the SEC at 1-800-SEC- 0330 for further information. The SEC also maintains a website
at www.sec.gov where many of these documents may be accessed.
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Taxation
This section describes the principal United States federal income and Australian tax
consequences of owning shares or instalment receipts. It applies to you only if you purchase your
shares through this offering and hold your shares or instalment receipts as capital assets for tax
purposes. This section is the advice of Sullivan & Cromwell insofar as it relates to matters of
United States federal income tax law and is the advice of Mallesons Stephen Jaques insofar as it
relates to matters of Australian law. This section does not address all material tax consequences
of owning shares. It does not address special classes of holders, some of whom may be subject to
other rules, including:
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tax-exempt entities; |
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certain insurance companies; |
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dealers in securities or currencies; |
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traders in securities that elect to mark to market; |
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investors liable for alternative minimum tax; |
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investors that actually or constructively own 10% or more of our voting stock; |
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investors that hold shares as part of a straddle or a hedging or conversion transaction; or |
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investors whose functional currency is not the US dollar. |
This section is based on the tax laws of the United States, including the Internal Revenue
Code of 1986, as amended, (the Code), its legislative history, existing and proposed regulations,
and published rulings and court decisions, and the tax laws of Australia each as currently in
effect, as well as on the Convention between the United States of America and Australia for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
(the Treaty). These laws are subject to change, possibly on a retroactive basis.
You should consult your own tax advisor regarding the United States federal, state and local
and the Australian and other tax consequences of owning and disposing of shares or instalment
receipts, in your particular circumstances.
United States Taxation
United States Internal Revenue Service Circular 230 Notice: To ensure compliance with Internal
Revenue Service Circular 230, prospective investors are hereby notified that: (a) any discussion of
US federal tax issues contained or referred to in this Form 20-F or any document referred to herein
is not intended or written to be used, and cannot be used by prospective investors for the purpose
of avoiding penalties that may be imposed on them under the United States Internal Revenue Code;
(b) such discussion is written for use in connection with the promotion or marketing of the
transactions or matters addressed herein; and (c) prospective investors should seek advice based on
their particular circumstances from an independent tax advisor.
This section describes the material US federal income tax consequences to a US holder (as
defined below) of owning shares or ADSs. It applies to investors only if they hold their shares or
ADSs as capital assets for tax purposes. This section does not apply to investors if they are a
member of a special class of holders subject to special rules, including:
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a dealer in securities; |
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a trader in securities that elects to use a mark-to-market method of accounting for
securities holdings; |
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a tax-exempt organisation; |
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a life insurance company; |
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a person liable for alternative minimum tax; |
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a person that actually or constructively owns 10% or more of our voting stock; |
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a person that holds shares or ADSs as part of a straddle or a hedging or conversion
transaction; or |
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a person whose functional currency is not the US dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, its legislative
history, existing and proposed regulations, published rulings and court decisions, as well as on
the US Treaty all as of the date hereof. These laws are subject to change, possibly on a
retroactive basis. In addition, this section is based in part upon the representations of the
Depositary and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms.
An investor is a US holder if it is a beneficial owner of shares or ADSs and it is:
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a citizen or resident of the US; |
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a domestic corporation; |
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an estate whose income is subject to US federal income tax regardless of its source; or |
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a trust if a US court can exercise primary supervision over the trusts
administration and one or more US persons are authorized to
control all substantial decisions of the trust. |
As used in this discussion, the term share refers to a share or instalment receipt, unless
the context otherwise requires. Investors should consult their own tax advisors regarding the US
federal, state and local and the Australian and other tax consequences of owning and disposing of
shares and ADSs in their particular circumstances. In general, and taking into account the earlier
assumptions, for US federal income tax purposes, if investors hold ADRs evidencing ADSs, they will
be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and
ADRs for shares, generally will not be subject to US federal income tax.
Taxation of distribution on shares or ADSs
Under the US federal income tax laws, if an investor is a US holder, the gross amount of any
dividend we pay out of our current or accumulated earnings and profits (as determined for US
federal income tax purposes) is subject to US federal income taxation. For investors that are
non-corporate US holders, dividends paid to them in taxable years beginning before 1 January 2011
that constitute qualified dividend income will be taxable to them at a maximum tax rate of 15%
provided that they hold the shares or ADSs for more than 60 days during the 121-day period
beginning 60 days before the ex-dividend date and meet other holding period requirements.
Investors must include any Australian tax withheld from the dividend payment in this gross
amount even though they do not in fact receive it. The dividend is taxable to investors when they,
in the case of shares, or the Depositary, in the case of ADSs, receive the dividend, actually or
constructively. The dividend will not be eligible for the dividends-received deduction generally
allowed to US corporations in respect of dividends received from other US corporations. The amount
of the dividend distribution that investors must include in their income as a US holder will be the
US dollar value of the Australian dollar payments made, determined at the spot A$/US$ rate on the
date the dividend distribution is includible in their income, regardless of whether the payment is
in fact converted into US$. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date they include the dividend payment in income to the
date they convert the payment into US$ will be treated as ordinary income or loss and will not be
eligible for the special tax rate applicable to qualified dividend income. The gain or loss
generally will be income or loss from sources within the US for foreign tax credit limitation
purposes. Distributions in excess of current and accumulated earnings and profits, as determined
for US federal income tax purposes, will be treated as a non-taxable return of capital to the
extent of their basis in the shares or ADSs and thereafter as capital gain.
Subject to certain limitations, the Australian tax withheld in accordance with the US Treaty
and paid over to Australia will be creditable against investors US federal income tax liability.
Special rules apply in determining the foreign tax credit limitation with respect to dividends that
are subject to the maximum 15% tax rate.
Dividends will be income from sources outside the US, but dividends paid in taxable years
beginning before January 1, 2007 generally will be passive income or financial services income
and dividends paid in taxable years beginning after December 31,
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2006 will, depending on the investors circumstances, be passive income or general income
which, in either case, is treated separately from other types of income for purposes of computing
the foreign tax credit allowable to investors.
Taxation of capital gains
If an investor is a US holder and it sells or otherwise disposes of its shares or ADSs, it
will recognize a capital gain or loss for US federal income tax purposes equal to the difference
between the US dollar value of the amount that it realizes and its tax basis, determined in US$, in
its shares or ADSs. Capital gain of a non-corporate US holder that is recognized in taxable years
beginning before 1 January 2011 is generally taxed at a maximum rate of 15% where the holder has a
holding period of greater than one year. The deduction of capital losses is subject to certain
limitations. The gain or loss will generally be income or loss from sources within the US for
foreign tax credit limitation purposes.
Australian taxation
The Australian income tax consequences for a particular investor will depend on the investors
tax profile and own circumstances. For example, the tax consequences for some investors, such as
financial institutions, who hold their investments on income account rather than on capital account
will be different. Similarly, the taxation treatment of certain Tax Non-Residents may also be
significantly different.
This discussion does not seek to deal with the treatment of individuals who are temporary
residents under Australias tax laws.
A Class Ruling has been sought from the Australian Taxation Office (ATO) for participants in
the Global Offering. A draft class ruling has been provided which accords with a number of
statements contained in this summary. A final class ruling is expected to be issued by the ATO
after the release of this Form 20-F. While it is not anticipated to be the case, the ATO may
express views in the final class ruling which may be different to the draft ruling.
This discussion is based on the law in force at the date of this Form 20-F.
Treatment of shares
Taxation of dividends
An imputation system operates in Australia in respect of company income tax. In the absence
of an exemption or concession, Australian resident companies are liable for Australian income tax
on their taxable income at the corporate rate (currently 30%). The payment of Australian income tax
by an Australian company, such as Telstra, generates a franking credit for the company. Broadly, an
amount of tax flows through to shareholders (as a franking credit) when the company pays a
dividend which is franked by the company.
Distributions paid to Australian resident shareholders will generally be included in the
assessable income of those holders of those shares.
Where the distribution is a franked dividend, the franking credit associated with that
dividend will generally also be included in the assessable income of Australian resident
shareholders.
An offset of tax equivalent to the franking credit (known as a tax offset) is available only
to Australian resident shareholders.
There are circumstances where a shareholder may not be entitled to the benefit of franking
credits. The application of these rules depends on the shareholders own circumstances including
the period for which the shares are held and the extent to which the shareholder is at risk in
relation to their investment.
Fully franked dividends (being a dividend which is franked) paid to non-resident shareholders
are not subject to the Australian non-resident dividend withholding tax (DWHT). Dividends to the
extent that they are not fully franked are generally subject to DWHT at the rate of 30% (unless
reduced under the provisions of a relevant double tax treaty).
In the case of a resident of the United States, the rate may be reduced under Article 10 of
the Convention between Australia and the United States for the Avoidance of Double Taxation (the
US Treaty) to 15%. This requires that the shares are not effectively connected with a permanent
establishment or a fixed base of the Tax Non-Resident in Australia through which the Tax
Non-Resident carries on business in Australia or provides independent personal services.
If a Tax Non-Resident who is a resident of the United States directly holds at least 10% of
the voting power in the Australian company, then the DWHT rate may be further reduced to 5%. The
restrictions on the extent of foreign ownership in Telstra are likely to ensure that a Tax
Non-Resident does not qualify for this reduced rate.
The unfranked part of any dividends paid by us to Tax Non-Residents will be subject to DWHT.
We will deduct DWHT from the relevant dividend paid and pay the balance to the Tax Non-Resident.
Fully franked dividends paid to Tax Non-Residents and dividends that have been subject to DWHT
are not subject to any further Australian income tax.
161
Taxation of capital gains
A capital gain from a disposal of a share by a Tax Non-Resident on or after 12 December 2006
will be subject to Australian income tax under the capital gains tax provisions in limited
circumstances.
Generally, a Tax Non-Resident may only be subject to Australian income tax under the capital
gains tax provisions where the Tax Non-Resident holds an interest in taxable Australian property.
Taxable Australian property includes direct and indirect interests in real property located
in Australia or the business assets of an Australian permanent establishment of a Tax Non-Resident.
Indirect interests in Australian real property includes shares in interposed companies or
interests in other interposed entities that hold Australian real property, where the value of those
shares or interests is wholly or principally attributable to taxable Australian real property.
The Australian income tax law in relation to capital gains tax events, such as a disposal of a
share, occurring before 12 December 2006 is different. Tax Non-Residents should seek their own
independent taxation advice in relation to the potential impact of the capital gains tax rules to a
capital gains tax event occurring before 12 December 2006 to take into account their own
circumstances.
Certain Tax Non-Residents may be liable to tax in respect of a profit on a dealing in the
assets as ordinary income, rather than under the capital gains tax provisions.
A double tax treaty between Australia and the country of residence of the shareholder may give
relief from liability to pay the Australian income tax.
Generally, the business profits articles of Australias double tax treaties provide that a
resident of a treaty party is not subject to Australian income tax on business profits derived in
Australia, unless derived at or through a permanent establishment in Australia. In the case of a
resident of the United States, Article 7 (1) of the US Treaty provides that the business profits of
a US enterprise are only taxable in the US unless the enterprise carries on business in Australia
through a permanent establishment situated in Australia. The term permanent establishment is
defined in Article 5 of the US Treaty.
If the shares are held by a shareholder either as trading stock or a revenue asset, then gains
realised on the disposal of those shares should be treated as business profits. Certain of
Australias double tax treaties, including the US Treaty, specifically exclude capital gains from
business profits.
Shareholders should seek their own independent taxation advice should they wish to rely on a
double tax treaty for relief from liability to pay Australian income tax upon the disposal of a
share.
A capital gain, for Australian tax purposes, will generally be the excess of the arms-length
consideration in respect of the disposal of the share over its cost base. The cost base of a share
will include the consideration on acquisition and incidental costs associated with acquisition.
If a shareholder is an individual, an Australian complying superannuation fund or a trust,
then that shareholder may be eligible to discount any net capital gain they make under the capital
gains tax discount concession. This will only be the case if the shareholder has held the shares
for at least 12 months prior to disposal.
If a shareholder is an individual or a trust (other than a trust that is an Australian
complying superannuation entity), the net capital gain is discounted by half.
If a shareholder is an Australian complying superannuation entity, the net capital gain is
discounted by one-third.
If the shareholder is a company, the capital gains tax discount concession will not be
available in respect of any net capital gain on a disposal of the share.
Shareholders who incur a liability for Australian income tax will be required to file an
income tax return in Australia.
Treatment of American depositary receipts
Non-resident holders of ADRs evidencing ADSs will be treated for Australian income tax
purposes as the owners of the shares represented by the ADSs.
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Taxation of Distributions
The Depository will receive dividends on the shares represented by the ADSs net of DWHT (where
payable). Holders of ADRs will not be subject to any further Australian income tax on
distributions representing fully franked dividends or dividends that have been subject to DWHT.
Taxation of capital gains
A disposal of an ADR by a Tax Non-Resident will constitute a disposal by the Tax Non-Resident of
the shares represented by the ADS evidenced by that ADR.
A capital gain from a disposal of an ADR by a Tax Non-Resident on or after 12 December 2006
will be subject to Australian income tax under the capital gains tax rules in limited
circumstances.
Generally, a Tax Non-Resident may only be subject to Australian income tax under the capital
gains tax provisions where the Tax Non-Resident holds an interest in taxable Australian property.
Taxable Australian property includes direct and indirect interests in real property located
in Australia or the business assets of an Australian permanent establishment of a Tax Non-Resident.
Indirect interests in Australian real property includes shares (including through ADRs) in
interposed companies or interests in other interposed entities that hold Australian real property,
where the value of those shares or interests is wholly or principally attributable to taxable
Australian real property.
The Australian income tax law in relation to capital gains tax events, such as a disposal of
an ADR, occurring before 12 December 2006 is different. Tax Non-Residents should seek their own
independent taxation advice in relation to the potential impact of the capital gains tax rules to a
capital gains tax event occurring before 12 December 2006 to take into account their own
circumstances.
Certain Tax Non-Residents may be liable to tax in respect of a profit on a dealing in the
assets as ordinary income, rather than under the capital gains tax provisions.
A double tax treaty between Australia and the country of residence of the ADR holder may give
relief from liability to pay the Australian income tax.
As discussed above under Treatment of shares Taxation of capital gains, generally, the
business profits articles of Australias double tax treaties provide that a resident of a treaty
party is not subject to Australian income tax on business profits derived in Australia, unless
derived at or through a permanent establishment in Australia. In the case of a resident of the
United States, Article 7 (1) of the US Treaty provides that the business profits of a US enterprise
are only taxable in the US unless the enterprise carries on business in Australia through a
permanent establishment situated in Australia. The term permanent establishment is defined in
Article 5 of the US Treaty.
If the ADRs are held by an ADR holder either as trading stock or a revenue asset, then gains
realised on the disposal of those ADRs should be treated as business profits. Certain of
Australias double tax treaties, including the US Treaty, specifically exclude capital gains from
business profits.
Accordingly, capital gains realised on the disposal of ADRs would not be business profits
and the domestic capital gains tax provision would apply.
ADR holders should seek their own independent taxation advice should they wish to rely on a
double tax treaty for relief from liability to pay Australian income tax upon the disposal of an
ADR.
A capital gain, for Australian tax purposes, will generally be the excess of the arms-length
consideration in respect of the disposal of the ADR over its cost base. The cost base of an ADR
will include the consideration on acquisition and incidental costs associated with acquisition.
If an ADR holder is an individual, an Australian complying superannuation fund or a trust,
then that ADR holder may be eligible to discount any net capital gain they make under the capital
gains tax discount concession. This will only be the case if the ADR holder has held the ADRs for
at least 12 months prior to disposal.
If an ADR holder is an individual or a trust (other than a trust that is an Australian
complying superannuation entity), the net capital gain is discounted by half.
If an ADR holder is an Australian complying superannuation entity, the net capital gain is
discounted by one-third.
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If the ADR holder is a company, the capital gains tax discount concession will not be
available in respect of any net capital gain on a disposal of the ADR.
ADR holders who incur a liability for Australian income tax will be required to file an income
tax return in Australia.
Australian Stamp Duty
The stamp duty laws of the Australian Capital Territory are relevant to dealings in shares and
ADRs of Telstra. Under those laws, the transfer of marketable securities or an interest in
marketable securities is a dutiable transaction.
No duty is payable in respect of an agreement for sale or transfer of:
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shares which are quoted on the Australian Stock Exchange Limited, another stock exchange
which is a member of the World Federation of Exchanges or another stock exchange which as
been approved by the relevant Minister (a Relevant Stock Exchange); or |
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an interest in shares where the underlying shares are quoted on a Relevant Stock Exchange
(whether the interest is quoted on such an exchange or not). |
Therefore, stamp duty will not be payable by a subsequent purchaser or transferee of Telstra shares
if at the time of both any agreement for sale and any transfer, shares the subject of the transfer
are quoted on a Relevant Stock Exchange.
ADRs are an interest in shares for stamp duty purposes. Accordingly, the transfer of ADRs will
also not be subject to stamp duty if the shares are quoted on a Relevant Stock Exchange.
If at the time of a transfer or agreement for transfer of the shares or ADRs, Telstra shares
have been suspended from quotation, this exemption may not apply. The ACT Revenue Office is
currently considering whether to treat marketable securities as being quoted when there is a
suspension from quotation. If the exemption does not apply, any duty payable would be payable by
the subsequent acquirer of the shares or ADRs.
Apart from the exemptions referred to above, other exemptions may apply depending on the
circumstances.
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Glossary
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1xRTT:
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(One Times Radio Transmission Technology) a 3G development of CDMA technology for high speed
packet switched data |
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2.5G:
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technology designed to expand the bandwidth and data handling capacity of existing mobile telephony
systems such as GSM using GPRS |
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3G:
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third generation technology designed to further expand the bandwidth and functionality of existing
mobile telephony systems beyond 2.5G |
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A$:
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Australian Dollars |
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ACCC:
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Australian Competition and Consumer Commission |
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ACIF:
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Australian Communications Industry Forum |
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ACMA:
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Australian Communications and Media Authority |
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ACT:
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Australian Capital Territory |
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ADR:
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American Depositary Receipt |
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ADS:
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American Depositary Share |
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ADSL:
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(Asymmetric Digital Subscriber Line) a technology for transmitting digital information at a high
bandwidth on existing phone lines |
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AGM:
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Telstra Annual General Meeting |
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A-IFRS:
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Australian accounting standards equivalent to International Financial Reporting Standards |
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ARPANSA:
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(Australian Radiation Protection and Nuclear Safety Agency) a Commonwealth agency responsible for
protecting the health and safety of people and the environment from the harmful effects of radiation |
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ARPU:
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average revenue per user |
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ASX:
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Australian Stock Exchange Limited |
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ATM:
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(Asynchronous Transfer Mode) a high bandwidth, low delay technology for transmitting voice, data and
video signals |
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AUSTAR:
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Austar United Communications Limited |
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Bandwidth:
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the capacity of a communication link |
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Broadband network:
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a network to support subscription television and online services |
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Carriage service provider:
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a supplier of a telecommunications services to the public using Carrier network infrastructure |
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Carrier:
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a licenced owner of certain specified transmission infrastructure that is used to supply
telecommunications carriage services to the public; any person holding a carrier licence |
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CDMA:
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(Code Division Multiple Access) a mobile telephone system based on digital transmission |
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Churn:
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(where expressed as a rate) the rate at which subscribers to a service disconnect from the service, which
is usually expressed as total disconnects for a period divided by the average number of customers for
that period |
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Churn:
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(where expressed as an activity) the transfer of a customers telecommunications service from one
supplier to another in the case of a transfer involving a resale arrangement, no disconnection occurs |
165
|
|
|
|
|
and a churn relates to a change in the legal entity responsible for a telecommunications service or
account |
|
|
|
CGT:
|
|
Australian capital gains tax |
|
|
|
CN:
|
|
Converged Networks Group |
|
|
|
Code:
|
|
the US Internal Revenue Code of 1986, as amended |
|
|
|
Communications Minister:
|
|
the Commonwealth Minister for Communications, Information Technology and the Arts |
|
|
|
Commonwealth:
|
|
the Commonwealth of Australia |
|
|
|
CONSOB:
|
|
Commissione Nazionale per le Societá e la Borsa |
|
|
|
Corporations Act and
Australian
Corporations Act: |
|
Corporations Act 2001 (Cwth) |
|
|
|
CPE:
|
|
customer premises equipment |
|
|
|
CRM:
|
|
customer relationship management |
|
|
|
CSG:
|
|
customer service guarantee |
|
|
|
CSL:
|
|
Hong Kong CSL Limited |
|
|
|
CSL New World:
|
|
CSL New World Mobility Group |
|
|
|
CSP:
|
|
carriage service providers |
|
|
|
CustomNet(R):
|
|
a fully managed telephone system with a premium voice communication application that delivers cost
effective and flexible solutions for enterprises with up to 50,000 employees |
|
|
|
DAR:
|
|
Telstra Wholesale Data Access Radial |
|
|
|
DDN:
|
|
digital data network |
|
|
|
DDS:
|
|
digital data service |
|
|
|
DDSO:
|
|
digital data service obligation |
|
|
|
Declared Services:
|
|
a particular telecommunications service, or other service that facilitates the supply of services, that is
subject to the regulated access regime the ACCC has the responsibility for determining declared
services, based on public inquiries |
|
|
|
DSL:
|
|
digital subscriber line |
|
|
|
DVN:
|
|
Digital Video Network |
|
|
|
DWHT:
|
|
dividend withholding tax |
|
|
|
e-commerce:
|
|
e-commerce includes buying and selling electronically over a network |
|
|
|
EFTPOS:
|
|
electronic funds transfer at point of sale |
|
|
|
EME:
|
|
electromagnetic energy |
|
|
|
EPG:
|
|
electronic program guide |
166
|
|
|
EVDO:
|
|
(Evolution Data Optimised) additional service for mobiles supporting high speed packet data
transmission |
|
|
|
FASTER:
|
|
Fully Automated Screen Trading and Electronic Registration System |
|
|
|
FIN:
|
|
FASTER Identification Number |
|
|
|
Finance Minister:
|
|
The Minister for Finance and Administration |
|
|
|
Frame relay:
|
|
a packet switching technology for voice, data and video signals which uses packets of varying length, or
frames that can be used with any data protocol |
|
|
|
FTTN:
|
|
(Fibre to the Node) an access infrastructure that brings fibre close to the customer with the last few
hundred metres to the customer premises being fed by copper and delivers telephony, broadband data
and potentially television services to customer premises |
|
|
|
Gbps:
|
|
gigabyte per second |
|
|
|
GPRS:
|
|
(General Packet Radio Service) a service that will allow compatible mobile phones and mobile data
devices to access Internet and other data networks on a packet basis and remain connected to the net and
send or receive data information and email at any time |
|
|
|
GSM:
|
|
(Global System for Mobile Communications) a mobile telephone system based on digital transmission |
|
|
|
HFC:
|
|
hybrid-fibre coaxial |
|
|
|
HIN:
|
|
holder identification number |
|
|
|
HSDPA:
|
|
high speed downlink packet access |
|
|
|
IASB:
|
|
International Accounting Standards Board |
|
|
|
ICT:
|
|
information and communication technology |
|
|
|
IN:
|
|
intelligent network |
|
|
|
INP:
|
|
inbound number portability |
|
|
|
IP:
|
|
internet protocol |
|
|
|
IPND:
|
|
Integrated Public Number Database |
|
|
|
IPMAN:
|
|
IP Metropolitan Area Network |
|
|
|
IP/MPLS:
|
|
Internet Protocol /Multiprotocol Label Switching |
|
|
|
IP-VPN:
|
|
Internet protocol virtual private network |
|
|
|
ISDN:
|
|
(Integrated Services Digital Network) a digital service providing switched and dedicated integrated
access to voice, data and video |
|
|
|
ISP:
|
|
(Internet Service Provider) an Internet service provider provides the link between an end user and the
Internet by means of a dial-up or broadband service is likely to provide help desk, web hosting and email
services to the end user and ISP may connect to the Internet via their own backbone or via services
acquired from an Internet access provider |
|
|
|
LCS:
|
|
local carriage services |
|
|
|
LTIs:
|
|
lost-time injuries |
167
|
|
|
MAN:
|
|
metropolitan area network |
|
|
|
MCF:
|
|
Mobile Carriers Forum |
|
|
|
MPLS:
|
|
multi-protocol label switching |
|
|
|
MTAS:
|
|
mobile terminating access service |
|
|
|
NEXT
G(TM) wireless |
|
|
network:
|
|
our recently launched 3GSM 850Mhz national wireless broadband network |
|
|
|
News Corporation:
|
|
The News Corporation Limited |
|
|
|
NGN:
|
|
next-generation network |
|
|
|
Number portability:
|
|
the ability of end users to keep their telephone number when they change their telephone service
provider |
|
|
|
NYSE:
|
|
New York Stock Exchange |
|
|
|
NZSX:
|
|
the main board equity security market operated by the NZX |
|
|
|
NZX:
|
|
New Zealand Exchange Limited |
|
|
|
OCMF:
|
|
Online Customer Management Facility |
|
|
|
OTA:
|
|
PSTN originating and terminating access |
|
|
|
PBL:
|
|
Publishing & Broadcasting Ltd |
|
|
|
PDR:
|
|
personal digital recorder |
|
|
|
Preselection:
|
|
the ability of a customer to choose a service provider to provide a basket of services including national
and international long distance and fixed-to-mobile services which is on a permanent basis when the
customer selects a provider for all calls placed without an override code |
|
|
|
PSTN:
|
|
(Public Switched Telephone Network) our national fixed network delivering basic and enhanced
telephone service |
|
|
|
RDN:
|
|
routed data network |
|
|
|
REACH:
|
|
Reach Ltd, a 50:50 joint venture with PCCW Limited |
|
|
|
Reseller:
|
|
providers of telecommunications services who are not carriers |
|
|
|
RMRC:
|
|
retail minus retail costs |
|
|
|
SDH:
|
|
synchronous digital hierarchy |
|
|
|
SDN:
|
|
switched data network |
|
|
|
SEATS:
|
|
Stock Exchange Automated Trading System |
|
|
|
SEC:
|
|
US Securities and Exchange Commission |
|
|
|
Securities Act:
|
|
US Securities Act of 1933, as amended |
|
|
|
Seven:
|
|
Seven Network Limited and C7 Pty Limited |
|
|
|
SIO:
|
|
services in operation |
168
|
|
|
SME:
|
|
small and medium enterprises |
|
|
|
SMS:
|
|
short messaging service |
|
|
|
SPAN:
|
|
Service Providers Association Incorporated |
|
|
|
SRN:
|
|
security holder reference number |
|
|
|
SSS:
|
|
spectrum sharing service |
|
|
|
T3 Global Offering:
|
|
offer of Telstra shares by Commonwealth in 2006 |
|
|
|
Telecommunications Act:
|
|
Telecommunications Act 1997 (Cwth) |
|
|
|
Telstra or Telstra Group:
|
|
Telstra Corporation Limited and its controlled entities as a whole |
|
|
|
Telstra Act:
|
|
Telstra Corporation Act 1991 (Cwth) |
|
|
|
TelstraClear:
|
|
TelstraClear Limited, the second largest full service carrier in New Zealand |
|
|
|
Telstra Entity:
|
|
Telstra Corporation Limited |
|
|
|
TLS:
|
|
the trading symbol for shares quoted on the ASX and the NZSX |
|
|
|
TPA:
|
|
Trade Practices Act 1974 (Cwth) |
|
|
|
TSLRIC:
|
|
total service long run incremental cost |
|
|
|
TTY:
|
|
Teletypewriter |
|
|
|
ULLS:
|
|
(Unconditioned Local Loop service) one or more twisted copper pairs between the exchange and the
network boundary at a customers premises |
|
|
|
US-GAAP:
|
|
generally accepted accounting principles in the US |
|
|
|
USO:
|
|
(Universal Service Obligation) obligation imposed on carriers to ensure that standard
telecommunications services are reasonably available to all persons in the universal service area |
|
|
|
US Person:
|
|
U.S. person as defined under Regulation S |
|
|
|
VoDSL:
|
|
voice over DSL |
|
|
|
VoIP:
|
|
voice over internet protocol |
|
|
|
VPN:
|
|
virtual private network |
|
|
|
WAN:
|
|
wide area network |
|
|
|
WAP:
|
|
wireless application protocol |
|
|
|
WHO:
|
|
World Health Organisation |
|
|
|
Wireless Local Loop:
|
|
a range of radio technologies used to provide fixed access to customers in lieu of copper |
|
|
|
WLR:
|
|
wholesale line rental |
169
As at 10 August 2006
Telstra Corporation Limited and controlled entities
Directors Report
For the year ended 30 June 2006
170
As at 10 August 2006
In accordance with a resolution of the Board, the directors present their report on the
consolidated entity (Telstra Group) consisting of Telstra Corporation Limited and the entities it
controlled at the end of or during the year ended 30 June 2006.
This is our first full year financial report prepared in accordance with Australian equivalents
to International Financial Reporting Standards (A-IFRS). When preparing this directors report, we
have amended certain accounting and valuation methods applied under the previous Australian
Generally Accepted Accounting Principles (AGAAP) to comply with A-IFRS. With the exception of
financial instruments, the comparative figures have been restated to reflect these adjustments.
This year has seen the commencement of a 3 to 5 year transformation of the company to improve long
term shareholder value. The financial performance of the Company in fiscal 2006 was impacted by the
investment in this transformation and provision for future restructuring.
Principal activity
Telstras principal activity during the financial year was to provide telecommunications and
information services for domestic and international customers. There has been no significant change
in the nature of this activity during the year.
Results of operations
Telstras profit for the year was $3,181 million (2005: $4,309 million). This result was after
deducting:
|
|
|
net finance costs of $936 million (2005: $880 million); and |
|
|
|
|
income tax expense of $1,380 million (2005: $1,746 million). |
Earnings before interest and income tax expense was $5,497 million, representing a decrease of
$1,438 million or 20.7% on the prior years result of $6,935 million. This decrease was due to
higher labour costs, in particular redundancy costs, higher goods and services purchased and
increases in other expenses supporting revenue growth. Expenses were also impacted by the
recognition of transformation related expenses, including a provision at year end for redundancy
and restructuring costs of $427 million to be incurred as part of our business transformation.
Review of operations
Financial performance
Our total income (excluding finance income) increased by $658 million or 2.9% to $23,100 million,
reflecting a rise in total revenue (excluding finance income) of $591 million or 2.7% and other
income by $67 million or 25.7%.
Total income (excluding finance income) growth was mainly attributable to:
|
|
mobile goods and services $284 million or 6.1%; |
|
|
|
internet and IP solutions revenue $530 million or 38.5%; |
|
|
|
advertising and directories revenue $126 million or 7.9%; and |
|
|
|
pay TV bundling $57 million or 21.7%. |
Mobile goods and services revenue increased largely due to increases in mobile data, international
roaming and mobile interconnection revenues. Our interconnection revenues increased primarily due
to Hutchison 3G roaming services, which commenced in April 2005. In addition, we continued to
experience growth in the number of mobiles in operation of 261,000 to reach a total of 8.5 million,
as well as increased revenue from mobile handset sales. 3G services were launched and take up has
been very promising. Data usage is particularly strong by 3G users.
171
As at 10 August 2006
The increase in internet and IP solutions revenue was due to the significant growth in the
number of subscribers to our Bigpond broadband product. During fiscal 2006 we increased the number
of broadband subscribers by 1.2 million to 2.9 million, reflecting wholesale subscribers of 1.4
million and retail subscribers of 1.5 million.
Our advertising and directories revenue increased compared with the prior year due to the continued
strong performance of our Yellow pages® and White pages® print directories and strong growth in
online products. This growth has also been driven by innovative marketing and product development
strategies.
Pay TV bundling revenue increased due to new subscribers and current subscribers migrating to the
FOXTEL digital premium product as a result of promotions during the year, offering minimal price
installation and discounted packages.
Partially offsetting the revenue growth was a decline in PSTN product revenues of $540 million or
6.7% as the market continues to move towards new products and services. There has been a general
reduction in PSTN volumes during the year with a decline in retail basic access lines and volume
reductions across local calls, national long distance calls, international direct calls and fixed
interconnection. Yields have also declined due to competitive pricing pressure and continuing
customer migration to other products. The rate of decline in the second half of the year has
reduced.
Total operating expenses (before depreciation and amortisation, finance costs and income tax
expense) increased by $1,637 million or 13.8% compared with the prior year. This growth was mainly
attributable to:
|
|
labour $506 million or 13.1%; |
|
|
|
goods and services purchased $519 million or 12.3%; and |
|
|
|
other expenses $612 million or 16.0%. |
Excluding the effects of our transformation costs, our total operating expenses (before
depreciation and amortisation, finance costs and income tax expense) increased by $933 million or
7.9%. Further details of the increase in expenses is discussed below.
Labour costs grew in fiscal 2006 mainly due to the following:
|
|
an increase in redundancy expense due to transformation initiatives; |
|
|
|
annual salary increases due to enterprise agreements and annual salary reviews; and |
|
|
|
an increase in labour expense of controlled entities as a result of entities acquired during
fiscal 2005 being included for the full year in fiscal 2006. |
Goods and services purchased increased due to the following:
|
|
an increase in network payments as a result of a rise in the number of terminations on other
networks and additional network access charges incurred as a result of our 3G partnership
activities; |
|
|
|
higher handset subsidies from an increase in the take up of subsidised plans; |
|
|
|
a rise in purchases of pay TV services to enable us to provide bundled products to meet market
demand; and |
|
|
|
increased costs associated with our restructuring provision. |
172
As at 10 August 2006
Other expenses grew due to the following:
|
|
recognition of a restructuring provision associated with our property
rationalisation, cancellation of server leases and decommissioning of
certain information technology platforms; |
|
|
|
increased maintenance costs of the existing 3G network and the
operational expenditure relating to the construction of the new 3G 850
network; and |
|
|
|
increased costs associated with our transformation initiatives,
including higher consultancy costs for transformation activities and
additional market research as part of our market based management
approach. |
Depreciation and amortisation costs grew to $4,087 million or by 15.8% in fiscal 2006 primarily due
to the reassessment of service lives of our assets as part of the transformation strategy. As a
result, we have accelerated depreciation and amortisation on our CDMA network, switching systems,
certain business and operational support systems and related software totalling $422 million for
the year.
Partially offsetting the growth in other expenses was a reduction in our bad and doubtful debt
expense resulting from improved credit management performance that led to lower debtor provision
requirements and write offs, as well as reduced payments to external debt collection agents.
Net finance costs increased by $56 million or 6.4% in fiscal 2006, primarily due to higher levels
of debts driven by the cash requirements to fund the payment of our dividends and capital
expenditure associated with the improvement of our core infrastructure. Our borrowings have also
been affected by a higher effective interest rate as a result of refinancing elements of our
maturing debt. The net debt gearing level remains within the financial parameters set by the Board.
Income tax expense decreased by $366 million or 20.9% to $1,380 million in fiscal 2006 mainly as a
result of the lower profit. The effective tax rate in the current year was 30.3% compared with the
prior year rate of 28.8%. The effective tax rate is consistent with the Commonwealth statutory
marginal income tax corporate rate of 30.0%. The effective tax rate has increased from the prior
year mainly due to reduced differences for partnership losses and an increase in the under
provision for tax from prior periods.
Financial condition
We continued to maintain a strong financial position, as demonstrated by us generating free cash
flow of $4,550 million. During fiscal 2006 we continued to develop our core infrastructure network
and re-energise our Company through ongoing operational transformation. In addition, we acquired a
number of strategic investments and paid a total of $4,970 million to shareholders as dividends in
fiscal 2006.
As part of our ongoing operational transformation, we have introduced the one factory methology to
consolidate and simplify the way we operate at all levels of the business. Previously, we had
invested in multiple platforms in our exisiting networks. We intend on using economies of scale to
ensure rationalisation of the number of operational platforms. We are currently implementing new
business support systems and operational support systems to deliver simplificiation of our current
processes and new capababilities cost effectively.
During fiscal 2006, we merged our 100% owned Hong Kong mobile operations (Telstra CSL Group) with
the Hong Kong mobile operations of New World PCS Holdings Limited and its controlled entities (New
World Mobility Group) to form the CSL New World Mobility Group. Under the merger agreement, Telstra
CSL Limited (Telstra CSL) issued new shares to New World Mobility Holdings Limited in return for
100% of the issued capital of the New World Mobility Group and $42 million in net proceeds. The
share issue diluted Telstras ownership in the merged group to 76.4%.
173
As at 10 August 2006
This merger was undertaken as the two entities undertake complementary services in providing
mobile telecommunication products and services in Hong Kong. We believe the CSL New World Mobility
Group will be able to leverage their strong brand recognition and common network. The merged entity
will also create the largest wireless service provider in the Hong Kong market.
During fiscal 2006, our credit rating outlook was adjusted by Standard and Poors, and Moodys. The
change was initiated as a result of the uncertain environment in which we are operating, reflected
by the regulatory uncertainty and the speculation surrounding the further sale of shares in our
Company. As a result, our current credit ratings are as follows:
|
|
|
|
|
|
|
|
|
Long term |
|
Short term |
|
Outlook |
Standard & Poors
|
|
A
|
|
A1
|
|
negative |
Moodys
|
|
A2
|
|
P1
|
|
negative |
Fitch
|
|
A+
|
|
F1
|
|
negative |
Our financial condition has enabled us to execute partially our announced capital management
program. During fiscal 2006, we returned $4,970 million to shareholders as ordinary and special
dividend payments. In fiscal 2006, we paid two special dividends of 6 cents per share ($1,492
million) with our final dividend and interim dividend. We announced during the year that the third
year of the capital management policy would not occur. Refer to the strategy section below for
further details.
We reported a strong free cash flow position, which enabled the company to pay increased dividends
and fund the acquisition of a number of new entities. We continue to source cash through ongoing
operating activities and through careful capital and cash management.
Our cash flow before financing activities (free cash flow) position remains strong despite
declining to $4,550 million in the year from $5,194 million in the prior year. This decline was
driven by higher levels of cash used in investing activities as we undertake our network and
information technology platform transformation and a decline in operating performance.
Cash used in investing activities was $4,012 million, representing an increase of $246 million over
the prior year. The increase is mainly attributable to capital expenditure to upgrade our
telecommunications networks, eliminate components that are no longer useful and improve the systems
used to operate our networks. Our investing expenditure also includes $312 million of deferred
payments in relation to our purchase of the 3G radio access network assets from Hutchison Australia
Pty Ltd in fiscal 2005.
Our cash used in financing activities was $5,399 million, resulting from the funding of dividend
payments and the refinancing of our maturing debt, offset by net proceeds from borrowings received
from a number of our private placements.
Investor return and other key ratios
Our basic earnings per share decreased to 25.7 cents per share in fiscal 2006 from 34.7 cents per
share in the prior year. The decrease was due to lower profit in fiscal 2006.
We have declared a final fully franked dividend of 14 cents per ordinary share ($1,739 million),
bringing declared dividends per share for fiscal 2006 to 34 cents per share. The prior year
declared dividends amounted to 40 cents per share. The dividends paid in fiscal 2006 were 40 cents
per share compared with dividends paid in fiscal 2005 of 33 cents per share. In addition to our
dividends in fiscal 2005, we returned $750 million to shareholders through an off market share
buy-back during fiscal 2005.
174
As at 10 August 2006
Other relevant measures of return include the following:
|
|
Return on average assets 2006: 15.8% (2005: 20.6%) |
|
|
|
Return on average equity 2006: 24.2% (2005: 30.6%) |
The return on both average assets and average equity is lower in fiscal 2006 primarily due to lower
profit as previously discussed.
Strategy
We are Australias largest telecommunications and information services company. We offer a full
range of telecommunication products and services throughout Australia and various telecommunication
services in certain overseas countries.
During fiscal 2006, we announced our new strategic and operational focus to continually move
forward as an Australian market leader in the telecommunications industry. This review was a
blueprint for improving our long term performance by providing a solid platform to drive future
growth and create operational efficiencies.
Our vision is to streamline our processes to provide solutions that are simple and valued by our
customers, which we believe will ultimately lead to the creation of long term value for our
shareholders. Our strategy involves:
|
|
providing customers with integrated telecommunication
services; |
|
|
|
investing in systems and processes to remove complexity and cost from the business; |
|
|
|
continually improving our operating performance in mobiles and broadband, as well as accelerating opportunities in Sensis; |
|
|
|
investing in new services and applications to differentiate us from our competitors; and |
|
|
|
targeted investing in areas where we can create value for our shareholders. |
We intend to deliver our new strategy through the implementation of a one factory approach and
market based management. The one factory approach involves bringing together the operations and
management of our internal IT systems, removing duplication and complexity in our systems and
implementing simpler and efficient processes and systems, which we believe will improve our
operational efficiency and cost structure. Market based management involves us obtaining a better
understanding of each of our respective customers unique segment needs, priorities and
expectations. It is based on extensive market research, which we will utilise to ensure our
processes and procedures meet our various customer requirements to ultimately provide them with
better services.
In addition, we currently face a series of business operating issues that we expect will impact our
future results. These issues range from regulatory issues, including unconditioned local loop
access pricing and operational separation, to the potential full sale of the Company.
We are currently in the process of rebuilding, redirecting and transforming the Company. The next
three to five years will see us concentrate on rebuilding the network, redirecting resources into
next generation services, reshaping the business and segmentation of customers according to their
needs. By streamlining our operations, while better satisfying the needs of our customers, we
believe we can deliver the financial performance improvements expected by our shareholders.
Although the transformation of our Company is at an early stage, current progress is encouraging.
Our transformation has already resulted in our national 3GSM 850 network build being more than 60%
complete. Savings have been achieved by consolidating office space, vacating existing leases and
sourcing mobile devices through global supply-chain specialist, Brightstar. In addition, we have
slowed the PSTN revenue decline in the second half of the year and increased the number of
customers using three or more Telstra products. At the same time, we have significantly reduced our
customers unsatisfied demand for ADSL broadband.
175
As at 10 August 2006
Our Fibre to the Node (FTTN) project is on hold, however we have devoted substantial time and
resources in discussions with the ACCC to achieve regulation reform, including safeguards for
shareholder investments. Until our actual costs are recognised and the ACCCs regulatory practices
change, we will not invest in a FTTN broadband network.
We believe that the successful transformation of our Company will achieve the following:
|
|
simplified and integrated experience for our customers; |
|
|
|
Telstra Bigpond to be Australias leading ISP and services entity; |
|
|
|
Sensis to be Australias leading information resource; |
|
|
|
our Company to have the leading wireless network with faster speeds
and best in-building coverage, as well as Australias largest IP
network, providing customers with integrated telecommunications
services; and |
|
|
|
operational and cost efficiencies. |
During fiscal 2006, we revised our capital management policy to not make the last payment of a
special dividend. No decision with respect to the payment or funding of future ordinary dividends
has been made. The Board will make these decisions in the normal cycle having regard to, among
other factors, the Companys earnings and cash flow, as well as regulatory decisions.
Industry dynamics
The Australian telecommunications industry is continually changing. We have seen the number of
mobile handsets in the Australian market continue to grow, as well as the use of mobile services.
Most households continue to maintain a basic access line, however PSTN products are increasingly
being substituted by wireless products.
Advances in technology continue to transform the telecommunications industry. In recent years, we
have seen various new product offerings released to the market, including the provision of
high-speed wireless services, 3G mobile services. Voice services over IP (VoIP) is another area of
change for which the industry is preparing. We have successfully commissioned and commenced testing
our next generation VoIP platform which we believe will offer value added broadband services to our
customers in the future. We expect take up of this product to increase in future reporting periods,
as the market becomes more aware of its performance capabilities.
We aim to be at the forefront of providing leading edge telecommunication services to meet the
demands of our customers. During fiscal 2006, we proposed the roll out of the new 3G 850 network.
In addition to current services already experienced on existing networks, we believe future 3G 850
customers will enjoy many enhanced features, such as improved video calling services and faster
broadband access speeds, in addition to better in-building coverage.
The broadband sector is in a significant growth phase as the demand for high speed internet access
accelerates. We have recently seen large increases in broadband subscribers and a steady fall in
prices as providers compete for market share. We expect the broadband sector to continue its
expansion through the provision of new innovative products.
As telecommunications, computing and media technologies continue to converge, we are focused on
enhancing our capabilities to provide new and innovative application and content services and to
expand further into these converging markets. The challenge for telecommunications companies moving
forward will be to continue maximising revenues from higher margin traditional products such as
PSTN products, while managing the shift in customer demand to lower margin emerging products such
as broadband. Overall operating margins are under constant pressure from the product mix change to
lower margin products. However, as we build a software based cost efficient infrastructure, new
products, applications and content can be delivered at low incremental costs to again provide good
margins.
176
As at 10 August 2006
We continue to be at the forefront of these, and other technology advancements as we continue to
devote substantial capital to upgrading and simplifying our telecommunications networks to meet
customer demand, particularly for the new product and growth areas. We believe we are well
positioned to focus on these areas of new customer demand by providing a broad range of innovative
products with creative and competitive pricing structures.
Sale of the Commonwealths remaining interest in Telstra
The Commonwealth Government has passed legislation to enable the sale of its remaining interest in
Telstra. The Government has stated that it is yet to decide about proceeding with a sale. This
decision will include an assessment of whether the level of demand for the shares would allow a
partial or full sale of the Commonwealths remaining interest. Until this decision is made by the
Government and announced, it is unclear how this may affect our capital structure, operations and
corporate compliance obligations. Any sale by the
Commonwealth of its remaining interest will require our managements time and resources.
Dividends
The directors have declared a fully franked final dividend of 14 cents per share ($1,739 million).
The dividends will be franked at a tax rate of 30%. The record date for the final dividend will be
25 August 2006 with payment being made on 22 September 2006. Shares will trade excluding
entitlement to the dividend on 21 August 2006.
During fiscal 2006, the following dividends were paid:
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|
|
Dividend |
|
Date declared |
|
Date paid |
|
Dividend per share |
|
Total dividend |
Final dividend
for the year
ended 30 June
2005
|
|
11 August 2005
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31 October 2005
|
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14 cents franked to 100%
|
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$1,739 million |
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Special dividend
for the year
ended 30 June
2005
|
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11 August 2005
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31 October 2005
|
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6 cents franked to 100%
|
|
$746 million |
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Interim dividend
for the year
ended 30 June
2006
|
|
8 February 2006
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24 March 2006
|
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14 cents franked to 100%
|
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$1,739 million |
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|
Special dividend
for the year
ended 30 June
2006
|
|
8 February 2006
|
|
24 March 2006
|
|
6 cents franked to 100%
|
|
$746 million |
At present, it is expected that we will be able to fully frank declared dividends out of fiscal
2007 earnings. However, the directors can give no assurance as to the future level of dividends, or
of the franking of these dividends. This is because our ability to frank dividends depends upon,
among other factors, our earnings, Government legislation and our tax position.
177
As at 10 August 2006
Significant changes in the state of affairs
There have been no significant changes in the state of affairs of our Company during the
financial year ended 30 June 2006, except for:
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we announced our new strategic and operational focus to continually move forward as an
Australian market leader in the telecommunications industry. As part of this strategic
review, we unveiled a blueprint for improving our long term
performance; and |
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|
we are
involved in continuing discussions over the future regulatory environment impacting the
Australian telecommunications industry in general and us in
particular. The regulatory environment we operate in has a significant impact on our future
performance. There are several key regulatory decisions, whether recently made or pending,
which will shape the future of our Company. We are currently in discussions with the
regulators, which we hope will advance the best interests of our
shareholders,. Customers and the nation. |
Likely developments and prospects
The directors believe, on reasonable grounds, that Telstra would be likely to be unreasonably
prejudiced if the directors were to provide more information than there is in this report or the
financial report about:
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the likely developments and future prospects of Telstras operations; or |
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the expected results of those operations in the future. |
Events occurring after the end of the financial year
The directors are not aware of any matter or circumstance that has arisen since the end of the
financial year that, in their opinion, has significantly affected or may significantly affect in
future years Telstras operations, the results of those operations or the state of Telstras
affairs; other than:
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on 31 July 2006, our 50% owned pay television joint venture FOXTEL entered into a new $600
million syndicated secured term loan facility to fund the refinancing of previous loan
facilities (including the $550 million syndicated facility), and to enable it to meet future
cash flow and expenditure requirements. |
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|
The equity contribution deed (ECD) entered into by us and FOXTELs other ultimate shareholders,
News Corporation Limited and Publishing and Broadcasting Limited has been terminated. Under this
arrangement, recourse to our controlled entity Telstra Media Pty Ltd, as a FOXTEL partner, is
limited to the assets of the FOXTEL Partnerships. |
Details about directors and executives
Changes to the directors of Telstra Corporation Limited during the financial year and up to the
date of this report were:
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John E Fletcher resigned as director on 30 June 2006; |
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Peter J Willcox was appointed as director on 17 May 2006; |
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John D Zeglis was appointed director on 17 May 2006; |
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John T Ralph retired as director on 11 August 2005; |
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Anthony J Clark retired as director on 11 August 2005; |
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Solomon D Trujillo was appointed CEO and executive director on 1 July 2005; and |
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Zygmunt E Switkowski resigned as CEO and executive director on 1 July 2005. |
178
As at 10 August 2006
Information about directors and senior executives is provided as follows and forms part of this
report:
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names of directors and details of their qualifications, experience, special responsibilities and directorships of other
listed companies are given on pages 14 to 19; |
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number of Board and Committee meetings and attendance by directors at these meetings is provided on page 20; |
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details of director and senior executive shareholdings in Telstra are shown on page 20; and |
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details of director and senior executive remuneration is detailed in the remuneration report on pages 22 to 48. |
Company secretary
The qualifications, experience and responsibilities of our company secretary are provided on page
19 and forms part of this report.
Directors and officers indemnity
Constitution
Our constitution provides for us to indemnify each officer to the maximum extent permitted by law
for any liability incurred as an officer provided that:
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the liability is not owed to us or a related body corporate; |
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the liability is not for a pecuniary penalty or compensation order made by a Court under the Corporations Act 2001; and |
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the liability does not arise out of conduct involving a lack of good faith. |
Our constitution also provides for us to indemnify each officer, to the maximum extent permitted
by law, for legal costs and expenses incurred in defending civil or criminal proceedings.
If one of our officers or employees is asked by us to be a director or alternate director of a
company which is not related to us, our constitution provides for us to indemnify the officer or
employee out of our property for any liability he or she incurs. This indemnity only applies if the
liability was incurred in the officers or employees capacity as a director of that other company.
It is also subject to any corporate policy made by our CEO. Our constitution also allows us to
indemnify employees and outside officers in some circumstances. The terms officer, employee and
outside officer are defined in our constitution.
Deeds of indemnity in favour of directors, officers and employees
Telstra has also executed deeds of indemnity in favour of:
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directors of the Telstra Entity (including past directors); |
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secretaries and executive officers of the Telstra Entity (other than Telstra Entity directors)
and directors, secretaries and executive officers of our wholly owned subsidiaries; |
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directors, secretaries and executive officers of a related body corporate of the Telstra Entity
(other than a wholly owned subsidiary) while the director, secretary or executive officer was also
an employee of the Telstra Entity or a director or employee of a wholly owned subsidiary of the
Telstra Entity (other than Telstra Entity directors); and |
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employees of Telstra appointed to the boards of other companies as our nominees. |
Each of these deeds provides an indemnity on substantially the same terms as the indemnity provided
in the constitution in favour of officers. The indemnity in favour of directors also gives
directors a right of access to Board papers and requires Telstra to maintain insurance cover for
the directors.
179
As at 10 August 2006
Additionally, Telstra has executed an indemnity in favour of employees (including executive
officers other than directors) in respect of liabilities incurred in the formulation, entering into
or carrying out, of a Telstra Sale Scheme (as defined in the Telstra Corporation Act 1991 (Cwth)).
This indemnity would cover liabilities incurred by an employee in connection with the proposed sale
by the Commonwealth of its remaining shareholding in Telstra. The indemnity is subject to an
exclusion for liabilities arising out of conduct involving a lack of good faith.
In April 2006, the Commonwealth Government executed a Deed of Indemnity in favour of the directors
of Telstra to cover liabilities incurred by those directors in connection with a Telstra Sale
Scheme (as defined in the Telstra Corporation Act 1991 (Cwth)). This indemnity is subject to
certain limited exclusions described in the Deed. The Commonwealth also executed a similar
indemnity in favour of Telstra Executives (as defined in the Deed). The class of Telstra
Executives includes persons who are likely to be involved in enabling Telstra to assist the
Commonwealth in relation to a Telstra Sale Scheme.
Directors and officers insurance
Telstra maintains a directors and officers insurance policy that, subject to some exceptions,
provides worldwide insurance cover to past, present or future directors, secretaries or executive
officers of the Telstra Entity and its subsidiaries. Telstra has paid the premium for the policy.
The directors and officers insurance policy prohibits disclosure of the premium payable under the
policy and the nature of the liabilities insured.
Environmental regulation and performance
Telstras operations are subject to some significant environmental regulation under Commonwealth,
State and Territory law, particularly with regard to:
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the impact of the rollout of telecommunications infrastructure; |
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site contamination; and |
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waste management. |
Telstra has established procedures to monitor and manage compliance with
existing environmental regulations and new regulations as they come into force.
The directors are not aware of any significant breaches of environmental regulation during the
financial year.
Audit and non-audit services
The Auditor-General and Ernst & Young are authorised to perform all audit services, including an
examination or review of the financial statements of the Company in accordance with the laws and
rules of each jurisdiction in which filings are made for the purpose of expressing an opinion on
such statements.
The Audit Committee approves the provision of recurring audit services as part of the annual
approval of the audit plan. Additional audit and non-audit services are pre-approved by the Audit
Committee provided they fall within a defined list of services specified by the Audit Committee.
Those additional audit and non-audit services that are not listed have to be specifically approved
by the Audit Committee prior to the commencement of any engagement. In addition, all non-audit
services with a value over $100,000 must be separately approved by the Audit Committee, even if the
service is listed as a pre-approved service.
180
As at 10 August 2006
The Auditor-General does not provide non-audit services. Ernst & Young does provide non-audit
services, but are specifically prohibited from performing any of the following services:
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bookkeeping services and other services related to preparing Telstras accounting records of
financial statements; |
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financial information system design and implementation services; |
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appraisal or valuation services, fairness opinions, or contribution in kind reports; |
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actuarial services; |
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internal audit services; |
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management function or human resources; |
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broker or dealer, investment adviser, or investment banking services; |
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taxation advice of a strategic or tax planning nature; and |
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legal services or expert services unrelated to the audit. |
In addition, Ernst & Young may only provide non-audit services if the performance of the non-audit
service will not cause the total annual revenue to Ernst & Young from non-audit work to exceed the
aggregate annual amount of Ernst & Youngs audit fees. The Audit Committee will not approve the
provision of a non-audit service by Ernst & Young if the provision of the service would compromise
Ernst & Youngs independence.
The provision of non-audit services by Ernst & Young is monitored by the Audit Committee via
bi-annual reports to the Audit Committee. In addition, where engagements involve services from the
defined list of services, these are reported to the Audit Committee at the following meeting.
The Audit Committee expects the Auditor-General and requires Ernst & Young to submit annually to
the Audit Committee a formal written report delineating all relationships between the
Auditor-General, Ernst & Young and the Telstra Group. This includes:
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a listing of all audit and non-audit fees billed by the Auditor-General and Ernst & Young in the
most recent fiscal year; |
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a statement on whether the Auditor-General and Ernst & Young are satisfied that the provision of
the audit and any non-audit services is compatible with auditor independence; and |
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a statement regarding the Auditor Generals and Ernst & Youngs internal quality control
procedures. |
A copy of the independence of the auditor declaration is set out on page 21 and forms part of this
report.
The Audit Committee submits annually to the Board a formal written report detailing the nature and
amount of any non-audit services rendered by Ernst & Young during the most recent fiscal year and
an explanation of why the provision of these non-audit services is compatible with auditor
independence. If applicable, the Audit Committee recommends that the Board take appropriate action
in response to the Audit Committees report to satisfy itself of Ernst & Youngs independence.
Details of amounts paid or payable to the auditor for non-audit services provided during the year
are located in note 8 to our financial statements.
For the reason set out above, the directors are satisfied that the provision of non-audit services
by the external auditor during the year ended 30 June 2006 is compatible with the general standard
of independence for auditors imposed by the Corporations Act 2001.
181
As at 10 August 2006
Rounding of amounts
The Telstra Entity is a company of the kind referred to in the Australian Securities and
Investments Commission class order 98/100, dated 10 July 1998 and issued pursuant to section 341(1)
of the Corporations Act 2001. As a result, amounts in this report and the accompanying financial
report have been rounded to the nearest million dollars, except where otherwise indicated.
This report is made in accordance with a resolution of the directors.
Donald McGauchie
Chairman
10 August 2006
Solomon D Trujillo
Chief Executive Officer and Executive Director
10 August 2006
182
As at 10 August 2006
Directors profiles
As at 10 August 2006, our directors were as follows:
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Year of initial |
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Year last re- |
Name |
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Age |
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Position |
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appointment |
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elected (1) |
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Donald G McGauchie
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56 |
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Chairman
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1998 |
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2005 |
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Solomon D Trujillo (2)
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54 |
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CEO and executive
director
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2005 |
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Belinda J Hutchinson
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53 |
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Director
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2001 |
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2004 |
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Catherine B Livingstone |
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50 |
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Director
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2000 |
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2005 |
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Charles Macek
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59 |
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Director
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2001 |
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2004 |
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John W Stocker
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61 |
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Director
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1996 |
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2003 |
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Peter J Willcox (3)
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60 |
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Director
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2006 |
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John D Zeglis (3)
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59 |
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Director
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2006 |
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(1) |
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Other than the CEO, one third of directors are subject to
re-election by rotation each year. |
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(2) |
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Solomon D Trujillo was appointed CEO and executive director on 1
July 2005. |
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(3) |
|
In accordance with our constitution, Peter Willcox and John Zeglis have been appointed to
fill interim positions and will stand for election at the 2006 annual general meeting. |
A brief biography for each of the directors as at 10 August 2006 is presented below:
Donald G McGauchie AO
Age 56
Chairman
Mr McGauchie joined Telstra as a non-executive director in September 1998 and was appointed as
chairman in July 2004. He is chairman of the Nomination Committee and is a member of the
Remuneration Committee.
Experience:
Mr McGauchie has wide commercial experience within the food processing, commodity trading, finance
and telecommunication sectors. He also has extensive public policy experience, having previously
held several high-level advisory positions to the government including the Prime Ministers
Supermarket to Asia Council, the Foreign Affairs Council and the Trade Policy Advisory Council.
Directorships of other listed companies current:
Director, James Hardie Industries NV (2003- ) and Nufarm Limited (2003- ).
Directorships of listed companies past three years:
Deputy Chairman, Ridley Corporation Limited (1998-2004); Director, National Foods Limited
(2000-2005) and Graincorp Limited (1999-2003).
Other:
Current: Director, Reserve Bank of Australia; Partner, C&E McGauchie Terrick West Estate. Former:
President of the National Farmers Federation (1994-1998); Chairman, Rural Finance Corporation
(2003-2004).
Awarded the Centenary Medal for service to Australian society through agriculture and business in
2003. Appointed an officer in the general division of the Order of Australia in 2004.
183
As at 10 August 2006
Solomon
D Trujillo BSc, BBus, MBA, Hon Doctor of Law Degrees
(University of Wyoming, University of Colorado)
Age 54
Mr Trujillo joined Telstra as CEO on 1 July 2005.
Experience:
Mr Trujillo has spent his career in the communications sector where he managed fixed line,
wireless, broadband and directory businesses and served as a leader in the shift to market-based
management. He most recently served as CEO of Orange SA, one of Europes leading wireless
companies. Mr Trujillo was chairman and CEO of US West until he retired in July 2000 after the
companys merger with Qwest Communications.
Directorships of other listed companies current:
Target Corporation (1994- ).
Directorships of listed companies past three years:
Director, Electronic Data Systems Corporation (EDS) (2005-2005), PepsiCo Inc. (2000-2005), Orange
SA (2001-2005) and Gannett Co Inc (2002-2006).
Other:
Current: Member, World Economic Forum (2005- ) and UCLAs School of Public Affairs (2000- );
Trustee, Boston College; Director, Tomas Rivera Policy Institute (1991- ).
Recipient, the Ronald H. Brown Corporate Bridge Builder Award in 1999 from President Clinton for
his lifetime commitment as an advocate of workplace diversity.
Belinda J Hutchinson BEc, FCA
Age 53
Ms Hutchinson joined Telstra as a non-executive director in November 2001. She has been a member of
the Audit Committee since February 2005.
Experience:
Ms Hutchinson has had a long association with the banking industry and has been associated with
Macquarie Bank since 1992 where she was an executive director. She was previously a vice president
of Citibank Ltd.
Directorships of other listed companies current:
Director, QBE Insurance Group Limited (1997- ) and Coles-Myer Ltd (2005- ).
Directorships of listed companies past three years:
Director, TAB Limited (1997-2004) and Crane Group Limited (1997-2004).
Other:
Current: Director, St Vincents and Mater Health Sydney Limited (2001- ); President, Library
Council of New South Wales (2005- ) (member since 1997); and Consultant, Macquarie Bank Limited
(1997- ).
Former: Director of Energy Australia Limited (1997- 2005).
184
As at 10 August 2006
Catherine B Livingstone BA (Hons), FCA, FTSE
Age 50
Ms Livingstone joined Telstra as non-executive director in November 2000. She is a member of the
Audit Committee and the Technology Committee.
Experience:
Ms Livingstone has a degree in accounting and has held several finance and general management roles
predominantly in the medical devices sector. Ms Livingstone was the chief executive of Cochlear
Limited (1994-2000).
Directorships of other listed companies current:
Director, Macquarie Bank Limited (2003- ).
Directorships of listed companies past three years:
Director, Goodman Fielder Ltd (2000-2003) and Rural Press Limited (2000-2003).
Other:
Current: Chairman, CSIRO (2001- ); Member, Business/Industry/Higher Education Collaboration
Committee (BIHECC).
Former: Chairman and Director Australian Business Foundation (2000-2005);
Director, Sydney Institute (1998-2005); Former Member, Department of Accounting and Finance
Advisory Board Macquarie University.
Charles Macek BEc, MAdmin, FAICD, FCPA, FAIM, SF Fin, FCA
Age 59
Mr Macek joined Telstra as a non-executive director in November 2001. He is a member of the Audit
Committee and Nomination Committee and is chairman of the Remuneration Committee.
Experience:
Mr Macek has a strong background in economics and has had a long association with the finance and
investment industry. His former roles include 16 years as founding managing director and chief
investment officer and subsequently chairman of County Investment Management Ltd.
Directorships of other listed companies current:
Director, Wesfarmers Ltd (2001- ) and Living Cell Technologies Limited (2006- ).
Directorships of listed companies past three years:
Chairman and Director, IOOF Holdings Ltd (2002-2003).
Other:
Current: Chairman, Sustainable Investment Research Institute Pty Ltd (2002- ) and Financial
Reporting Council (FRC) (2003- ); Director, Williamson Community Leadership Program Limited (2004-);
Victorian Councillor, Australian Institute of Company Directors; Member, New Zealand Accounting
Standards Review Board and Investment Committee of Unisuper Ltd.
Former: Chairman, Centre for Eye Research Australia Ltd (1996-2003); Director of Famoice
Technology Pty Ltd (2001-2004) and Vertex Capital Pty Ltd (2004-2006).
185
As at 10 August 2006
John W Stocker AO, MB, BSc, BMedSc, PhD, FRACP, FTSE
Age 61
Dr Stocker joined Telstra as a non-executive director in October 1996. He is chairman of the Audit
Committee and Technology Committee.
Experience:
Dr Stocker has had a distinguished career in pharmaceutical research and extensive experience in
management of research and development, and its commercialisation including in his role as chief
scientist for the Commonwealth of Australia (1996-1999).
Directorships of other listed companies current:
Chairman, Sigma Pharmaceuticals Ltd (2005- ); Director, Circadian Technologies Ltd (1996- ) and
Nufarm Limited (1998- ).
Directorships of listed companies past three years:
Chairman, Sigma Company Ltd (1998-2005); Director, Cambridge Antibody Technology Group plc
(1995-2006).
Other:
Current: Principal, Foursight Associates Pty Ltd.
Former: Chairman, Grape and Wine Research and Development Corporation (1997-2004).
Peter J Willcox MA
Age 60
Mr Willcox joined Telstra as a non-executive director on 17 May 2006.
Mr Willcox holds a masters degree in physics from Cambridge University and following a 28 year
career in the international petroleum industry was appointed as CEO of BHP Petroleum Limited, from
1986 to 1994. He has wide and diverse experience as a director and chairman of Australian and
American listed companies. He is a fellow of the Australian Institute of Company Directors and sits
on the advisory board of CVC Asia Pacific (Australia) Limited.
Directorships of other listed companies current:
Chairman, Mayne Pharma (2005- ).
Directorships of listed companies past three years:
Chairman, AMP Limited (2002- 2005) and Mayne Group Ltd (2002-2005).
Other:
Current: Director, CSIRO (2006- ).
Former: Deputy Chairman, Energy Developments Ltd (1994-2002), Lend Lease Corporation (1994-2000);
Director: J.H. Faulding & Co Ltd (1994-2001), James Hardie Industries Ltd (1994-2001), North Ltd
(1994-2000), Schroders (Australia) Ltd (1994-1999), BHP Ltd (1988-1994), Woodside Petroleum
(1986-1993), Tejas Gas Corporation (1987-1994) and Hamilton Oil Corporation (1987-1991).
186
As at 10 August 2006
John D Zeglis BSc Finance, JD Law
Age 59
Mr Zeglis joined Telstra as a non-executive director on 17 May 2006.
Mr Zeglis has a legal background, and became partner with the law firm Sidley & Austin in 1978. His
qualifications include a BSc in finance from the University of Illinois, and a JD in law from
Harvard.
Mr Zeglis has had a long and distinguished career in the US telecommunications sector. He joined
AT&T in 1984, and was elected as president of AT&T in 1998 and chairman and CEO of the AT&T
Wireless Group in 1999. He continued as CEO of AT&T Wireless until retiring in November 2004
following the companys sale to Cingular Wireless.
Directorships of other listed companies current:
Director, Helmerich & Payne Corporation (1989- ).
Directorships
of listed companies past three years:
Director, Georgia Pacific Corporation (2001-2005).
Other:
Current:
Director, AMX Corporation; (2005- ) and State Farm Automobile
Insurance (2004- ).
Former: Director, Sara Lee Corporation (1998-2000) and Illinois Power Company (1992-1996).
During the year and through to the date of the report, the following directors resigned or
retired:
|
|
John E Fletcher resigned as a director on 30 June 2006; |
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|
|
John T Ralph retired as a director on 11 August 2005; |
|
|
|
Anthony J Clark retired as a director on 11 August 2005; and |
|
|
|
Zygmunt E Switkowski resigned as a director on 1 July 2005. |
A brief biography for each of the former directors is presented below:
John E Fletcher FCPA
Mr Fletcher joined Telstra as a non-executive director in November 2000. He was a member of the
Nomination Committee and the Remuneration Committee. John E Fletcher resigned as director on 30
June 2006.
Mr Fletcher has had extensive experience in management in the transport industry and was formerly
chief executive of Brambles Industries Ltd. Mr Fletcher was employed by Brambles for 27 years,
initially in an accounting role and then in a series of operating and senior management positions
before being appointed as chief executive in 1993.
John T Ralph AC, FCPA, FTSE, FAICD, FAIM, FAusIMM, Hon LLD (Melbourne & Queensland), DUniv (ACU)
Mr Ralph joined Telstra as non-executive director and deputy chairman in October 1996. He was
a member of the Audit Committee, Nomination Committee and Remuneration Committee. John Ralph
retired as director on 11 August 2005.
Mr Ralph has had over 50 years of experience in the mining and finance industries. Mr Ralph was
formerly chief executive and managing director of CRA Limited. He has previously served on the
boards of several of Australias largest companies including the Commonwealth Bank of Australia
Limited, BHP Billiton Limited and Fosters Group Limited.
187
As at 10 August 2006
Anthony J Clark AM, FCA, FAICD
Mr Clark joined Telstra as a non-executive director in October 1996. He served on the Audit
Committee until February 2005. Anthony Clark retired as director on 11 August 2005.
Mr Clark has had extensive experience in the accounting field, specialising in audit and advisory
services and is a fellow of the Institute of Chartered Accountants and a fellow of the Australian
Institute of Company Directors. Mr Clark was formerly a managing partner KPMG NSW.
Zygmunt E Switkowski BSc (Hons), PhD, FAICD
Mr Switkowski was appointed CEO and executive director from March 1999. Zygmunt Switkowski
resigned as CEO and executive director on 1 July 2005.
Formerly CEO of Optus Communications Ltd and chairman and managing director of Kodak (Australasia)
Pty Ltd and the Business Council of Australia.
Qualifications and experience of our company secretary
Douglas C Gration FCIS, BSc, LLB (Hons), GDip AppFin
Age 40
Mr Gration was appointed company secretary of Telstra Corporation Limited in August 2001.
Before joining Telstra, Mr Gration was a partner in a leading national law firm. He specialised in
corporate finance and securities law, mergers and acquisitions and joint ventures and other
commercial contracts, and played a key role in the T1 and T2 privatisations. Mr Gration also
advised on telecommunication regulatory matters. Other roles previously held in Telstra include
deputy group general counsel and Infrastructure Services and Wholesale general counsel.
188
As at 10 August 2006
Directors meetings
Each director attended the following Board and committee meetings during the year as a member of
the Board or relevant committee:
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Board |
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Committees (5) |
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|
Audit |
|
Nominations |
|
Remuneration |
|
Technology |
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a |
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b |
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a |
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b |
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a |
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b |
|
a |
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b |
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a |
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b |
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D G McGauchie |
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13 |
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13 |
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4 |
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4 |
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4 |
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4 |
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J T Ralph (1) |
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1 |
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1 |
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1 |
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1 |
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2 |
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2 |
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2 |
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2 |
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A J Clark (1) |
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1 |
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1 |
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S D Trujillo (2) |
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13 |
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13 |
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J E Fletcher (3) |
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13 |
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13 |
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4 |
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4 |
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4 |
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4 |
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B J Hutchinson |
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13 |
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13 |
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6 |
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6 |
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C B Livingstone |
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13 |
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13 |
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6 |
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6 |
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2 |
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2 |
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C Macek |
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13 |
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13 |
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6 |
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6 |
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4 |
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4 |
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4 |
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4 |
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J W Stocker |
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13 |
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13 |
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6 |
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6 |
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2 |
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2 |
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P J Willcox (4) |
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2 |
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2 |
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J D Zeglis (4) |
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2 |
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2 |
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Column a: number of meetings held while a member. |
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Column b: number of meetings attended. |
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(1) |
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Retired from the Board on 11 August 2005. |
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(2) |
|
Appointed CEO and executive
director on 1 July 2005. |
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(3) |
|
Resigned from the Board on 30
June 2006. |
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(4) |
|
Appointed to the Board on 17
May 2006. |
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(5) |
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Committee meetings are open to all directors to attend in an ex officio capacity. |
Director and senior executive shareholdings in Telstra
As at 10 August 2006:
Directors
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Number of shares held |
|
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Direct |
|
Indirect |
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|
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interest |
|
interest(1) |
|
Total |
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Donald G McGauchie |
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1,866 |
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55,775 |
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|
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57,641 |
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Solomon D Trujillo |
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|
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|
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Belinda J Hutchinson |
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38,912 |
|
|
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35,866 |
|
|
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74,778 |
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Catherine B Livingstone |
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11,637 |
|
|
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23,051 |
|
|
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34,688 |
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Charles Macek |
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48,576 |
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|
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48,576 |
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John W Stocker |
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2,953 |
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|
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94,288 |
|
|
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97,241 |
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Peter J Willcox |
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10,000 |
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10,000 |
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John D Zeglis |
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(1) |
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Shares in which the director does not have a relevant interest, including shares held by the
director related entities, are excluded from indirect interest. |
Senior executives
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Number of shares held |
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Direct |
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Indirect |
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|
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interest |
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interest (1) |
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Total |
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Bruce Akhurst |
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4,880 |
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17,000 |
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|
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21,880 |
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Deena Shiff |
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5,680 |
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5,680 |
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David Moffatt |
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147,900 |
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147,900 |
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Kate McKenzie |
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John Stanhope |
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57,221 |
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57,221 |
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David Thodey |
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63,462 |
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800 |
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64,262 |
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Gregory Winn |
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(1) |
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Shares in which the senior executive does not have a relevant interest, including shares held
by related entities of the executive, are excluded from indirect interest. |
189
As at 10 August 2006
Auditors Independence Declaration to the directors of Telstra Corporation Limited
In relation to my audit of the financial report of Telstra Group (comprising Telstra Corporation
Limited and the entities it controlled during the year) for the financial year ended 30 June 2006,
to the best of my knowledge and belief, there have been no contraventions of the auditor
independence requirements of the Corporations Act 2001 or any applicable code of professional
conduct.
Ian McPhee
Auditor-General
10 August 2006
Canberra, Australia
190
Remuneration report
As at 10 August 2006
The Remuneration Report forms part of the Directors Report and is set out under the
following headings:
CONTENTS
|
REMUNERATION AT TELSTRA |
The Remuneration Committee |
Remuneration policy |
Changes to the remuneration strategy |
CEO AND SENIOR EXECUTIVES |
Remuneration strategy |
Remuneration structure |
Linking the remuneration structure to the business strategy |
Remuneration mix |
Fixed remuneration |
Short term incentive (STI) |
Long term incentive (LTI) |
RELATIONSHIP BETWEEN REMUNERATION AND TELSTRAS PERFORMANCE |
Defining company performance |
DETAILS OF SENIOR EXECUTIVES REMUNERATION |
Contract arrangements |
Relocation costs associated with overseas senior executives |
NON-EXECUTIVE DIRECTORS |
Remuneration policy and strategy |
Remuneration structure |
Retirement benefits |
Other benefits |
Details of non-executive directors remuneration |
This report for the year ended 30 June 2006 was prepared by the directors in accordance with the
Corporations Act 2001. Under AASB 124 Related Party Disclosures (AASB 124), we are required to
disclose remuneration details for our key management personnel (KMP). In addition to the
directors, our KMP also includes the Chief Operating Officer and the Group Managing Directors
listed in Figure 17. For the remainder of this report the KMP (other than the directors) will
collectively be referred to as senior executives.
REMUNERATION AT TELSTRA
Telstra proactively manages executive and director remuneration arrangements to ensure that
their remuneration is a key element supporting our business strategy by aligning reward to
the achievement of strategic objectives. We also ensure that it is competitive in the markets
we draw our talent from and that the needs of all stakeholders are taken into consideration
when remuneration decisions are made.
191
Remuneration report
As at 10 August 2006
The Remuneration Committee
The policy, strategy and structure for the Board, CEO and senior executive
remuneration is overseen and regularly reviewed by the Boards Remuneration
Committee.
The Telstra Board Remuneration Committee (Committee) is responsible for reviewing and recommending
to the Board the remuneration policy, strategy and structure for Telstras Board, the CEO and
senior executives. The Committees roles and responsibilities, composition and membership is
detailed on our website. The Committee also has a responsibility to ensure that our remuneration
strategy considers corporate governance principles and expectations of stakeholder bodies.
Any decision made by the Committee concerning an individual executives remuneration is made
without that executive being present.
Remuneration policy
The remuneration policy consists of principles that guide the Committee in its
deliberations, and which should be taken into consideration when formulating the strategy
and structure of remuneration.
The Committee is guided by the following principles when formulating remuneration strategy and
structure.
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Senior executive remuneration should: |
|
Non-executive director remuneration should: |
reflect the size and scope of the role and be
market competitive in order to attract and
retain talent
|
|
be distinguished from executive remuneration
be fee based, not performance based |
be competitive in domestic and global markets |
|
be partly remunerated in the form of equity
in order to align |
motivate executives to deliver short and long
term business objectives |
|
with the returns to
shareholders |
be aligned with shareholder value creation |
|
|
be differentiated based on individual performance |
|
|
Changes to the remuneration strategy
In line with major changes to Telstras business strategy this fiscal year, we have
reviewed and updated our remuneration structure.
During fiscal 2006 the Board approved a new business strategy for Telstra. The new strategy will
transform the company over several years in order to meet the challenges of a competitive global
market.
With the new business strategy significantly changing the companys commercial and operational
focus, it was important to update the metrics used to determine incentive outcomes to give
appropriate weight to Telstras new priorities. In parallel with the development of the business
strategy, the Committee commissioned an extensive review of the remuneration strategy.
192
Remuneration report
As at 10 August 2006
The focus of the remuneration review was to advise on contemporary market practice, the
relationship between fixed and variable remuneration and the measures which would drive
remuneration outcomes in the context of a significant strategic realignment of the business. The
aim was to reward the CEO and senior executives on the delivery of transformational and
operational outcomes in line with the key elements of the new business strategy. An additional
objective of the review was to link the successful delivery of the transformation to future
shareholder wealth creation. Management, with input from an external remuneration consultant,
formally presented the results of the review to the Committee in December 2005.
The review concluded that the CEO and senior executive remuneration strategy would need to have
increased flexibility in order to:
focus on achieving long term transformation of the company while delivering on short term
performance;
|
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reinforce and reward performance measures that will evolve with the companys changing
objectives; |
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|
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attract and retain world-class executive talent; and |
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|
|
support a variety of employment arrangements and durations. |
Introduction of new performance measures
The three elements of Telstras remuneration structure fixed remuneration, short term incentives
(STI) and long term incentives (LTI) complement each other and will support the execution of
business strategy in both the short and long term. These elements are consistent with previous
years incentive plans. However, new performance measures (which are discussed in detail later in
this report) have been introduced to encourage executives to focus on key business outcomes and to
ensure that reward payouts occur when the company and the individual achieve the transformational
and operational goals set by the Board.
Figure 1 illustrates how the remuneration strategy and structure are aligned to, and support,
the business strategy through the use of performance measures.
Figure 1: Alignment of the business and remuneration strategies
193
Remuneration report
As at 10 August 2006
CEO AND SENIOR EXECUTIVES
Remuneration strategy
Our remuneration strategy for the CEO and senior executives includes performance
measures that are aligned to the key elements of Telstras new business strategy.
The senior executive remuneration strategy has been repositioned to drive the delivery of the
transformation milestones that have been outlined in Telstras business strategy. Over the next 3
5 years, the remuneration strategy will be based on performance measures that are strongly aligned
to those transformation outcomes as well as on other traditional business measures. The weighting
of performance measures is expected to evolve over time from initial weighting on transformation
measures to:
|
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operational measures for the STI; and |
|
|
|
growth and return measures for the LTI. |
Figure 2 shows the proportion of the STI and LTI that depends on transformation measures for
fiscal 2006. It is also indicative of how the emphasis on the transformation measures will
diminish progressively as our transformation milestones are achieved. (However, it is not
intended to represent future weightings of remuneration elements.)
Figure 2: Remuneration structure that supports Telstras transformational goals
194
Remuneration report
As at 10 August 2006
Remuneration structure
The remuneration structure ensures that rewards are linked to strategic outcomes.
When reviewing the structure and mix of the remuneration packages of the CEO and senior
executives, the Committee takes into account:
|
|
emuneration practices in other major corporations in Australia (in terms of both salary levels
and the ratio between fixed and at risk components); |
|
|
|
remuneration practices of global corporations within our comparative peer group; and |
|
|
|
a range of macro-economic indicators used to determine likely movements in broad salary rates. |
For fiscal 2006, the remuneration structure for the CEO and senior executives consisted of:
|
|
fixed remuneration; |
|
|
|
short term incentive (at risk); and |
|
|
|
long term incentive (at risk). |
Linking the remuneration structure to the business strategy
The main benefits of linking senior executives rewards to specific performance measures
are to increase focus and understanding by senior executives of the key strategic
objectives of the business and provide motivation by rewarding employees on strategy
execution.
Figure 3 shows in detail how the remuneration structure is designed to satisfy the
requirements of the new business strategy, by setting and monitoring specific performance
measures for the various elements of remuneration.
Ordinarily, the Committee considers, and recommends to the Board, the measures and targets for
the incentive plans during the annual budget setting process. However, for fiscal 2006, the
Committee considered the remuneration strategy in parallel with the strategic review of the
company. The Committee recommended that the incentive measures should focus on the
transformation through to fiscal 2010. The fiscal 2010 strategic targets outlined to
shareholders in November 2005 were used as a starting point to determine the fiscal 2006 STI and
LTI performance measures.
To link the remuneration structure to business strategy, the Committee prioritised the
business strategic objectives by considering:
|
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what could be measured; |
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|
|
what objectives would have the greatest impact; and |
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|
|
what aggregate of measures would best support the key themes of the strategy. |
195
Remuneration report
As at 10 August 2006
At the end of each financial year, the Committee reviews the companys audited financial results
and the results of the other performance measures, and assesses performance against each measure
to determine the percentage of STI and LTI that is payable. Measures are tracked by an internal
project office and, where appropriate, the achievement against targets will be independently
audited.
Figure 3: Performance measures selected to ensure a focus on key business strategies
|
|
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|
|
Remuneration |
|
Performance |
|
|
|
|
element |
|
measures |
|
How is it measured? |
|
Link to business strategy |
|
|
|
|
|
|
|
|
|
Company Financial
|
|
EBITDA Earnings before interest,
tax, depreciation, amortisation.
|
|
To achieve earnings objective. |
|
|
|
|
|
|
|
|
|
Cost Reduction
|
|
Amount of accelerated cost savings.
|
|
To identify and deliver near
term operating cost saving
benefits that enable
investment in transformation
initiatives. |
|
|
|
|
|
|
|
STI
(Cash)
|
|
3G 850 Network
|
|
The number of sites that are 3G
equipped and receiving
transmission.
|
|
To deliver on the wireless
strategy that enables mobile
revenue growth, reduces cost
and optimises the mobile
business. |
|
|
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|
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|
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Broadband
marketshare
|
|
The increase in Telstras share of
retail broadband customers.
|
|
To achieve an increase in
Telstras retail broadband
marketshare. |
|
|
|
|
|
|
|
|
|
Individual
accountabilities
|
|
The achievement of personal goals
which include business unit
specific targets.
|
|
To align the individuals
personal goals with the
business goals. |
|
|
|
|
|
|
|
|
|
Revenue Growth
|
|
The year over year revenue growth
rate over the periods 3 and 5
years.
|
|
To drive the development of
new revenue and overall
growth. |
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
The total operating expense growth
rate over the periods 3 and 5
years.
|
|
To drive cost control and
restructure the cost base of
the company. |
|
|
|
|
|
|
|
|
|
IT Transformation
milestones
|
|
The time taken to achieve a
targeted reduction of Business
Support Systems (BSS) and
Operational Support Systems (OSS).
|
|
To reduce complexity, reduce
cost and provide an enhanced
customer experience by
reducing the number of
systems. |
|
LTI
(Performance Rights)
|
|
Network
Transformation
milestones
|
|
The time taken to achieve network
simplification and build a new
platform.
|
|
To simplify the network to
reduce complexity and cost,
while providing a new
platform for revenue growth. |
|
|
|
|
|
|
|
|
|
Return on
Investment (ROI)
over 3 years
|
|
EBIT over Average Investment
(Average of Net Debt plus
Shareholder Funds).
|
|
To measure the return gained
from the financial investment
in the transformational
goals. |
|
|
|
|
|
|
|
|
|
Total Shareholder
Return (TSR) Growth
over 5 years
|
|
Absolute growth in share price and
accumulated dividends from 19
August 2005.
|
|
To measure the value derived
from execution of the
business strategy. |
In the case of Bruce Akhurst the STI is measured against specific financial metrics for
Sensis in lieu of the Telstra financial and transformational measures detailed above. Sensis
EBIT contribution and Cashflow make up 80% of his STI and the remaining 20% is based on
individual accountabilities.
To ensure the continued alignment of transformation objectives, the creation of value and executive
reward, the Committee initiated a review of the linkage between the remuneration strategy and
business strategy. Any changes to the remuneration strategy as a result of this review will be
reported to shareholders.
196
Remuneration report
As at 10 August 2006
Remuneration mix
Executive remuneration is composed of both fixed and at risk elements.
The remuneration mix describes the ratio of the different components of an executives pay. To
strengthen the link to company performance, the Board has determined that a significant proportion
of the total remuneration for the CEO and senior executives should be at risk representing
components that are awarded based on performance. This means senior executives can only earn
significant rewards if pre-determined company measures and targets are achieved. The at risk
components of a senior executives remuneration package are calculated by reference to that
individuals fixed remuneration.
Figure 4 shows the remuneration mix based on the maximum level of reward for the CEO and senior
executives.
Figure 4: Telstras remuneration mix
If the minimum performance level is not achieved, no STI or LTI will be awarded and the
executive receives 100% of fixed remuneration and 0% of their at risk remuneration. The
percentage of at risk pay increases with the increase in accountability.
Fixed remuneration
Fixed remuneration is in line with similar roles in the applicable market.
Fixed remuneration is made up of:
|
|
base salary including salary sacrifice benefits and applicable fringe
benefits tax; and |
|
|
|
superannuation. |
197
Remuneration report
As at 10 August 2006
Fixed remuneration is influenced by the scope of the role and the knowledge, skills and
experience required of the position holder. To ensure remuneration is market competitive, the
Committee takes into account local, home country and global market rates. In determining what
market rates to use for comparison purposes the Committee assesses a range of factors including
company size (based on market capitalisation), industry in which the comparative company
operates and global footprint.
For superannuation, in addition to mandatory contributions, the CEO and senior executives
may contribute additional amounts, subject to legislative requirements.
Fixed remuneration is reviewed annually as part of the companys overall remuneration review
process and is assessed against the companys and the individuals performance.
For fiscal 2006, the CEO was responsible for reviewing and determining the remuneration of the
company secretary. However, the remuneration policy described in this report in relation to the
senior executives and the discussion of the relationship between that policy and our performance
applies to the company secretary. The company secretary participates in the STI plan and the LTI
plan on the terms set out in this report.
Short term incentive (STI)
The STI component delivers reward on achievement of annual performance targets.
The STI is an annual at risk component of remuneration for the CEO and senior executives. During
fiscal 2006, the Committee ceased the Short Term Incentive Equity (STIE) Plan. As such the annual
STI payment for fiscal 2006 is delivered in cash, compared with fiscal 2005 when the STI was
delivered half in cash and half in equity instruments. The objective of the STI plan is to
encourage executives to meet annual business objectives and their own individual performance
targets.
How STI is calculated
The CEO and senior executives STI payment is based on their fixed remuneration, individual
STI opportunity (explained below) and achievements against performance measures. This is
illustrated in Figure 5.
Figure 5: Calculating the STI payment
STI opportunity and performance levels required
Depending on the role they perform, each senior executive has an STI opportunity ranging from
100% 140% of fixed remuneration where maximum performance is met. The maximum STI opportunity
varies according to the role. As illustrated in Figure 6, each of the performance measures has
three different levels of performance.
198
Remuneration report
As at 10 August 2006
Figure 6: STI opportunity for differing levels of performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior |
Level of performance |
|
|
|
CEO |
|
Executives |
(% of STI opportunity) |
|
Description |
|
(% of fixed remuneration) |
Gateway (25%)
|
|
The gateway level must be reached before any
value can be attributed to each measure.
|
|
|
25 |
% |
|
25% 35% |
|
|
|
|
|
|
|
|
|
Target (50%)
|
|
The target level represents challenging but
achievable levels of performance.
|
|
|
50 |
% |
|
50% 70% |
|
|
|
|
|
|
|
|
|
Maximum (100%)
|
|
Achievement of the maximum level requires
significant performance above and beyond normal
expectations and will result in significant
improvement in key operational areas.
|
|
|
100 |
% |
|
100% 140% |
The level of performance determines the level of payment against each weighted measure.
Achieving the target level of performance on each measure therefore equates to 50% of an
individuals maximum STI payment.
The STI performance measures
Performance against specific measures is assessed before any individuals STI payment can be
determined. The individual accountabilities for the CEO are determined by the Board
and that of the senior executives are determined by the CEO. All individual measures are
strongly aligned to the individuals contribution towards corporate and business unit
objectives.
STI payment for the CEO
The CEOs contract provides for an STI payment for fiscal 2006 of up to a maximum of $3 million,
of which $1.5 million was paid on commencement of employment. The initial $1.5 million was paid
subject to the successful delivery of the new business strategy and transformation plan for the
company. This payment was disclosed in the 2005 Remuneration Report.
The remaining maximum potential payment of $1.5 million will be paid subject to the CEO
satisfying the performance measures described in Figure 3.
Long term incentive (LTI)
The LTI is the second at risk component of remuneration and it is delivered in the form of
performance rights for fiscal 2006. Performance rights are the right to acquire a Telstra share at
minimal cost to the employee ($1 exercise price per parcel of shares exercised on any single day)
when specified performance measures are achieved. The performance rights are administered through
the Telstra Growthshare Trust.
In prior years the equity instruments allocated as part of the LTI plans included restricted
shares, options, deferred shares and performance rights.
The LTI plan supports the business strategy by aligning executive compensation with key performance
measures and targets that support the transformation. The LTI is limited to the 220 most senior
employees, as this group is responsible for leading the transformation and will drive the success
of the business
199
Remuneration report
As at 10 August 2006
How performance rights are allocated
The CEO and senior executives receive an allocation of performance rights that is
calculated as a percentage of their fixed remuneration.
Figure 7: Calculating the allocation of performance rights
|
|
|
* |
|
The full market value of a Telstra share is used when we allocate performance rights (5
day volume weighted average share price). This differs from the accounting value under the
executive remuneration table in Figure 17, which reflects the amortised accounting valuation of
these rights and any other LTI equity granted in previous years. |
Vesting
The performance rights that the CEO and senior executives receive will vest depending upon the
companys achievement of the relevant performance measures. Performance rights that have vested
means that the executive has a full interest in the right and is free to exercise the right at any
time until the expiry date. The allocation, test and expiry dates are illustrated in Figure 8.
Figure 8: Performance right timeline
The value of the LTI at vesting
The actual value to the executive of the LTI at vesting can be calculated using the
formula in Figure 9.
Figure 9: Determining the market value of performance rights at vesting dates
|
|
|
* |
|
This value is likely to be different from the values at allocation and the
accounting values disclosed in the remuneration table in Figure 17. |
The LTI performance measures
Similar to the STI plan, the LTI performance measures are also linked to the business strategy and
transformation of the company. This approach ensures that any rewards derived from the LTI plan by
the senior executives are consistent with the successful execution of the initiatives over a
number of years.
Successful execution of the initiatives should, in turn, drive sustainable increases in
shareholder wealth.
The measures will be assessed based on a scale of performance at 30 June 2008 and 30 June 2010.
The vesting arrangements are explained in Figure 10.
200
Remuneration report
As at 10 August 2006
Figure 10: LTI vesting arrangements for fiscal 2006
|
|
|
|
|
|
|
Year 3 |
|
Year 5 |
Target not
achieved
|
|
25% of performance rights for Year 3
tranche lapses.
|
|
All unvested performance rights will lapse. |
|
|
The remaining 75% of performance rights
will be added to the Year 5 tranche and
may vest based on performance against
the Year 5 performance scale. |
|
|
|
|
|
|
|
Target
achieved but
below
Maximum
|
|
The number of performance rights vest on
a scale between Target and Maximum.
Any performance rights that do not vest
will be discounted by 25% and the balance
added to the Year 5 tranche and may vest
on the Year 5 performance scale for each
measure.
|
|
For the Year 5 tranche the number of
performance rights vest on a scale
between Target and Maximum.
The carried forward Year 3 balance will be
added to the Year 5 tranche and assessed
against the Year 5 performance targets.
Any performance rights that do not vest
as a result of not reaching the Maximum
of the Year 5 hurdle will lapse. |
|
|
|
|
|
Maximum
achieved
|
|
All performance rights for the Year 3
tranche (up to 60% of the 2005 allocation)
will vest if all maximum targets are
achieved.
|
|
All performance rights for the Year 5
tranche (up to 40% of the 2005 allocation),
and any remaining Year 3 tranche, will
vest if all maximum targets are achieved. |
Exercising performance rights
A performance right can only be exercised (that is, a share can only be acquired by the
executive) if the performance right vests. Once vested, the performance right can be exercised
by the executive at any time up to 7 years from the grant date. Once the performance rights
have been exercised the participant becomes the beneficial owner and is entitled to any
dividend, bonus issue, return of capital or other distribution in respect of those shares.
Restrictions on hedging
The CEO and senior executives are restricted from entering into arrangements which
effectively operate to limit the economic risk of their
security holdings in shares allocated under the LTI plan during the period the shares are
held in trust.
Lapsed performance rights
Where a performance right does not vest by year 5, because the performance measures have not
been achieved, the right will lapse and no benefit will accrue to the executive
If the CEO or a senior executive:
|
|
resigns and their performance rights are not yet exercisable, those rights will lapse; |
|
|
|
retires or ceases employment due to death or total permanent incapacity, and
their performance rights are not yet exercisable, those rights will be exercisable if the relevant
performance measure is met in accordance with the prescribed schedule; |
|
|
|
is made redundant, and their performance rights are not yet exercisable, the
number of unvested rights is adjusted to reflect the executives service period and will be
exercisable if the relevant performance measure is met in accordance with the prescribed schedule;
or |
201
Remuneration report
As at 10 August 2006
|
|
ceases employment with Telstra for any other reason and their performance
rights are not yet exercisable, the Board will decide whether those rights should lapse or
remain available for exercise if the relevant performance measure is met. |
RELATIONSHIP BETWEEN REMUNERATION AND TELSTRAS PERFORMANCE
The payment levels of the at risk components of remuneration should reflect Telstras
corporate performance.
Defining company performance
Telstra ultimately assesses its company performance by reference to increases in
shareholder wealth and earnings.
Shareholder wealth
Shareholder wealth is the total return to an investor over a given period. It consists of three
components: dividends paid, the movement in the market value of shares over that period, and any
return of capital to shareholders, excluding buy-backs.
Dividends paid
Over the five years to 30 June 2006 we have increased the total amount returned to
shareholders through dividends and special dividends each year. Our total dividends paid per
share each fiscal year for the last five years is shown in Figure 11.
Market value of shares
During fiscal 2005 Telstras daily closing share price has fluctuated between a low of $3.63
and a high of $5.14. Figure 11 shows the share price on 30 June for the last five years.
Figure 11: Share price at year end and dividends paid per share for the last 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
Year ended |
|
Year ended |
|
Year ended |
|
Year ended |
|
|
30 June 2006 |
|
30 June 2005 |
|
30 June 2004 |
|
30 June 2003 |
|
30 June 2002 |
Share Price ($) |
|
|
3.68 |
|
|
|
5.06 |
|
|
|
5.03 |
|
|
|
4.40 |
|
|
|
4.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends
paid/declared per |
|
|
34.0 |
|
|
|
40.0 |
|
|
|
26.0 |
|
|
|
27.0 |
|
|
|
22.0 |
|
share (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of capital
During the five years to 30 June 2006 we undertook two off-market share buy-backs as part of our
capital management strategy, returning $1,751 million (excluding associated costs) to
shareholders. All ordinary shares bought back were subsequently cancelled.
202
Remuneration report
As at 10 August 2006
Figure 12: Share buy back
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franked |
|
|
|
|
Number of |
|
Cost |
|
Buy-back |
|
dividend |
|
Capital |
|
|
ordinary |
|
Purchase |
|
Transaction |
|
price per |
|
component |
|
component |
|
|
shares bought |
|
consideration |
|
costs |
|
share |
|
per share |
|
per share |
Date |
|
back |
|
$ m |
|
$ m |
|
$ |
|
$ |
|
$ |
24 Nov 2003 |
|
|
238,241,174 |
|
|
|
1,001 |
|
|
|
8 |
|
|
|
4.20 |
|
|
|
2.70 |
|
|
|
1.50 |
|
15 Nov 2004 |
|
|
185,284,669 |
|
|
|
750 |
|
|
|
6 |
|
|
|
4.05 |
|
|
|
2.55 |
|
|
|
1.50 |
|
Earnings
Our companys earnings over the five years to 30 June 2006 are summarised in Figure 13.
Figure 13: Our 5 year earnings history
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
Year ended |
|
Year ended |
|
Year ended |
|
Year ended |
|
|
30 June 2006 |
|
30 June 2005 |
|
30 June 2004 |
|
30 June 2003 |
|
30 June 2002 |
|
|
$m |
|
$m |
|
$m (1) |
|
$m (1) |
|
$m (1) |
Sales revenue |
|
|
22,750 |
|
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
20,196 |
|
EBITDA |
|
|
9,584 |
|
|
|
10,464 |
|
|
|
10,175 |
|
|
|
9,170 |
|
|
|
9,483 |
|
Net profit available to Telstra |
|
|
3,181 |
|
|
|
4,309 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
3,661 |
|
|
|
|
(1) |
|
During fiscal 2006, we adopted Australian equivalents to International Financial Reporting
Standards (A-IFRS). We restated our comparative information for the year ended 30 June 2005. The
previous financial years ended 30 June 2004, 30 June 2003 and 30 June 2002 are presented under the
previous Australian Generally Accepted Accounting Principles (AGAAP). |
Remuneration vs company performance
Telstras remuneration strategy aligns with the new business strategy by
assigning clear transformational and operational targets with longer term
objectives which will deliver increases in shareholder wealth.
As stated in our remuneration strategy, a significant proportion of the CEO and senior
executives total remuneration depends on the achievement of specific short and long term
targets.
STI results and payments
Financial measures have represented a significant percentage of the STI plan over the last five
years and therefore financial performance has a direct impact on the rewards received through
the plan. The financial measures:
|
|
provide a strong correlation with our ability to increase shareholder
returns; |
|
|
|
have a direct impact on our bottom line; and |
|
|
|
are measures over which the executives can exercise control. |
The average STI received by senior executives as a percentage of the maximum
achievable payment for achieving those short term measures is reflected in Figure 14.
203
Remuneration report
As at 10 August 2006
Figure 14: Average STI payment as a % of maximum payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
Fiscal |
|
Fiscal |
|
Fiscal |
|
Fiscal |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
STI received |
|
|
73.8 |
% |
|
|
54.6 |
% (1) |
|
|
31.4 |
% |
|
|
41.1 |
% |
|
|
57.6 |
% |
|
|
|
(1). |
|
This includes both the cash and equity components for
fiscal 2005. While the total equity component is included in determining the above percentage, the value of the rights to
Telstra shares granted in fiscal 2005 will be reflected in remuneration over the following 3
years as the shares vest over their performance period. |
The above calculation is made by aggregating the actual STI payments to the CEO and senior
executives for the financial year and dividing that by the aggregate maximum achievable payments
for those same executives. The result is then expressed as a percentage of the maximum
achievable STI payment.
Relationship between company performance and STI payments
Figure 15 demonstrates the relationship between the companys performance in the form of EBITDA
and the percentage of STI payments that were made in each fiscal year.
Figure 15: Relationship between company performance (EBITDA) and STI payments
LTI results and payments
Any LTI awarded to an executive is required to be reported in accordance with
International Financial Reporting Standards (IFRS). This requires a value to be attributed to the
LTI equity granted before vesting has occurred. That value is then amortised over the vesting
period (ie the five-year performance period for fiscal 2006 allocations). However, as vesting of
any equity allocated under the LTI plans is subject to a range of internal and external
performance measures, senior executives may or may not ultimately derive any value from these
equity instruments.
204
Remuneration report
As at 10 August 2006
As at 30 June 2006 the vesting status of LTI equity is as follows:
Figure 16: LTI Status
|
|
|
|
|
Status of plan |
|
Result |
|
Next steps |
The fiscal 2001 plans (September
2000 and March 2001*) did not meet
the performance measure.
|
|
All instruments have
lapsed.
|
|
The performance period for these
plans expired in fiscal 2006 and both
plans have ceased. |
|
|
|
|
|
The fiscal 2002 plans (September
2001 and March 2002*) did not meet
the performance measure in the first
quarter of the performance period.
|
|
Half of all allocations
lapsed.
|
|
For September 2001, the performance
measures were subsequently achieved
in fiscal 2005 and the remaining half
of the allocations vested. The March
2002 plan performance measures are
currently below the required
performance hurdle. |
|
|
|
|
|
The fiscal 2003 plan did not meet the
performance hurdle in the first
quarter of the performance period.
|
|
Half of all allocations
lapsed.
|
|
The performance measures are
currently below the required
performance hurdle. |
|
|
|
|
|
Fiscal 2004, 2005 and 2006 plans have
yet to enter their respective
performance periods.
|
|
No instruments have
lapsed or vested yet.
|
|
Performance measures have not yet
reached the assessment points. |
|
|
|
* |
|
March allocations were mid-cycle allocations to accommodate new executives. |
DETAILS OF SENIOR EXECUTIVES REMUNERATION
Detailed explanation of the various components of remuneration received by the CEO
and senior executives in fiscal 2006.
In this section we set out the remuneration of our CEO and the senior executives who are key
management personnel. These executives had authority and responsibility for planning, directing
and controlling the activities of Telstra and its controlled entities during fiscal 2006. They
also include the five highest remunerated executives.
Figure 17 sets out the short term employee benefits, post-employment benefits and share-based
remuneration received during the fiscal year as calculated under applicable accounting standards.
It also details the remuneration components of those senior executives who ceased employment with
Telstra during fiscal 2006 and would otherwise have been included in this report.
Figure 18 sets out the details of the annual STI for fiscal 2006, and Figure 19 sets out the
amortised value of the CEO and senior executive allocations under the LTI plans.
Remuneration received in fiscal 2006
The remuneration of our key management personnel (excluding non-executive directors) are set out in
the following tables. In accordance with the requirements of AASB 124, the remuneration disclosures
for fiscal 2006 only include remuneration relating to the portion of the relevant periods that each
individual was considered a KMP. As a result this approach can distort year-on-year remuneration
comparisons.
205
Remuneration report
As at 10 August 2006
Termination payments to Dr Switkowski in fiscal 2006
As specified in the remuneration report for fiscal 2005 Dr Switkowski ceased employment with the
company on 1 July 2005 and was entitled to receive termination payments in accordance with his
employment contract including:
§ |
|
a termination payment of 12 months fixed remuneration $2,092,000; and |
|
§ |
|
accrued annual and long service leave $1,059,526.42. |
These payments have been aggregated and appear in Figure 17 under Termination benefits in
accordance with the prescribed accounting standards.
Dr Switkowski also received a payment of $1,961,000 under the 2004/05 STI plan. This payment
is not included in Figure 17 as it has previously been disclosed in the remuneration report
for fiscal 2005.
In addition, and consistent with last years remuneration report, Figure 21 shows Dr
Switkowskis retained allocations of equity under the Deferred Remuneration and LTI plans.
206
As at 10 August 2006
Remuneration report
Figure 17: Senior executives remuneration
|
|
|
|
|
|
|
Salary and Fees: Includes salary,
salary sacrificed benefits (other
than superannuation), leave
provisions and fringe benefits tax
|
|
Short Term Incentives: Includes
annual bonuses payable in
relation to fiscal 2006
|
|
Non-monetary benefits: Such as the
value of goods and services provided
as well as expatriate benefits
including medical insurance,
housing, private air travel
|
|
Other equity: Performance rights,
restricted shares & options granted
under Telstras LTI plans. This includes
amounts accrued for current and prior
year LTI grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post- |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employment |
|
Termination |
|
long term |
|
|
|
|
|
|
|
|
Short term employee benefits |
|
|
|
|
|
benefits |
|
benefits |
|
benefits |
|
Equity settled share-based payments |
|
|
|
|
|
|
|
|
|
|
Short |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
term |
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
long |
|
Short term |
|
|
|
|
|
|
|
|
|
|
|
|
and Fees |
|
Incentive |
|
monetary |
|
|
|
|
|
Superannu |
|
Termination |
|
service |
|
incentive |
|
Deferred |
|
Other equity |
|
Total |
Name |
|
|
|
|
|
(1) |
|
s (2) |
|
benefits (3) |
|
Other (4) |
|
ation (5) |
|
benefits |
|
leave |
|
shares (6) |
|
shares (7) |
|
(8) |
|
($) |
Solomon Trujillo |
|
Commenced |
|
|
2,987,861 |
|
|
|
2,581,200 |
|
|
|
|
|
|
|
1,745,011 |
|
|
|
1,012,139 |
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
309,305 |
|
|
|
8,710,516 |
|
Chief Executive Officer |
|
1 July 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst - |
|
Ongoing |
|
|
984,974 |
|
|
|
1,519,035 |
|
|
|
11,740 |
|
|
|
|
|
|
|
188,026 |
|
|
|
|
|
|
|
29,325 |
|
|
|
276,443 |
|
|
|
115,592 |
|
|
|
650,036 |
|
|
|
3,775,171 |
|
Chief Executive Officer, Sensis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kate McKenzie - |
|
Appointed |
|
|
223,280 |
|
|
|
180,950 |
|
|
|
|
|
|
|
|
|
|
|
20,787 |
|
|
|
|
|
|
|
6,026 |
|
|
|
22,067 |
|
|
|
|
|
|
|
30,871 |
|
|
|
483,981 |
|
Group Managing Director, |
|
GMD 16 Jan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Wholesale |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt - |
|
Ongoing |
|
|
876,970 |
|
|
|
1,019,991 |
|
|
|
18,138 |
|
|
|
|
|
|
|
316,030 |
|
|
|
|
|
|
|
29,825 |
|
|
|
131,095 |
|
|
|
129,101 |
|
|
|
779,461 |
|
|
|
3,300,611 |
|
Group Managing Director,
Telstra Consumer & Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deena Shiff - |
|
Ongoing |
|
|
645,857 |
|
|
|
768,951 |
|
|
|
6,062 |
|
|
|
|
|
|
|
116,643 |
|
|
|
|
|
|
|
20,000 |
|
|
|
155,829 |
|
|
|
37,438 |
|
|
|
214,391 |
|
|
|
1,965,171 |
|
Group Managing Director,
Telstra Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Stanhope - |
|
Ongoing |
|
|
919,499 |
|
|
|
655,412 |
|
|
|
9,668 |
|
|
|
|
|
|
|
101,001 |
|
|
|
|
|
|
|
25,825 |
|
|
|
126,792 |
|
|
|
76,968 |
|
|
|
335,804 |
|
|
|
2,250,969 |
|
CFO and Group Managing
Director, Finance &
Administration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Thodey - |
|
Ongoing |
|
|
1,031,086 |
|
|
|
926,798 |
|
|
|
8,248 |
|
|
|
|
|
|
|
52,914 |
|
|
|
|
|
|
|
27,100 |
|
|
|
108,869 |
|
|
|
105,198 |
|
|
|
560,789 |
|
|
|
2,821,002 |
|
Group Managing Director,
Telstra Business &
Government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory Winn |
|
Commenced |
|
|
1,280,944 |
|
|
|
1,408,918 |
|
|
|
1,685 |
|
|
|
1,101,907 |
|
|
|
10,814 |
|
|
|
|
|
|
|
32,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,836,446 |
|
Chief Operating Officer |
|
11 Aug 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUB-TOTAL |
|
|
|
|
|
|
8,950,471 |
|
|
|
9,061,255 |
|
|
|
55,541 |
|
|
|
2,846,918 |
|
|
|
1,818,354 |
|
|
|
|
|
|
|
245,279 |
|
|
|
821,095 |
|
|
|
464,297 |
|
|
|
2,880,657 |
|
|
|
27,143,867 |
|
207
Remuneration report
As at 10 August 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employm |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ent |
|
Termination |
|
long term |
|
|
|
|
|
|
|
|
|
|
|
|
Short term employee benefits |
|
benefits |
|
benefits |
|
benefits |
|
Equity settled share-based payments |
|
|
|
|
|
|
|
|
|
|
Short |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
term |
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
long |
|
Short term |
|
|
|
|
|
|
|
|
|
|
|
|
and Fees |
|
Incentive |
|
monetary |
|
|
|
|
|
Superann |
|
Termination |
|
service |
|
incentive |
|
Deferred |
|
Other equity |
|
Total |
Name |
|
|
|
|
|
(1) |
|
s (2) |
|
benefits (3) |
|
Other (4) |
|
uation (5) |
|
benefits |
|
leave |
|
shares (6) |
|
shares (7) |
|
(8) |
|
($) |
Past Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt Switkowski |
|
Ceased 1 July 2005 |
|
|
5,451 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
281 |
|
|
|
3,151,526 |
(9) |
|
|
|
|
|
|
|
|
|
|
491,049 |
(10) |
|
|
4,516 |
(11) |
|
|
3,652,858 |
|
SUB-TOTAL |
|
|
|
|
|
|
5,451 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
281 |
|
|
|
3,151,526 |
|
|
|
|
|
|
|
|
|
|
|
491,049 |
|
|
|
4,516 |
|
|
|
3,652,858 |
|
TOTAL |
|
|
|
|
|
|
8,955,922 |
|
|
|
9,061,255 |
|
|
|
55,576 |
|
|
|
2,846,918 |
|
|
|
1,818,635 |
|
|
|
3,151,526 |
|
|
|
245,279 |
|
|
|
821,095 |
|
|
|
955,346 |
|
|
|
2,885,173 |
|
|
|
30,796,725 |
|
|
|
|
(1) |
|
Includes salary, salary sacrifice benefits (excluding salary sacrifice
superannuation which is included under Superannuation) and fringe benefits tax. |
|
(2) |
|
Short term incentive relates to performance in fiscal 2006 and is based on actual
performance for Telstra and the individual. |
|
(3) |
|
Includes the benefit of interest-free loans under
TESOP97 and TESOP99, the value of
personal home security services provided by Telstra and the value of the personal use of products
and services related to Telstra employment. |
|
(4) |
|
Includes payments made to executives on commencement of employment with Telstra and
relocation payments made in accordance with their relocation agreement and which are classified as
remuneration under the accounting
standards. |
|
(5) |
|
Represents company contributions to superannuation as well as any additional
superannuation contribution made through salary sacrifice by executives. |
|
(6) |
|
This represents the value of Short Term Incentive Shares allocated under the
2004/05 STI Equity plan whereby 50% of the STI payment was provided as shares to be distributed
over 3 years at 12 month intervals. The values shown
represent the annualised value for fiscal 2006 in accordance with the relevant accounting
standards. |
|
(7) |
|
The value included in deferred shares relates to the current year amortised value
of vested and unvested shares issued in fiscal 2003 and fiscal 2004 under the Deferred Remuneration
Plan. The values shown represent the annualised
value for fiscal 2006 in accordance with the relevant accounting standards |
|
(8) |
|
The value represents the annualised value of restricted shares, performance rights
and options as detailed in figure 21. The executive only receives value if the performance hurdles
are met. |
|
(9) |
|
Includes payments made on cessation of employment with Telstra in accordance with
his employment contract. The payments include unused annual and long service leave and an eligible
termination payment equal to 12 months
fixed remuneration. |
|
(10) |
|
The value represents the remaining amortised value of deferred shares which has been
brought forward due to the early vesting of Deferred Shares following separation from Telstra. |
|
(11) |
|
The value represents the pro-rated amortised value of restricted shares, options and
performance rights following Dr Switkowskis separation from Telstra on 1 July 2005. |
208
Remuneration report
As at 10 August 2006
Figure 18: STI for fiscal 2006
|
|
|
Where the actual STI
payment is less than
the maximum
potential, (eg achieved
performance was less
than maximum
performance level) the
difference is forfeited
and does not become
payable in subsequent
years.
|
|
The minimum value of
the STI may be $0
where the performance
measures fail to meet
the specified threshold
levels. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
potential STI |
|
Actual STI |
|
% of the maximum |
Name |
|
($) |
|
($) |
|
potential |
Solomon Trujillo |
|
|
3,000,000 |
* |
|
|
2,581,200 |
|
|
|
86.0 |
% |
Bruce Akhurst |
|
|
1,642,200 |
|
|
|
1,519,035 |
|
|
|
92.5 |
% |
Kate McKenzie |
|
|
241,041 |
|
|
|
180,950 |
|
|
|
75.1 |
% |
David Moffatt |
|
|
1,670,200 |
|
|
|
1,019,991 |
|
|
|
61.1 |
% |
Deena Shiff |
|
|
1,120,000 |
|
|
|
768,951 |
|
|
|
68.7 |
% |
John Stanhope |
|
|
1,055,294 |
|
|
|
655,412 |
|
|
|
62.1 |
% |
David Thodey |
|
|
1,517,600 |
|
|
|
926,798 |
|
|
|
61.1 |
% |
Gregory Winn |
|
|
2,030,000 |
|
|
|
1,408,918 |
|
|
|
69.4 |
% |
|
|
|
* |
|
$1,500,000 for strategic plan & $1,500,000 based on fiscal 2006 performance measures. |
Tax Equalisation of foreign earned income
As prefaced in their employment contracts, Mr Trujillo and Mr Winn received reimbursement for
the additional personal income tax payable due to a double taxing in Australia and the United
States as a result of the international taxation rules covering foreign earned income. This only
applies for fiscal 2006 as changes to the international taxation provisions come into effect on
1 July 2006 and no further payments will be required.
Equity valuations
Figure 19 provides the amortised accounting value of all LTI equity instruments,
including allocations of equity made from fiscal 2001 2006.
The senior executives have not received any monetary value from any of these equity grants apart
from the September 2001 Performance Rights plan and the September 2002 Deferred Share plan (see
Figure 20), either because the LTI performance measures were not satisfied during the performance
period or the performance period is continuing. The value attributed to the unvested instruments
allocated on 8 September 2000 and 16 March 2001 only reflects the
notional value until 8 September 2005 and 16 March 2006, respectively, when they lapsed.
Where allocations have been made to the CEO and senior executives for fiscal 2002, 2003, 2004,
2005 and 2006 and have not yet vested, the CEO and senior executives may or may not derive any
value from these allocations as they are still subject to performance measures and the performance
period has not yet expired.
209
Remuneration report
As at 10 August 2006
Figure 19: Amortised accounting value of all LTI equity for fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised value of LTI equity allocations (1) (2) |
|
|
Total |
|
|
|
|
|
|
|
Performance |
|
|
Restricted |
|
|
|
|
|
|
Options |
|
|
rights (3) |
|
|
shares |
|
|
|
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Solomon Trujillo |
|
|
|
|
|
|
309,305 |
|
|
|
|
|
|
|
309,305 |
|
Bruce Akhurst |
|
|
290,185 |
|
|
|
354,513 |
|
|
|
5,338 |
|
|
|
650,036 |
|
Kate McKenzie |
|
|
|
|
|
|
30,871 |
|
|
|
|
|
|
|
30,871 |
|
David Moffatt |
|
|
367,050 |
|
|
|
391,010 |
|
|
|
21,401 |
|
|
|
779,461 |
|
Deena Shiff |
|
|
82,016 |
|
|
|
131,691 |
|
|
|
684 |
|
|
|
214,391 |
|
John Stanhope |
|
|
113,080 |
|
|
|
220,808 |
|
|
|
1,916 |
|
|
|
335,804 |
|
David Thodey |
|
|
241,368 |
|
|
|
319,421 |
|
|
|
|
|
|
|
560,789 |
|
Gregory Winn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt Switkowski (4) |
|
|
1,743 |
|
|
|
2,737 |
|
|
|
36 |
|
|
|
4,516 |
|
|
|
|
(1) |
|
The value of each instrument is calculated by applying option valuation methodologies as
described in note 31 to the financial statements and is then amortised over the relevant
vesting period. The values included in the table relate to the current year amortised
value of all LTI instruments detailed as other equity in the remuneration table. The valuations
used in current year disclosures are based on the same underlying assumptions as the
previous year. Please refer to note 31 for details on our employee share plans. |
|
(2) |
|
Where a vesting scale is used, the table reflects the maximum achievable allocation. |
|
(3) |
|
The September 2002 plan failed to satisfy the performance measure in the first quarter of
the performance period. In accordance with
the terms of the plan half the maximum potential allocation of performance rights lapsed on 6
December 2005. Although an accounting
value is recorded above, the executives received no value from this plan. |
|
(4) |
|
This represents the pro-rated amortised value of LTI instruments up to date of separation in
accordance with accounting standards. These equity instruments are still subject to
meeting performance hurdles and Dr Switkowski may or may not derive any value from these
instruments. |
Outstanding equity-based instruments
The accounting value and actual number of the CEO and senior executives performance rights,
restricted shares and options that were granted, exercised
and lapsed in fiscal 2006 are set out in Figure 20 and Figure 21. As the values shown in Figure 20
represent the accounting value, the executive may not have actually received these amounts. The
value of lapsed instruments in Figure 20 is based on the accounting value. This value is included
to address our reporting obligations only. Where these instruments lapse, there is no benefit at
all to the executive, and therefore no transfer of any equity or equity-related instrument. All
instruments that have lapsed were subjected to the external performance measure of Total
Shareholder Return (TSR).
Figure 20: Value of equity instruments granted, exercised and lapsed in fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted during period (1) |
|
Exercised |
|
Lapsed |
|
Aggregate of rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
granted, exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and lapsed |
|
|
|
|
|
|
|
|
|
|
($) |
|
($) |
|
($) |
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remuneration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Solomon Trujillo |
|
|
2,482,011 |
|
|
|
28.5 |
% |
|
|
|
|
|
|
|
|
|
|
2,482,011 |
|
Bruce Akhurst |
|
|
436,714 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
436,714 |
|
Kate McKenzie |
|
|
164,838 |
|
|
|
34.1 |
% |
|
|
|
|
|
|
|
|
|
|
164,838 |
|
David Moffatt |
|
|
444,159 |
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
444,159 |
|
Deena Shiff |
|
|
297,846 |
|
|
|
15.2 |
% |
|
|
|
|
|
|
|
|
|
|
297,846 |
|
John Stanhope |
|
|
384,589 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
384,589 |
|
David Thodey |
|
|
403,578 |
|
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
403,578 |
|
Gregory Winn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt Switkowski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This represents the accounting value at grant date of performance rights
granted in fiscal 2006. |
|
(2) |
|
Total Remuneration is the sum of short term benefits, post employment benefits and
share based payments detailed in Figure 19. |
210
Remuneration report
As at 10 August 2006
The actual number of LTI instruments that were granted, exercised and lapsed in fiscal 2006
is set out in Figure 21. Of the performance rights allocated in fiscal 2006, 100% of the
allocations were granted and none were forfeited, lapsed or vested during fiscal 2006. However,
all unvested equity instruments may lapse in future years if the performance measures are not
satisfied.
Figure 21: Number of equity-based instruments granted, vested, exercised and lapsed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested but |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
not |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
Lapsed |
|
|
Balance at |
|
|
exercised |
|
|
|
|
|
Balance at 1 |
|
|
during period |
|
|
Exercised |
|
|
during |
|
|
30 June |
|
|
during |
|
|
|
Instrument |
|
July 2005 |
|
|
(1) |
|
|
during period |
|
|
period (2) |
|
|
2006 (3) |
|
|
period (4) |
|
Solomon Trujillo |
|
Performance Rights |
|
|
|
|
|
|
836,821 |
|
|
|
|
|
|
|
|
|
|
|
836,821 |
|
|
|
|
|
Bruce Akhurst |
|
Performance Rights |
|
|
473,600 |
|
|
|
147,240 |
|
|
|
59,000 |
|
|
|
66,900 |
|
|
|
494,940 |
|
|
|
|
|
|
|
Restricted shares |
|
|
39,000 |
|
|
|
|
|
|
|
|
|
|
|
39,000 |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
805,000 |
|
|
|
|
|
|
|
|
|
|
|
188,000 |
|
|
|
617,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
135,300 |
|
|
|
|
|
|
|
66,900 |
|
|
|
|
|
|
|
68,400 |
|
|
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
120,967 |
|
|
|
|
|
|
|
|
|
|
|
120,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kate McKenzie |
|
Performance Rights |
|
|
36,000 |
|
|
|
55,576 |
|
|
|
|
|
|
|
|
|
|
|
91,576 |
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
18,905 |
|
|
|
|
|
|
|
|
|
|
|
18,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt |
|
Performance Rights |
|
|
521,600 |
|
|
|
149,750 |
|
|
|
71,000 |
|
|
|
76,300 |
|
|
|
524,050 |
|
|
|
|
|
|
|
Restricted shares |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
890,000 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
740,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
152,400 |
|
|
|
|
|
|
|
76,300 |
|
|
|
|
|
|
|
76,100 |
|
|
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
57,365 |
|
|
|
|
|
|
|
|
|
|
|
57,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
Performance Rights |
|
|
151,600 |
|
|
|
100,420 |
|
|
|
17,000 |
|
|
|
19,800 |
|
|
|
215,220 |
|
|
|
|
|
|
|
Restricted shares |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
202,200 |
|
|
|
|
|
|
|
|
|
|
|
24,200 |
|
|
|
178,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
42,300 |
|
|
|
|
|
|
|
19,800 |
|
|
|
|
|
|
|
22,500 |
|
|
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
68,188 |
|
|
|
|
|
|
|
|
|
|
|
68,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Stanhope |
|
Performance Rights |
|
|
290,000 |
|
|
|
129,666 |
|
|
|
23,000 |
|
|
|
23,800 |
|
|
|
372,866 |
|
|
|
|
|
|
|
Restricted shares |
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
310,000 |
|
|
|
|
|
|
|
|
|
|
|
69,000 |
|
|
|
241,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
73,200 |
|
|
|
|
|
|
|
23,800 |
|
|
|
|
|
|
|
49,400 |
|
|
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
55,482 |
|
|
|
|
|
|
|
|
|
|
|
55,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Thodey |
|
Performance Rights |
|
|
427,200 |
|
|
|
136,068 |
|
|
|
51,000 |
|
|
|
59,000 |
|
|
|
453,268 |
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
534,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
121,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,600 |
|
|
|
59,000 |
|
|
|
Incentive shares |
|
|
|
|
|
|
47,639 |
|
|
|
|
|
|
|
|
|
|
|
47,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Winn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt Switkowski |
|
Performance Rights |
|
|
1,643,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,643,600 |
|
|
|
|
|
|
|
Restricted shares |
|
|
96,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,000 |
|
|
|
|
|
|
|
Options |
|
|
1,810,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,810,000 |
|
|
|
|
|
|
|
Deferred shares |
|
|
500,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,700 |
|
|
|
|
|
|
|
|
(1) |
|
Instruments granted during fiscal 2006 relate to the annual LTI plan for fiscal 2006
and the STI plan for fiscal 2005. |
|
(2) |
|
No equity instruments granted during fiscal 2006 lapsed in fiscal 2006. |
|
(3) |
|
This represents the number of vested and unvested equity instruments which have not been
exercised or lapsed as at 30 June 2006, or in the case of Dr Switkowski, the date of
cessation with Telstra. |
|
(4) |
|
The number of instruments that vested during fiscal 2006 relate to the September 2002
Deferred Shares and had not been exercised at 30
June 2006. |
Contract arrangements
The key terms and conditions for the CEO and senior executive service contracts are set out
in Figure 22.
A contract typically outlines the components of remuneration paid to the executive but does not
prescribe how remuneration levels are to be modified from year to year.
211
Remuneration report
As at 10 August 2006
Generally, contracts can be terminated by either the company or senior executive providing 6
months notice. Upon notice being given Telstra can require the executive to remain employed by
Telstra for the notice period or terminate employment immediately by providing payment in lieu of
notice.
Figure 22: Summary of contract arrangements for CEO and senior executives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
Term of |
|
remuneration |
|
Additional |
|
Notice |
|
Termination |
Name |
|
agreement |
|
at 30 June 2006 |
|
conditions |
|
Period (1) |
|
payment (2) |
Solomon Trujillo
|
|
Ongoing
|
|
$ |
3,000,000 |
|
|
nil
|
|
30 days
|
|
12 months (3) |
Bruce Akhurst
|
|
Ongoing
|
|
$ |
1,173,000 |
|
|
nil
|
|
6 months
|
|
12 months |
Kate McKenzie
|
|
Ongoing
|
|
$ |
530,000 |
|
|
nil
|
|
6 months
|
|
12 months |
David Moffatt
|
|
Ongoing
|
|
$ |
1,193,000 |
|
|
nil
|
|
6 months
|
|
12 months |
Deena Shiff
|
|
Ongoing
|
|
$ |
800,000 |
|
|
nil
|
|
6 months
|
|
12 months |
John Stanhope
|
|
Ongoing
|
|
$ |
1,033,000 |
|
|
nil
|
|
6 months
|
|
12 months |
David Thodey
|
|
Ongoing
|
|
$ |
1,084,000 |
|
|
nil
|
|
6 months
|
|
12 months |
Gregory Winn
|
|
11 August 2005
to 10 August
2007(3)
|
|
$ |
1,450,000 |
|
|
$500,000 sign on
bonus paid 12
Sept 2005.
Contract
completion
payments (4)
|
|
3 months
|
|
6 months + pro-rata
at target STI + pro-rata contract
completion payment
(where pro-rata
performance met) |
Zygmunt
Switkowski
|
|
1 September
2003 to 31
December 2007
|
|
$ |
2,092,000 |
|
|
nil
|
|
6 months
|
|
12 months |
|
|
|
(1) |
|
Upon notice being given Telstra can require the executive to work through the notice period
or terminate employment
immediately by providing payment in lieu of notice. |
|
(2) |
|
Payment is calculated on fixed remuneration as at date of termination. There will be no
payment if termination is a
result of serious misconduct or redundancy (in which case Telstras redundancy policy
applies). |
|
(3) |
|
A 24 month termination payment applied where Mr Trujillos employment was terminated in the
first 12 months. As
this period has now expired the standard 12 month termination payment will apply. |
|
(4) |
|
Where both parties mutually agree, the contract can be extended by 12 months
until 8 August 2008. Where extended,
and termination occurs between 2-3 years of employment, Mr. Winn is paid the lesser of:
remaining fixed
remuneration to completion or 6 months fixed remuneration and pro-rata 3rd year
contract completion payment
(where pro-rata performance is met). |
|
(5) |
|
Contract completion payments are in lieu of LTI participation (due to fixed term
contract). Payment of up to $1.8m
subject to performance against pre-determined measures. Where contract is extended an
additional contract
completion payment of $500,000 is available. |
Relocation costs associated with overseas senior executives
During the year the Board implemented significant changes to the executive management team.
In addition to Solomon Trujillo joining Telstra as the Chief Executive Officer, a number of key
executives were recruited to drive the major transformational changes required under the new
business strategy.
Where executives have been recruited from overseas, appropriate reward to secure their employment
was negotiated. This can include overseas relocation benefits in accordance with our relocation
policies or the executives contract of employment.
212
Remuneration report
As at 10 August 2006
The range of benefits and services provided to these senior executives under those
arrangements may include:
|
|
|
|
|
travel to Australia for themselves and their immediate family on
commencement; |
|
|
|
a defined number of round-trip air tickets to their place of origin for
themselves and
their family; |
|
|
|
furniture storage and removal costs; |
|
|
|
rental assistance while in Australia for an initial period of time; |
|
|
|
a relocation allowance to cover incidental and miscellaneous expenses; |
|
|
|
health insurance; |
|
|
|
tax advice; and |
|
|
|
tax equalisation of foreign earned income. |
NON-EXECUTIVE DIRECTORS
Remuneration policy and strategy
In order to maintain their independence and impartiality, non-executive directors are
remunerated with fees which are not linked to company performance. The total fee pool is
approved by shareholders.
Our non-executive directors are remunerated in accordance with our constitution, which provides
for the following:
|
|
an aggregate limit of fees is set and varied only by approval of a
resolution of shareholders at the annual general meeting; and |
|
|
|
the Board determines how those fees are allocated among the directors
within the fee pool. |
In recognition of the increased time and responsibility of non-executive directors, on 25 October
2005, shareholders approved an increase to the directors fee pool to $2,000,000 per annum
(previously $1,320,000 per annum). As a result of this increase:
|
|
fees paid to Board members, including additional fees paid for service on
Board committees were increased; and |
|
|
|
existing retirement benefits to non-executive directors, employed before 1
July 2002, were integrated into the overall fee pool. |
In determining the required level for the fee pool and individual director fee levels, the
Committee makes recommendations to the Board, and in the case of the fee pool, the Board makes
a recommendation to shareholders, taking into account:
|
|
the companys existing remuneration policies; |
|
|
|
independent professional advice; |
|
|
|
the fee pools of other comparable companies (based on company size using
market capitalisation); |
|
|
|
fees paid to individual directors by comparable companies; |
213
Remuneration report
As at 10 August 2006
|
|
the general time commitment and responsibilities involved; |
|
|
|
the risks associated with discharging the duties attaching to the role of
director; and |
|
|
|
the level of fees necessary to attract and retain directors of a suitable
calibre. |
In order
to maintain their independence and impartiality, the remuneration of
the non-executive directors is not linked to the performance of the company, except through their participation in
the Directshare plan, which is explained below.
Remuneration structure
Non-executive directors receive a total remuneration package based on their role on
the Board and their committee memberships. Non-executive directors must sacrifice at
least 20% of their fees into Telstra shares to align their interests with those of our
shareholders.
All Board and committee fees, including superannuation, paid to non-executive directors in fiscal
2006 remain within the new fee pool. Board and Committee fees were increased in fiscal 2006 to
take into account the changes to retirement benefits made following the 2005 Annual General
Meeting and prevailing market rates for directors fees. Following these increases the Board and
Committee fees payable to directors in fiscal 2006 are set out below.
Board fees
|
|
|
|
|
|
|
|
|
|
|
Chairman |
|
Director |
Board |
|
$ |
450,000 |
|
|
$ |
130,000 |
|
Committee fees
Board members, excluding the Chairman, are paid the following additional fees for service on
Board committees:
|
|
|
|
|
|
|
|
|
Committee |
|
Chairman |
|
Member |
Audit Committee |
|
$ |
70,000 |
|
|
$ |
35,000 |
|
Remuneration Committee |
|
$ |
14,000 |
|
|
$ |
7,000 |
|
Nomination Committee |
|
|
|
|
|
$ |
7,000 |
|
Technology Committee |
|
$ |
7,000 |
|
|
$ |
7,000 |
|
The Board considered these fees appropriate given the additional time requirements of
committee members, the complex matters before the committees and, in the case of the Audit
Committee, an increased number of committee meetings and governance requirements.
Components of the total remuneration package (TRP)
The Board has determined that a non-executive directors total remuneration will consist of three
components: cash, shares (through the Directshare plan) and superannuation. Each year directors are
asked to specify the allocation of their total remuneration between these three components, subject
to the following conditions:
|
|
at least 30% must be taken as cash; |
|
|
|
at least 20% must be taken as Directshares; and |
214
Remuneration report
As at 10
August 2006
|
|
the minimum superannuation guarantee contribution must be made, where
applicable. |
The Board will continue to periodically review its approach to the non-executive directors
remuneration structure to ensure it compares with general industry practice and best practice
principles of corporate governance.
Equity compensation Directshare
Directshare aims to encourage a longer-term perspective and to align the directors
interests with those of our shareholders.
Through our Directshare plan, non-executive directors are required to sacrifice a minimum of 20%
of their TRP towards the acquisition of restricted Telstra shares. The shares are purchased
on-market and allocated to the participating non-executive director at market price. The shares
are held in trust and are unable to be dealt with for 5 years unless the participating director
ceases to be a director of Telstra.
If a non-executive director chooses to increase their participation in the Directshare plan, they
take a greater percentage of TRP in Telstra shares, and their cash component is reduced. As the
allocation of Directshares is simply a percentage of the non-executive directors TRP, it is not
subject to the satisfaction of a performance measure.
Directors are restricted from entering into arrangements which effectively operate to limit
the economic risk of their shareholdings allocated under the Directshare plan during the
period the shares are held in trust.
Superannuation
Mandatory superannuation contributions are included as part of each directors total
remuneration. Directors may choose to increase the proportion of their remuneration taken as
superannuation, subject to legislative requirements.
Retirement benefits
In accordance with good corporate governance practice, we do not provide retirement
benefits for directors appointed after 30 June 2002. However, non-executive directors appointed
before that date were eligible to receive retirement benefits on retiring as a director.
At the annual general meeting on 25 October 2005, we explained that as a result of the increase in
the directors fee pool, retirement benefits would cease to accrue. This means that directors who
were appointed before 30 June 2002 will receive cash equal to the benefits accrued to 25 October
2005. These benefits will be indexed by reference to changes in Telstras share price between
that date and the date the directors retirement takes effect.
This approach:
|
|
aligns directors interests with those of stakeholders and with the long
term success of the company; |
|
|
|
subjects the value of the retirement benefit to movement in Telstras share
price and dividend payments; and |
215
Remuneration report
As at 10 August 2006
|
|
maintains the principle that this payment be made when the director
retires, rather than provide an early cash payout of the retirement benefits at the time these
arrangements were approved. |
Figure 23 shows the increase in retirement benefits payable to non-executive directors appointed
before 30 June 2002 and the value of the payment to the director if he or she had retired on 30
June 2006.
Figure 23: Non-executive directors increases in retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed |
|
Payment to |
|
|
|
|
|
|
Increase in |
|
|
|
|
|
increase in |
|
director if he/she |
|
|
Balance as |
|
value to |
|
Total value to |
|
value to |
|
had retired on 30 |
|
|
at 2005 |
|
25 October 05 |
|
25 October 05 |
|
30 June 06 |
|
June 2006 (1) |
|
|
(a) |
|
(b) |
|
(a) + (b) |
|
(c) - (a) |
|
(c) |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Donald G |
|
|
340,673 |
|
|
|
76,169 |
|
|
|
416,842 |
|
|
|
60,094 |
|
|
|
400,767 |
|
McGauchie |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John E Fletcher |
|
|
126,138 |
|
|
|
13,829 |
|
|
|
139,967 |
|
|
|
8,437 |
|
|
|
134,575 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belinda J |
|
|
103,794 |
|
|
|
16,584 |
|
|
|
120,378 |
|
|
|
11,943 |
|
|
|
115,737 |
|
Hutchinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine B |
|
|
143,074 |
|
|
|
18,059 |
|
|
|
161,133 |
|
|
|
11,849 |
|
|
|
154,923 |
|
Livingstone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Macek |
|
|
117,949 |
|
|
|
17,315 |
|
|
|
135,264 |
|
|
|
12,099 |
|
|
|
130,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W Stocker |
|
|
342,176 |
|
|
|
27,273 |
|
|
|
369,449 |
|
|
|
13,026 |
|
|
|
355,202 |
|
|
|
|
(1) |
|
The value is calculated by multiplying the number of notional shares plus additional
notional sharesallocated for re-invested dividends by $3.68 being the volume weighted
average price of Telstra shares traded on 30 June 2006. |
|
(2) |
|
John Fletcher resigned as a director on 30 June 2006 and was paid this amount in accordance
with the retirement benefit policy. This amount is also included as a termination payment in
Figure 24. |
Other benefits
Directors also receive reimbursement for reasonable travelling, accommodation and other
expenses incurred in travelling to or from meetings of the Board or committees, or when otherwise
engaged on company business. We also provide directors with telecommunications and other services
and equipment to assist them in performing their duties. From time to time, we may also make
products and services available to directors without charge to allow them to familiarise themselves
with our products and services and with recent technological developments.
To the extent any of these items are considered a personal benefit to a director, the value of the
benefit is included in the non-monetary benefits column in Figure 24.
Details of non-executive directors remuneration
Figure 24 provides the details of all remuneration paid to our non-executive directors in
fiscal 2006.
216
Remuneration report
As at 10 August 2006
Figure 24: Non-executive directors details of remuneration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
share-based |
|
|
|
|
|
|
|
|
Short term employee benefits |
|
Post-employment benefits |
|
benefits |
|
payments |
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and |
|
monetary |
|
|
|
|
|
Superannu |
|
Retirement |
|
Termination |
|
|
|
|
Name |
|
|
|
|
|
Fees (1) |
|
benefits (2) |
|
Other |
|
ation |
|
benefits |
|
benefits (3) |
|
Direct share |
|
Total |
Donald G McGauchie |
|
Ongoing |
|
|
312,236 |
|
|
|
3,078 |
|
|
|
|
|
|
|
12,158 |
|
|
|
60,094 |
|
|
|
|
|
|
|
81,099 |
|
|
|
468,665 |
|
Chairman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T Ralph (4) |
|
Retired COB |
|
|
17,474 |
|
|
|
380 |
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
462,548 |
|
|
|
|
|
|
|
480,402 |
|
Deputy Chairman |
|
11 Aug 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony J Clark (4) |
|
Retired COB |
|
|
9,015 |
|
|
|
458 |
|
|
|
|
|
|
|
970 |
|
|
|
|
|
|
|
278,846 |
|
|
|
|
|
|
|
289,289 |
|
Director |
|
11 Aug 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John E Fletcher (6) |
|
Resigned |
|
|
94,209 |
|
|
|
2,775 |
|
|
|
|
|
|
|
8,056 |
|
|
|
|
|
|
|
134,575 |
|
|
|
26,422 |
|
|
|
266,037 |
|
Director |
|
COB 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belinda J Hutchinson |
|
Ongoing |
|
|
100,611 |
|
|
|
2,288 |
|
|
|
|
|
|
|
18,551 |
|
|
|
11,943 |
|
|
|
|
|
|
|
29,740 |
|
|
|
163,133 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine Livingstone |
|
Ongoing |
|
|
113,063 |
|
|
|
2,288 |
|
|
|
|
|
|
|
10,998 |
|
|
|
11,849 |
|
|
|
|
|
|
|
31,015 |
|
|
|
169,213 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Macek |
|
Ongoing |
|
|
123,032 |
|
|
|
2,748 |
|
|
|
|
|
|
|
11,227 |
|
|
|
12,099 |
|
|
|
|
|
|
|
33,565 |
|
|
|
182,671 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W Stocker |
|
Ongoing |
|
|
110,817 |
|
|
|
2,288 |
|
|
|
|
|
|
|
39,006 |
|
|
|
13,026 |
|
|
|
|
|
|
|
37,390 |
|
|
|
202,527 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Willcox (7) |
|
Commenced |
|
|
11,872 |
|
|
|
|
|
|
|
|
|
|
|
1,069 |
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
16,176 |
|
Director |
|
17 May 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Zeglis (7) |
|
Commenced |
|
|
12,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
16,176 |
|
Director |
|
17 May 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
905,270 |
|
|
|
16,303 |
|
|
|
|
|
|
|
102,035 |
|
|
|
109,011 |
|
|
|
875,969 |
|
|
|
245,701 |
|
|
|
2,254,289 |
|
|
|
|
(1) |
|
Includes fees for membership on Board committees. |
|
(2) |
|
Includes the value of the personal use of products and services. |
|
(3) |
|
These payments relate to eligible retirement benefits payable on cessation as Directors of
Telstra. |
|
(4) |
|
Mr Ralph and Mr Clark retired as Directors of Telstra effective 11 August 2005. |
|
(5) |
|
Under current superannuation legislation Mr Ralph did not receive superannuation benefits as
he had passed his 70th birthday. |
|
(6) |
|
Mr Fletcher resigned as a Director of Telstra on 30 June 2006. |
|
(7) |
|
Mr Willcox and Mr Zeglis were appointed as Directors on 17 May 2006. Mr Zeglis is based in
the United States. |
|
(8) |
|
There are no individual contracts for service with our non-executive directors other than as
described above in relation to post-employment benefits. |
217
Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities
Australian Business Number (ABN): 33 051 775 556
|
|
|
|
|
Financial Report |
|
Page |
|
as at 30 June 2006 |
|
Number |
|
|
|
|
|
|
Financial Statements |
|
|
|
|
|
|
|
2 |
|
|
|
|
3 |
|
|
|
|
4 |
|
|
|
|
5 |
|
|
|
|
|
|
Notes to the Financial Statements |
|
|
|
|
|
|
|
6 |
|
|
|
|
9 |
|
|
|
|
26 |
|
|
|
|
27 |
|
|
|
|
29 |
|
|
|
|
36 |
|
|
|
|
38 |
|
|
|
|
42 |
|
|
|
|
43 |
|
|
|
|
46 |
|
|
|
|
47 |
|
|
|
|
48 |
|
|
|
|
49 |
|
|
|
|
50 |
|
|
|
|
55 |
|
|
|
|
60 |
|
|
|
|
61 |
|
|
|
|
62 |
|
|
|
|
65 |
|
|
|
|
68 |
|
|
|
|
69 |
|
|
|
|
71 |
|
|
|
|
73 |
|
|
|
|
74 |
|
|
|
|
79 |
|
|
|
|
81 |
|
|
|
|
84 |
|
|
|
|
87 |
|
|
|
|
95 |
|
|
|
|
104 |
|
|
|
|
110 |
|
|
|
|
126 |
|
|
|
|
133 |
|
|
|
|
143 |
|
|
|
|
144 |
|
|
|
|
160 |
|
|
|
|
181 |
|
|
|
|
|
|
|
|
|
203 |
|
|
|
|
|
|
|
|
|
204 |
|
1
218
Telstra Corporation Limited and controlled entities
Income Statement
for the year ended 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (excluding finance income) |
|
|
6 |
|
|
|
22,772 |
|
|
|
16,904 |
|
|
|
22,181 |
|
|
|
20,485 |
|
|
|
19,831 |
|
Other income |
|
|
6 |
|
|
|
328 |
|
|
|
243 |
|
|
|
261 |
|
|
|
163 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,100 |
|
|
|
17,147 |
|
|
|
22,442 |
|
|
|
20,648 |
|
|
|
19,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
7 |
|
|
|
4,364 |
|
|
|
3,239 |
|
|
|
3,858 |
|
|
|
3,483 |
|
|
|
3,082 |
|
Goods and services purchased |
|
|
7 |
|
|
|
4,730 |
|
|
|
3,511 |
|
|
|
4,211 |
|
|
|
3,305 |
|
|
|
2,958 |
|
Other expenses |
|
|
7 |
|
|
|
4,427 |
|
|
|
3,286 |
|
|
|
3,815 |
|
|
|
4,562 |
|
|
|
3,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,521 |
|
|
|
10,036 |
|
|
|
11,884 |
|
|
|
11,350 |
|
|
|
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of net (gain)/loss from jointly controlled
and associated entities |
|
|
30 |
|
|
|
(5 |
) |
|
|
(4 |
) |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,516 |
|
|
|
10,032 |
|
|
|
11,978 |
|
|
|
11,350 |
|
|
|
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, income tax expense, depreciation
and amortisation (EBITDA) |
|
|
|
|
|
|
9,584 |
|
|
|
7,115 |
|
|
|
10,464 |
|
|
|
9,298 |
|
|
|
10,446 |
|
Depreciation and amortisation |
|
|
7 |
|
|
|
4,087 |
|
|
|
3,034 |
|
|
|
3,529 |
|
|
|
3,657 |
|
|
|
3,206 |
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income tax expense (EBIT) |
|
|
|
|
|
|
5,497 |
|
|
|
4,081 |
|
|
|
6,935 |
|
|
|
5,641 |
|
|
|
7,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
6 |
|
|
|
66 |
|
|
|
49 |
|
|
|
83 |
|
|
|
63 |
|
|
|
101 |
|
Finance costs |
|
|
7 |
|
|
|
1,002 |
|
|
|
744 |
|
|
|
963 |
|
|
|
985 |
|
|
|
943 |
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
|
|
|
|
|
936 |
|
|
|
695 |
|
|
|
880 |
|
|
|
922 |
|
|
|
842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
4,561 |
|
|
|
3,386 |
|
|
|
6,055 |
|
|
|
4,719 |
|
|
|
6,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
9 |
|
|
|
1,380 |
|
|
|
1,024 |
|
|
|
1,746 |
|
|
|
1,482 |
|
|
|
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
3,181 |
|
|
|
2,362 |
|
|
|
4,309 |
|
|
|
3,237 |
|
|
|
4,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (cents per share) |
|
|
|
|
|
cents |
|
US cents |
|
cents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3 |
|
|
|
25.7 |
|
|
|
19.0 |
|
|
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3 |
|
|
|
25.7 |
|
|
|
19.0 |
|
|
|
34.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends declared (cents per share) |
|
|
4 |
|
|
|
34.0 |
|
|
|
25.0 |
|
|
|
40.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
2
219
Telstra Corporation Limited and controlled entities
Balance Sheet
as at 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
10 |
|
|
|
689 |
|
|
|
511 |
|
|
|
1,548 |
|
|
|
474 |
|
|
|
1,368 |
|
Trade and other receivables |
|
|
11 |
|
|
|
3,701 |
|
|
|
2,747 |
|
|
|
3,549 |
|
|
|
3,344 |
|
|
|
3,538 |
|
Inventories |
|
|
12 |
|
|
|
224 |
|
|
|
166 |
|
|
|
232 |
|
|
|
175 |
|
|
|
194 |
|
Derivative financial assets |
|
|
16 |
|
|
|
21 |
|
|
|
16 |
|
|
|
4 |
|
|
|
21 |
|
|
|
4 |
|
Prepayments |
|
|
|
|
|
|
244 |
|
|
|
181 |
|
|
|
249 |
|
|
|
172 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
4,879 |
|
|
|
3,621 |
|
|
|
5,582 |
|
|
|
4,186 |
|
|
|
5,277 |
|
|
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
11 |
|
|
|
87 |
|
|
|
65 |
|
|
|
97 |
|
|
|
127 |
|
|
|
115 |
|
Inventories |
|
|
12 |
|
|
|
20 |
|
|
|
15 |
|
|
|
15 |
|
|
|
20 |
|
|
|
15 |
|
Investments accounted for using the equity method |
|
|
13 |
|
|
|
23 |
|
|
|
17 |
|
|
|
48 |
|
|
|
18 |
|
|
|
41 |
|
Investments other |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,953 |
|
|
|
6,136 |
|
Property, plant and equipment |
|
|
14 |
|
|
|
23,622 |
|
|
|
17,535 |
|
|
|
22,891 |
|
|
|
21,765 |
|
|
|
21,223 |
|
Intangibles |
|
|
15 |
|
|
|
6,123 |
|
|
|
4,545 |
|
|
|
6,329 |
|
|
|
2,465 |
|
|
|
2,751 |
|
Deferred tax assets |
|
|
9 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Derivative financial assets |
|
|
16 |
|
|
|
391 |
|
|
|
290 |
|
|
|
|
|
|
|
391 |
|
|
|
|
|
Defined benefit assets |
|
|
28 |
|
|
|
1,029 |
|
|
|
764 |
|
|
|
247 |
|
|
|
1,004 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
31,296 |
|
|
|
23,232 |
|
|
|
29,629 |
|
|
|
31,743 |
|
|
|
30,523 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
36,175 |
|
|
|
26,853 |
|
|
|
35,211 |
|
|
|
35,929 |
|
|
|
35,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
17 |
|
|
|
3,570 |
|
|
|
2,650 |
|
|
|
2,807 |
|
|
|
3,065 |
|
|
|
1,956 |
|
Borrowings |
|
|
18 |
|
|
|
1,969 |
|
|
|
1,462 |
|
|
|
1,507 |
|
|
|
3,374 |
|
|
|
3,892 |
|
Current tax liabilities |
|
|
|
|
|
|
428 |
|
|
|
318 |
|
|
|
534 |
|
|
|
400 |
|
|
|
519 |
|
Provisions |
|
|
19 |
|
|
|
737 |
|
|
|
547 |
|
|
|
421 |
|
|
|
679 |
|
|
|
356 |
|
Derivative financial liabilities |
|
|
20 |
|
|
|
12 |
|
|
|
9 |
|
|
|
11 |
|
|
|
12 |
|
|
|
11 |
|
Revenue received in advance |
|
|
|
|
|
|
1,170 |
|
|
|
868 |
|
|
|
1,132 |
|
|
|
919 |
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,886 |
|
|
|
5,854 |
|
|
|
6,412 |
|
|
|
8,449 |
|
|
|
7,646 |
|
|
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
17 |
|
|
|
197 |
|
|
|
146 |
|
|
|
250 |
|
|
|
65 |
|
|
|
61 |
|
Borrowings |
|
|
18 |
|
|
|
11,409 |
|
|
|
8,469 |
|
|
|
10,941 |
|
|
|
11,376 |
|
|
|
10,907 |
|
Deferred tax liabilities |
|
|
9 |
|
|
|
1,704 |
|
|
|
1,265 |
|
|
|
1,804 |
|
|
|
1,832 |
|
|
|
1,961 |
|
Provisions |
|
|
19 |
|
|
|
974 |
|
|
|
723 |
|
|
|
894 |
|
|
|
924 |
|
|
|
837 |
|
Derivative financial liabilities |
|
|
20 |
|
|
|
768 |
|
|
|
570 |
|
|
|
864 |
|
|
|
768 |
|
|
|
864 |
|
Revenue received in advance |
|
|
|
|
|
|
405 |
|
|
|
301 |
|
|
|
388 |
|
|
|
400 |
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,457 |
|
|
|
11,474 |
|
|
|
15,141 |
|
|
|
15,365 |
|
|
|
15,011 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
23,343 |
|
|
|
17,328 |
|
|
|
21,553 |
|
|
|
23,814 |
|
|
|
22,657 |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
12,832 |
|
|
|
9,525 |
|
|
|
13,658 |
|
|
|
12,115 |
|
|
|
13,143 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
21 |
|
|
|
5,569 |
|
|
|
4,134 |
|
|
|
5,536 |
|
|
|
5,569 |
|
|
|
5,536 |
|
Reserves |
|
|
22 |
|
|
|
(160 |
) |
|
|
(119 |
) |
|
|
(153 |
) |
|
|
210 |
|
|
|
194 |
|
Retained profits |
|
|
23 |
|
|
|
7,177 |
|
|
|
5,327 |
|
|
|
8,273 |
|
|
|
6,336 |
|
|
|
7,413 |
|
|
|
|
|
|
|
|
|
|
Equity available to Telstra Entity shareholders |
|
|
|
|
|
|
12,586 |
|
|
|
9,342 |
|
|
|
13,656 |
|
|
|
12,115 |
|
|
|
13,143 |
|
Minority interests |
|
|
23 |
|
|
|
246 |
|
|
|
183 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
12,832 |
|
|
|
9,525 |
|
|
|
13,658 |
|
|
|
12,115 |
|
|
|
13,143 |
|
|
|
|
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
3
220
Telstra Corporation Limited and controlled entities
Statement of Recognised Income and Expense
for the year ended 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Foreign currency translation reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity accounting our interest in jointly controlled and associated entities |
|
|
1 |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Translation of financial statements of non-Australian controlled entities |
|
|
(36 |
) |
|
|
(27 |
) |
|
|
(193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedging reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net hedging gains recognised directly in equity |
|
|
327 |
|
|
|
243 |
|
|
|
|
|
|
|
327 |
|
|
|
|
|
Net hedging gains removed from equity and included in profit for the year |
|
|
(420 |
) |
|
|
(312 |
) |
|
|
|
|
|
|
(421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity accounting our interest in jointly controlled and associated entities |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained profits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain/(loss) on our defined benefit plans |
|
|
958 |
|
|
|
711 |
|
|
|
(90 |
) |
|
|
945 |
|
|
|
(85 |
) |
|
|
|
|
|
|
|
|
830 |
|
|
|
616 |
|
|
|
(280 |
) |
|
|
851 |
|
|
|
(85 |
) |
Income tax on equity items |
|
|
(256 |
) |
|
|
(190 |
) |
|
|
24 |
|
|
|
(256 |
) |
|
|
24 |
|
|
|
|
|
|
Net income/(expense) recognised directly in equity. |
|
|
574 |
|
|
|
426 |
|
|
|
(256 |
) |
|
|
595 |
|
|
|
(61 |
) |
Profit for the year |
|
|
3,181 |
|
|
|
2,362 |
|
|
|
4,309 |
|
|
|
3,237 |
|
|
|
4,516 |
|
|
|
|
|
|
Total recognised income for the year |
|
|
3,755 |
|
|
|
2,788 |
|
|
|
4,053 |
|
|
|
3,832 |
|
|
|
4,455 |
|
|
|
|
|
|
Effects of changes in accounting policy attributable to Telstra Entity |
|
|
74 |
|
|
|
55 |
|
|
|
1,223 |
|
|
|
77 |
|
|
|
737 |
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
4
221
Telstra Corporation Limited and controlled entities
Statement of Cash Flows
for the year ended 30 June 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipts from customers (inclusive of goods and services tax (GST)) |
|
|
|
|
|
|
25,229 |
|
|
|
18,779 |
|
|
|
24,526 |
|
|
|
21,928 |
|
|
|
21,343 |
|
Payments to suppliers and to employees (inclusive of GST) |
|
|
|
|
|
|
(14,785 |
) |
|
|
(11,026 |
) |
|
|
(13,848 |
) |
|
|
(11,754 |
) |
|
|
(11,079 |
) |
|
|
|
|
|
|
|
|
|
Net cash generated by operations |
|
|
|
|
|
|
10,444 |
|
|
|
7,753 |
|
|
|
10,678 |
|
|
|
10,174 |
|
|
|
10,264 |
|
Income taxes paid |
|
|
|
|
|
|
(1,882 |
) |
|
|
(1,397 |
) |
|
|
(1,718 |
) |
|
|
(1,863 |
) |
|
|
(1,712 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
24 |
|
|
|
8,562 |
|
|
|
6,356 |
|
|
|
8,960 |
|
|
|
8,311 |
|
|
|
8,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
|
|
|
|
|
|
(3,636 |
) |
|
|
(2,699 |
) |
|
|
(2,995 |
) |
|
|
(3,483 |
) |
|
|
(2,715 |
) |
- intangibles |
|
|
|
|
|
|
(619 |
) |
|
|
(459 |
) |
|
|
(544 |
) |
|
|
(502 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
Capital expenditure (before investments) |
|
|
|
|
|
|
(4,255 |
) |
|
|
(3,158 |
) |
|
|
(3,539 |
) |
|
|
(3,985 |
) |
|
|
(3,175 |
) |
- shares in controlled entities (net of cash acquired) |
|
|
24 |
|
|
|
(43 |
) |
|
|
(32 |
) |
|
|
(573 |
) |
|
|
(27 |
) |
|
|
(28 |
) |
- payments for other investments |
|
|
|
|
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
Total capital expenditure |
|
|
|
|
|
|
(4,303 |
) |
|
|
(3,194 |
) |
|
|
(4,129 |
) |
|
|
(4,012 |
) |
|
|
(3,209 |
) |
Proceeds from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- sale of property, plant and equipment |
|
|
|
|
|
|
50 |
|
|
|
37 |
|
|
|
68 |
|
|
|
72 |
|
|
|
79 |
|
- sale of shares in controlled entities |
|
|
|
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- sale of other investments |
|
|
|
|
|
|
89 |
|
|
|
66 |
|
|
|
176 |
|
|
|
89 |
|
|
|
164 |
|
Net proceeds from CSL New World Mobility merger |
|
|
24 |
|
|
|
42 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of additional shares by controlled entities |
|
|
|
|
|
|
6 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of PCCW converting note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
76 |
|
Proceeds from share buy-back by jointly controlled and associated entities |
|
|
|
|
|
|
34 |
|
|
|
25 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
Loan to jointly controlled and associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
Interest received |
|
|
|
|
|
|
66 |
|
|
|
49 |
|
|
|
78 |
|
|
|
63 |
|
|
|
79 |
|
Dividends received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(4,012 |
) |
|
|
(2,979 |
) |
|
|
(3,766 |
) |
|
|
(3,754 |
) |
|
|
(2,810 |
) |
|
|
|
|
|
|
|
|
|
Operating cash flows less investing cash flows |
|
|
|
|
|
|
4,550 |
|
|
|
3,377 |
|
|
|
5,194 |
|
|
|
4,557 |
|
|
|
5,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
|
|
|
|
8,641 |
|
|
|
6,413 |
|
|
|
6,433 |
|
|
|
8,680 |
|
|
|
6,611 |
|
Proceeds from Telstra bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983 |
|
|
|
|
|
|
|
983 |
|
Repayment of borrowings |
|
|
|
|
|
|
(7,624 |
) |
|
|
(5,659 |
) |
|
|
(5,735 |
) |
|
|
(7,703 |
) |
|
|
(6,478 |
) |
Repayment of Telstra bonds |
|
|
|
|
|
|
(517 |
) |
|
|
(384 |
) |
|
|
(272 |
) |
|
|
(517 |
) |
|
|
(272 |
) |
Repayment of finance lease principal amounts |
|
|
|
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(11 |
) |
Staff repayments of share loans |
|
|
|
|
|
|
24 |
|
|
|
18 |
|
|
|
19 |
|
|
|
24 |
|
|
|
19 |
|
Purchase of shares for employee share plans |
|
|
21 |
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
Finance costs paid |
|
|
|
|
|
|
(940 |
) |
|
|
(698 |
) |
|
|
(879 |
) |
|
|
(953 |
) |
|
|
(892 |
) |
Dividends paid |
|
|
4 |
|
|
|
(4,970 |
) |
|
|
(3,689 |
) |
|
|
(4,124 |
) |
|
|
(4,970 |
) |
|
|
(4,124 |
) |
Share buy-back |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
(756 |
) |
|
|
|
|
|
|
(756 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
|
|
|
|
(5,399 |
) |
|
|
(4,008 |
) |
|
|
(4,347 |
) |
|
|
(5,451 |
) |
|
|
(4,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash |
|
|
|
|
|
|
(849 |
) |
|
|
(631 |
) |
|
|
847 |
|
|
|
(894 |
) |
|
|
822 |
|
Foreign currency translation on opening balances |
|
|
|
|
|
|
4 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Cash at the beginning of the year |
|
|
|
|
|
|
1,534 |
|
|
|
1,139 |
|
|
|
690 |
|
|
|
1,368 |
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year |
|
|
24 |
|
|
|
689 |
|
|
|
511 |
|
|
|
1,534 |
|
|
|
474 |
|
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
The notes
following the financial statements form part of the financial report.
5
222
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements
1. Basis of preparation
In this financial report, we, us, our, Telstra and the Telstra Group all mean Telstra
Corporation Limited, an Australian corporation and its controlled
entities as a whole. Telstra
Entity is the legal entity, Telstra Corporation Limited.
Our
financial or fiscal year ends on 30 June. Unless we state differently the following applies;
|
|
year, fiscal year or financial year means the year ended 30 June; |
|
|
balance date means the date 30 June; and |
|
|
2006 means fiscal 2006 and similarly for other fiscal years. |
The financial report of the Telstra Group and the Telstra Entity for the year ended 30 June 2006
was authorised for issue in accordance with a resolution of the Telstra Board of Directors on 10
August 2006.
The principal accounting policies used in preparing the financial report of the Telstra Group and
the Telstra Entity are listed in note 2 to our financial statements.
1.1 Basis of preparation of the financial report
This financial report is a general purpose financial report prepared in accordance with the
requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in
Australia.
Both the functional and presentation currency of the Telstra Entity and its Australian controlled
entities is Australian dollars. The functional currency of certain non Australian controlled
entities is not Australian dollars. As a result, the results of these entities are translated to
Australian dollars for presentation in the Telstra Group financial
report.
This financial report is prepared in accordance with historical cost, except for some categories of
investments, which are equity accounted and some financial assets and liabilities (including
derivative instruments) which are recorded at fair value. Cost is the fair value of the
consideration given in exchange for net assets acquired.
In preparing this financial report, we are required to make judgements and estimates that impact:
|
|
income and expenses for the year; |
|
|
|
the reported amounts of assets and liabilities; and |
|
|
|
the disclosure of off balance sheet arrangements, including contingent assets and contingent
liabilities. |
We
continually evaluate our judgements and estimates. We base our judgements and estimates on
historical experience, various other assumptions we believe to be reasonable under the
circumstances and, where appropriate, practices adopted by international telecommunications
companies.
Actual results may differ from our estimates in the event that the scenarios on which our
judgements are based prove to be different.
1.2 Statement of compliance
This financial report complies with Accounting Standards applicable in Australia, which include
Australian equivalents to International Financial Reporting Standards
(A-IFRS). Compliance with
A-IFRS ensures that the Telstra Group and Telstra Entity financial statements and notes comply with
International Financial Reporting Standards (IFRS). The financial statements of Telstra Entity are considered separate
financial statements.
This is
our first full year financial report prepared in accordance with A-IFRS. AASB 1: First
time adoption of Australian equivalents to International Financial Reporting Standards (AASB 1)
has been applied in preparing this financial report. Our financial reports up to 30 June 2005 had
been prepared in accordance with previous Australian Generally Accepted Accounting Principles
(AGAAP). AGAAP differs in certain respects from A-IFRS.
When preparing this financial report we have amended certain accounting and valuation methods
applied in the previous AGAAP financial statements to comply with
A-IFRS. With the exception of
financial instruments, the comparative figures were restated to
reflect these adjustments. We have
taken the exemption available under AASB 1 to only apply AASB 132: Financial Instruments:
Disclosure and Presentation (AASB 132) and AASB 139: Financial Instruments: Recognition and
Measurement (AASB 139), from 1 July 2005. In addition, we have elected to early adopt AASB 7:
Financial Instruments: Disclosures, which supersedes the
disclosure requirements of AASB 132.
Reconciliations and descriptions of the impact of the transition to A-IFRS on the Telstra Group and
Telstra Entitys income statement, balance sheet and statement of cash flow are provided in note
36.
1.3 Clarification of terminology used in our income statement
Under the requirements of AASB 101: Presentation of Financial Statements, we must classify
all of our expenses (apart from any finance costs and our share of net (gain)/loss from jointly
controlled and associated entities) according to either the nature (type) of the expense or the
function (activity to which the expense relates). We have chosen to classify our expenses using the
nature classification as it more accurately reflects the type of
operations we undertake.
6
223
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Basis of preparation (continued)
1.3 Clarification of terminology used in our income statement (continued)
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA) reflects
our profit for the year prior to including the effect of net finance costs, income taxes,
depreciation and amortisation. We believe that EBITDA is a relevant and useful financial measure
used by management to measure the companys operating profit.
Our management uses EBITDA, in combination with other financial measures, primarily to evaluate the
companys operating performance before financing costs, income tax and non-cash capital related
expenses. In consideration of the capital intensive nature of our business, EBITDA is a useful
supplement to net income in understanding cash flows generated from operations that are available
for payment of income taxes, debt service and capital expenditure.
In addition, we believe EBITDA is useful to investors because analysts and other members of the
investment community largely view EBITDA as a key and widely recognised measure of operating
performance.
Earnings before interest and income tax expense (EBIT) is a similar measure to EBITDA, but takes
into account the effect of depreciation and amortisation.
When a specific item from continuing operations is of such a size, nature or incidence that its
disclosure is relevant in explaining our operating performance for the reporting period, its nature
and amount is disclosed separately in note 7(b).
1.4 Adoption of accounting standards before their application date
Certain new accounting standards and Urgent Issues Group (UIG) interpretations have been issued
with an application date after the year ended 30 June 2006. As a result, these accounting standards
and UIG interpretations are not mandatory for adoption in our financial report for the year ended
30 June 2006.
Under subsection 334(5) of the Corporations Act 2001, we elected to early adopt the following
accounting standards before the application date:
|
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AASB 119: Employee Benefits (issued December 2004)(AASB 119); and |
|
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AASB 7: Financial Instruments: Disclosures (AASB
7). |
Due to the early adoption of the revised AASB 119, we also elected to adopt the related omnibus
accounting standard, AASB 2005-3: Amendments to Australian
Accounting Standards. Our comparatives
for the year ended 30 June 2005 were fully restated for these accounting standards in accordance
with AASB 1.
Due to the early adoption of AASB 7, we also elected to adopt the related omnibus accounting
standard, AASB 2005-10: Amendments to Australian Accounting
Standards. We have taken the
exemption available under AASB 1 to only apply these standards from 1
July 2005.
1.5 United States generally accepted accounting principles (USGAAP)
This financial report combines the disclosure requirements for both A-IFRS and United States
Generally Accepted Accounting Principles (USGAAP). Note 37 contains a reconciliation of the major
differences between our financial report prepared under A-IFRS and
USGAAP.
This
financial report has been prepared using our presentation currency, Australian dollars (A$).
For the convenience of readers outside Australia we have converted our financial statements and
USGAAP disclosures from A$ to US$ for fiscal 2006.
These
conversions appear under columns headed US$m and represent rounded millions of US dollars.
The conversion has been made using the noon buying rate in New York City for cable transfers in
non-US currencies. This rate is certified for custom purposes by the Federal Reserve Bank of New
York. The rate on 30 June 2006 was A$1.00 = US$0.7423.
These conversions are indicative only and do not mean that the A$ amounts could be converted to US$
at the rate indicated.
1.6 Recently issued accounting standards to be applied in Australia in future reporting
periods
The accounting standards and UIG interpretation that have not been early adopted for the year
ended 30 June 2006, but will be applicable to the Telstra Group and Telstra Entity in future
reporting periods are detailed below. Apart from these standards, we have considered other
accounting standards that will be applicable in future periods, however they have been considered
insignificant to Telstra.
7
224
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Basis of preparation (continued)
1.6 Recently issued accounting standards to be applied in Australia in future reporting
periods (continued)
Lease arrangements
UIG 4: Determining Whether an Arrangement Contains a Lease (UIG 4) is applicable to annual
reporting periods beginning on or after 1 January 2006. We will apply this interpretation in our
financial report for the half-year ended 31 December 2006. A related omnibus standard AASB 2005-5:
Amendments to Australian Accounting Standards will also be adopted for the half-year ended 31
December 2006.
UIG 4
requires entities to assess whether the arrangements they enter into contain leases. An
arrangement contains a lease if fulfilment of the arrangement is dependent on the use of specific
assets and it conveys a right to use those assets to the customer. The lease component of the
arrangement is then separated and accounted for as either a finance or operating lease depending on
the nature of the arrangement. Under our current accounting policy we do not separately account for
leases that are embedded within our service agreements.
UIG 4 will align our accounting under A-IFRS to our policy adopted under USGAAP (refer to note
37(p)) However, our USGAAP policy is only applied to arrangements that were entered into or
modified after 1 July 2003. UIG 4 is applicable to all arrangements in existence as of the
transition date.
Financial guarantees
AASB 2005-9: Amendments to Australian Accounting Standards is applicable to annual reporting
periods beginning on or after 1 January 2006. We will apply this interpretation in our financial
report for the half-year ended 31 December 2006.
These amendments require that liabilities arising from the issue of financial guarantee contracts
be recognised on the balance sheet. Management has not yet determined the effect the adoption of
these amendments will have on our balance sheet, income statement or
statement of cashflows.
1.7 Rounding
All dollar amounts in this financial report (except where indicated) have been rounded to the
nearest million dollars ($m) for presentation. This has been done in accordance with Australian
Securities and Investments Commission (ASIC) Class Order 98/100, dated 10 July 1998, issued under
section 341(1) of the Corporations Act 2001.
8
225
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies
2.1 Change in accounting policies
The following accounting policy changes occurred during fiscal 2006:
The transition to Australian equivalents to International Financial Reporting Standards (A-IFRS)
resulted in changes to a number of our accounting policies. The accounting policies set out below
have been applied in preparing the financial report for the year ended 30 June 2006, the
comparative information presented in these financial statements and in the preparation of the
opening A-IFRS balance sheet as at 1 July 2004, except for the accounting policies in respect of
financial instruments.
Reconciliations and descriptions of the impact of the transition to A-IFRS on the Telstra Group and
Telstra Entitys income statement, balance sheet and statement of cash flow are provided in note
36.
There were
no accounting policy changes during fiscal 2005.
Accounting policies
2.2 Principles of consolidation
The consolidated financial report includes the assets and liabilities of the Telstra Entity and
its controlled entities as a whole as at the end of the year and the consolidated results and cash
flows for the year. The effect of all intergroup transactions and balances are eliminated in full
from our consolidated financial statements.
Where we do not control an entity for the entire year, results and cash flows for those entities
are only included from the date on which control commences, or up until the date on which there is
a loss of control.
Our consolidated retained profits include retained profits/ accumulated losses of controlled
entities from the time they became a controlled entity until control
ceases. Minority interests in
the results and equity of controlled entities are shown separately in our consolidated income
statement and consolidated balance sheet.
The financial statements of controlled entities are prepared for the same reporting period as the
Telstra Entity, using consistent accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies.
An entity is considered to be a controlled entity where we are able to dominate decision making,
directly or indirectly, relating to the financial and operating policies of that entity so as to
obtain benefits from its activities.
We account
for the acquisition of our controlled entities using the purchase method of accounting.
This involves recognising the acquirees identifiable assets, liabilities and contingent
liabilities at their fair value at the date of acquisition. Any excess of the cost of acquisition
over our interest in the fair value of the acquirees identifiable assets, liabilities and
contingent liabilities is recognised as goodwill.
2.3 Foreign currency translation
(a) Transactions and balances
Foreign currency transactions are converted into the relevant functional currency at market
exchange rates applicable at the date of the transactions. Amounts payable or receivable in foreign
currencies at balance date are converted into the relevant functional currency at market exchange
rates at balance date. Any currency translation gains and losses that arise are included in our
profit or loss for the year. Where we enter into a hedge for a specific expenditure commitment or
for the construction of an asset, hedging gains
and losses are accumulated in equity over the period of the hedge and are transferred to the
carrying value of the asset upon completion, or included in the income statement at the same time
as the discharge of the expenditure commitment.
(b) Translation of financial reports of foreign operations that have a functional currency that is
not Australian dollars.
The consolidated financial statements are presented in Australian dollars, which is the functional
and presentation currency of Telstra Corporation Limited.
Our operations include subsidiaries, associates, and jointly controlled entities, the activities
and operations of which are in an economic environment where the functional currency is not
Australian dollars. The financial statements of these entities are translated to Australian dollars
(our presentation currency) using the following method:
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assets and liabilities are translated into Australian dollars using market exchange rates at
balance date; |
|
|
|
equity at the date of investment is translated into Australian dollars at the exchange rate
current at that date. Movements post-acquisition (other than retained profits/ accumulated losses)
are translated at the exchange rates current at the dates of those movements; |
|
|
|
income statements are translated into Australian dollars at average exchange rates for the year,
unless there are significant identifiable transactions, which are translated at the exchange rate
that existed on the date of the transaction; and |
|
|
|
currency translation gains and losses are recorded in the
foreign currency translation reserve. |
9
226
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.3 Foreign currency translation (continued)
Exchange differences relating to foreign currency monetary items forming part of the net
investment in our entities operating in an economic environment where the functional currency is
not Australian dollars, together with related tax effects, are eliminated against the foreign
currency translation reserve in our consolidated financial statements.
Where we hedge our investment in entities which are in an economic environment where the
functional currency is not Australian dollars, the gains or losses on the hedging instrument are
recognised in the foreign currency translation reserve until we dispose of the operation, at which
time the cumulative gains and losses are transferred to the income
statement.
Upon disposal or partial disposal of a foreign operation, the balance of the foreign currency
translation reserve relating to the entity, or the part disposed of, is transferred to the income
statement and becomes part of the gain or loss on sale.
2.4 Cash and cash equivalents
Cash includes cash at bank and on hand, bank deposits, bills of exchange and commercial paper
with an original maturity date not greater than three months.
Bank
deposits are recorded at amounts to be received.
Bills of exchange and commercial paper are classified as available-for-sale financial assets and
are therefore held at fair value. The carrying amount of these assets approximates their fair
value due to the short term to maturity.
The
statement of cash flow discloses cash net of outstanding bank overdrafts where applicable.
2.5 Trade and other receivables
Telstra has elected to apply the option available under AASB 1: First-time Adoption of
Australian Equivalents to International Financial Reporting Standards (AASB 1) of adopting AASB
132: Financial Instruments: Disclosure and Presentation (AASB 132) and AASB 139: Financial
Instruments: Recognition and Measurement (AASB 139) from 1
July 2005. Outlined below are the
relevant accounting policies for trade and other receivables applicable for the years ending 30
June 2006 and 30 June 2005.
Trade debtors and other receivables are initially recorded at the fair value of the amounts to be
received and are subsequently measured at amortised cost.
An allowance for doubtful debts is raised based on a review of outstanding amounts at balance
date. Bad debts specifically provided for in previous years are eliminated against the allowance
for doubtful debts. In all other cases, bad debts are written off as an expense directly in the
income statement.
2.6 Inventories
Our finished goods include goods available for sale, and material and spare parts to be used
in constructing and maintaining the telecommunications network. We value inventories at the lower
of cost and net realisable value.
We allocate cost to the majority of inventory items on hand at balance date using the weighted
average cost basis. For the remaining quantities on hand, actual cost is used where the item was
purchased for use in a particular asset or project, and the first in first out basis is used for materials purchased
for production of directories.
Net realisable value of items expected to be sold is the estimated selling price in the ordinary
course of business, less estimated costs of completion and the estimated costs incurred in
marketing, selling and distribution It approximates fair value less costs to sell
Net realisable value of items expected to be consumed, for example used in the construction of
another asset, is the net value expected to be earned through future
use.
2.7 Construction contracts
(a) Valuation
We record construction contracts in progress at cost (including any profits recognised) less
progress billings and any provision for foreseeable losses.
Cost includes:
|
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both variable and fixed costs directly related to specific contracts; |
|
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|
amounts which can be allocated to contract activity in general and which can be allocated to
specific contracts on a reasonable basis; and |
|
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costs expected to be incurred under penalty clauses, warranty
provisions and other variances. |
Where a significant loss is estimated to be made on completion, a provision for foreseeable losses
is brought to account and recorded against the gross amount of
construction work in progress.
10
227
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.7 Construction contracts (continued)
(b) Recognition of profit
Profit is
recognised on an individual project basis using the percentage of completion method. The
percentage of completion is calculated based on estimated costs of completion, refer to note
2 18(d) for further details.
Profits are recognised when:
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the stage of contract completion can be reliably determined; |
|
|
|
costs to date can be clearly identified; and |
|
|
|
total contract revenues to be received and costs to complete
can be reliably estimated. |
(c) Disclosure
The construction work in progress balance is recorded in current inventories after deducting
progress billings. Where progress billings exceed the balance of construction work in progress, the
net amount is shown as a current liability within trade and other
payables.
2.8 Assets classified as held for sale
Non current assets are classified as held for sale if the carrying amount is to be recovered
principally through a sale transaction, rather than through
continuing use. We only classify an asset as held for sale if it is available for immediate sale in its present condition subject to
only usual and customary terms, and its sale is highly probable.
We record held for sale assets at the lower of the carrying amount and fair value less costs to
sell. An impairment loss is recognised for any initial or subsequent write down of the assets to
fair value less costs to sell. We do not depreciate or amortise these assets while they are
classified as held for sale.
2.9 Investments
(a) Controlled entities
Investments
in controlled entities are recorded at cost less impairment of the investment value.
Where we hedge the value of our investment in an overseas controlled entity, the hedge is accounted
for in accordance with note 2. 26.
(b) Jointly controlled and associated entities
(i) Jointly controlled entities
A jointly controlled entity is a contractual arrangement (in the form of an entity) whereby two or
more parties take on an economic activity which is governed by joint
control. Joint control
involves the contractually agreed sharing of control over an entity where two or more parties must
consent to all major decisions. Our interests in jointly controlled entities, including
partnerships, are accounted for using the equity method of accounting in the Telstra Group
financial statements and the cost method in the Telstra Entity
financial statements.
Under the equity method of accounting, we adjust the initial recorded amount of the investment for
our share of:
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profits or losses for the year after tax since the date of investment; |
|
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|
reserve movements since the date of investment; |
|
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|
unrealised profits or losses; |
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|
dividends or distributions received; and |
|
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|
deferred profit brought to account. |
Our share of all of these items, apart from dividends or distributions received and reserves, is
recorded in the income statement.
Where the equity accounted amount of our investment in an entity falls below zero, we suspend the
equity method of accounting and record the investment at zero. When this occurs, the equity method
of accounting does not recommence until our share of profits and reserves exceeds the cumulative
prior years share of losses and reserve reductions.
Where we have long term assets that in substance form part of our investment in equity accounted
interests and the equity accounted amount of investment falls below zero, we reduce the value of
the assets in proportion with our cumulative losses.
(ii) Associated entities
Where we hold an interest in the equity of an entity, generally of between 20% and 50%, and are
able to apply significant influence to the decisions of the entity, that entity is an associated
entity. Associated entities are accounted for using the equity method of accounting in the Telstra
Group financial statements and the cost method in the Telstra Entity
financial statements.
11
228
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.9 Investments (continued)
(c) Jointly controlled assets
A jointly controlled asset involves the joint control of one or more assets acquired and dedicated
for the purpose of a joint venture. The assets are used to obtain
benefits for the venturers. Where
the asset is significant we record our share of the asset. We record expenses based on our
percentage ownership interest of the jointly controlled asset.
(d) Listed securities and investments in other corporations
We have elected to apply the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1
July 2005. Accordingly, we have applied previous AGAAP in the comparative information on financial
instruments within the scope of AASB 132 and AASB 139.
Our investments in listed securities and in other corporations are classified as
available-for-sale financial assets and as such are measured at fair value at each reporting
date.
Net fair values of our investments are calculated on the following bases:
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|
for listed securities traded in an organised financial market, we use the current quoted market
bid price at balance date; and |
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|
for investments in unlisted entities whose securities are not traded in an organised financial
market, we establish fair value by using valuation techniques, including reference to discounted
cash flows and fair values of recent arms length transactions involving the same instruments or
other instruments that are substantially the same. |
We remeasure the fair value of our investments in listed securities and other corporations at each
reporting date. Any gains or losses are recognised in equity until we dispose of the investment, or
we determine it to be impaired, at which time we transfer all cumulative gains and losses to the
income statement.
2.10 Impairment
(a) Non-financial assets
Our tangible and intangible assets (excluding inventories, assets arising from construction
contracts, deferred tax assets, defined benefit assets and financial assets) are measured using the
cost basis and are written down to recoverable amount where their carrying value exceeds
recoverable amount.
Assets with an indefinite useful life are not subject to amortisation and are tested on an annual
basis for impairment, or where an indication of impairment exists. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
The recoverable amount of an asset is the higher of its fair value less costs to sell or its value
in use. Value in use represents the present value of the future amount expected to be recovered
through the cash inflows and outflows arising from the assets continued use and subsequent
disposal. We recognise any decrement in the carrying value as an expense in the income statement in
the reporting period in which the impairment loss occurs.
In determining value in use, we apply management judgement in establishing forecasts of future
operating performance, as well as the selection of growth rates,
terminal rates and discount rates. These judgements are applied based on our understanding of historical information and expectations
of future performance.
The expected net cash flows included in determining recoverable amounts of our assets are
discounted to present values using a market determined, risk
adjusted, discount rate. When
determining an appropriate discount rate, we use the weighted average cost of capital (WACC) as an
initial point of reference, adjusted for specific risks associated with each different category of
assets assessed.
For assets that do not generate largely independent cash inflows, the recoverable amount is
determined for the cash generating unit to which that asset belongs. Our cash generating units
(CGUs) are determined according to the lowest level of aggregation for which an active market
exists and the assets involved create largely independent cash
inflows.
We apply
management judgement to establish our CGUs. We have determined that assets which form part
of our ubiquitous telecommunications network work together to
generate net cash flows. No one item
of telecommunications equipment is of any value without the other assets to which it is connected
in order to achieve the delivery of products and services. As a result, we have determined that the
ubiquitous telecommunications network is a single CGU. We have referred to this CGU as the Telstra
Entity CGU in our financial report.
The Telstra Entity CGU excludes the hybrid fibre coaxial (HFC) cable network, which we consider not
to be integrated with the rest of our telecommunications network.
12
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Telstra Corporation Limited and controlled
entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.10 Impairment (continued)
(b) Financial assets
The group has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139
from 1 July 2005. Outlined below are the relevant accounting policies applicable for the years
ending 30 June 2005 and 30 June 2006.
At each reporting date we assess whether there is objective evidence to suggest that any of our
financial assets are impaired.
For financial assets held at fair value, we consider the financial asset to be impaired when there
has been an extended period in which the fair value of the financial asset has been below the
acquisition cost and the decline in fair value is not expected to be
recovered. At this time, all
revaluation losses in relation to the impaired financial asset that have been accumulated within
equity are recognised in the income statement.
For financial assets held at cost or amortised cost, we consider the financial asset to be
impaired when there is a difference between the carrying value and the present value of estimated
discounted future cash flows. Any impairment losses are recognised immediately in the income
statement.
Impairment losses recognised in the income statement are not reversed in relation to investment
securities.
2.11 Property, plant and equipment
(a) Acquisition
Items of property, plant and equipment are recorded at cost and depreciated as described in note
2.11(b). The cost of our constructed property, plant and equipment includes:
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the cost of material and direct labour; |
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|
an appropriate proportion of direct and indirect overheads; and |
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|
where we have an obligation for removal of the asset or restoration of the site, an estimate of
the cost of restoration or removal if that cost can be reliably
estimated. |
Where settlement of any part of the cash consideration is deferred, the amounts payable in the
future are discounted to their present value as at the date of
acquisition. The unwinding of this
discount is recorded within finance costs.
(b) Depreciation
Items of property, plant and equipment, including buildings and leasehold property, but excluding
freehold land, are depreciated on a straight line basis to the income statement over their
estimated service lives. We start depreciating assets when they are
installed and ready for use.
The service lives of our significant items of property, plant and equipment are as follows:
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Telstra Group |
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As at 30 June |
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2006 |
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2005 |
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Service life |
|
Service life |
Property, plant and equipment |
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(years) |
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(years) |
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Buildings - building shell |
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55 |
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55 |
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- general purpose |
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8 - 40 |
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8 - 40 |
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- fitout |
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10 - 20 |
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10 - 20 |
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Communication assets |
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Buildings - building shell |
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55 |
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55 |
|
- network |
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8 - 40 |
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8 - 40 |
|
- fitout |
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10 - 20 |
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|
10 - 20 |
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Customer premises equipment |
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3 - 8 |
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3 - 8 |
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Transmission equipment |
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2 - 25 |
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3 - 25 |
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Switching equipment |
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4 - 12 |
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1 - 10 |
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Mobile equipment |
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2 - 10 |
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3 - 10 |
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Cables |
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5 - 25 |
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8 - 25 |
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Ducts and pipes - main cables |
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40 |
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40 |
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- distribution |
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30 |
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30 |
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Other communications plant |
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1 - 30 |
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3 - 16 |
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Other assets |
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Leasehold plant and equipment |
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3 - 15 |
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3 - 15 |
|
Other plant, equipment and motor
vehicles |
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3 - 15 |
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3 - 15 |
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The
service lives and residual value of our assets are reviewed each year. We apply management
judgment in determining the service lives of our assets. This assessment includes a comparison
with international trends for telecommunication companies, and in relation to communication
assets, includes a determination of when the asset may be superseded technologically or made
obsolete.
13
230
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.11 Property, plant and equipment (continued)
We account for our assets individually where it is practical and feasible and in line with
commercial practice. Where it is not practical and feasible, we
account for assets in groups. Group
assets are automatically removed from our financial statements on
reaching the group life.
Therefore, any individual asset may be physically retired before or after the group life is
attained. This is the case for certain communication assets as we assess our technologies to be
replaced by a certain date.
As part of
our review, service lives of our assets are reassessed. Any reassessment in a particular
year will affect the depreciation expense (either increasing or decreasing) through to the end of
the reassessed useful life for both that current year and future
years. The net effect of the
reassessment for fiscal 2006 was an increase in our depreciation expense of $66 million (2005: $60
million decrease) for both the Telstra Group and Telstra Entity. This reassessment includes the
adjustment arising from our transformation resulting from the strategic review undertaken, refer to
note 7(b) for further information.
Our major repairs and maintenance expenses relate to maintaining our exchange equipment and the
customer access network. We charge the cost of repairs and maintenance, including the cost of
replacing minor items, which are not substantial improvements, to
operating expenses.
2.12 Leased plant and equipment
We account
for leases in accordance with AASB 117: Leases. We distinguish between finance
leases, which effectively transfer substantially all the risks and benefits incidental to ownership
of the leased asset from the lessor to the lessee, from operating leases under which the lessor
effectively retains all such risks and benefits.
Where we acquire non current assets via a finance lease, the lower of the fair value of the asset
and the present value of future minimum lease payments is capitalised as equipment under finance
lease at the beginning of the lease term. Capitalised lease assets are depreciated on a straight
line basis over the shorter of the lease term or the expected useful
life of the assets. A
corresponding liability is also established and each lease payment is allocated between the
liability and finance charges.
Operating lease payments are charged to the income statement on a straight line basis over the term
of the lease.
Where we lease properties, costs of improvements to these properties are capitalised as leasehold
improvements and amortised over the shorter of the useful life of the improvements or the term of
the lease.
2.13 Intangible assets
Intangible
assets are assets that have value, but do not have physical substance. In order to
be recognised, an intangible asset must be either separable or arise from contractual or other
legal rights.
(a) Goodwill
On the acquisition of investments in controlled entities, jointly controlled and associated
entities, when we pay an amount greater than the fair value of the net identifiable assets of the
entity, this excess is recognised as goodwill in the Telstra Group
balance sheet. We calculate the
amount of goodwill as at the date of purchasing our ownership
interest in the entity.
When we purchase an entity that we will control, the amount of goodwill is recorded in intangible
assets. When we acquire a jointly controlled or associated entity, the goodwill amount is
included as part of the cost of the investment.
Goodwill
is not amortised but is tested for impairment in accordance with note 2.10 on an annual
basis and when an indication of impairment exists.
(b) Internally generated intangible assets
Research
costs are recorded as an expense as incurred. Development costs are capitalised if the
project is technically and commercially feasible and we have sufficient resources to complete the
development.
Software assets
We record direct costs associated with the development of business software for internal use as
software assets if the development costs satisfy the criteria for
capitalisation described above.
Costs included in software assets developed for internal use are:
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external direct costs of materials and services consumed; and |
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payroll and direct payroll-related costs for employees (including contractors) directly
associated with the project. |
Software assets developed for internal use have a finite life and are amortised on a straight line
basis over their useful lives to us. Amortisation commences once the
software is ready for use.
14
231
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.13 Intangible assets (continued)
(c) Acquired intangible assets
We acquire other intangible assets either as part of a business combination or through separate
acquisition. Intangible assets acquired in a business combination are recorded at their fair value
at the date of acquisition and recognised separately from goodwill. On initial acquisition, we
apply management judgement to determine the appropriate allocation of purchase consideration to the
assets being acquired, including goodwill and identifiable intangible
assets.
Intangible assets that are considered to have a finite life are amortised on a straight line basis
over the period of expected benefit. Intangible assets that are considered to have an indefinite
life are not amortised but tested for impairment in accordance with
note 2.10 on an annual basis,
or where an indication of impairment exists.
Our acquired intangible assets include mastheads, patents, trademarks, licences, brandnames and
customer bases.
(d) Deferred expenditure
Deferred expenditure mainly includes costs incurred for basic access installations and connections
fees for in place and new services, and direct incremental costs of establishing a customer
contract.
Significant items of expenditure are deferred to the extent that they are recoverable from future
revenue and will contribute to our future earning capacity. Any costs in excess of future revenue
are recognised immediately in the income statement.
We amortise deferred expenditure over the average period in which the related benefits are expected
to be realised.
Handset
subsidies are expensed as incurred. On transition to A-IFRS we elected to expense handset
subsidies, which was a change from the previous policy whereby the cost of the subsidy was deferred
and written off over the average contract term.
(e) Amortisation
The average amortisation periods of our identifiable intangible assets are as follows:
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Telstra Group |
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As at 30 June |
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2006 |
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2005 |
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Expected |
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Expected |
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benefit |
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benefit |
Identifiable intangible assets |
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(years) |
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(years) |
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Software assets |
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6 |
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6 |
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Patent and trademarks |
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19 |
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19 |
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Licences |
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12 |
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11 |
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Brandnames |
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19 |
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20 |
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Customer bases |
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11 |
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13 |
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Deferred expenditure |
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4 |
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4 |
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The
service lives of our identifiable intangible assets are reviewed each year. Any reassessment of
service lives in a particular year will affect the amortisation expense (either increasing or
decreasing) through to the end of the reassessed useful life for both
that current year and future years. The net effect of the reassessment for fiscal 2006 was an increase in our amortisation
expense of $160 million (2005: $nil) for the Telstra Group and $145 million (2005: $nil) for the
Telstra Entity. This reassessment includes the adjustment arising from our transformation resulting
from the strategic review undertaken, refer to note 7(b) for further
information.
In relation to acquired intangible assets, we apply management judgement to determine the
amortisation period based on the expected useful lives of the
respective assets. In some cases, the
useful lives of certain acquired intangible assets are supported by
external valuation advice on acquisition. In addition, we apply management judgement to assess annually, the indefinite useful
life assumption applied to certain acquired intangible assets.
2.14 Trade and other payables
Trade and other payables, including accruals, are recorded when we are required to make future
payments as a result of a purchase of assets or services.
15
232
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.15 Borrowings
Our borrowings fall into two categories:
(a) Borrowings in a designated hedging relationship
Our offshore borrowings which are designated as hedged items are subject to either fair value or
cash flow hedges. The method by which they are hedged determines
their accounting treatment.
Borrowings
subject to fair value hedges are recognised initially at fair value. The carrying
amount of our borrowings in fair value hedges (to hedge against changes in value due to interest
rate or currency movements) is adjusted for fair value movements
attributable to the hedged risk. Fair value is calculated using
valuation techniques which utilise data from observable markets.
Assumptions are based on market conditions existing at each balance date. The fair value is
calculated as the present value of the estimated future cash flows using an appropriate market
based yield curve which is independently derived and representative of Telstras cost of
borrowing. These borrowings are remeasured each reporting period and the gains or losses are
recognised in the income statement along with the associated gains or losses on the hedging
instrument.
Borrowings subject to cash flow hedges (to hedge against currency movements) are recognised
initially at fair value based on the applicable spot price plus any transaction costs that are
directly attributable to the issue of the borrowing. These borrowings are subsequently carried at
amortised cost, translated at the applicable spot exchange rate at
reporting date. Any difference
between the final amount paid to discharge the borrowing and the initial borrowing proceeds is
recognised in the income statement over the borrowing period using
the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial
liability and of allocating the interest expense over the relevant
period. The effective interest
rate is the rate that exactly discounts estimated future cash payments through the expected life
of the financial liability, or, where appropriate, a shorter period.
Currency gains or losses on the borrowings are recognised in the income statement, along with the
associated gains or losses on the hedging instrument, which have been transferred from the cash
flow hedging reserve to the income statement.
(b) Borrowings not in a designated hedging relationship
Borrowings not in a designated hedging relationship include commercial paper borrowings, Telstra
Bonds, loans from associates, unsecured promissory notes and other
borrowings.
All such instruments are initially recognised at fair value plus any transaction costs that are
directly attributable to the issue of the instrument and are subsequently measured at amortised
cost. Any difference between the final amount paid to discharge the borrowing and the initial
borrowing proceeds (including transaction costs) is recognised in the income statement over the
borrowing period using the effective interest method.
Borrowings are included as non current liabilities except for those with maturities less than
twelve months from the balance sheet date, which are classified as
current liabilities.
2.16 Provisions
Provisions are recognised when the group has:
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a present legal or constructive obligation to make a future sacrifice of economic benefits as a
result of past transactions or events; |
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it is probable that a future sacrifice of economic benefits will arise; and |
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a reliable estimate can be made of the amount of the
obligation. |
The amount recognised as a provision is the best estimate of the consideration required to settle
the present obligation at reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value of
those cash flows.
(a) Employee benefits
We accrue liabilities for employee benefits to wages and salaries, annual leave and other current
employee benefits at their nominal amounts. These are calculated based on remuneration rates
expected to be current at the date of settlement and include related
on costs.
Certain employees who have been employed by Telstra for at least ten years are entitled to long
service leave of three months (or more depending on the actual length of employment), which is
included in our employee benefits provision.
We accrue liabilities for other employee benefits not expected to be paid or settled within 12
months of balance date, including long service leave, at the present values of future amounts
expected to be paid. This is based on projected increases in wage and salary rates over an average
of 10 years, experience of employee departures and periods of
service.
16
233
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.16 Provisions (continued)
We calculate present values using rates based on government guaranteed securities with similar
due dates to our liabilities.
We apply management judgment in estimating the following key assumptions used in the calculation of
our long service leave provision at reporting date:
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weighted average projected increases in salaries; |
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weighted average discount rate; and |
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leave taking rate. |
Refer to note 19 for further details on the key management judgements used in the calculation of
our long service leave provision.
(b) Workers compensation
We self
insure our workers compensation liabilities. We take up a provision for the present value
of these estimated liabilities, based on an actuarial review of the
liability. This review includes
assessing actual accidents and estimating claims incurred but not
reported. Present values are
calculated using appropriate rates based on the risks specific to the liability with similar due
dates.
Certain controlled entities do not self insure, but pay annual premiums to third party insurance
companies for their workers compensation liabilities.
(c) Restoration costs
We provide for costs of restoration or removal in relation to our fixed
assets when we have a legal
or constructive obligation. These costs include our obligations relating to the dismantling,
removal, remediation, restoration and other expenditure associated with our fixed assets or site
fitouts. Restoration provisions are initially recorded when a reliable estimate of the costs to be
incurred can be determined, discounted to present value. Our estimates are based upon a review of
lease contracts, legal requirements, historical information and
expected future costs. Any changes
to these estimates are adjusted on a progressive basis as required.
Where restoration costs are incurred due to the acquisition, construction or development of a non
current asset, the provision is raised and recorded at that time as part of the cost of the asset
where the cost is reliably measurable.
(d) Redundancy and restructuring costs
We recognise a provision for redundancy costs when a detailed formal plan for the redundancies has
been developed and a valid expectation has been created that the redundancies will be carried out
with those employees likely to be affected.
We recognise a provision for restructuring when a detailed formal plan has been approved and we
have raised a valid expectation in those affected by the restructuring that the restructuring will
be carried out.
2.17 Share capital
Issued and paid up capital is recognised at the fair value of the consideration received by the
Company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity,
net of tax, as a reduction of the share proceeds received.
Where we undertake a share buy-back, contributed equity is reduced in
accordance with the structure
of the buy-back arrangement. Costs associated with the buy-back, net of tax, are also deducted from
contributed equity. We also record the purchase of Telstra Entity shares by our employee share plan
trusts as a reduction in share capital.
Share based remuneration associated with our employee share plans is
recognised as additional share
capital. Non-recourse loans provided to employees to participate in these employee share plans are
recorded as a reduction in share capital.
Refer to
note 2.25 for further details regarding our accounting for
employee share plans.
2.18 Revenue recognition
The underlying accounting principles of revenue
recognition are generally the same for both
A-IFRS and the United States Generally Accepted Accounting Principles
(USGAAP). As such we have
applied the more detailed guidance under USGAAP to the timing of revenue recognition for both
A-IFRS and USGAAP financial statements where there is no conflict
between the two.
Sales revenue
Our categories of sales revenue are recorded after
deducting sales returns, trade allowances,
duties and taxes.
(a) Rendering of services
Revenue from the provision of our
telecommunications services includes telephone calls and other
services and facilities provided, such as internet and data.
17
234
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.18 Revenue (continued)
We record revenue earned from:
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telephone calls on completion of the call; and |
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other services generally at completion, or on a straight line basis over the period of service
provided, unless another method better represents the stage of
completion. |
Installation and connection fee revenues are deferred and
recognised over the average estimated
customer life. Incremental costs directly related to these revenues are also deferred and amortised
over the customer contract life. Also refer to note 2.13(d).
In relation to basic access installation and connection revenue, we
apply our management judgement
to determine the estimated customer contract life. Based on our reviews of historical information
and customer trends, we have determined that our average estimated customer life is 5 years (2005:
5 years). As a result, basic access installation and connection revenue is recognised over this
period.
(b) Sale of goods
Our revenue from the sale of goods includes revenue from the sale of
customer equipment and similar
goods. This revenue is recorded on delivery of the goods sold.
Generally we record the full gross amount of sales proceeds as
revenue, however if we are acting as
an agent under a sales arrangement, we record the revenue on a net basis, being the gross amount
billed less the amount paid to the supplier. We review the facts and circumstances of each sales
arrangement to determine if we are an agent or principal under the
sale arrangement.
(c) Rent of network facilities
We earn rent mainly from access to retail and wholesale fixed
and mobile networks and from the rent
of dedicated lines, customer equipment, property, plant and equipment
and other facilities. The
revenue of providing access to the network is recorded on an accrual
basis over the rental period.
(d) Construction contracts
We record
construction revenue on a percentage of contract completion basis. The percentage of
completion of contracts is calculated based on estimated costs to
complete the contract.
Our
construction contracts are classified according to their type. There are three types of
construction contracts, these being material intensive, labour
intensive and short duration.
Revenue is recognised on a percentage of completion basis using the appropriate measures as
follows:
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(actual costs / planned costs) x planned revenue for material intensive projects; |
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(actual labour hours / planned labour hours) x planned revenue for labour intensive projects; and |
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short duration projects are those that are expected to be completed within a month and
revenues and costs are recognised on completion. |
(e) Advertising and directory services
Classified advertisements and display advertisements are published on a daily, weekly and monthly
basis for which revenues are recognised at the time the advertisement
is published.
All of our Yellow Pages and White Pages directory revenues are
recognised on delivery of the
published directories using the delivery method. We consider our directories delivered when they
have been published and delivered to customers premises. Revenue from online directories is
recognised over the life of service agreements, which is on average
one year. Voice directory
revenues are recognised at the time of providing the service to
customers.
(f) Royalties
Royalty revenue is recognised on an accrual basis in accordance
with the substance of the relevant
agreements.
(g) Interest revenue
We record
interest revenue on an accruals basis. For financial assets,
interest revenue is
determined by the effective yield on the instrument (total return).
Revenue arrangements with multiple deliverables
Where two or more revenue-generating activities or deliverables are
sold under a single
arrangement, each deliverable that is considered to be a separate unit of accounting is accounted
for separately. When the deliverables in a multiple deliverable arrangement are not considered to
be separate units of accounting, the arrangement is accounted for as
a single unit.
18
235
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.18 Revenue (continued)
We allocate the consideration from the revenue arrangement
to its separate units based on the
relative fair values of each unit. If the fair value of the delivered item is not available, then
revenue is allocated based on the difference between the total arrangement consideration and the
fair value of the undelivered item. The revenue allocated to each unit is then recognised in
accordance with our revenue recognition policies previously described
above.
2.19 Advertising expenses
Costs for advertising products and services or
promoting our corporate image are expensed as
incurred. These costs are included in promotion and advertising expenses within our other expenses
category.
2.20 Borrowing costs
Borrowing costs are
recognised as an expense in our income statement when incurred.
2.21 Taxation
(a) Income taxes
Our income tax expense represents the
sum of current tax and deferred tax. Current tax is
calculated on accounting profit after allowing for non-taxable and non-deductible items based on
the amount expected to be paid to taxation authorities on taxable
profit for the period. Deferred
tax is calculated at the tax rates that are expected to apply to the period when our asset is
realised or the liability is settled. Both our current tax and deferred tax are calculated using
tax rates that have been enacted or substantively enacted at
reporting date.
We apply the balance sheet liability
method for calculating our deferred tax. Deferred tax is the
expected tax payable or recoverable on all taxable and deductible temporary differences determined
through reference to the tax bases of assets and liabilities and their carrying amount for
financial reporting purposes as at the reporting date.
We generally recognise deferred tax
liabilities for all taxable temporary differences, except to
the extent that the deferred tax liability arises from:
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the initial recognition of goodwill; or |
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the initial recognition of an asset or liability in a transaction that is not a business
combination and affects neither our accounting profit or taxable income at the time of the
transaction. |
In respect of our investments in subsidiaries,
associates and jointly controlled entities, we
recognise deferred tax liabilities for all taxable temporary differences, except where we are able
to control the timing of our temporary difference reversal and it is probable that the temporary
difference will not reverse in the foreseeable future.
Subject to the exceptions described above,
we generally recognise deferred tax assets for all
deductible temporary differences and for the carry forward of unused
tax losses and tax credits.
These tax assets are recognised to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the carry forward of unused tax
losses and tax credits can be utilised.
In respect of our investments in subsidiaries,
associates and jointly controlled entities, we
recognise deferred tax assets for all deductible temporary differences provided it is probable
that our temporary differences will reverse in the future and taxable profit will be available
against which our temporary differences can be utilised.
The carrying amount of our deferred tax assets is
reviewed at each reporting date. We reduce the
carrying amount to the extent that it is no longer probable that sufficient taxable profit will be
available to allow the benefit of part or the entire deferred tax
asset to be utilised. At each
reporting date, we subsequently reassess our unrecognised deferred tax assets to determine whether
it has become probable that future taxable profit will allow this deferred tax asset to be
recovered.
Our current and deferred tax is recognised
as an expense or revenue in the income statement,
except when it relates to items directly debited or credited to equity, in which case our current
and deferred tax is also recognised directly in equity.
The Telstra Entity and its Australian resident
wholly owned entities elected to form a tax
consolidated group from 1 July 2002. The Telstra Entity, as the head entity in the tax
consolidated group, recognises in addition to its transactions, the current tax liabilities and
the deferred tax assets arising from unused tax losses and tax credits for all entities in the
group. The Telstra Entity and the entities in the tax consolidated group account for their own
current tax expense and deferred tax amounts. These tax amounts are measured as if each entity in
the tax consolidated group continues to be a separate taxpayer within
the group.
19
236
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.21 Taxation (continued)
Under our tax funding arrangements, amounts receivable
recognised by the Telstra Entity for the
current tax payable assumed of our wholly owned entities are booked
as a current receivable.
Amounts payable recognised by the Telstra Entity for the current tax receivable of our wholly owned
entities are booked as a current payable. Amounts relating to unused tax losses and tax credits of
the wholly owned entities and assumed by the Telstra Entity are
recorded as dividend revenue.
During fiscal 2005, no tax funding arrangement was in place and as a result, these funding amounts
were recorded as equity contributions to or distributions from our
controlled entities.
We offset deferred tax assets and
deferred tax liabilities
in the balance sheet where they relate
to income taxes levied by the same taxation authority and to the extent that we intend to settle
our current tax assets and liabilities on a net basis. Our deferred tax assets and deferred tax
liabilities are netted within the tax consolidation group, as these deferred tax balances relate to
the same taxation authority. We do not net deferred tax balances between controlled entities, apart
from those within the tax consolidation group.
(b) Goods and Services
Tax (GST) (including other value added taxes)
We record our revenue,
expenses and assets net of any applicable goods and services tax (GST),
except where the amount of GST incurred is not recoverable from the Australian Taxation Office
(ATO). In these circumstances the GST is recognised as part of the cost of
acquisition of the asset
or as part of the expense item.
Receivables and payables
balances include GST where we have either included GST in our price
charged to customers or a supplier has included GST in their price
charged to us. The net amount of
GST due, but not paid, to the ATO is included under payables.
2.22 Earnings per share
(a) Basic earnings per share
Basic earnings per share (EPS) is determined by dividing profit for the year after income tax
attributable to members of the company, excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary shares outstanding
during the period.
(b) Diluted earnings per share
Diluted earnings per share is calculated by dividing the profit attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the period
(adjusted for the effects of the instruments in the Telstra Growthshare Trust and the Telstra
Employee Share Ownership Plans).
2.23 Insurance
We specifically carry the following types of insurance:
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property; |
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travel/personal accident; |
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third party liability; |
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directors and officers
liability; |
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company reimbursement; and |
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other insurance from time to time |
For risks not covered by insurance, any losses are charged to the income statement in the year in
which the loss is reported.
The
Telstra Entity and certain controlled entities are self insured for workers compensation.
2.24 Post-employment benefits
(a) Defined contribution plans
Our commitment to defined contribution plans is limited to making contributions in accordance with
our minimum statutory requirements. We do not have any legal or constructive obligation to pay
further contributions if the fund does not hold sufficient assets to pay all employee benefits
relating to current and past employee services.
Contributions to defined contribution plans are recorded as an expense in the income statement as
the contributions become payable. We recognise a liability when we are required to make future
payments as a result of employee services provided.
(b) Defined benefit plans
We currently sponsor a number
of post-employment benefit plans. As these plans have elements of
both defined contribution and defined benefit, these hybrid plans are treated as defined benefit
plans in accordance with AASB 119: Employee Benefits.
We recognise an asset/(liability) for the
net surplus/(deficit) recorded in each of our post-employment defined
benefit plans.
At reporting date, where the fair value of the plan assets exceeds the present value of the
defined benefit obligations, the net surplus is recognised as an
asset. We recognise the asset as
we have the ability to control this surplus to generate future funds that are available to us in
the form of reductions in future contributions or as a cash refund.
At reporting date, where the fair value of the plan assets is less than the present value of the
defined benefit obligations, the net deficit would be recognised as a
liability.
20
237
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.24 Post-employment benefits (continued)
We use
fair value to determine the value of the plan assets at reporting date. Fair value is
calculated by reference to the net market values of the plan assets.
Defined benefit obligations are based on the expected future payments required to settle the
obligations arising from our current and past employee services. This obligation is influenced by
many factors, including final salaries and employee turnover. We employ qualified actuaries to
calculate the present value of the defined benefit obligations. These obligations are measured net
of tax.
The actuaries use the projected unit credit method to determine the present value of the defined
benefit obligations of each plan. This method determines each year of service as giving rise to an
additional unit of benefit entitlement. Each unit is measured separately to calculate the final
obligation. The present value is determined by discounting the estimated future cash outflows
using rates based on government guaranteed securities with similar due dates to these expected
cash flows.
We recognise all our defined benefit costs in the income statement with the exception of actuarial
gains and losses that are recognised directly in retained profits. Components of defined benefit
costs include current and past service cost, interest cost and
expected return on assets. Current
and past service cost represents the increase in the present value of the defined benefit
obligation resulting from our employees service in the current
and prior periods respectively.
Interest cost represents the increase in the present value of the defined benefit obligation
resulting from the employee benefits being one period closer to
settlement. Expected return on
assets represents movement in market value interest, dividends and other revenue items that is
expected to be derived from plan assets.
Actuarial gains and losses are based on an actuarial valuation of each defined benefit plan at
reporting date. Actuarial gains and losses represent the differences between previous actuarial
assumptions of future outcomes and the actual outcome, in addition to the effect of changes in
actuarial assumptions.
The actuaries apply judgment in estimating the following key assumptions used in the calculation
of our defined benefit assets at reporting date:
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discount rates; |
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salary inflation rate; and |
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expected return on plan assets |
The estimates applied in our calculation have a significant impact on the reported amount of our
defined benefit plan assets of $1,029 million (2005:
$247 million). If the estimates prove to be
incorrect, the carrying value of our defined benefit assets may be materially impacted in the next
reporting period. Additional volatility may also potentially be recorded in retained profits to
reflect differences between actuarial assumptions of future outcomes applied at the current
reporting date and the actual outcome in the next annual reporting
period.
Refer to note 28 for details on the key estimates used in the calculation of our defined benefit
assets.
2.25 Employee share plans
We own 100% of the equity of Telstra ESOP Trustee Pty Ltd, the corporate trustee for the
Telstra Employee Share Ownership Plan Trust (TESOP97) and Telstra Employee Share Ownership Plan
Trust II (TESOP99). We consolidate the results, position and cash
flows of TESOP97 and TESOP99.
The Telstra Growthshare Trust (Growthshare) was established to allocate equity based instruments as
required. Current equity based instruments include options, restricted shares, performance rights,
deferred shares, incentive shares, directshares and ownshares. Options, performance rights, and
restricted shares are subject to performance hurdles. Deferred shares and incentive shares are
subject to a specified period of service.
We own
100% of the equity of Telstra Growthshare Pty Ltd, the corporate trustee for Growthshare. We
also include the results, position and cash flows of Growthshare.
We recognise an expense for all share-based remuneration determined with reference to the fair
value at grant date of the equity instruments issued. The fair value of our equity instruments is
calculated using a valuation technique consistent with the Black Scholes methodology which utilises
Monte Carlo simulations, to estimate the price of those equity instruments in an arms length
transaction between knowledgeable, willing parties. The fair value is charged against profit over
the relevant vesting periods, adjusted to reflect actual and expected
levels of vesting.
Under the transitional exemptions of AASB 1, we have elected not to apply the requirements of AASB
2: Share-Based Payment (AASB 2) to equity instruments
granted prior to 7 November 2002.
Directshare enables non-executive directors to acquire a minimum of 20% of their fees in Telstra
shares. Ownshare enables eligible employees to be provided part of their remuneration in Telstra
shares. Telstra purchases shares on market to meet the requirements of directshare and ownshare and
expenses these costs as part of the participants remuneration.
21
238
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.26 Derivative financial instruments
We use derivative financial instruments such as forward exchange contracts, cross currency
swaps and interest rate swaps to hedge risks associated with foreign currency and interest rate
fluctuations.
The use of
hedging instruments is governed by the guidelines set by our Board of Directors.
(a) From 1 July 2004 to 30 June 2005
We have elected to apply the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1
July 2005. Accordingly, we have applied previous AGAAP in the comparative information on financial
instruments within the scope of AASB 132 and AASB 139. For further information on previous AGAAP
refer to the annual report for the year ended 30 June 2005.
(b) Adjustments on transition date: 1 July 2005
Under AASB 132/139, our accounting policy has changed to recognise our financial instruments in the
balance sheet and to record all derivatives at fair value. At the date of transition, changes in
the carrying amounts of derivatives are taken to retained profits or reserves, depending on the
hedge type. For further information concerning the adjustments on transition date reference should
be made to note 36.
(c) From 1 July 2005
Derivatives are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured to fair value The method of recognising the resulting
remeasurement gain or loss depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged. Where we hold derivative financial instruments that
are not designated as hedges, they are categorised as held for
trading financial instruments. All
of our derivative financial instruments are stated at fair value.
The carrying value of our cross currency and interest rate swaps refers to the fair value of our
receivable or payable under the swap contract, recorded as a hedge receivable or hedge payable in
our balance sheet. We do not offset the hedge receivable or hedge payable with the underlying
financial asset or financial liability being hedged, as the transactions are generally with
different counterparties and are not generally settled on a net basis.
Where we have a legally recognised right to set off the financial asset and the financial
liability, and we intend to settle on a net basis or simultaneously, we record this position on a
net basis in our balance sheet. Where we enter into master netting arrangements relating to a
number of financial instruments, have a legal right of set off, and intend to do so, we also
include this position on a net basis in our balance sheet.
Our derivative instruments that are held to hedge exposures can be classified into three different
types, depending on the reason we are holding them fair value hedges, cash flow hedges and hedges
of net investment in foreign operations.
Hedge accounting can only be utilised where effectiveness tests are met on both a prospective and
retrospective basis. Ineffectiveness may result in significant
volatility in the income statement.
In order for a derivative instrument to qualify for hedge accounting it must be formally designated
and documented as a hedge of a particular item or transaction, it must be expected to be highly
effective in offsetting changes in cash flows or fair value of the hedged item, and for cash flow
hedges of forecast transactions, the forecast transaction must be
highly probable.
We document at the inception of a transaction the relationship between hedging instruments and
hedged items, as well as our risk management objective and strategy for undertaking various hedge
transactions. We also document our assessment, both at hedge inception and on an ongoing basis, of whether the
hedging instruments that are used in hedging transactions have been, and will continue to be,
highly effective in offsetting changes in fair values or cash flows
of hedged items.
(i) Fair value hedges
We use fair value hedges to mitigate the risk of changes in the fair value of our foreign currency
borrowings from foreign currency and interest rate fluctuations over
the hedging period.
Where a fair value hedge qualifies for hedge accounting, gains or losses from remeasuring the fair
value of the hedge instrument are recognised in the income statement, together with gains and
losses in relation to the hedged item where those gains or losses relate to the risks intended to
be hedged This will increase volatility of reported profits due to the inclusion of some
ineffectiveness arising from the application of hedge accounting.
22
239
Telstra Corporation Limited and controlled
entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.26 Derivative financial instruments (continued)
(ii) Cash flow hedges
We use cash flow hedges to mitigate the risk of variability of future cash flows attributable to
foreign currency fluctuations over the hedging period. Cash flow hedges are used for our foreign
currency borrowings, and our ongoing business activities, predominantly where we have highly
probable purchase or settlement commitments in foreign currencies.
Where a cash flow hedge qualifies for hedge accounting, the effective portion of gains or losses on
remeasuring the fair value of the hedge instrument are recognised directly in equity in the cash
flow hedging reserve until such time as the hedged item affects profit or loss, then the gains or
losses are transferred to the income statement. However, in our hedges of forecast transactions,
when the forecast transaction that is hedged results in the recognition of a non-financial asset
(for example, inventory or fixed asset), the gains and losses previously deferred in equity are
transferred from equity and included in the measurement of the initial cost or carrying amount of
the asset. Gains or losses on any portion of the hedge determined to be ineffective are recognised
immediately in the income statement. The application of hedge accounting will create some
volatility in equity reserve balances.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains
in equity and is recognised when the hedged item is ultimately
recognised in the income statement.
If a forecast hedged transaction is no longer expected to occur, the cumulative gains or losses on
the hedging instrument that were reported in equity are transferred immediately to the income
statement.
(iii) Hedges of a net investment in a foreign operation
Our investments in foreign operations are exposed to foreign currency risk, which arises when we
translate the net assets of our foreign investments from their functional currency to Australian
dollars. We hedge our net investments to mitigate exposure to this risk by using forward foreign
currency contracts, cross currency swaps and/or commercial paper in the relevant currency of the
investment.
Gains and losses on remeasurement of our derivative instruments designated as hedges of foreign
investments are recognised in the foreign currency translation reserve in equity to the extent they
are considered to be effective.
The cumulative amount of the recognised gains or losses included in equity are transferred to the
income statement when the foreign operation is sold.
For all of our hedging instruments (fair value, cash flow or net investment), any gains or losses
on remeasuring to fair value any portion of the instrument not considered to be effective are
recognised directly in the income statement in the period in which
they occur.
(iv) Derivatives
that are not in a designated hedging relationship.
For any
held for trading derivative instruments, i.e. those which are not in a designated hedging
relationship, any gains or losses on remeasuring the instruments to fair value are recognised
directly in the income statement in the period in which they occur.
(v) Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to those of the host
contracts and the host contracts are not measured at fair value
through profit or loss.
23
240
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.27 Fair value estimation
The fair value of our derivatives and some financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure purposes.
Valuation techniques include where applicable, reference to prices quoted in active markets,
discounted cash flow analysis, fair value of recent arms length transactions involving the same
instruments or other instruments that are substantially the same, and
option pricing models.
We calculate the fair value of our forward exchange contracts by reference to forward exchange
market rates for contracts with similar maturity profiles at the time
of valuation.
The net fair values of our cross currency and interest rate swaps and other financial assets and
financial liabilities that are measured at fair value (apart from our listed investments) are
determined using valuation techniques which utilise data from
observable markets. Assumptions are
based on market conditions existing at each balance date. The fair value is calculated as the
present value of the estimated future cash flows using an appropriate market based yield curve,
which is independently derived and representative of Telstras
cost of borrowing. The net fair
values of our listed investments are determined by reference to prices quoted on the relevant stock
exchanges where the securities are traded.
Unless there is evidence to suggest otherwise, the nominal value of financial assets and financial
liabilities less any adjustments for impairment with a short term to maturity are considered to
approximate net fair value.
2.28 Financial assets
From 1 July 2004 to 30 June 2005
We have elected to apply the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1
July 2005. Accordingly, we have applied previous AGAAP in the comparative information on financial
instruments within the scope of AASB 132 and AASB 139. For further information on previous AGAAP
refer to the annual report for the year ended 30 June 2005.
(a) Adjustments on transition date: 1 July 2005
The nature of the main adjustments to ensure this information complies with AASB 132 and AASB 139
are that, with the exception of held-to-maturity investments and loans and receivables which are
measured at amortised cost (refer below), fair value is the
measurement basis. Fair value is
inclusive of transaction costs. At the date of transition, adjustments to carrying amounts are
taken to retained profits or reserves. With the exception of those financial assets which are
designated in hedge relationships (refer to note 2.26), at the date of transition to AASB 132 and
AASB 139 there were no significant adjustments to carrying amounts. For further information
concerning the adjustments on transition date, reference should be
made to note 36.
(b) From 1 July 2005
We
classify our financial assets in the following categories. These are financial assets at fair
value through profit or loss, loans and receivables, held-to-maturity investments, and
available-for-sale financial assets. The classification depends on the purpose for which the
investments were acquired. We determine the classification at initial recognition and re-evaluate
this designation at each reporting date.
(i) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at
fair value through profit or loss. Derivatives are categorised as held for trading unless they are
designated as hedges. Assets in this category are classified as current assets if they are either
held for trading or are expected to be realised within twelve months
of the balance date.
(ii) Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They arise when we provide money, goods or services directly to
a debtor with no intention of selling the receivable. They are included in current assets, except
for those with maturities greater than twelve months after the balance sheet date, which are
classified as non current assets. Loans and receivables are included in receivables in the balance
sheet.
(iii) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities where we have the positive intention
and ability to hold to maturity.
24
241
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Summary of accounting policies (continued)
2.28 Financial assets (continued)
(iv) Available-for-sale financial assets
Available-for-sale financial assets, comprising principally marketable equity securities, are
non-derivatives that are either designated in this category or not classified in any of the other
categories. They are included in non current assets unless management intends to dispose of the
investment within twelve months of the balance sheet date.
Available-for-sale financial assets and financial assets at fair value through profit and loss are
subsequently carried at fair value. Loans and receivables and held-to-maturity investments are
subsequently carried at amortised cost using the effective interest
method less impairment. The
effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating the interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial
asset, or, where appropriate, a shorter period.
In the event that we have financial assets at fair value through the profit or loss realised and
unrealised gains and losses arising from changes in the fair value are included in the income
statement in the period in which they arise. Unrealised gains and losses arising from changes in
the fair value of financial assets classified as available-for-sale are recognised in equity in the
available-for-sale investments reserve. When financial assets classified as available-for-sale are
sold or impaired, the accumulated fair value adjustments, previously recognised in equity, are
included in the income statement.
Purchases and sales of financial assets are recognised on settlement date the date on which we
receive or deliver an asset. Financial assets are initially recognised at fair value plus, in the
case of a financial asset not at fair value through profit and loss,
transaction costs. Financial
assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and we have transferred substantially all the risks and rewards of
ownership.
2.29 Financial instrument transaction costs
We have elected to apply the exemption available under AASB 1 to apply AASB 132 and AASB 139
from 1 July 2005. Accordingly, we have applied previous AGAAP in the comparative information on
financial instruments within the scope of AASB 132 and AASB 139. Under previous AGAAP, transaction
costs were excluded from the carrying value of our financial assets and financial liabilities
disclosed in the financial report. Under A-IFRS such costs are
included in the carrying amounts. At
the date of transition to AASB 132 and AASB 139 the adjustment to
carrying amounts was immaterial.
25
242
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Earnings per share
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
¢ |
|
|
¢ |
|
|
Basic earnings per share |
|
|
25.7 |
|
|
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
25.7 |
|
|
|
34.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
m |
|
|
$ |
m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings used in the calculation of basic and diluted earnings per share |
|
|
|
|
|
|
|
|
Profit for the year |
|
|
3,181 |
|
|
|
4,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
(millions) |
|
|
|
Weighted average number of ordinary shares (a) |
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in the calculation of basic earnings per share (b) |
|
|
12,366 |
|
|
|
12,430 |
|
Effect of dilutive employee share instruments (c) |
|
|
35 |
|
|
|
37 |
|
|
|
|
Weighted average number of ordinary shares used in the calculation of diluted earnings per share |
|
|
12,401 |
|
|
|
12,467 |
|
|
|
|
(a) In order to underpin the equity instruments issued under the Growthshare plan, Growthshare
purchase shares on market. These shares are not considered to be outstanding for the purposes of
computing basic and diluted earnings per share.
(b) During fiscal 2005, we completed an off-market share buy-back of 185,284,669 ordinary shares as
part of our capital management program. The ordinary shares were
bought back at $4.05 per share,
comprising a fully franked dividend component of $2.55 per share and
a capital component of $1.50 per share. The Commonwealth of Australia did not participate in the
share buy-back.
Refer to note 21 for full details on our movement in issued ordinary shares, including further
discussion on our prior year share buy-back.
(c) In fiscal 2006 and fiscal 2005, the following equity instruments are considered dilutive to
earnings per share:
|
|
deferred share instruments issued under Telstra Growthshare Trust (Growthshare); |
|
|
|
incentive shares granted under the Growthshare short term incentive scheme; and |
|
|
|
share options issued under Telstra Employee Share Ownership Plan I (TESOP97) |
In fiscal 2006 and fiscal 2005, the following equity instruments are not considered dilutive to
earnings per share:
|
|
performance rights, restricted shares and options issued under Growthshare; and |
|
|
|
share options issued under Telstra Employee Share Ownership
Plan II (TESOP99). |
Refer to note 31 for details regarding equity instruments issued under the Growthshare and TESOP
share plans.
26
243
Telstra Corporation Limited and controlled
entities
Notes to the Financial Statements (continued)
4 Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous year final dividend paid |
|
|
1,739 |
|
|
|
1,639 |
|
|
|
1,739 |
|
|
|
1,639 |
|
Previous year special dividend paid with the final dividend |
|
|
746 |
|
|
|
|
|
|
|
746 |
|
|
|
|
|
Interim dividend paid |
|
|
1,739 |
|
|
|
1,739 |
|
|
|
1,739 |
|
|
|
1,739 |
|
Special dividend paid with the interim dividend |
|
|
746 |
|
|
|
746 |
|
|
|
746 |
|
|
|
746 |
|
|
|
|
|
|
Total dividends paid |
|
|
4,970 |
|
|
|
4,124 |
|
|
|
4,970 |
|
|
|
4,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per ordinary share paid |
|
|
¢ |
|
|
|
¢ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous year final dividend paid |
|
|
14.0 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
Previous year special dividend paid with the final dividend |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim dividend paid |
|
|
14.0 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
Special dividend paid with the interim dividend |
|
|
6.0 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends paid |
|
|
40.0 |
|
|
|
33.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our dividends paid are fully franked at a tax rate of 30%
Dividends per ordinary share declared
Our dividends declared per share in respect of fiscal year as disclosed on the face of our income
statement is detailed below:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
¢ |
|
|
¢ |
|
|
Dividends declared per ordinary share |
|
|
|
|
|
|
|
|
Interim dividend |
|
|
14.0 |
|
|
|
14.0 |
|
Special dividend paid with the interim dividend |
|
|
6.0 |
|
|
|
6.0 |
|
Final dividend (a) |
|
|
14.0 |
|
|
|
14.0 |
|
Special dividend paid with the final dividend |
|
|
|
|
|
|
6.0 |
|
|
|
|
Total |
|
|
34.0 |
|
|
|
40.0 |
|
|
|
|
(a) As our final dividend for fiscal 2006 was not declared, determined or publicly recommended by
the Board as at 30 June 2006, no provision for dividend was raised prior to, or as at, that date in
the balance sheet. Our final dividend has been reported as an event subsequent to balance date and
the provision for dividend has been raised at the declaration date. Refer to note 34 for further
details.
27
244
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
4. Dividends (continued)
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$ m |
|
|
The combined amount of exempting and franking credits available to us for the
next fiscal year are: |
|
|
|
|
|
|
|
|
Combined exempting and franking account balance (a) |
|
|
6 |
|
|
|
285 |
|
Franking credits that will arise from the payment
of income tax payable as at 30 June (b) |
|
|
400 |
|
|
|
519 |
|
Franking credits and exempting credits that we may be
prevented from distributing in the next fiscal year |
|
|
(24 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
382 |
|
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Franking debits that will arise on the payment of dividends declared after 30 June (c) |
|
|
|
|
|
|
|
|
Final dividend |
|
|
745 |
|
|
|
745 |
|
Special dividend paid with the final dividend |
|
|
|
|
|
|
320 |
|
|
|
|
|
|
|
745 |
|
|
|
1,065 |
|
|
|
|
(a) Previously, the Telstra
Entity and its Australian resident wholly owned entities elected to
form a tax consolidated group. As part of the election to enter tax consolidation, the tax
consolidated group is treated as a single entity for income tax
purposes. On entry into tax
consolidation, the franking credits held in the franking accounts and exempting accounts of the
subsidiary members was transferred to the Telstra Entity. As a result, one franking account and one
exempting account is maintained by the Telstra Entity for the tax
consolidated group.
As at 30 June 2006, the Telstra
Entity had a combined exempting and franking account balance of $6
million (2005: $285 million). This total combines the deficit in our franking account of $18
million (2005: surplus of $261 million) and a surplus of $24 million (2005: $24
million) in our
exempting account.
The franking account balance represents the amount of tax paid by the entity that is available for
distribution to shareholders. As at 30 June 2006, our franking
account balance was in deficit. As a
result, we are required to pay franking deficit tax of $18 million in July 2006, which will
eliminate the deficit in the franking account balance and be fully offset against our fiscal 2006
income tax assessment. In relation to our exempting account, there are statutory restrictions
placed on the distribution of credits from this account.
Additional franking credits will arise when the Telstra Entity pays tax instalments during fiscal
2007, relating to the fiscal 2006 and 2007 income tax years. Franking credits will be used when the
Telstra Entity pays its 2006 final ordinary dividend during fiscal
2007.
(b) Franking credits that will arise from the payment of income tax are expressed at the 30% tax
rate on a tax paid basis. This balance represents the current tax liabilities as at 30 June 2006
for the tax consolidated group.
(c) The franking debits that will arise when we pay our final ordinary dividend are expressed as
the amount of franking credits that will be attached to a fully
franked distribution.
We believe our current balance of franking credits combined with the franking credits that will
arise on tax instalments expected to be paid during fiscal 2007, will be sufficient to cover the
franking debits arising from our final dividend. Refer to note 34 for further details in relation
to our dividends declared subsequent to year end.
28
245
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information
We report our segment information on the basis of business segments as our risks and returns
are affected predominantly by differences in the products and services we provide through those
segments.
Our
internal management reporting structure drives how our
company is organised and managed. This internal structure provides the initial basis for
determining our business segments.
Our business segments are predominantly distinguishable by the different type of customers we
deliver our key products and services to. Our customer facing business segments service different
customer types. Other reportable business segments are also aligned with our specific customer or
business needs. These segments provide operational support services or product support services to
our customer facing business segments, or service other
telecommunication carriers. Our Other
segment consists of various business units that do not qualify as business segments in their own
right and which service a variety of customer or business needs.
The main adjustments from our internal management reporting structure to our reported business
segments are in relation to certain offshore operations. For internal management reporting
purposes, our TelstraClear group (TelstraClear) is included with Telstra Enterprise and Government,
our CSL New World Mobility group (CSL New World) is a business unit in its own right, and the
International Head Office group is included as part of Strategic
Marketing. These offshore
operations are reported as part of a segment we have called Telstra International for segment
reporting purposes.
For the purposes of the applicable accounting standard, we consider that the risks and returns of
these offshore operations differ from those of our local operations and as a result we have grouped
these operations into the Telstra International business segment.
Business segments
During fiscal 2006, we created the following new business segments:
|
|
Telstra Business; |
|
|
|
Telstra Operations; and |
|
|
|
Strategic Marketing. |
The Telstra Business group has been drawn from the Telstra Consumer Marketing and Channels group
(formerly known as Telstra Consumer and Marketing), Telstra Country Wide and the Telstra Enterprise
and Government (formerly known as Telstra Business and Government)
business units.
The Strategic Marketing group was drawn from various business units across Telstra comprising
mainly Telstra Consumer Marketing and Channels.
The Telstra Operations group combined Telstra Services (formerly known as Infrastructure Services),
Telstra Technology, Innovation and Products, and Operations Support, which moved from being
reported within our corporate areas.
Those business segments not impacted by the above restructures are substantially consistent with
their structure in the prior year. We have restated all our comparative information to reflect our
current reporting position as if all our new business segments and segment accounting policies
existed in fiscal 2005.
For segment reporting purposes, the Telstra Group is organised into the following business
segments:
Telstra Consumer Marketing and Channels (TC&C) is responsible for:
|
|
the provision of the full range of telecommunication products, services and communication
solutions to consumers; and |
|
|
|
leading the mass market channels including inbound and outbound call centres, Telstra Shops and
Telstra Dealers. |
Telstra Business (TB) is responsible for:
|
|
the provision of the full range of telecommunication products and services, communication
solutions, and information and communication technology services to
small to medium enterprises. |
Telstra Enterprise and Government (TE&G) is responsible for:
|
|
the provision of the full range of telecommunication products and services, communication
solutions, and information and communication technology services to corporate and government
customers; and |
|
|
|
the provision of global communication solutions to multi-national corporations through our
interests in the United Kingdom, Asia and North America. |
Telstra Wholesale (TW) is responsible for:
|
|
the provision of a wide range of telecommunication products and services delivered over our
networks and associated support systems to: |
|
|
|
non-Telstra branded carriers, carriage service providers, Internet service providers, system
integrators and application service providers; and |
|
|
|
|
infrastructure owners and managers who acquire infrastructure
services |
29
246
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
Sensis is responsible for:
|
|
the management and growth of the information, advertising and directories business, including
printed publications, directory assistance, and online products and
services. |
Telstra International (TInt.) consists of the following offshore business operations:
|
|
CSL New World is responsible for our operations in Hong Kong that mainly generate revenues
from the mobiles market; |
|
|
|
International Head Office Group is responsible for our Asia-Pacific investments; and |
|
|
|
TelstraClear is our New Zealand subsidiary that provides integrated telecommunications
services to the New Zealand market. |
Telstra Operations (TO) is responsible for:
|
|
co-ordination and execution for our companys multi-year business improvement and transformation
program; |
|
|
|
leading the identification, analysis, validation, development and implementation of product,
technology and information technology strategies for both the network infrastructure and customer
solutions of our Company; |
|
|
|
overall planning, design, specification of standards, commissioning and decommissioning of our
communication networks; |
|
|
|
construction of infrastructure for our Companys fixed, mobile, Internet protocol (IP) and data
networks; |
|
|
|
operation and maintenance, including activation and restoration of these networks; |
|
|
|
supply and delivery of information technology solutions to support our products, services and
customer support function; |
|
|
|
the development and lifecycle management of products and services over the networks, as well as
application platforms and the online environment; and |
|
|
|
operational support functions for our Company, including procurement, billing, credit management
and property management. |
Telstra Country Wide (TCW) is responsible for:
|
|
the management and control of providing telecommunication products and services to consumer,
small business, enterprise and some government customers outside the mainland state capital
cities, in outer metropolitan areas, and in Tasmania and the Northern
Territory. |
Telstra BigPond is responsible for:
|
|
the management and control of our retail Internet products, services and content, contact
centres, customer relations and associated functions, for broadband
and narrowband delivery. |
Telstra Media is responsible for:
|
|
the management of our investment interest in the FOXTEL partnership; |
|
|
|
the development and management of the hybrid fibre coaxial (HFC) cable network; and |
|
|
|
investigation and development of an interactive PayTV
(IPTV) service. |
Strategic Marketing is responsible for:
|
|
the co-ordination and delivery of marketing activities across
our Company and market segments. |
Corporate areas include:
|
|
Legal Services provides legal services across the Company; |
|
|
|
Public Policy and Communications responsible for managing our relationships and
positioning with key groups such as our customers, the media, governments, community groups
and staff. It also has responsibility for regulatory positioning and negotiation; |
|
|
|
Finance and Administration encompasses the functions of business and finance services,
treasury, risk management and assurance, investor relations and the office of the company
secretary. It also includes the financial management of the majority of the Telstra Entity
fixed assets (including network assets) through the Asset Accounting Group; and |
|
|
|
Human Resources encompasses talent management, organisational development, human resource
operations, health, safety and environment, as well as workplace
relations and remuneration. |
In our segment financial results, the Other segment consists of various business units that do
not qualify as reportable segments in their own right. These include:
|
|
Telstra Country Wide; |
|
|
|
Telstra BigPond; |
|
|
|
Telstra Media; |
|
|
|
Strategic Marketing; and |
|
|
|
our corporate areas. |
30
247
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5 Segment information (continued)
Segment financial results
For segment reporting purposes, we have reallocated certain items between the respective business
segments pursuant to the definitions of segment revenues, segment expenses, segment assets and
segment liabilities contained in the applicable accounting standard, where a reasonable allocation
basis exists.
Where no reasonable allocation basis exists, we have not reallocated individual items to
alternative segments. For segment reporting purposes, these items are reported within the same
business segment as for internal management reporting. As a result, our segment revenues, segment
expenses, segment assets and segment liabilities do not reflect actual operating results achieved
for our business segments in certain circumstances.
The following narrative further explains our segment results for those individual items where it is
considered that no reasonable allocation basis exists:
|
|
Sales revenue associated with mobile handsets for TC&C, TB and TE&G are allocated totally to the
TC&C segment, with the exception of some products sold in relation to small to medium enterprises
which are allocated to TB. Ongoing prepaid and postpaid mobile revenues derived from our mobile
usage is recorded in TC&C, TB and TE&G depending on the
type of customer serviced. In addition, the
majority of goods and services purchased associated with our mobile revenues are allocated to the
TC&C segment. As a result, the TC&C segment also holds segment assets and segment liabilities
related to those revenues and expenses recorded in TC&C; |
|
|
|
trade debtors in relation to the mobile repayment option on mobile handsets sold by our dealers
are allocated totally to TC&C; and |
|
|
|
revenue received in advance in relation to installation and connection fees is allocated totally
to TC&C. |
These allocations reflect managements accountability framework and internal reporting system and
accordingly no reasonable basis for reallocation to the respective
business segments exist.
In addition, revenue derived from our BigPond Internet products and its related segment assets are
recorded in the customer facing business segments of TC&C, TB
and TE&G. Certain distribution costs
in relation to these products are recognised in these three business segments Telstra Operations
recognise certain expenses in relation to the installation and running of the broadband cable
network. The related segment assets are managed by the Asset
Accounting Group. In accordance with
our application of the business segment definition in relation to customer type, we have not
reallocated these items to the Telstra Bigpond business segment.
Change in segment accounting policies
The following segment accounting policy changes occurred during fiscal 2006:
Interconnection revenue
In previous financial years, our segment accounting policy was to recognise our revenue relating to
interconnection entirely in our TW business segment. In fiscal 2006, some parts of the revenue
earned from interconnection were allocated to the TC&C, TB and TE&G business segments to match the
revenue recognised with the associated expense. As a result, revenue in TW decreased by $633
million and revenue increased in TC&C by $500 million, TB by $52 million and TE&G by $81 million in
fiscal 2005 to reflect this change in policy.
Segment assets and liabilities
Segment assets and segment liabilities form part of the operating activities of a segment and can
be allocated directly to that segment.
The Asset Accounting Group performs a company wide function in relation to the financial management
of certain assets. These assets are accounted for at the corporate level (aggregated in the Other
segment) and not allocated across segments.
The Other segment also includes balances that do not meet the definition of segment assets and
segment liabilities for our reportable business segments. As a result, borrowings and income tax
assets and liabilities were recorded as reconciling items within the
Other segment.
Inter-segment transfers
We account for all transactions of entities within the Telstra Group, including international
transactions between Australian and non-Australian businesses, at
market value. For segment
reporting purposes, transfer pricing is not used within the Company. As such the inter-segment
revenue line purely relates to intercompany revenue.
The Asset Accounting Group does not allocate depreciation expense related to the use of assets
owned at the corporate level to other business segments.
31
248
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5 Segment information (continued)
Telstra Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TC&C |
|
TB |
|
TE&G |
|
TW |
|
Sensis |
|
TInt. |
|
TO |
|
Other(a) |
|
Eliminations |
|
Total |
Year ended 30 June 2006 |
|
$m |
|
$m |
|
$m |
|
$m |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$m |
|
Revenue from external customers |
|
|
8,897 |
|
|
|
3,053 |
|
|
|
4,607 |
|
|
|
2,607 |
|
|
|
1,826 |
|
|
|
1,450 |
|
|
|
226 |
|
|
|
106 |
|
|
|
|
|
|
|
22,772 |
|
Add inter-segment revenue |
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
292 |
|
|
|
10 |
|
|
|
31 |
|
|
|
83 |
|
|
|
7 |
|
|
|
(480 |
) |
|
|
|
|
|
|
|
Total segment revenue |
|
|
8,897 |
|
|
|
3,053 |
|
|
|
4,664 |
|
|
|
2,899 |
|
|
|
1,836 |
|
|
|
1,481 |
|
|
|
309 |
|
|
|
113 |
|
|
|
(480 |
) |
|
|
22,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment result under A-IFRS |
|
|
5,721 |
|
|
|
2,412 |
|
|
|
2,702 |
|
|
|
2,693 |
|
|
|
865 |
|
|
|
86 |
|
|
|
(4,175 |
) |
|
|
(4,903 |
) |
|
|
29 |
|
|
|
5,430 |
|
Share of equity accounted net
(losses)/profits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
12 |
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
5 |
|
Less net gain on sale of investments |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
Earnings before interest and income
tax expense (EBIT) segment result
under USGAAP |
|
|
5,721 |
|
|
|
2,412 |
|
|
|
2,706 |
|
|
|
2,693 |
|
|
|
864 |
|
|
|
156 |
|
|
|
(4,175 |
) |
|
|
(4,909 |
) |
|
|
29 |
|
|
|
5,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings has been calculated after
charging/(crediting) the following
non cash expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
140 |
|
|
|
10 |
|
|
|
8 |
|
|
|
|
|
|
|
13 |
|
|
|
11 |
|
|
|
143 |
|
|
|
26 |
|
|
|
|
|
|
|
351 |
|
Reversal of impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(22 |
) |
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
91 |
|
|
|
298 |
|
|
|
48 |
|
|
|
3,587 |
|
|
|
|
|
|
|
4,087 |
|
Other significant non cash expenses |
|
|
26 |
|
|
|
4 |
|
|
|
20 |
|
|
|
5 |
|
|
|
1 |
|
|
|
3 |
|
|
|
144 |
|
|
|
7 |
|
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current segment assets acquired
(excluding acquisition of
investments) |
|
|
11 |
|
|
|
|
|
|
|
89 |
|
|
|
23 |
|
|
|
96 |
|
|
|
224 |
|
|
|
4,032 |
|
|
|
5 |
|
|
|
|
|
|
|
4,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2006
Segment assets |
|
|
1,437 |
|
|
|
370 |
|
|
|
1,767 |
|
|
|
453 |
|
|
|
1,886 |
|
|
|
3,817 |
|
|
|
3,308 |
|
|
|
23,316 |
|
|
|
(179 |
) |
|
|
36,175 |
|
|
|
|
Segment assets include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in jointly controlled
entities |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Investment in associated entities |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
Segment liabilities |
|
|
1,260 |
|
|
|
165 |
|
|
|
618 |
|
|
|
241 |
|
|
|
673 |
|
|
|
615 |
|
|
|
2,534 |
|
|
|
17,414 |
|
|
|
(177 |
) |
|
|
23,343 |
|
|
|
|
(a) Revenue for the other segment relates primarily to our revenue earned by Telstra Media from our
share of FOXTEL cable subscriber revenue and for services provided to
FOXTEL. The Asset Accounting
Group is the main contributor to the segment result for this segment, which is primarily
depreciation and amortisation charges.
Segment assets for the Other segment includes the Telstra Entity fixed assets (including network
assets) managed through the centralised Asset Accounting Group. Segment liabilities includes income
tax liabilities and borrowings, which have been reallocated from the reportable business segment in
accordance with the applicable accounting standard.
32
249
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5 Segment information (continued)
Telstra Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TC&C |
|
TB |
|
TE&G |
|
TW |
|
Sensis |
|
TInt |
|
TO |
|
Other (a) |
|
Eliminations |
|
Total |
Year ended 30 June 2005 |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$ m |
|
$m |
|
$m |
|
$ m |
|
Revenue from external customers |
|
|
8,931 |
|
|
|
3,099 |
|
|
|
4,570 |
|
|
|
2,267 |
|
|
|
1,708 |
|
|
|
1,360 |
|
|
|
161 |
|
|
|
85 |
|
|
|
|
|
|
|
22,181 |
|
Add inter-segment revenue |
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
284 |
|
|
|
11 |
|
|
|
38 |
|
|
|
77 |
|
|
|
2 |
|
|
|
(464 |
) |
|
|
|
|
|
|
|
Total segment revenue |
|
|
8,931 |
|
|
|
3,099 |
|
|
|
4,622 |
|
|
|
2,551 |
|
|
|
1,719 |
|
|
|
1,398 |
|
|
|
238 |
|
|
|
87 |
|
|
|
(464 |
) |
|
|
22,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment result under A-IFRS |
|
|
6,179 |
|
|
|
2,488 |
|
|
|
2,807 |
|
|
|
2,283 |
|
|
|
812 |
|
|
|
94 |
|
|
|
(3,371 |
) |
|
|
(4,345 |
) |
|
|
3 |
|
|
|
6,950 |
|
Share of equity accounted net
(losses)/profits |
|
|
3 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(94 |
) |
Less net gain on sale of investments |
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
Earnings before interest and income
tax expense (EBIT) segment result
under USGAAP |
|
|
6,248 |
|
|
|
2,488 |
|
|
|
2,812 |
|
|
|
2,283 |
|
|
|
812 |
|
|
|
11 |
|
|
|
(3,371 |
) |
|
|
(4,351 |
) |
|
|
3 |
|
|
|
6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings has been calculated after
charging/(crediting) the following
non cash expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
115 |
|
|
|
18 |
|
|
|
12 |
|
|
|
|
|
|
|
17 |
|
|
|
7 |
|
|
|
20 |
|
|
|
30 |
|
|
|
(29 |
) |
|
|
190 |
|
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
64 |
|
|
|
266 |
|
|
|
1 |
|
|
|
3,152 |
|
|
|
|
|
|
|
3,529 |
|
Other significant non cash expenses |
|
|
25 |
|
|
|
3 |
|
|
|
22 |
|
|
|
6 |
|
|
|
4 |
|
|
|
3 |
|
|
|
139 |
|
|
|
24 |
|
|
|
|
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current segment assets acquired
(excluding acquisition of
investments) |
|
|
16 |
|
|
|
|
|
|
|
45 |
|
|
|
503 |
|
|
|
74 |
|
|
|
246 |
|
|
|
3,052 |
|
|
|
110 |
|
|
|
|
|
|
|
4,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2005
Segment assets |
|
|
1,448 |
|
|
|
343 |
|
|
|
1,635 |
|
|
|
356 |
|
|
|
1,836 |
|
|
|
3,641 |
|
|
|
2,750 |
|
|
|
23,702 |
|
|
|
(500 |
) |
|
|
35,211 |
|
|
|
|
Segment assets include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in jointly controlled
entities |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
Investment in associated entities |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
1,021 |
|
|
|
119 |
|
|
|
639 |
|
|
|
148 |
|
|
|
665 |
|
|
|
547 |
|
|
|
2,024 |
|
|
|
16,887 |
|
|
|
(497 |
) |
|
|
21,553 |
|
|
|
|
(a) Revenue for the other segment relates primarily to our revenue earned by Telstra Media from
our share of FOXTEL cable subscriber revenue and for services
provided to FOXTEL. The Asset
Accounting Group is the main contributor to the segment result for this segment, which is
primarily depreciation and amortisation charges.
Segment assets for the other segment includes the Telstra Entity fixed assets (including network
assets) managed through the centralised Asset Accounting Group. Segment liabilities excludes income
tax liabilities and borrowings, which are included as part of the
other segment.
33
250
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5 Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$ m |
|
|
$ m |
|
|
Reconciliation of segment results to Telstra Group position: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income tax expense (EBIT) |
|
|
|
|
|
|
5,497 |
|
|
|
6,935 |
|
Finance income |
|
|
|
|
|
|
66 |
|
|
|
83 |
|
Finance costs |
|
|
|
|
|
|
(1,002 |
) |
|
|
(963 |
) |
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
4,561 |
|
|
|
6,055 |
|
Income tax expense |
|
|
|
|
|
|
(1,380 |
) |
|
|
(1,746 |
) |
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
3,181 |
|
|
|
4,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about sales revenue from our products and services: |
|
|
|
|
|
|
|
|
|
|
|
|
PSTN products |
|
|
|
|
|
|
|
|
|
|
|
|
Basic access |
|
|
|
|
|
|
3,318 |
|
|
|
3,362 |
|
Local calls |
|
|
|
|
|
|
1,023 |
|
|
|
1,284 |
|
PSTN value added services |
|
|
|
|
|
|
246 |
|
|
|
250 |
|
National long distance calls |
|
|
|
|
|
|
913 |
|
|
|
1,013 |
|
Fixed to mobile |
|
|
|
|
|
|
1,491 |
|
|
|
1,566 |
|
International direct |
|
|
|
|
|
|
201 |
|
|
|
234 |
|
Fixed interconnection |
|
|
|
|
|
|
286 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,478 |
|
|
|
8,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobiles |
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services |
|
|
|
|
|
|
4,505 |
|
|
|
4,307 |
|
Mobile handsets |
|
|
|
|
|
|
467 |
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,972 |
|
|
|
4,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and internet services |
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP solutions |
|
|
|
|
|
|
1,907 |
|
|
|
1,377 |
|
ISDN products |
|
|
|
|
|
|
807 |
|
|
|
890 |
|
Specialised data |
|
|
|
|
|
|
884 |
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,598 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and directories |
|
|
|
|
|
|
1,711 |
|
|
|
1,585 |
|
Customer premises equipment |
|
|
|
|
|
|
274 |
|
|
|
231 |
|
Payphones |
|
|
|
|
|
|
104 |
|
|
|
121 |
|
Intercarrier services |
|
|
|
|
|
|
351 |
|
|
|
290 |
|
Inbound calling products |
|
|
|
|
|
|
449 |
|
|
|
449 |
|
Solutions management |
|
|
|
|
|
|
989 |
|
|
|
931 |
|
Offshore controlled entities (a) |
|
|
|
|
|
|
1,745 |
|
|
|
1,611 |
|
Pay TV bundling |
|
|
|
|
|
|
320 |
|
|
|
263 |
|
Other sales and service |
|
|
|
|
|
|
759 |
|
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,702 |
|
|
|
6,222 |
|
|
|
|
|
|
|
|
Sales revenue |
|
|
|
|
|
|
22,750 |
|
|
|
22,161 |
|
|
|
|
|
|
|
|
Other revenue (excluding finance income) |
|
|
|
|
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
Total revenue (excluding finance income) |
|
|
6 |
|
|
|
22,772 |
|
|
|
22,181 |
|
|
|
|
|
|
|
|
34
251
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5 Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
$ m |
|
|
$ m |
|
|
Information about revenue from our products and services (continued): |
|
|
|
|
|
|
|
|
(a) Sales revenue from our offshore controlled entities is split between the following products and
services: |
|
|
|
|
|
|
|
|
International PSTN products |
|
|
446 |
|
|
|
484 |
|
International Mobiles |
|
|
849 |
|
|
|
751 |
|
International Data and internet services |
|
|
287 |
|
|
|
264 |
|
International Intercarrier services |
|
|
20 |
|
|
|
24 |
|
International Other |
|
|
143 |
|
|
|
88 |
|
|
|
|
|
|
|
1,745 |
|
|
|
1,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about our geographic operations (i)
Segment revenue from external customers |
|
|
|
|
|
|
|
|
Australian customers |
|
|
21,014 |
|
|
|
20,556 |
|
International customers |
|
|
1,758 |
|
|
|
1,625 |
|
|
|
|
|
|
|
22,772 |
|
|
|
22,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of segment assets |
|
|
|
|
|
|
|
|
Australian customers |
|
|
31,966 |
|
|
|
31,245 |
|
International customers |
|
|
4,209 |
|
|
|
3,966 |
|
|
|
|
|
|
|
36,175 |
|
|
|
35,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current segment assets acquired (excluding acquisition of investments) |
|
|
|
|
|
|
|
|
Located in Australia |
|
|
4,256 |
|
|
|
3,800 |
|
Located in international countries |
|
|
224 |
|
|
|
246 |
|
|
|
|
|
|
|
4,480 |
|
|
|
4,046 |
|
|
|
|
(i) Our
geographical operations are split between our Australian and international operations. Our
international operations include the business of our international business segment (primarily
businesses in Hong Kong and New Zealand) and our international business that serves multi-national
customers in the TE&G segment. No individual geographical area forms a significant part of our
operations apart from our Australian operations.
35
252
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
6. Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$ m |
|
|
$m |
|
|
|
|
Sales revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rendering of services |
|
|
|
|
|
|
12,427 |
|
|
|
12,522 |
|
|
|
10,427 |
|
|
|
10,783 |
|
Sale of goods |
|
|
|
|
|
|
808 |
|
|
|
691 |
|
|
|
536 |
|
|
|
430 |
|
Rent of network facilities |
|
|
|
|
|
|
7,653 |
|
|
|
7,233 |
|
|
|
7,655 |
|
|
|
7,233 |
|
Construction contracts |
|
|
|
|
|
|
151 |
|
|
|
130 |
|
|
|
174 |
|
|
|
136 |
|
Advertising and directory services |
|
|
|
|
|
|
1,711 |
|
|
|
1,585 |
|
|
|
464 |
|
|
|
377 |
|
Procurement (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
647 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,750 |
|
|
|
22,161 |
|
|
|
19,903 |
|
|
|
19,587 |
|
|
|
|
|
|
|
|
|
|
Other revenue (excluding finance income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- controlled entities |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
560 |
|
|
|
223 |
|
- jointly controlled entities |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent from property and motor vehicles |
|
|
|
|
|
|
22 |
|
|
|
20 |
|
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
20 |
|
|
|
582 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
Total revenue (excluding finance income) |
|
|
|
|
|
|
22,772 |
|
|
|
22,181 |
|
|
|
20,485 |
|
|
|
19,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on disposal of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
|
|
|
|
|
|
23 |
|
|
|
9 |
|
|
|
20 |
|
|
|
10 |
|
- investments in controlled entities |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- investments in jointly controlled and associated entities |
|
|
|
|
|
|
58 |
|
|
|
16 |
|
|
|
59 |
|
|
|
26 |
|
- investments in listed securities and other investments |
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
88 |
|
|
|
79 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other miscellaneous income (b) |
|
|
|
|
|
|
243 |
|
|
|
173 |
|
|
|
84 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328 |
|
|
|
261 |
|
|
|
163 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
Total income (excluding finance income) |
|
|
|
|
|
|
23,100 |
|
|
|
22,442 |
|
|
|
20,648 |
|
|
|
19,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- interest on cash and cash equivalents |
|
|
|
|
|
|
66 |
|
|
|
83 |
|
|
|
60 |
|
|
|
78 |
|
- other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
83 |
|
|
|
63 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
23,166 |
|
|
|
22,525 |
|
|
|
20,711 |
|
|
|
20,065 |
|
|
|
|
|
|
|
|
|
|
36
253
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
6. Income (continued)
(a) The Telstra Entity receives procurement revenue
from its controlled entity Sensis Pty Ltd for the use of
Yellow
Pages® and White Pages® trademarks. Refer to note
33 for further details on transactions involving our
related parties.
(b) Other miscellaneous income includes revenue
recognised from subsidies received on the Higher
Bandwidth Incentive Scheme (HiBIS) and Broadband Connect
Incentive Scheme.
HiBiS, which has now concluded, and its replacement
program, Broadband Connect, were established by the
Commonwealth to allow service providers to provide high
bandwidth services to eligible customers in the regional,
rural and remote areas of Australia at prices broadly
comparable to those prices charged to customers in
metropolitan areas.
As a service provider, we are able to claim a rebate from
the Commonwealth for each registered HiBIS or Broadband
Connect service we provide to an eligible customer. The
purpose of the incentive payment is to cover the short
fall of providing these services to eligible customers in
the regional, rural and remote areas of Australia at
metropolitan prices. We recognise these incentive payments
as other income.
We have no significant unfulfilled conditions and other
contingencies relating to our obligations under the HiBIS
and Broadband Connect programs.
37
254
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Profit from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(a) Profit before income tax expense (including items
disclosed in note 7(b)) has been calculated after
charging/(crediting) the following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in our labour expenses are the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee redundancy (b) |
|
|
|
|
|
|
534 |
|
|
|
91 |
|
|
|
516 |
|
|
|
85 |
|
Share based payments |
|
|
21 |
|
|
|
15 |
|
|
|
10 |
|
|
|
15 |
|
|
|
10 |
|
Defined benefit plan expense |
|
|
28 |
|
|
|
185 |
|
|
|
203 |
|
|
|
182 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in our goods and services purchased are the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
1,421 |
|
|
|
1,150 |
|
|
|
1,087 |
|
|
|
882 |
|
Rental expense on managed services |
|
|
|
|
|
|
69 |
|
|
|
67 |
|
|
|
64 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- impairment in value of inventories (b) |
|
|
|
|
|
|
53 |
|
|
|
11 |
|
|
|
53 |
|
|
|
11 |
|
- impairment in value of trade and other receivables (b) |
|
|
|
|
|
|
161 |
|
|
|
150 |
|
|
|
138 |
|
|
|
131 |
|
- impairment in value of investments (b) (i) |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
245 |
|
|
|
27 |
|
- impairment in amounts owed by controlled entities (b) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
382 |
|
|
|
475 |
|
- impairment in amounts owed by jointly controlled entities |
|
|
33 |
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
- impairment in value of intangibles (b) (ii) |
|
|
|
|
|
|
66 |
|
|
|
1 |
|
|
|
64 |
|
|
|
|
|
- impairment in value of property, plant and equipment (b) (ii) |
|
|
|
|
|
|
69 |
|
|
|
17 |
|
|
|
69 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351 |
|
|
|
190 |
|
|
|
951 |
|
|
|
661 |
|
|
|
|
|
|
|
|
|
|
Reversal of impairment losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- reversal of impairment in value of trade and other receivables |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
- reversal of impairment in value of investments (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(334 |
) |
- reversal of impairment in amounts owed by controlled entities |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
(37 |
) |
|
|
(349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense on operating leases |
|
|
|
|
|
|
667 |
|
|
|
675 |
|
|
|
496 |
|
|
|
502 |
|
Net foreign currency translation losses/(gains) |
|
|
|
|
|
|
2 |
|
|
|
(40 |
) |
|
|
(50 |
) |
|
|
(5 |
) |
Remuneration of auditors |
|
|
8 |
|
|
|
8 |
|
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
Service contracts and other agreements |
|
|
|
|
|
|
1,836 |
|
|
|
1,556 |
|
|
|
1,796 |
|
|
|
1,521 |
|
Promotion and advertising |
|
|
|
|
|
|
356 |
|
|
|
330 |
|
|
|
285 |
|
|
|
253 |
|
General and administration |
|
|
|
|
|
|
723 |
|
|
|
739 |
|
|
|
542 |
|
|
|
564 |
|
Other operating expenses (b) |
|
|
|
|
|
|
506 |
|
|
|
358 |
|
|
|
573 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,427 |
|
|
|
3,815 |
|
|
|
4,562 |
|
|
|
3,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
We have recognised impairment losses relating to the
value of our investments in controlled entities, jointly
controlled and associated entities, and other entities
based on the value in use calculation. The impairment loss
in the value of investment in controlled entities was
eliminated on consolidation of the Telstra Group. |
|
(ii) |
|
We have recognised impairment losses relating to
project costs that were capitalised within capitalised
software forming part of intangible assets and property,
plant and equipment. These projects have subsequently been
cancelled and the costs recognised in the income
statement as an impairment loss. In fiscal 2006,
additional impairment losses were recognised reflecting
additional write offs due to our transformation, refer
note 7(b) for details. |
38
255
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Profit from continuing operations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(a) Profit before income tax expense (including items
disclosed in note 7(b)) has been calculated after
charging/(crediting) the following items (continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- general purpose buildings including leasehold improvements |
|
|
14 |
|
|
|
62 |
|
|
|
54 |
|
|
|
54 |
|
|
|
47 |
|
- communication assets including leasehold improvements |
|
|
14 |
|
|
|
2,953 |
|
|
|
2,615 |
|
|
|
2,786 |
|
|
|
2,508 |
|
- communication assets under finance lease |
|
|
14 |
|
|
|
67 |
|
|
|
75 |
|
|
|
67 |
|
|
|
75 |
|
- equipment under finance lease |
|
|
14 |
|
|
|
8 |
|
|
|
9 |
|
|
|
6 |
|
|
|
7 |
|
- other plant, equipment and motor vehicles |
|
|
14 |
|
|
|
93 |
|
|
|
123 |
|
|
|
45 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,183 |
|
|
|
2,876 |
|
|
|
2,958 |
|
|
|
2,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- patents and trademarks |
|
|
15 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
4 |
|
- licences |
|
|
15 |
|
|
|
58 |
|
|
|
37 |
|
|
|
18 |
|
|
|
18 |
|
- brandnames |
|
|
15 |
|
|
|
11 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
- customer bases |
|
|
15 |
|
|
|
98 |
|
|
|
86 |
|
|
|
13 |
|
|
|
15 |
|
- deferred expenditure |
|
|
|
|
|
|
9 |
|
|
|
8 |
|
|
|
35 |
|
|
|
10 |
|
- software assets (b) |
|
|
15 |
|
|
|
726 |
|
|
|
510 |
|
|
|
629 |
|
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
904 |
|
|
|
653 |
|
|
|
699 |
|
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,087 |
|
|
|
3,529 |
|
|
|
3,657 |
|
|
|
3,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- interest on bills of exchange and commercial paper |
|
|
|
|
|
|
65 |
|
|
|
35 |
|
|
|
65 |
|
|
|
35 |
|
- interest on Telstra bonds |
|
|
|
|
|
|
486 |
|
|
|
223 |
|
|
|
486 |
|
|
|
223 |
|
- interest on other loans |
|
|
|
|
|
|
242 |
|
|
|
497 |
|
|
|
242 |
|
|
|
497 |
|
- interest on derivative instruments |
|
|
|
|
|
|
169 |
|
|
|
164 |
|
|
|
169 |
|
|
|
164 |
|
- interest on finance leases |
|
|
|
|
|
|
6 |
|
|
|
7 |
|
|
|
2 |
|
|
|
3 |
|
- unwinding of discount on liabilities recognised at present value |
|
|
|
|
|
|
40 |
|
|
|
35 |
|
|
|
9 |
|
|
|
2 |
|
- gain in fair value hedge instruments |
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
(26 |
) |
|
|
|
|
- other |
|
|
|
|
|
|
20 |
|
|
|
2 |
|
|
|
38 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,002 |
|
|
|
963 |
|
|
|
985 |
|
|
|
943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
|
|
|
23 |
|
|
|
29 |
|
|
|
23 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
39
256
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Profit from continuing operations (continued)
(b) Income statement items requiring specific disclosure
The separate disclosure of the following material items
is relevant in explaining our financial performance.
Our profit for the year has been calculated after
charging specific expense items from our continuing
operations as detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Redundancy and restructuring related costs (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- redundancy expense |
|
|
|
|
|
|
356 |
|
|
|
|
|
|
|
352 |
|
|
|
|
|
- restructuring expense |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406 |
|
|
|
|
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- restructuring expense |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- restructuring expense |
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
- impairment in value of inventories |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
- impairment in value of trade and other receivables |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
- impairment in value of intangibles |
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
- impairment in value of property, plant and equipment |
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244 |
|
|
|
|
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- accelerated amortisation of intangibles |
|
|
|
|
|
|
160 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
- accelerated depreciation of property, plant and equipment |
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,126 |
|
|
|
|
|
|
|
1,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- impairment in value of controlled entities (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205 |
|
|
|
|
|
- reversal of impairment in value of controlled entities (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334 |
) |
- impairment in amounts owed by controlled entities (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
587 |
|
|
|
141 |
|
Total expense items |
|
|
|
|
|
|
1,126 |
|
|
|
|
|
|
|
1,694 |
|
|
|
141 |
|
Income tax benefit attributable to those items requiring specific disclosure |
|
|
|
|
|
|
(338 |
) |
|
|
|
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net items after income tax benefit |
|
|
|
|
|
|
788 |
|
|
|
|
|
|
|
1,362 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
On 15 November 2005, we announced the results from
the strategic review that was initiated on 1 July 2005. We
unveiled a strategy for improving our business by: |
|
|
introducing a company wide market based management system;
|
|
|
|
the adoption of a one factory approach to managing operations; and |
|
|
|
delivering integrated services to our customers. |
We also announced several key decisions and commitments
regarding our systems, processes and products which will
impact the future performance of the Company.
40
257
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Profit from continuing operations (continued)
For the year ended 30 June 2006, we have recorded a
number of restructuring related expenses associated with
the implementation of the strategic review initiatives.
The redundancy and restructuring costs include the
following:
|
|
redundancy costs associated with the reduction in our workforce, including those redundancies
that have been provided for (refer to note 19); |
|
|
|
the provision for restructuring costs associated with shutting down certain networks, platforms
and applications, property rationalisation, onerous lease costs and replacing customer equipment
(refer to note 19); |
|
|
|
the impairment of certain assets due to the decision to shut down certain networks and platforms
that are no longer considered recoverable This also includes the decision to cancel certain
projects relating to the development of software and the construction of property, plant and
equipment; and |
|
|
|
the accelerated recognition of depreciation and amortisation of certain assets that, while
currently in use, will be decommissioned as part of our decision to shut down certain networks,
platforms and applications. |
A total provision of $427 million has been raised for
redundancy and restructuring for the Telstra Group as at
30 June 2006. This includes $395 million recorded in
current and non current provisions, $18 million recorded
as a reduction in inventory and $14 million recorded as
an allowance for other receivables.
(ii) In fiscal 2006, the profit before income tax expense
of the Telstra Entity included an expense of $205 million
in relation to the impairment of the value of three
controlled entities. In fiscal 2005, the profit before
income tax expense of the Telstra Entity included a $334
million net gain in relation to the reversal of an
impairment of the value of four controlled entities. These
balances are eliminated on consolidation for Telstra
Group reporting purposes.
Each fiscal year, we review the value of our investment
in controlled entities. As a result, we have incurred an
impairment loss (or a reversal of an impairment loss) by
assessing the carrying value of our controlled entity
with its recoverable amount. We review our recoverable
amount by reference to its value in use. Refer to note 25
for further details regarding impairment.
(iii) The profit before income tax expense of the Telstra
Entity included an impairment loss of $382 million (2005:
$475 million) relating to a movement in allowance for
amounts owed by a controlled entity. This balance was
eliminated on consolidation for Telstra Group purposes.
Refer to note 25 for further details regarding impairment.
41
258
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
8. Remuneration of auditors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Audit fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Australian National Audit Office has charged the following amounts for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditing and reviewing the financial reports (i) |
|
|
|
|
|
|
4.981 |
|
|
|
5.038 |
|
|
|
4.431 |
|
|
|
4.404 |
|
Ernst and Young has charged the following amounts for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditing and reviewing the financial reports (ii) |
|
|
|
|
|
|
2.900 |
|
|
|
2.290 |
|
|
|
1.601 |
|
|
|
1.391 |
|
|
|
|
|
|
|
|
|
|
Total audit fees |
|
|
7 |
(a) |
|
|
7.881 |
|
|
|
7.328 |
|
|
|
6.032 |
|
|
|
5.795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to auditing and reviewing the financial reports, other services were
provided by Ernst and Young in their own right as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit related (iii) |
|
|
|
|
|
|
0.829 |
|
|
|
0.571 |
|
|
|
|
|
|
|
|
|
Tax (iv) |
|
|
|
|
|
|
0.118 |
|
|
|
0.423 |
|
|
|
|
|
|
|
|
|
Other services (v) |
|
|
|
|
|
|
0.331 |
|
|
|
0.703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other services |
|
|
|
|
|
|
1.278 |
|
|
|
1.697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit fees
(i) Our Australian statutory auditor is the Australian
National Audit Office (ANAO). The audit provided by the
ANAO has been subcontracted to Ernst and Young (EY)
since fiscal 2000.
(ii) Audit fees charged by EY relate to audit services
provided in completing our statutory and regulatory
filings other than those subcontracted directly from the
ANAO. These services include the audit and review of our
offshore controlled entities, the regulatory audits and
our USGAAP audit. In addition, this category includes the
audit of our other statutory filings such as the filing
we are required to make under Japanese law, and the
annual report on Form 20-F to meet our United States
listing requirements.
Other services
We have processes in place to maintain the
independence of the external auditor, including the
level of expenditure on non audit services. Fees
earned by EY for non audit work are capped at a
maximum of 1.0 times the total audit and audit related
fees.
Non audit services are pre-approved by the Audit
Committee provided they fall within a defined list of
services specified by the Audit Committee. Those
non-audit services that are not listed have to be
specifically approved by the Audit Committee prior to
the commencement of any engagement. In addition, all
non-audit services with a value over $100,000 must be
separately approved by the Audit Committee, even if the
service is listed as a pre-approved service.
The provision of non-audit services by EY is monitored by
the Audit Committee via bi-annual reports to the Audit
Committee. In addition, where engagements involve services
from the defined list of services, these are reported to
the Audit Committee at the following meeting.
EY has specific internal processes in place to
ensure auditor independence.
(iii) Audit related fees charged by EY relate to services
that are reasonably related to the performance of the
audit or review of our financial statements, and other
assurance engagements. These services include our privacy
audit, various accounting advice provided and additional
audit work arising on the acquisition of our newly
acquired controlled entities.
(iv) Tax fees charged by EY mainly relates to licence fee
and technical services including training and support
services in relation to our tax return software.
(v) Other services relate to all additional services
performed by EY, other than those disclosed as auditing
and reviewing the financial report, audit related and
tax. These services include performance of system and
security reviews, and various other reviews and non
assurance services across the Company.
42
259
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
9. Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Major components of income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense |
|
|
1,730 |
|
|
|
1,740 |
|
|
|
1,860 |
|
|
|
1,907 |
|
Deferred tax resulting from the origination and reversal of temporary differences |
|
|
(386 |
) |
|
|
4 |
|
|
|
(411 |
) |
|
|
(28 |
) |
Under provision of tax in prior years |
|
|
36 |
|
|
|
2 |
|
|
|
33 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
1,380 |
|
|
|
1,746 |
|
|
|
1,482 |
|
|
|
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional income tax expense on profit differs from
actual income tax expense recorded as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
4,561 |
|
|
|
6,055 |
|
|
|
4,719 |
|
|
|
6,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional income tax expense on profit calculated at 30% (a): |
|
|
1,368 |
|
|
|
1,817 |
|
|
|
1,416 |
|
|
|
1,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which is adjusted by the tax effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of different rates of tax on overseas income |
|
|
(19 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
Non assessable and non deductible items |
|
|
(5 |
) |
|
|
(62 |
) |
|
|
33 |
|
|
|
(40 |
) |
Under provision of tax in prior years |
|
|
36 |
|
|
|
2 |
|
|
|
33 |
|
|
|
3 |
|
|
|
|
|
|
Income tax expense on profit |
|
|
1,380 |
|
|
|
1,746 |
|
|
|
1,482 |
|
|
|
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognised directly in equity during the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax debited/(credited) directly in equity during the year |
|
|
291 |
|
|
|
(24 |
) |
|
|
289 |
|
|
|
(24 |
) |
|
|
|
|
|
(a) The Commonwealth statutory income tax rate for
fiscal 2006 and fiscal 2005 was 30%. This tax rate is the
income tax rate applied to Australian resident companies
pursuant to the Income Tax Rates Act.
43
260
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
9 . Income taxes (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Deferred tax asset/(deferred tax liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax items recognised in income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(1,872 |
) |
|
|
(1,918 |
) |
|
|
(1,911 |
) |
|
|
(2,019 |
) |
Intangible assets |
|
|
(356 |
) |
|
|
(474 |
) |
|
|
(175 |
) |
|
|
(280 |
) |
Provision for employee entitlements |
|
|
268 |
|
|
|
281 |
|
|
|
246 |
|
|
|
263 |
|
Revenue received in advance |
|
|
116 |
|
|
|
130 |
|
|
|
|
|
|
|
5 |
|
Provision for workers compensation |
|
|
65 |
|
|
|
64 |
|
|
|
62 |
|
|
|
62 |
|
Allowance for doubtful debts |
|
|
42 |
|
|
|
46 |
|
|
|
33 |
|
|
|
37 |
|
Defined benefit assets |
|
|
(45 |
) |
|
|
(98 |
) |
|
|
(43 |
) |
|
|
(97 |
) |
Trade and other payables |
|
|
57 |
|
|
|
38 |
|
|
|
54 |
|
|
|
36 |
|
Provision for redundancy |
|
|
56 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
Other provisions |
|
|
91 |
|
|
|
10 |
|
|
|
85 |
|
|
|
1 |
|
Income tax losses (a) |
|
|
106 |
|
|
|
69 |
|
|
|
|
|
|
|
4 |
|
Other |
|
|
36 |
|
|
|
26 |
|
|
|
27 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
(1,436 |
) |
|
|
(1,826 |
) |
|
|
(1,567 |
) |
|
|
(1,985 |
) |
|
|
|
|
|
Deferred tax items recognised in equity (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit assets |
|
|
(260 |
) |
|
|
24 |
|
|
|
(258 |
) |
|
|
24 |
|
Derivative financial instruments |
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(267 |
) |
|
|
24 |
|
|
|
(265 |
) |
|
|
24 |
|
|
|
|
|
|
Net deferred tax liability |
|
|
(1,703 |
) |
|
|
(1,802 |
) |
|
|
(1,832 |
) |
|
|
(1,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net deferred tax liability is split as follows (c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets recognised in the balance sheet |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities recognised in the balance sheet |
|
|
(1,704 |
) |
|
|
(1,804 |
) |
|
|
(1,832 |
) |
|
|
(1,961 |
) |
|
|
|
|
|
|
|
|
(1,703 |
) |
|
|
(1,802 |
) |
|
|
(1,832 |
) |
|
|
(1,961 |
) |
|
|
|
|
|
(a) We have recognised a deferred tax asset for the
unused tax losses of our offshore controlled entities to
the extent that it is probable that future taxable profit
will be available against which the unused tax losses can
be utilised. We have prepared management budgets and
forecasts in line with our current knowledge of future
events to support our view of sufficient future taxable
profits being available to offset our unused tax losses.
(b) When the underlying transactions to which our
deferred tax relates is recognised directly to equity in
accordance with applicable accounting standards, the
temporary differences associated with these adjustments
are also recognised directly in equity.
(c) We are able to offset deferred tax assets and
deferred tax liabilities in the balance sheet when they
relate to income taxes levied by the same taxation
authority and to the extent we intend to settle our
current tax assets and liabilities on a net basis.
Our deferred tax assets and deferred tax liabilities are
netted within the tax consolidation group, as these
deferred tax balances relate to income taxes levied by
the Australian Taxation Office. We do not net deferred tax
balances between controlled entities, apart from those
within the tax consolidation group.
44
261
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
9. Income taxes (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Deferred tax assets not recognised in the balance sheet (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax losses |
|
|
185 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
Capital tax losses |
|
|
196 |
|
|
|
198 |
|
|
|
160 |
|
|
|
161 |
|
Deductible temporary differences |
|
|
353 |
|
|
|
334 |
|
|
|
192 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
734 |
|
|
|
693 |
|
|
|
352 |
|
|
|
260 |
|
|
|
|
|
|
(a) Our deferred tax assets not recognised in the balance
sheet may be used in future years if the following
criteria are met:
|
|
our controlled entities have sufficient future taxable profit to enable the income tax losses and
temporary differences to be offset against that taxable profit; |
|
|
|
the Telstra Entity and our controlled entities have sufficient future capital gains to be offset
against those capital losses; |
|
|
|
we continue to satisfy the conditions required by tax legislation to be able to use the tax
losses; and |
|
|
|
there are no future changes in tax legislation that will adversely affect us in using the benefit
of the tax losses. |
As at 30 June 2006, the deferred tax assets not
recognised in our balance sheet are able to be carried
forward indefinitely for both our domestic and offshore
operations, except in relation to one offshore controlled
entity that has income tax losses of $9 million (fiscal
2005: $13 million) that will expire in fiscal 2027.
In the event of the further privatisation of our Company,
certain income tax losses and capital tax losses, not
currently recognised as a deferred tax asset, may not be
able to be utilised in the future to offset income tax
and capital tax gains for some offshore controlled
entities and the tax consolidated group. The ability to
utilise income and capital losses in the future will
depend on various factors, including the number of shares
the Commonwealth continues to hold, either directly or
indirectly.
Tax consolidation
The Telstra Entity and its Australian resident wholly
owned entities previously elected to form a tax
consolidated group. As part of the election to enter tax
consolidation, the tax consolidated group is treated as
a single entity for income tax purposes.
The Telstra Entity, as the head entity in the tax
consolidated group, recognises, in addition to its own
transactions, the current tax liabilities and the
deferred tax assets arising from
unused tax losses and tax credits for all entities in the
group. However, the Telstra Entity and its resident wholly
owned entities account for their own current tax expense
and deferred tax amounts.
Upon tax consolidation, the entities within the tax
consolidated group entered into a tax sharing agreement
The terms of this agreement specified the methods of
allocating any tax liability in the event of default by
the Telstra Entity on its group payment obligations and
the treatment where a subsidiary member exits the group. The tax liability of the group otherwise remains with the
Telstra Entity for tax purposes.
During fiscal 2006, the entities within the tax
consolidated group entered into a tax funding
arrangement under which:
|
|
the Telstra Entity compensates its wholly owned controlled entities for any current tax
receivable assumed; |
|
|
|
the Telstra Entity compensates its wholly owned controlled entities for any deferred tax assets
relating to unused tax losses and tax credits; and |
|
|
|
wholly owned entities compensate the Telstra Entity for any
current tax payable assumed. |
The funding amounts are based on the amounts
recorded in the financial statements of the wholly
owned entities.
Amounts receivable of $40 million to the Telstra Entity
and amounts payable from the Telstra Entity of $194
million under the tax funding arrangements are due in the
next financial year upon final settlement of the current
tax payable for the tax consolidated group During fiscal
2005, no tax funding arrangement was in place and as a
result these funding amounts were recorded as equity
contributions to or distributions from our controlled
entities.
45
262
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
10. Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and on hand |
|
|
238 |
|
|
|
225 |
|
|
|
87 |
|
|
|
83 |
|
Bank deposits, bills of exchange and commercial paper (a) |
|
|
451 |
|
|
|
1,323 |
|
|
|
387 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
689 |
|
|
|
1,548 |
|
|
|
474 |
|
|
|
1,368 |
|
|
|
|
|
|
(a) Bank
deposits are held in the short term money market.
The carrying amount of bank deposits, bills of exchange
and commercial paper approximates net fair value due to
their short term to maturity.
46
263
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
11. Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade debtors (a) |
|
|
|
|
|
|
2,565 |
|
|
|
2,434 |
|
|
|
1,881 |
|
|
|
1,774 |
|
Allowance for doubtful debts |
|
|
|
|
|
|
(144 |
) |
|
|
(159 |
) |
|
|
(110 |
) |
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,421 |
|
|
|
2,275 |
|
|
|
1,771 |
|
|
|
1,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by controlled entities (other than trade debtors) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
2,267 |
|
|
|
2,194 |
|
Allowance for amounts owed by controlled entities (other than trade debtors) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
(1,851 |
) |
|
|
(1,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued revenue |
|
|
|
|
|
|
1,027 |
|
|
|
976 |
|
|
|
971 |
|
|
|
929 |
|
|
Other receivables (b) |
|
|
|
|
|
|
262 |
|
|
|
298 |
|
|
|
195 |
|
|
|
235 |
|
Allowance for doubtful debts (b) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,280 |
|
|
|
1,274 |
|
|
|
1,157 |
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,701 |
|
|
|
3,549 |
|
|
|
3,344 |
|
|
|
3,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by controlled entities (other than trade debtors) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by jointly controlled and associated entities (c) |
|
|
33 |
|
|
|
229 |
|
|
|
242 |
|
|
|
210 |
|
|
|
204 |
|
Allowance for amounts owed by jointly controlled and associated entities (c) |
|
|
33 |
|
|
|
(215 |
) |
|
|
(210 |
) |
|
|
(210 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables (b) |
|
|
|
|
|
|
78 |
|
|
|
65 |
|
|
|
72 |
|
|
|
59 |
|
Allowance for doubtful debts (b) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73 |
|
|
|
65 |
|
|
|
67 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
97 |
|
|
|
127 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
(a) Our policy requires trade debtors to pay us in
accordance with agreed payment terms. Depending on the
customer segment, our settlement terms are generally 14
to 30 days from date of invoice. All credit and recovery
risk associated with trade debtors has been provided for
in the balance sheet.
(b) Our other receivables relates mainly to customer
deferred debt. Our customer deferred debt allows eligible
post paid customers the opportunity to repay the cost of
their mobile handset and approved accessories monthly
over 12, 18 or 24 months. The loan is provided interest
free to our mobile postpaid customers.
(c) In fiscal 2006, amounts owed by jointly controlled
and associated entities relates mainly to loans provided
to Reach Ltd (Reach) of $210 million (2005: $204 million)
and the 3GIS Partnership (3GIS) of $14 million (2005: $32
million). An allowance for the total loan provided to
Reach has been recognised. Refer to note 33 for further
details.
47
264
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods recorded at net realisable value |
|
|
79 |
|
|
|
4 |
|
|
|
67 |
|
|
|
|
|
Finished goods recorded at cost |
|
|
123 |
|
|
|
197 |
|
|
|
91 |
|
|
|
167 |
|
|
|
|
|
|
Total finished goods |
|
|
202 |
|
|
|
201 |
|
|
|
158 |
|
|
|
167 |
|
|
Raw materials and stores recorded at cost |
|
|
15 |
|
|
|
16 |
|
|
|
10 |
|
|
|
12 |
|
Construction contracts (a) |
|
|
7 |
|
|
|
15 |
|
|
|
7 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
224 |
|
|
|
232 |
|
|
|
175 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods recorded at net realisable value |
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
Finished goods recorded at cost |
|
|
5 |
|
|
|
15 |
|
|
|
5 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
20 |
|
|
|
15 |
|
|
|
20 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Construction contract disclosures are shown as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract costs incurred and recognised profits |
|
|
108 |
|
|
|
69 |
|
|
|
108 |
|
|
|
69 |
|
Progress billings |
|
|
(101 |
) |
|
|
(54 |
) |
|
|
(101 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
7 |
|
|
|
15 |
|
|
|
7 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances received for construction work in progress (included in trade and other
payables) |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
48
265
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
13. Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Investments accounted for using the equity method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in jointly controlled entities |
|
|
|
|
|
|
4 |
|
|
|
40 |
|
|
|
2 |
|
|
|
83 |
|
Allowance for impairment in value |
|
|
|
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
Carrying amount of investments in jointly controlled entities |
|
|
30 |
|
|
|
2 |
|
|
|
36 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associated entities |
|
|
|
|
|
|
45 |
|
|
|
36 |
|
|
|
18 |
|
|
|
33 |
|
Allowance for impairment in value |
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
Carrying amount of investments in associated entities |
|
|
30 |
|
|
|
21 |
|
|
|
12 |
|
|
|
18 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
48 |
|
|
|
18 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in controlled entities |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
13,062 |
|
|
|
12,975 |
|
Allowance for impairment in value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,109 |
) |
|
|
(6,839 |
) |
|
|
|
|
|
|
|
|
|
Total investments in controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,953 |
|
|
|
6,136 |
|
|
|
|
|
|
|
|
|
|
49
266
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Land and site improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
35 |
|
|
|
40 |
|
|
|
32 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
822 |
|
|
|
822 |
|
|
|
706 |
|
|
|
722 |
|
Accumulated depreciation/impairment |
|
|
(392 |
) |
|
|
(392 |
) |
|
|
(352 |
) |
|
|
(356 |
) |
|
|
|
|
|
|
|
|
430 |
|
|
|
430 |
|
|
|
354 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
45,848 |
|
|
|
43,217 |
|
|
|
43,222 |
|
|
|
41,127 |
|
Accumulated depreciation/impairment |
|
|
(23,398 |
) |
|
|
(21,541 |
) |
|
|
(22,393 |
) |
|
|
(20,946 |
) |
|
|
|
|
|
|
|
|
22,450 |
|
|
|
21,676 |
|
|
|
20,829 |
|
|
|
20,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
Accumulated depreciation/impairment |
|
|
(501 |
) |
|
|
(434 |
) |
|
|
(501 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
|
357 |
|
|
|
424 |
|
|
|
357 |
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plant, equipment and motor vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
1,068 |
|
|
|
1,011 |
|
|
|
692 |
|
|
|
753 |
|
Accumulated depreciation/impairment |
|
|
(740 |
) |
|
|
(710 |
) |
|
|
(519 |
) |
|
|
(554 |
) |
|
|
|
|
|
|
|
|
328 |
|
|
|
301 |
|
|
|
173 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
60 |
|
|
|
52 |
|
|
|
33 |
|
|
|
26 |
|
Accumulated depreciation/impairment |
|
|
(38 |
) |
|
|
(32 |
) |
|
|
(13 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
22 |
|
|
|
20 |
|
|
|
20 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
48,691 |
|
|
|
46,000 |
|
|
|
45,543 |
|
|
|
43,523 |
|
Accumulated depreciation |
|
|
(25,069 |
) |
|
|
(23,109 |
) |
|
|
(23,778 |
) |
|
|
(22,300 |
) |
|
|
|
|
|
|
|
|
23,622 |
|
|
|
22,891 |
|
|
|
21,765 |
|
|
|
21,223 |
|
|
|
|
|
|
50
267
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Land and site improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
40 |
|
|
|
43 |
|
|
|
37 |
|
|
|
42 |
|
- additions |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
3 |
|
- disposals |
|
|
|
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
(8 |
) |
- acquisitions through business combinations |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
35 |
|
|
|
40 |
|
|
|
32 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
430 |
|
|
|
393 |
|
|
|
366 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
822 |
|
|
|
733 |
|
|
|
722 |
|
|
|
689 |
|
- additions |
|
|
|
|
|
|
72 |
|
|
|
47 |
|
|
|
60 |
|
|
|
43 |
|
- disposals |
|
|
|
|
|
|
(104 |
) |
|
|
(16 |
) |
|
|
(98 |
) |
|
|
(15 |
) |
- acquisitions through business combinations |
|
|
|
|
|
|
10 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(4 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
26 |
|
|
|
9 |
|
|
|
22 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
822 |
|
|
|
822 |
|
|
|
706 |
|
|
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation/impairment |
|
|
|
|
|
|
(392 |
) |
|
|
(340 |
) |
|
|
(356 |
) |
|
|
(313 |
) |
- disposals |
|
|
|
|
|
|
74 |
|
|
|
4 |
|
|
|
70 |
|
|
|
3 |
|
- acquisitions through business combinations |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- depreciation expense |
|
|
7 |
|
|
|
(62 |
) |
|
|
(54 |
) |
|
|
(54 |
) |
|
|
(47 |
) |
- impairment losses |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(8 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation/impairment |
|
|
|
|
|
|
(392 |
) |
|
|
(392 |
) |
|
|
(352 |
) |
|
|
(356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
430 |
|
|
|
430 |
|
|
|
354 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
51
268
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Communication
assets (including leasehold improvements) (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
21,676 |
|
|
|
21,093 |
|
|
|
20,181 |
|
|
|
20,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
43,217 |
|
|
|
40,575 |
|
|
|
41,127 |
|
|
|
39,093 |
|
- additions |
|
|
|
|
|
|
3,681 |
|
|
|
3,378 |
|
|
|
3,501 |
|
|
|
2,732 |
|
- disposals |
|
|
|
|
|
|
(1,416 |
) |
|
|
(740 |
) |
|
|
(1,432 |
) |
|
|
(740 |
) |
- acquisitions through business combinations |
|
|
|
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(105 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
26 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
45,848 |
|
|
|
43,217 |
|
|
|
43,222 |
|
|
|
41,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation/impairment |
|
|
|
|
|
|
(21,541 |
) |
|
|
(19,482 |
) |
|
|
(20,946 |
) |
|
|
(18,998 |
) |
- disposals |
|
|
|
|
|
|
1,376 |
|
|
|
584 |
|
|
|
1,393 |
|
|
|
588 |
|
- acquisitions through business combinations |
|
|
|
|
|
|
(265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- depreciation expense |
|
|
7 |
|
|
|
(2,953 |
) |
|
|
(2,615 |
) |
|
|
(2,786 |
) |
|
|
(2,508 |
) |
- impairment losses |
|
|
|
|
|
|
(37 |
) |
|
|
(14 |
) |
|
|
(37 |
) |
|
|
(14 |
) |
- foreign currency exchange differences |
|
|
|
|
|
|
41 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(19 |
) |
|
|
(22 |
) |
|
|
(17 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation/impairment |
|
|
|
|
|
|
(23,398 |
) |
|
|
(21,541 |
) |
|
|
(22,393 |
) |
|
|
(20,946 |
) |
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
22,450 |
|
|
|
21,676 |
|
|
|
20,829 |
|
|
|
20,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
424 |
|
|
|
499 |
|
|
|
424 |
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening and closing cost (b) |
|
|
|
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation/impairment |
|
|
|
|
|
|
(434 |
) |
|
|
(359 |
) |
|
|
(434 |
) |
|
|
(359 |
) |
- depreciation expense |
|
|
7 |
|
|
|
(67 |
) |
|
|
(75 |
) |
|
|
(67 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation/impairment |
|
|
|
|
|
|
(501 |
) |
|
|
(434 |
) |
|
|
(501 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
357 |
|
|
|
424 |
|
|
|
357 |
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
(a) Includes certain network land and buildings which are
essential to the operation of our communication assets
(b) During fiscal 2006 and fiscal 2005, there were no
additions or disposals to this class of asset As a
result, our opening and closing cost has remained
unchanged
52
269
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Other plant, equipment and motor vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
301 |
|
|
|
380 |
|
|
|
199 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
1,011 |
|
|
|
1,335 |
|
|
|
753 |
|
|
|
1,004 |
|
- additions |
|
|
|
|
|
|
124 |
|
|
|
114 |
|
|
|
34 |
|
|
|
52 |
|
- disposals |
|
|
|
|
|
|
(111 |
) |
|
|
(301 |
) |
|
|
(96 |
) |
|
|
(295 |
) |
- acquisitions through business combinations |
|
|
|
|
|
|
48 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(8 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
4 |
|
|
|
(138 |
) |
|
|
1 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
1,068 |
|
|
|
1,011 |
|
|
|
692 |
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation/impairment |
|
|
|
|
|
|
(710 |
) |
|
|
(955 |
) |
|
|
(554 |
) |
|
|
(793 |
) |
- disposals |
|
|
|
|
|
|
98 |
|
|
|
287 |
|
|
|
85 |
|
|
|
281 |
|
- acquisitions through business combinations |
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- depreciation expense |
|
|
7 |
|
|
|
(93 |
) |
|
|
(123 |
) |
|
|
(45 |
) |
|
|
(50 |
) |
- impairment losses |
|
|
|
|
|
|
(26 |
) |
|
|
(3 |
) |
|
|
(26 |
) |
|
|
(3 |
) |
- foreign currency exchange differences |
|
|
|
|
|
|
6 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
22 |
|
|
|
75 |
|
|
|
21 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation/impairment |
|
|
|
|
|
|
(740 |
) |
|
|
(710 |
) |
|
|
(519 |
) |
|
|
(554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
328 |
|
|
|
301 |
|
|
|
173 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
20 |
|
|
|
11 |
|
|
|
16 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
52 |
|
|
|
48 |
|
|
|
26 |
|
|
|
20 |
|
- additions |
|
|
|
|
|
|
9 |
|
|
|
13 |
|
|
|
9 |
|
|
|
11 |
|
- disposals |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(5 |
) |
- acquisitions through business combinations |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
60 |
|
|
|
52 |
|
|
|
33 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation/impairment |
|
|
|
|
|
|
(32 |
) |
|
|
(37 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
- disposals |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
- depreciation expense |
|
|
7 |
|
|
|
(8 |
) |
|
|
(9 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
- other |
|
|
|
|
|
|
2 |
|
|
|
11 |
|
|
|
3 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation/impairment |
|
|
|
|
|
|
(38 |
) |
|
|
(32 |
) |
|
|
(13 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
22 |
|
|
|
20 |
|
|
|
20 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
53
270
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Property, plant and equipment (continued)
Work in progress
In fiscal 2006, the Telstra Group has property, plant and
equipment under construction amounting to $1,695 million
(2005: $1,040 million). In fiscal 2006, the Telstra Entity
has property, plant and equipment under construction
amounting to $1,596 million (2005: $945 million). As these
assets are not installed and ready for use, there is no
depreciation being charged on these amounts.
Other
Details of our expenditure and lease commitments in
relation to property, plant and equipment are shown in
note 26 to these financial statements.
In fiscal 2006, the Telstra Group has property, plant and
equipment that was fully depreciated and still in use
with a cost of $1,767 million (2005: $2,224 million). In
fiscal 2006, the Telstra Entity has property, plant and
equipment that was fully depreciated and still in use
with a cost of $1,412 million (2005: $1,905 million).
54
271
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Goodwill |
|
|
2,073 |
|
|
|
2,037 |
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally generated intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software assets developed for internal use |
|
|
3,188 |
|
|
|
3,622 |
|
|
|
2,651 |
|
|
|
3,173 |
|
Accumulated amortisation |
|
|
(1,406 |
) |
|
|
(1,652 |
) |
|
|
(1,171 |
) |
|
|
(1,499 |
) |
|
|
|
|
|
|
|
|
1,782 |
|
|
|
1,970 |
|
|
|
1,480 |
|
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mastheads |
|
|
447 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and trademarks |
|
|
34 |
|
|
|
34 |
|
|
|
20 |
|
|
|
20 |
|
Accumulated amortisation |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
26 |
|
|
|
28 |
|
|
|
9 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licences |
|
|
833 |
|
|
|
793 |
|
|
|
267 |
|
|
|
267 |
|
Accumulated amortisation |
|
|
(241 |
) |
|
|
(183 |
) |
|
|
(132 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
592 |
|
|
|
610 |
|
|
|
135 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brandnames |
|
|
235 |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
(53 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer bases |
|
|
846 |
|
|
|
749 |
|
|
|
70 |
|
|
|
70 |
|
Accumulated amortisation |
|
|
(407 |
) |
|
|
(305 |
) |
|
|
(64 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
439 |
|
|
|
444 |
|
|
|
6 |
|
|
|
19 |
|
|
|
|
|
|
Total acquired intangible assets |
|
|
1,686 |
|
|
|
1,702 |
|
|
|
150 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expenditure |
|
|
1,589 |
|
|
|
1,272 |
|
|
|
1,841 |
|
|
|
1,533 |
|
Accumulated amortisation |
|
|
(1,007 |
) |
|
|
(652 |
) |
|
|
(1,022 |
) |
|
|
(655 |
) |
|
|
|
|
|
|
|
|
582 |
|
|
|
620 |
|
|
|
819 |
|
|
|
878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
9,245 |
|
|
|
9,169 |
|
|
|
4,865 |
|
|
|
5,079 |
|
Accumulated amortisation |
|
|
(3,122 |
) |
|
|
(2,840 |
) |
|
|
(2,400 |
) |
|
|
(2,328 |
) |
|
|
|
|
|
|
|
|
6,123 |
|
|
|
6,329 |
|
|
|
2,465 |
|
|
|
2,751 |
|
|
|
|
|
|
55
272
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Intangible assets (continued)
Movements in intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening value |
|
|
|
|
|
|
2,037 |
|
|
|
1,790 |
|
|
|
16 |
|
|
|
16 |
|
- acquisitions through business combinations |
|
|
24 |
|
|
|
324 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
- disposals |
|
|
|
|
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
27 |
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
- impairment losses |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing value (a) |
|
|
|
|
|
|
2,073 |
|
|
|
2,037 |
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles internally generated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software assets developed for internal use (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
1,970 |
|
|
|
1,882 |
|
|
|
1,674 |
|
|
|
1,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
3,622 |
|
|
|
3,249 |
|
|
|
3,173 |
|
|
|
3,005 |
|
- additions |
|
|
|
|
|
|
602 |
|
|
|
552 |
|
|
|
498 |
|
|
|
470 |
|
- acquisitions through business combinations |
|
|
|
|
|
|
1 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
- disposals |
|
|
|
|
|
|
(969 |
) |
|
|
(310 |
) |
|
|
(965 |
) |
|
|
(302 |
) |
- impairment losses (f) |
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
(64 |
) |
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
7 |
|
|
|
116 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
3,188 |
|
|
|
3,622 |
|
|
|
2,651 |
|
|
|
3,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
|
|
|
|
(1,652 |
) |
|
|
(1,367 |
) |
|
|
(1,499 |
) |
|
|
(1,307 |
) |
- amortisation expense (e) |
|
|
7 |
|
|
|
(726 |
) |
|
|
(510 |
) |
|
|
(629 |
) |
|
|
(472 |
) |
- disposals |
|
|
|
|
|
|
969 |
|
|
|
310 |
|
|
|
965 |
|
|
|
302 |
|
- foreign currency exchange differences |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(4 |
) |
|
|
(85 |
) |
|
|
(8 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated amortisation |
|
|
|
|
|
|
(1,406 |
) |
|
|
(1,652 |
) |
|
|
(1,171 |
) |
|
|
(1,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
1,782 |
|
|
|
1,970 |
|
|
|
1,480 |
|
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mastheads |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
447 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
447 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
- impairment losses |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
447 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value (c) |
|
|
|
|
|
|
447 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
273
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Intangible assets (continued)
Movements in intangible assets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Patents and trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
28 |
|
|
|
3 |
|
|
|
13 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
34 |
|
|
|
7 |
|
|
|
20 |
|
|
|
20 |
|
- additions |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- acquisitions through business combinations |
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
34 |
|
|
|
34 |
|
|
|
20 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
|
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(7 |
) |
|
|
(3 |
) |
- amortisation expense (e) |
|
|
7 |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated amortisation |
|
|
|
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
26 |
|
|
|
28 |
|
|
|
9 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licences |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
610 |
|
|
|
651 |
|
|
|
151 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
793 |
|
|
|
801 |
|
|
|
267 |
|
|
|
267 |
|
- additions |
|
|
|
|
|
|
16 |
|
|
|
5 |
|
|
|
2 |
|
|
|
|
|
- acquisitions through business combinations |
|
|
|
|
|
|
23 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
833 |
|
|
|
793 |
|
|
|
267 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
|
|
|
|
(183 |
) |
|
|
(150 |
) |
|
|
(116 |
) |
|
|
(98 |
) |
- amortisation expense (e) |
|
|
7 |
|
|
|
(58 |
) |
|
|
(37 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
- foreign currency exchange differences |
|
|
|
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing accumulated amortisation |
|
|
|
|
|
|
(241 |
) |
|
|
(183 |
) |
|
|
(132 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
592 |
|
|
|
610 |
|
|
|
135 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
57
274
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Intangible assets (continued)
Movements in intangible assets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Brandnames |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
173 |
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
215 |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
- acquisitions through business combinations |
|
|
|
|
|
|
21 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(1 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
235 |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
|
|
|
|
(42 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
- amortisation expense (e) |
|
|
7 |
|
|
|
(11 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing accumulated amortisation |
|
|
|
|
|
|
(53 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
182 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer bases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
444 |
|
|
|
353 |
|
|
|
19 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
749 |
|
|
|
593 |
|
|
|
70 |
|
|
|
70 |
|
- additions |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- acquisitions through business combinations |
|
|
|
|
|
|
76 |
|
|
|
191 |
|
|
|
|
|
|
|
|
|
- foreign currency exchange differences |
|
|
|
|
|
|
(9 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
846 |
|
|
|
749 |
|
|
|
70 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
|
|
|
|
(305 |
) |
|
|
(240 |
) |
|
|
(51 |
) |
|
|
(36 |
) |
- amortisation expense (e) |
|
|
7 |
|
|
|
(98 |
) |
|
|
(86 |
) |
|
|
(13 |
) |
|
|
(15 |
) |
- foreign currency exchange differences |
|
|
|
|
|
|
(4 |
) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing accumulated amortisation |
|
|
|
|
|
|
(407 |
) |
|
|
(305 |
) |
|
|
(64 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
439 |
|
|
|
444 |
|
|
|
6 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
58
275
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Intangible assets (continued)
Movements in intangible assets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Deferred expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
620 |
|
|
|
636 |
|
|
|
878 |
|
|
|
593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
1,272 |
|
|
|
1,031 |
|
|
|
1,533 |
|
|
|
988 |
|
- additions (d) |
|
|
317 |
|
|
|
241 |
|
|
|
315 |
|
|
|
545 |
|
- other |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
1,589 |
|
|
|
1,272 |
|
|
|
1,841 |
|
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated amortisation |
|
|
(652 |
) |
|
|
(395 |
) |
|
|
(655 |
) |
|
|
(395 |
) |
- amortisation expense (e) |
|
|
(355 |
) |
|
|
(257 |
) |
|
|
(367 |
) |
|
|
(260 |
) |
|
|
|
|
|
Closing accumulated amortisation |
|
|
(1,007 |
) |
|
|
(652 |
) |
|
|
(1,022 |
) |
|
|
(655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
582 |
|
|
|
620 |
|
|
|
819 |
|
|
|
878 |
|
|
|
|
|
|
Details of our expenditure commitments in relation to
our intangible assets are shown in note 26 to our
financial statements.
(a) We allocate goodwill to our relevant cash generating
units (CGUs) for the purposes of impairment testing.
Refer to note 25 for further details.
(b) In fiscal 2006, the Telstra Group had software assets
under development amounting to $352 million (2005: $362
million). In fiscal 2006, the Telstra Entity had software
assets under development amounting to $296 million (2005:
$301 million). As these assets were not installed and
ready for use there is no amortisation being charged on
the amounts.
(c) We do not currently amortise the cost of our
mastheads as they have been assessed to have an
indefinite useful life. We do not expect there to be a
foreseeable limit to the period over which the mastheads
are expected to generate net cash inflows and, based on
industry experience and current information, it is
extremely rare for leading mastheads to become
commercially or technically obsolete. We believe we could
dispose of the mastheads in the foreseeable future for an
amount not less than the current carrying value and that
the acquirer could retain the strong market position that
the mastheads currently represent.
(d) During fiscal 2005, we entered into an arrangement
with our jointly controlled entity, Reach Ltd (Reach),
and our co-shareholder PCCW, whereby Reachs
international cable capacity was allocated between us and
PCCW under an
indefeasible right of use (IRU) agreement, including
committed capital expenditure for the period until 2022.
The IRU is amortised over the contract periods for the
capacity on the various international cable systems,
which range from 5 to 22 years. The Telstra Entity has
recorded the IRU within deferred expenditure. For the
Telstra Group, the IRU was deemed to be an extension of
our investment in Reach. The IRU has a carrying value of
$nil in the consolidated financial statements due to the
recognition of equity accounted losses in Reach.
(e) Amortisation expense is included in depreciation and
amortisation expense in the income statement, with the
exception of items of deferred expenditure which are
expensed to the relevant line of the income statement. The
majority of the deferred expenditure relates to the
deferral of basic access installation costs, which are
amortised to goods and services purchased in the income
statement.
(f) We have recognised impairment losses relating to
project costs that were included in our capitalised
software and relate to our software work-in-progress.
These projects have subsequently been cancelled and the
costs recognised in the income statement as an impairment
loss.
59
276
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
16. Derivative financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$ m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap hedge receivable |
|
|
20 |
|
|
|
4 |
|
|
|
20 |
|
|
|
4 |
|
Forward contract asset |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
4 |
|
|
|
21 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap hedge receivable |
|
|
222 |
|
|
|
|
|
|
|
222 |
|
|
|
|
|
Interest rate swap asset |
|
|
169 |
|
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
391 |
|
|
|
|
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
Refer to note 35 for details on the financial risk
management of our derivative financial instruments.
The transitional rules for first time adoption of A-IFRS
required that we restate our comparative financial report
using A-IFRS, except for AASB 132: Financial
Instruments: Disclosure and Presentation and AASB 139:
Financial Instruments: Recognition and Measurement,
where comparative information was not required to be
restated.
Accordingly, we have applied previous AGAAP in the
comparative information.
60
277
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
17. Trade and other payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade creditors (a) |
|
|
|
|
|
|
738 |
|
|
|
649 |
|
|
|
586 |
|
|
|
480 |
|
Accrued expenses |
|
|
|
|
|
|
1,338 |
|
|
|
1,044 |
|
|
|
1,081 |
|
|
|
815 |
|
Accrued capital expenditure |
|
|
|
|
|
|
844 |
|
|
|
289 |
|
|
|
772 |
|
|
|
210 |
|
Accrued interest |
|
|
|
|
|
|
258 |
|
|
|
227 |
|
|
|
258 |
|
|
|
227 |
|
Deferred cash settlement for acquisitions (b) |
|
|
|
|
|
|
123 |
|
|
|
316 |
|
|
|
|
|
|
|
|
|
Other creditors (a) |
|
|
|
|
|
|
269 |
|
|
|
282 |
|
|
|
171 |
|
|
|
219 |
|
Amounts owed to controlled entities (other than trade creditors) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
197 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,570 |
|
|
|
2,807 |
|
|
|
3,065 |
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred cash settlement for acquisitions (b) |
|
|
|
|
|
|
127 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
Other creditors |
|
|
|
|
|
|
70 |
|
|
|
63 |
|
|
|
65 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197 |
|
|
|
250 |
|
|
|
65 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
(a) Trade creditors and other creditors are non interest
bearing liabilities. We generally process trade creditor
payments once they have reached 30 days from the date of
invoice for electronic funds transfer payments, or 30
days from the end of the month of invoice for other
payments.
(b) Included in our deferred cash settlement for
acquisitions are our remaining obligations for the
purchase of the third generation radio access network
assets from Hutchison 3G Australia Pty Ltd.
During fiscal 2005, we purchased these assets for an
amount of $450 million, payable over two years. We recognised this payable at its present value in our
balance sheet of $403 million and are releasing the
associated financing cost over the period of the
payablein the income statement. For fiscal 2006, this
release of finance costs amounted to $19 million (2005:
$28 million).
61
278
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
18. Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft (a) |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Bank loans |
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
110 |
|
|
|
|
|
Bills of exchange and commercial paper (b) |
|
|
|
|
|
|
1,457 |
|
|
|
449 |
|
|
|
1,457 |
|
|
|
449 |
|
Loans from wholly owned controlled entities |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
1,408 |
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,568 |
|
|
|
463 |
|
|
|
2,975 |
|
|
|
2,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds (c) |
|
|
|
|
|
|
|
|
|
|
516 |
|
|
|
|
|
|
|
516 |
|
Other loans (d) |
|
|
|
|
|
|
394 |
|
|
|
523 |
|
|
|
394 |
|
|
|
523 |
|
Finance leases |
|
|
26 |
|
|
|
7 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401 |
|
|
|
1,044 |
|
|
|
399 |
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,969 |
|
|
|
1,507 |
|
|
|
3,374 |
|
|
|
3,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds (c) |
|
|
|
|
|
|
2,613 |
|
|
|
2,605 |
|
|
|
2,613 |
|
|
|
2,605 |
|
Other loans (d) |
|
|
|
|
|
|
8,748 |
|
|
|
8,289 |
|
|
|
8,748 |
|
|
|
8,289 |
|
Finance leases |
|
|
26 |
|
|
|
48 |
|
|
|
47 |
|
|
|
15 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,409 |
|
|
|
10,941 |
|
|
|
11,376 |
|
|
|
10,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft (a) |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Bank loans |
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
110 |
|
|
|
|
|
Bills of exchange and commercial paper (b) |
|
|
|
|
|
|
1,457 |
|
|
|
449 |
|
|
|
1,457 |
|
|
|
449 |
|
Loans from wholly owned controlled entities |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
1,408 |
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,568 |
|
|
|
463 |
|
|
|
2,975 |
|
|
|
2,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt (including current portion) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds (c) |
|
|
|
|
|
|
2,613 |
|
|
|
3,121 |
|
|
|
2,613 |
|
|
|
3,121 |
|
Other loans (d) |
|
|
|
|
|
|
9,142 |
|
|
|
8,812 |
|
|
|
9,142 |
|
|
|
8,812 |
|
Finance leases |
|
|
26 |
|
|
|
55 |
|
|
|
52 |
|
|
|
20 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,810 |
|
|
|
11,985 |
|
|
|
11,775 |
|
|
|
11,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,378 |
|
|
|
12,448 |
|
|
|
14,750 |
|
|
|
14,799 |
|
|
|
|
|
|
|
|
|
|
62
279
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
18. Borrowings (continued)
Our long term debt is repayable over years ending 30 June as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Due in the year ending 30 June |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
after 2011 |
|
|
Total |
|
Telstra bonds |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Coupon interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
up to 6.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
35 |
|
up to 8.0% |
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
|
|
|
|
|
|
1,510 |
|
|
|
2,510 |
|
up to 10.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
28 |
|
up to 12.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
44 |
|
up to 16.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
|
|
|
|
|
|
1,649 |
|
|
|
2,649 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans (d) |
|
|
394 |
|
|
|
1,373 |
|
|
|
81 |
|
|
|
815 |
|
|
|
2,642 |
|
|
|
3,837 |
|
|
|
9,142 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
13 |
|
|
|
12 |
|
|
|
10 |
|
|
|
8 |
|
|
|
5 |
|
|
|
52 |
|
|
|
100 |
|
|
|
|
|
|
|
|
Future finance charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term debt payable |
|
|
407 |
|
|
|
1,385 |
|
|
|
591 |
|
|
|
1,323 |
|
|
|
2,647 |
|
|
|
5,538 |
|
|
|
11,891 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets pledged as security
Our 50% owned pay television joint venture FOXTEL previously entered into a $550 million bank
facility arrangement to fund its full digital conversion and launch of new digital services. The
use of this facility is subject to certain conditions being met and full repayment is due on 30
September 2008.
As part of this arrangement, our controlled entity Telstra Media Pty Ltd as a FOXTEL partner, and
FOXTEL itself, have pledged their respective assets as collateral in favour of the banks. The
carrying value of the assets pledged in Telstra Media Pty Ltd as at 30 June 2006 was $nil (2005:
$nil). Refer to note 27 for details of an equity contribution deed entered as part of this
agreement.
On 31 July 2006, FOXTEL entered into a $600 million syndicated secured term loan facility to fund
the refinancing of the above facility. Refer to note 34 for further details.
Our borrowings are unsecured, except for finance leases which are secured, as the rights to the
leased asset transfer to the lessor in the event of a default by us.
(a) Bank overdraft
As at 30 June 2006, we had a bank overdraft of $nil (2005: $14 million). Our bank overdraft in
fiscal 2005 related to a controlled entity. This bank overdraft was unsecured, with interest being
charged daily, net of the controlled entitys offsetting position of cash in bank and any
outstanding loans.
(b) Bills of exchange and commercial paper
We have issued bills of exchange and commercial paper of $1,457 million (2005: $449 million) to
financial institutions with an original maturity of less than 180 days. At 30 June 2006, all $1,457
million (2005: $449 million) of the commercial paper matures in less than three months.
(c) Telstra bonds
Telstra bonds currently on issue relate to wholesale investors and mature up until the year 2020.
During fiscal 2006, $508 million (2005: $273 million) of Telstra bonds matured.
63
280
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
18. Borrowings (continued)
(d) Other loans
Details of our other loans, including currency of borrowing, interest rates and maturity dates, are
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group - Other loans details |
|
A$ amount |
|
|
Interest rates |
|
|
Maturity dates |
|
|
|
As at 30 June |
|
|
Year ended 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
2005 |
|
|
A$m |
|
|
A$m |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
Australian dollar loans |
|
|
245 |
|
|
|
247 |
|
|
|
5.93 |
|
|
|
5.93 |
|
|
November 2007 |
|
November 2007 |
US dollar loans |
|
|
1,028 |
|
|
|
1,306 |
|
|
5.22 to 6.47 |
|
|
|
3.49 to 6.50 |
|
|
between April 2008 |
|
between Nov 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Dec 2015 |
|
and April 2012 |
Euro eurobond loan |
|
|
6,336 |
|
|
|
5,893 |
|
|
3.14 to 6.49 |
|
|
|
3.00 to 6.38 |
|
|
between Dec 2006 |
|
between Dec 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and July 2015 |
|
and July 2015 |
Swiss franc eurobond loan |
|
|
326 |
|
|
|
304 |
|
|
|
2.61 |
|
|
|
2.50 |
|
|
April 2013 |
|
April 2013 |
Japanese yen loans |
|
|
472 |
|
|
|
333 |
|
|
0.44 to 2.51 |
|
|
|
0.31 to 1.89 |
|
|
between July 2007 |
|
between July 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and June 2016 |
|
and Nov 2014 |
Singapore dollar loans |
|
|
84 |
|
|
|
78 |
|
|
|
3.80 |
|
|
|
3.80 |
|
|
March 2008 |
|
March 2008 |
New Zealand dollar loans |
|
|
164 |
|
|
|
183 |
|
|
7.03 to 7.19 |
|
|
|
6.99 to 7.15 |
|
|
between Nov 2011 |
|
between Nov 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Nov 2014 |
|
and Nov 2014 |
British pound sterling loans |
|
|
487 |
|
|
|
468 |
|
|
|
6.23 |
|
|
|
6.13 |
|
|
August 2014 |
|
August 2014 |
|
|
|
Total other loans including current portion |
|
|
9,142 |
|
|
|
8,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) Financing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
We have access to the following lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit standby arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured committed cash standby facilities which are subject to annual review |
|
|
902 |
|
|
|
892 |
|
|
|
894 |
|
|
|
887 |
|
Amount of credit unused |
|
|
900 |
|
|
|
891 |
|
|
|
894 |
|
|
|
887 |
|
|
|
|
|
|
We have commercial paper facilities in place with financial institutions under which we may issue
up to $14,651 million (2005: $13,842 million). As at 30 June 2006, we had drawn down $1,457 million
(2005: $449 million) of these commercial paper facilities. These facilities are not committed or
underwritten and we have no guaranteed access to the funds.
Generally, our facilities are available unless we default on any terms applicable under the
relevant agreements or become insolvent.
64
281
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits (a) |
|
|
319 |
|
|
|
336 |
|
|
|
272 |
|
|
|
288 |
|
Workers compensation |
|
|
32 |
|
|
|
32 |
|
|
|
31 |
|
|
|
31 |
|
Provision for restructuring. |
|
|
81 |
|
|
|
|
|
|
|
81 |
|
|
|
|
|
Provision for redundancies (a) |
|
|
158 |
|
|
|
|
|
|
|
155 |
|
|
|
|
|
Other provisions |
|
|
147 |
|
|
|
53 |
|
|
|
140 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
737 |
|
|
|
421 |
|
|
|
679 |
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits (a) |
|
|
573 |
|
|
|
610 |
|
|
|
548 |
|
|
|
588 |
|
Workers compensation |
|
|
184 |
|
|
|
182 |
|
|
|
177 |
|
|
|
175 |
|
Provision for restructuring |
|
|
128 |
|
|
|
|
|
|
|
128 |
|
|
|
|
|
Provision for redundancies (a) |
|
|
28 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
Other provisions |
|
|
61 |
|
|
|
102 |
|
|
|
43 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
974 |
|
|
|
894 |
|
|
|
924 |
|
|
|
837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Aggregate employee benefits and related on-costs liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision for employee benefits |
|
|
319 |
|
|
|
336 |
|
|
|
272 |
|
|
|
288 |
|
Non current provision for employee benefits |
|
|
573 |
|
|
|
610 |
|
|
|
548 |
|
|
|
588 |
|
Current provision for redundancies |
|
|
158 |
|
|
|
|
|
|
|
155 |
|
|
|
|
|
Non current provision for redundancies |
|
|
28 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
Accrued labour and on-costs (i) |
|
|
317 |
|
|
|
237 |
|
|
|
303 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
1,395 |
|
|
|
1,183 |
|
|
|
1,306 |
|
|
|
1,101 |
|
|
|
|
|
|
|
|
|
(i) |
|
Accrued labour and related on-costs are included within our current trade and other payables
(refer to note 17). |
Provision for employee benefits consist of amounts for annual leave and long service leave accrued
by employees.
Non current employee benefits for long service leave are measured at their present value. The
following assumptions were adopted in measuring this amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
Weighted average projected increase in salaries, wages and associated on-costs |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
4.3 |
% |
|
|
4.0 |
% |
Weighted average discount rates |
|
|
5.4 |
% |
|
|
5.4 |
% |
|
|
5.4 |
% |
|
|
5.4 |
% |
Leave taking rates |
|
|
13.2 |
% |
|
|
13.3 |
% |
|
|
13.3 |
% |
|
|
13.3 |
% |
65
282
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Provisions (continued)
(b) Information about our provisions, other than provision for employee benefits
Workers compensation
We self insure for our workers compensation liabilities. We provide for our obligations through an
assessment of accidents and estimated claims incurred. The provision is based on a semi-annual
actuarial review of our workers compensation liability. Actual compensation paid may vary where
accidents and claims incurred vary from those estimated. The timing of these payments may vary,
however the average time payments are expected for is 11 years (2005: 12 years).
Certain controlled entities do not self insure, but pay annual premiums to third party insurance
companies for their workers compensation.
Provision for redundancy and restructuring
The provision for redundancy and restructuring relates to our transformation project that was
announced on 15 November 2005. A provision has only been raised for those redundancy and
restructuring costs where a detailed formal plan has been approved and we have raised a valid
expectation in those affected that the plan will be carried out. Only those costs that are not
associated with the ongoing activities of the Company have been included. The costs included in the
redundancy and restructuring provision are based on current estimates of the likely amounts to be
incurred and include:
|
|
an estimate of the termination benefits that affected employees will be entitled to; |
|
|
costs associated with shutting down certain networks, platforms and applications; |
|
|
property rationalisation and other onerous lease costs; and |
|
|
costs of replacing customer equipment in order to meet our current service obligations. |
A total provision of $427 million has been raised for redundancy and restructuring for the Telstra
Group as at 30 June 2006. This includes $18 million for the additional impairment of inventory and
a $14 million allowance for other receivables. Refer to note 7(b) for further details.
The execution of these detailed formal plans, for which a restructuring and redundancy provision
has been raised, is expected to be completed by fiscal 2011 for the restructuring provision, and
fiscal 2008 for the redundancy provision.
Other
Other provisions include provision for Reach Ltds committed capital expenditure, provision for
restoration costs, and other general provisions.
66
283
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Provisions (continued)
(c) Movement in provisions, other than employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Workers compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
214 |
|
|
|
216 |
|
|
|
206 |
|
|
|
207 |
|
- additional provisions |
|
|
24 |
|
|
|
22 |
|
|
|
23 |
|
|
|
22 |
|
- amount used |
|
|
(32 |
) |
|
|
(32 |
) |
|
|
(31 |
) |
|
|
(31 |
) |
- unwinding of discount on liabilities recognised at present value |
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
- effect of any change in the discount rate |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
|
|
|
Closing balance |
|
|
216 |
|
|
|
214 |
|
|
|
208 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
- additional provisions |
|
|
209 |
|
|
|
|
|
|
|
209 |
|
|
|
|
|
- reversal of amounts unused |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
Closing balance |
|
|
209 |
|
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redundancy provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- additional provisions |
|
|
186 |
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
186 |
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
155 |
|
|
|
46 |
|
|
|
111 |
|
|
|
24 |
|
- additional provisions |
|
|
113 |
|
|
|
125 |
|
|
|
113 |
|
|
|
93 |
|
- amount used |
|
|
(51 |
) |
|
|
(12 |
) |
|
|
(38 |
) |
|
|
(5 |
) |
- reversal of amounts unused |
|
|
(17 |
) |
|
|
(10 |
) |
|
|
(16 |
) |
|
|
(3 |
) |
- unwinding of discount on liabilities recognised at present value |
|
|
9 |
|
|
|
2 |
|
|
|
9 |
|
|
|
2 |
|
- foreign currency exchange differences |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- other |
|
|
1 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
208 |
|
|
|
155 |
|
|
|
183 |
|
|
|
111 |
|
|
|
|
|
|
67
284
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
20. Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap hedge payable |
|
|
6 |
|
|
|
11 |
|
|
|
6 |
|
|
|
11 |
|
Forward contract liability |
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
11 |
|
|
|
12 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap hedge payable |
|
|
612 |
|
|
|
864 |
|
|
|
612 |
|
|
|
864 |
|
Interest rate swap payable |
|
|
156 |
|
|
|
|
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
768 |
|
|
|
864 |
|
|
|
768 |
|
|
|
864 |
|
|
|
|
|
|
Refer to note 35 for details on the financial risk management of our derivative financial
instruments.
The transitional rules for first time adoption of A-IFRS required that we restate our comparative
financial report using A-IFRS, except for AASB 132: Financial Instruments: Disclosure and
Presentation and AASB 139: Financial Instruments: Recognition and Measurement, where comparative
information was not required to be restated. Accordingly, we have applied previous AGAAP in the
comparative information.
68
285
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
21. Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Contributed equity |
|
|
5,793 |
|
|
|
5,793 |
|
|
|
5,793 |
|
|
|
5,793 |
|
Share loan to employees |
|
|
(130 |
) |
|
|
(154 |
) |
|
|
(130 |
) |
|
|
(154 |
) |
Shares held by employee share plan trusts |
|
|
(99 |
) |
|
|
(113 |
) |
|
|
(99 |
) |
|
|
(113 |
) |
Net services received under employee share plans |
|
|
5 |
|
|
|
10 |
|
|
|
5 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
5,569 |
|
|
|
5,536 |
|
|
|
5,569 |
|
|
|
5,536 |
|
|
|
|
|
|
Contributed equity
Our contributed equity represents our authorised fully paid ordinary shares. Each of our fully paid
ordinary shares carries the right to one vote at a meeting of the company. Holders of our shares
also have the right to receive dividends as declared, and to participate in the proceeds from sale
of all surplus assets in proportion to the total shares issued in the event of the company winding
up.
The movement in the number of our authorised fully paid ordinary shares is:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
Number of |
|
|
Number of |
|
|
|
shares |
|
|
shares |
|
|
Opening balance |
|
|
12,443,074,357 |
|
|
|
12,628,359,026 |
|
Shares bought back (i) |
|
|
|
|
|
|
(185,284,669 |
) |
|
|
|
Closing balance |
|
|
12,443,074,357 |
|
|
|
12,443,074,357 |
|
|
|
|
|
|
|
(i) |
|
On 15 November 2004, we completed an off-market share buy-back of 185,284,669 ordinary shares
as part of our capital management program. The ordinary shares were bought back at $4.05 per share,
comprising a fully franked dividend component of $2.55 per share and a capital component of $1.50
per share. The Commonwealth of Australia did not participate in the share buy-back. |
The shares bought back were subsequently cancelled, reducing the number of fully paid ordinary
shares on issue. In total, 1.47% of our total issued ordinary shares, or 3.0% of our non
Commonwealth owned ordinary shares, were bought back.
The cost of the share buy-back comprised a purchase consideration of $750 million and associated
transaction costs of $6 million.
In accordance with the substance of the buy-back, shareholders equity decreased as follows:
|
|
|
|
|
|
|
Year ended |
|
|
|
30 June |
|
|
|
2005 |
|
|
|
$m |
|
|
Contributed equity |
|
|
280 |
|
Retained profits |
|
|
476 |
|
|
|
|
|
|
|
|
756 |
|
|
|
|
|
Share loan to employees
The share loan to employees account represents the outstanding balance of the non recourse loans
provided to our employees under the Telstra Employee Share Ownership Plans (TESOP 97 and TESOP 99).
Shares held by employee share plan trusts
The shares held by employee share plan trusts account represents the value of shares held by the
Telstra Growthshare Trust (Growthshare) in Telstra Corporation Limited. The purchase of these
shares has been fully funded by Telstra Corporation Limited. As at 30 June 2006 the number of
shares totalled 17,931,918 (2005: 20,216,091).
Net services received under employee share plans
The net services received under employee share plans account is used to record the cumulative value
of our incentive shares, options, restricted shares, performance rights and deferred shares issued
under Growthshare. Contributions by Telstra Corporation Limited to Growthshare are also included in
this account. These contributions are used by the Trust to purchase Telstra shares on market to
underpin the issue of our equity instruments.
69
286
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
21. Share capital (continued)
Movements in our share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Share capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
5,793 |
|
|
|
6,073 |
|
|
|
5,793 |
|
|
|
6,073 |
|
- share buy-back |
|
|
|
|
|
|
|
|
|
|
(280 |
) |
|
|
|
|
|
|
(280 |
) |
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
5,793 |
|
|
|
5,793 |
|
|
|
5,793 |
|
|
|
5,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share loan to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
(154 |
) |
|
|
(174 |
) |
|
|
(154 |
) |
|
|
(174 |
) |
- amounts repaid on share loans provided to employees |
|
|
|
|
|
|
24 |
|
|
|
20 |
|
|
|
24 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
(130 |
) |
|
|
(154 |
) |
|
|
(130 |
) |
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares held by employee share plan trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
(113 |
) |
|
|
(117 |
) |
|
|
(113 |
) |
|
|
(117 |
) |
- additional shares purchased |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
- shares issued to employees under employee share plans |
|
|
|
|
|
|
20 |
|
|
|
4 |
|
|
|
20 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
(99 |
) |
|
|
(113 |
) |
|
|
(99 |
) |
|
|
(113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net services received under employee share plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
10 |
|
|
|
4 |
|
|
|
10 |
|
|
|
4 |
|
- share based payments |
|
|
7 |
|
|
|
15 |
|
|
|
10 |
|
|
|
15 |
|
|
|
10 |
|
- shares issued to employees under employee share plans |
|
|
|
|
|
|
(20 |
) |
|
|
(4 |
) |
|
|
(20 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
5 |
|
|
|
10 |
|
|
|
5 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,569 |
|
|
|
5,536 |
|
|
|
5,569 |
|
|
|
5,536 |
|
|
|
|
|
|
|
|
|
|
70
287
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
22. Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Foreign currency translation reserve |
|
|
(210 |
) |
|
|
(195 |
) |
|
|
|
|
|
|
|
|
Cash flow hedging reserve |
|
|
14 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
Consolidation fair value reserve |
|
|
32 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
General reserve |
|
|
4 |
|
|
|
4 |
|
|
|
194 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
(160 |
) |
|
|
(153 |
) |
|
|
210 |
|
|
|
194 |
|
|
|
|
|
|
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the
conversion of the financial statements into Australian dollars.
This reserve is also used to record our percentage share of exchange differences arising from
equity accounting our non-Australian investments in jointly controlled entities and associated
entities. The foreign currency translation reserve applicable to jointly controlled and associated
entities is shown in note 30.
Cash flow hedging reserve
The cash flow hedging reserve represents, where a hedge qualifies for hedge accounting, the
effective portion of gains or losses on remeasuring the fair value of the hedge instrument until
such time as the hedged item affects the income statement. At this time the gains or losses are
transferred to the income statement.
The transitional rules for first time adoption of A-IFRS required that we restate our comparative
financial report using A-IFRS, except for AASB 132: Financial Instruments: Disclosure and
Presentation and AASB 139: Financial Instruments: Recognition and Measurement, where comparative
information was not required to be restated. Accordingly, we have applied previous AGAAP in the
comparative information.
Consolidation fair value reserve
The consolidation fair value reserve represents our share of the fair value adjustments to
TelstraClear Limited net assets upon acquisition of a controlling interest. The reserve balance is
amortised over the useful life of the underlying revalued assets.
General reserve
The general reserve represents other items we have taken directly to equity.
71
288
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
22. Reserves (continued)
Movements in our reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- reserves recognised on equity accounting our interest in jointly controlled
and associated entities |
|
|
|
|
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
- adjustment on translation of financial statements of non-Australian
controlled entities |
|
|
|
|
|
|
(36 |
) |
|
|
(193 |
) |
|
|
|
|
|
|
|
|
- transfer of foreign currency translation reserve on sale of jointly controlled entity |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- reduction on dilution of ownership of Telstra CSL Limited |
|
|
24 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
(210 |
) |
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedging reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- adjustment to opening balance on adoption of new accounting standard (i) |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted opening balance |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
82 |
|
|
|
|
|
- net hedging gains recognised directly in equity |
|
|
|
|
|
|
327 |
|
|
|
|
|
|
|
327 |
|
|
|
|
|
- net hedging gains removed from equity and included in profit for the year |
|
|
|
|
|
|
(420 |
) |
|
|
|
|
|
|
(421 |
) |
|
|
|
|
- income tax on cash flow hedging reserve |
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation fair value reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
38 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
- transfers to retained profits |
|
|
23 |
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
32 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
4 |
|
|
|
5 |
|
|
|
194 |
|
|
|
194 |
|
- reserves recognised on equity accounting our interest in jointly controlled and
associated entities |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
- transfer of reserve on sale of associates |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
194 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160 |
) |
|
|
(153 |
) |
|
|
210 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Adjustment on adoption of AASB 132 Financial Instruments: Disclosure and Presentation and
AASB 139: Financial Instruments: Recognition and Measurement from 1 July 2005. Refer to note 36
for further details. |
72
289
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Retained profits and minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Retained profits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
8,273 |
|
|
|
8,618 |
|
|
|
7,413 |
|
|
|
7,558 |
|
- adjustment to opening balance on adoption of new accounting standard (i) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted opening balance |
|
|
|
|
|
|
8,268 |
|
|
|
8,618 |
|
|
|
7,408 |
|
|
|
7,558 |
|
- profit for the year |
|
|
|
|
|
|
3,181 |
|
|
|
4,309 |
|
|
|
3,237 |
|
|
|
4,516 |
|
- actuarial gain/(loss) on our defined benefit plans |
|
|
|
|
|
|
958 |
|
|
|
(90 |
) |
|
|
945 |
|
|
|
(85 |
) |
- income tax on our actuarial gain on our defined benefit plans |
|
|
|
|
|
|
(284 |
) |
|
|
24 |
|
|
|
(284 |
) |
|
|
24 |
|
- dividends paid |
|
|
4 |
|
|
|
(4,970 |
) |
|
|
(4,124 |
) |
|
|
(4,970 |
) |
|
|
(4,124 |
) |
- share buy-back |
|
|
21 |
|
|
|
|
|
|
|
(476 |
) |
|
|
|
|
|
|
(476 |
) |
- transfers from consolidation fair value reserve |
|
|
22 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
- transfer of reserve on sale of associates |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
- dilution gain recognised on CSL New World Mobility Group merger (ii) |
|
|
24 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
7,177 |
|
|
|
8,273 |
|
|
|
6,336 |
|
|
|
7,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
- increase in minority interests due to acquisitions |
|
|
|
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
|
|
|
|
246 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Adjustment on adoption of AASB 132 Financial Instruments: Disclosure and Presentation and
AASB 139: Financial Instruments: Recognition and Measurement from 1 July 2005. Refer to note 36
for further details. |
|
(ii) |
|
Dilution gain represents net gain recognised on the merger of the Telstra CSL Group and New
World Mobility Group. Refer to note 24 for details. |
73
290
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Notes to the statement of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(a) Reconciliation of profit to net cash provided by operating
activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
3,181 |
|
|
|
2,362 |
|
|
|
4,309 |
|
|
|
3,237 |
|
|
|
4,516 |
|
Add/(subtract) the following transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
7 |
|
|
|
4,087 |
|
|
|
3,034 |
|
|
|
3,529 |
|
|
|
3,657 |
|
|
|
3,206 |
|
Finance income |
|
|
6 |
|
|
|
(66 |
) |
|
|
(49 |
) |
|
|
(83 |
) |
|
|
(63 |
) |
|
|
(101 |
) |
Finance costs |
|
|
7 |
|
|
|
1,002 |
|
|
|
744 |
|
|
|
963 |
|
|
|
985 |
|
|
|
943 |
|
Dividend revenue |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560 |
) |
|
|
(224 |
) |
Share based payments |
|
|
7 |
|
|
|
15 |
|
|
|
11 |
|
|
|
10 |
|
|
|
15 |
|
|
|
10 |
|
Defined benefit expense |
|
|
7 |
|
|
|
185 |
|
|
|
137 |
|
|
|
203 |
|
|
|
182 |
|
|
|
201 |
|
Net gain on disposal of property, plant and equipment |
|
|
6 |
|
|
|
(23 |
) |
|
|
(17 |
) |
|
|
(9 |
) |
|
|
(20 |
) |
|
|
(10 |
) |
Net gain on disposal of controlled entities |
|
|
6 |
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on disposal of other investments |
|
|
6 |
|
|
|
(58 |
) |
|
|
(43 |
) |
|
|
(79 |
) |
|
|
(59 |
) |
|
|
(85 |
) |
Share of net (gain)/loss from jointly controlled and associated entities |
|
|
30 |
|
|
|
(5 |
) |
|
|
(4 |
) |
|
|
94 |
|
|
|
|
|
|
|
|
|
Impairment losses (excluding inventories, trade and other receivables) |
|
|
7 |
|
|
|
137 |
|
|
|
102 |
|
|
|
29 |
|
|
|
760 |
|
|
|
519 |
|
Reversal of impairment losses (excluding trade and other receivables) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(349 |
) |
Decrease in non cash receivable from related entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361 |
) |
Foreign exchange differences |
|
|
|
|
|
|
28 |
|
|
|
21 |
|
|
|
(25 |
) |
|
|
(46 |
) |
|
|
4 |
|
Other |
|
|
|
|
|
|
4 |
|
|
|
3 |
|
|
|
(52 |
) |
|
|
9 |
|
|
|
(20 |
) |
Movements in operating assets and liabilities
(net of acquisitions of controlled entity balances) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in trade and other receivables |
|
|
|
|
|
|
(140 |
) |
|
|
(104 |
) |
|
|
43 |
|
|
|
(204 |
) |
|
|
62 |
|
(Increase)/decrease in inventories |
|
|
|
|
|
|
10 |
|
|
|
7 |
|
|
|
9 |
|
|
|
14 |
|
|
|
7 |
|
(Increase)/decrease in prepayments and other assets |
|
|
|
|
|
|
30 |
|
|
|
22 |
|
|
|
(23 |
) |
|
|
20 |
|
|
|
(26 |
) |
Increase/(decrease) in trade and other payables |
|
|
|
|
|
|
243 |
|
|
|
180 |
|
|
|
(8 |
) |
|
|
517 |
|
|
|
25 |
|
Increase/(decrease) in revenue received in advance |
|
|
|
|
|
|
55 |
|
|
|
41 |
|
|
|
(13 |
) |
|
|
23 |
|
|
|
10 |
|
Increase/(decrease) in net taxes payable |
|
|
|
|
|
|
(502 |
) |
|
|
(373 |
) |
|
|
32 |
|
|
|
(537 |
) |
|
|
193 |
|
Increase/(decrease) in provisions |
|
|
|
|
|
|
383 |
|
|
|
285 |
|
|
|
31 |
|
|
|
396 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
8,562 |
|
|
|
6,356 |
|
|
|
8,960 |
|
|
|
8,311 |
|
|
|
8,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Reconciliation of cash balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year as shown in the statement of
cash flows agrees to the net amount of the following
items in the notes to the financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
10 |
|
|
|
689 |
|
|
|
511 |
|
|
|
1,548 |
|
|
|
474 |
|
|
|
1,368 |
|
Bank overdraft |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689 |
|
|
|
511 |
|
|
|
1,534 |
|
|
|
474 |
|
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
74
291
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Notes to the statement of cash flows (continued)
(c) Goods and Services Tax (GST)
Our receipts from trade and other receivables includes estimated GST of $2,223 million (2005:
$2,121 million) collected by us as agent for the ATO. Our payments of accounts payable and to
employees include estimated GST payments made by us for goods and services obtained in undertaking
both operating and investing activities. GST paid associated with operating activities amounted to
$941 million (2005: $784 million) and GST paid relating to investing activities amounted to $159
million (2005: $243 million).
(d) Significant financing and investing activities that involve components of non cash
Acquisition of 3G assets
During fiscal 2005, we acquired a 50% interest in Hutchison 3G Australia Pty Ltds existing third
generation (3G) radio access network amounting to $403 million at acquisition date. As at 30 June
2006, we have paid an additional $312 million (2005: $22 million) to our joint venture partner for
the acquisition of these assets as the purchase price is being paid in instalments. The balance
outstanding as at 30 June 2006 was settled on 3 July 2006 and is reflected in our trade and other
payables. Refer to note 17 for further information.
(e) Acquisitions
CSL New World Mobility Group
We merged our 100% owned Hong Kong mobile operations (Telstra CSL Group) with the Hong Kong mobile
operations of New World PCS Holdings Limited and its controlled entities (New World Mobility Group)
to form the CSL New World Mobility Group.
Under the merger agreement, Telstra CSL Limited (Telstra CSL) issued new shares to New World
Mobility Holdings Limited in return for 100% of the issued capital of the New World Mobility Group
and $44 million in cash. The share issue diluted Telstras ownership in the merged group to 76.4%.
The effect on the Telstra Group of the merger is detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
New World Mobility Group |
|
|
|
2006 |
|
|
2006 |
|
|
|
$m |
|
|
$m |
|
|
Consideration for acquisition
|
|
|
|
|
|
|
|
|
Fair value of Telstra CSL shares issued |
|
|
577 |
|
|
|
|
|
Cash received on acquisition |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
Fair value |
|
|
value |
|
|
|
|
Assets/(liabilities) at acquisition date
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
21 |
|
|
|
21 |
|
Inventories |
|
|
4 |
|
|
|
4 |
|
Property, plant and equipment |
|
|
174 |
|
|
|
174 |
|
Intangible assets |
|
|
109 |
|
|
|
|
|
Other assets |
|
|
14 |
|
|
|
14 |
|
Deferred tax assets |
|
|
21 |
|
|
|
29 |
|
Trade and other payables |
|
|
(97 |
) |
|
|
(75 |
) |
|
|
|
Net identifiable assets acquired |
|
|
246 |
|
|
|
167 |
|
Goodwill on acquisition |
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from acquisition date until
30 June 2006 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
75
292
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Notes to the statement of cash flows (continued)
(e) Acquisitions (continued)
CSL New World Mobility Group (continued)
The net impact of the merger on the Telstra Group results at the date of merger are detailed below.
|
|
|
|
|
|
|
Year ended |
|
|
|
30 June |
|
|
|
2006 |
|
|
|
$m |
|
|
Net increase in Telstra Group net assets |
|
|
|
|
Inflow of cash on acquisition (net of transaction costs) |
|
|
42 |
|
New World Mobility Group net identifiable assets
acquired |
|
|
246 |
|
Goodwill on acquisition of New World Mobility Group |
|
|
287 |
|
Reduction of Telstra CSL goodwill on dilution |
|
|
(308 |
) |
|
|
|
|
|
|
|
267 |
|
Represented by the following movements in equity |
|
|
|
|
Minority interest recognised |
|
|
(230 |
) |
Reduction in foreign currency translation reserve on
dilution |
|
|
(19 |
) |
|
|
|
|
Dilution gain recognised as a result of merger |
|
|
18 |
|
|
|
|
|
The CSL New World Mobility Group is a provider of mobile telecommunication products and services
which operates primarily in Hong Kong. Refer to note 29 for further details on the acquisition.
Other fiscal 2006 acquisitions
During fiscal 2006, we have also acquired several other entities. These entities are not
individually significant and have been aggregated as Other in the below table.
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
2006 |
|
|
2006 |
|
|
|
$m |
|
|
$m |
|
|
Consideration for acquisitions |
|
|
|
|
|
|
|
|
Cash consideration for acquisitions |
|
|
31 |
|
|
|
|
|
Costs of acquisitions |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of deferred consideration
for prior years acquisition |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outflow of cash on acquisition |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
Fair value |
|
|
value |
|
Assets/(liabilities) at acquisition date |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
5 |
|
|
|
5 |
|
Property, plant and equipment |
|
|
2 |
|
|
|
2 |
|
Intangible assets goodwill |
|
|
26 |
|
|
|
26 |
|
Intangible assets other |
|
|
12 |
|
|
|
|
|
Provisions |
|
|
(3 |
) |
|
|
(3 |
) |
Deferred tax liabilities |
|
|
(4 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
(2 |
) |
|
|
|
Net assets |
|
|
38 |
|
|
|
28 |
|
Adjustment to reflect minority
interests acquired |
|
|
(14 |
) |
|
|
|
|
Adjustment upon increase in
ownership interest from associated
entity to controlled |
|
|
(2 |
) |
|
|
|
|
Goodwill on acquisition |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from acquisition date until 30
June 2006 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our other acquisitions include:
|
|
100% of the issued share capital of the Converged Networks Group; |
|
|
|
additional 25% interest in the issued share capital of Invizage Pty Ltd giving us 100% ownership of this entity; |
|
|
|
additional 40% interest in the issued share capital of Enhanced Processing Technologies Inc
giving us 100% ownership of this entity; and |
|
|
|
additional 24.7% interest in the issued share capital of Adstream (Aust) Pty Ltd and its
controlled entities giving us a controlling 58% interest. |
These entities are not individually significant and have been aggregated as Other. Refer to note
29 for further details on our acquisitions.
76
293
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Notes to the statement of cash flows (continued)
(e) Acquisitions (continued)
Fiscal 2005 acquisitions
During fiscal 2005, we completed the following significant acquisitions:
|
|
100% of the issued share capital of KAZ Group Limited and its controlled entities (KAZ Group); and |
|
|
100% of the issued share capital of PSINet UK Limited and its controlled entities (PSINet Group). |
We also acquired several other entities during fiscal 2005. These entities were not individually
significant and have been aggregated as Other in the below table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KAZ Group (i) |
|
|
PSINet Group (ii) |
|
|
Other (iii) |
|
|
Total |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
Consideration for acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration for acquisition |
|
|
333 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
565 |
|
|
|
|
|
Deferred cash consideration |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Costs of acquisition |
|
|
7 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
|
340 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances acquired |
|
|
(4 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
Payments of deferred consideration for
prior years acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Consideration deferred |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outflow of cash on acquisition |
|
|
336 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
Fair value |
|
|
value |
|
|
Fair value |
|
|
value |
|
|
Fair value |
|
|
value |
|
|
Fair value |
|
|
value |
|
Assets/(liabilities) at acquisition date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
|
|
12 |
|
|
|
12 |
|
Trade and other receivables |
|
|
75 |
|
|
|
75 |
|
|
|
18 |
|
|
|
18 |
|
|
|
24 |
|
|
|
24 |
|
|
|
117 |
|
|
|
117 |
|
Inventories |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
11 |
|
|
|
17 |
|
|
|
17 |
|
Property, plant and equipment |
|
|
22 |
|
|
|
21 |
|
|
|
47 |
|
|
|
47 |
|
|
|
6 |
|
|
|
6 |
|
|
|
75 |
|
|
|
74 |
|
Intangible assets |
|
|
123 |
|
|
|
15 |
|
|
|
42 |
|
|
|
|
|
|
|
89 |
|
|
|
14 |
|
|
|
254 |
|
|
|
29 |
|
Other assets |
|
|
3 |
|
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
13 |
|
|
|
13 |
|
Deferred tax assets |
|
|
13 |
|
|
|
13 |
|
|
|
1 |
|
|
|
1 |
|
|
|
7 |
|
|
|
7 |
|
|
|
21 |
|
|
|
21 |
|
Trade and other payables |
|
|
(54 |
) |
|
|
(54 |
) |
|
|
(23 |
) |
|
|
(23 |
) |
|
|
(22 |
) |
|
|
(22 |
) |
|
|
(99 |
) |
|
|
(99 |
) |
Provisions |
|
|
(52 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(57 |
) |
|
|
(57 |
) |
Borrowings |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(35 |
) |
|
|
(35 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
(48 |
) |
|
|
(48 |
) |
Deferred tax liabilities |
|
|
(33 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
(1 |
) |
|
|
(64 |
) |
|
|
(1 |
) |
Current tax liabilities |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
2 |
|
|
|
2 |
|
Other liabilities |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(13 |
) |
|
|
(13 |
) |
|
|
(36 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
Net assets |
|
|
102 |
|
|
|
26 |
|
|
|
29 |
|
|
|
1 |
|
|
|
76 |
|
|
|
17 |
|
|
|
207 |
|
|
|
44 |
|
Adjustment upon increase in
ownership interest from associated
entity to controlled entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Goodwill on acquisition |
|
|
238 |
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) from acquisition date until
30 June 2005 |
|
|
11 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
294
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Notes to the statement of cash flows (continued)
(e) Acquisitions (continued)
(i) The KAZ Group is a provider of business process outsourcing, systems integration, consulting,
applications development and information technology management services. It operates primarily in
Australia, but also conducts business in the United States and Asia.
(ii) The PSINet Group is a provider of e-business infrastructure solutions and corporate internet
protocol based communication services.
(iii) During fiscal 2005, we acquired the following entities:
|
|
100% of the issued share capital of ESA Holding Pty Ltd and its controlled entity Damovo
(Australia) Pty Ltd, and of Damovo HK Limited (now known as Telstra Business Systems); |
|
|
|
100% of the issued share capital of Universal Publishers Pty Ltd; |
|
|
|
100% of the issued share capital of Chief Entertainment Pty Ltd; |
|
|
|
100% of the issued share capital of Sytec Resources and its controlled entities; and |
|
|
|
additional 10% interest in the issued share capital of 1300 Australia Pty Ltd giving us a 60% controlling interest. |
These entities are not individually significant and have been aggregated as Other per the
previous table.
Other information relating to our acquisitions
We have recognised goodwill of $324 million (2005: $385 million) on acquisition of our controlled
entities. The following factors contributed to the recognition of goodwill:
|
|
forecast revenues and profitability of the acquired entities; |
|
|
|
cost synergies expected by combining our current operations with the acquired entities; and |
|
|
|
strategic benefits to the operations of the Telstra Group. |
We have identified and measured any significant intangible assets
separately from goodwill on acquisition of our controlled entities.
If our acquisitions during fiscal 2006 had occurred on 1 July 2005, our adjusted consolidated
income and consolidated profit for the year ended 30 June 2005 for the Telstra Group would have
been $23,350 million and $3,174 million respectively.
If our acquisitions during fiscal 2005 had occurred on 1 July 2004, our adjusted consolidated
income and consolidated profit for the year ended 30 June 2005 for the Telstra Group would have
been $22,515 million and $4,303 million respectively.
78
295
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
25. Impairment
Cash generating units
For the purposes of undertaking our impairment testing, we identify cash generating units (CGUs).
Our CGUs are determined according to the smallest group of assets that generate cash inflows that
are largely independent of the cash inflows from other assets or groups of assets.
The carrying amount of our goodwill and intangible assets with an indefinite useful life are
allocated across the following CGUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with indefinite |
|
|
|
Goodwill |
|
|
useful lives |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
CGUs |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Telstra CSL Group |
|
|
970 |
|
|
|
1,228 |
|
|
|
|
|
|
|
|
|
New World Mobility Group |
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kaz Group |
|
|
270 |
|
|
|
274 |
|
|
|
|
|
|
|
|
|
TelstraClear Group |
|
|
137 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
United Kingdom Group |
|
|
113 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
Sensis Group (a) |
|
|
36 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
Trading Post Group |
|
|
179 |
|
|
|
178 |
|
|
|
447 |
|
|
|
447 |
|
Universal Publishers |
|
|
15 |
|
|
|
15 |
|
|
|
8 |
|
|
|
8 |
|
Adstream Group |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Business Systems |
|
|
30 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
Other |
|
|
17 |
|
|
|
18 |
|
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
2,073 |
|
|
|
2,037 |
|
|
|
463 |
|
|
|
462 |
|
|
|
|
|
|
|
(a) |
|
Our assessment of the Sensis CGU excludes the Trading Post Group, Universal Publishers and the
Adstream Group that form part of the Sensis reportable segment. |
In addition to the above CGUs, we have two further significant CGUs that are assessed for
impairment. These two CGUs are:
|
|
the Telstra Entity CGU, excluding the HFC network; and |
|
|
|
the CGU comprising the HFC network. |
The Telstra Entity CGU consists of our ubiquitous telecommunications infrastructure network in
Australia, excluding the HFC network that we consider not to be integrated with the rest of our
telecommunications network. Assets that form part of the ubiquitous telecommunications network are
considered to be working together to generate our net cash flows. No one item of telecommunications
equipment is of any value without the other assets to which it is connected in order to achieve
delivery of our products and services.
79
296
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
25. Impairment (continued)
Impairment testing
Our impairment testing compares the carrying value of an individual asset or CGU with its
recoverable amount as determined using a value in use calculation.
Our assumptions for determining the recoverable amount of each CGU are based on past experience and
our expectations for the future. Our cash flow projections are based on five year management
approved forecasts. These forecasts use management estimates to determine income, expenses, capital
expenditure and cash flows for each CGU.
We have used the following key assumptions in determining the recoverable amount of our CGUs to
which goodwill or indefinite life intangible assets has been allocated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
Terminal value |
|
|
|
(b) |
|
|
growth rate (c) |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Telstra CSL Group |
|
|
11.1 |
|
|
|
14.5 |
|
|
|
2.0 |
|
|
|
5.0 |
|
New World Mobility Group |
|
|
12.5 |
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
Kaz Group |
|
|
16.6 |
|
|
|
16.7 |
|
|
|
3.0 |
|
|
|
3.0 |
|
TelstraClear Group |
|
|
18.0 |
|
|
|
18.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
United Kingdom Group |
|
|
14.9 |
|
|
|
15.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
Sensis Group (a) |
|
|
13.7 |
|
|
|
13.7 |
|
|
|
3.0 |
|
|
|
3.0 |
|
Trading Post Group |
|
|
15.3 |
|
|
|
14.3 |
|
|
|
2.5 |
|
|
|
2.5 |
|
Universal Publishers |
|
|
14.3 |
|
|
|
14.3 |
|
|
|
2.5 |
|
|
|
2.5 |
|
Adstream Group |
|
|
18.6 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
Telstra Business Systems |
|
|
15.0 |
|
|
|
17.1 |
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
|
(a) |
|
Our assessment of the Sensis CGU excludes the Trading Post Group, Universal Publishers and the
Adstream Group that form part of the Sensis reportable segment. |
|
(b) |
|
Discount rate represents the pre tax discount rate applied to the cash flow projections. The
discount rate reflects the market determined, risk adjusted, discount rate which was adjusted for
specific risks relating to the CGU and the countries in which they operate. |
|
(c) |
|
Terminal value growth rate represents the growth rate applied to extrapolate our cash flows
beyond the five year forecast period. These growth rates are based on our expectation of the CGUs
long term performance in their respective markets. |
80
297
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Expenditure commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(a) Capital expenditure commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditure commitments contracted for at balance date but not
recorded in the financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property plant and equipment commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
665 |
|
|
|
529 |
|
|
|
634 |
|
|
|
482 |
|
Within 1-2 years |
|
|
62 |
|
|
|
15 |
|
|
|
60 |
|
|
|
15 |
|
Within 2-3 years |
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
Within 3-4 years |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
Within 4-5 years |
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
After 5 years |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
776 |
|
|
|
544 |
|
|
|
743 |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments relating to our intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
159 |
|
|
|
38 |
|
|
|
124 |
|
|
|
|
|
Within 1-2 years |
|
|
130 |
|
|
|
26 |
|
|
|
105 |
|
|
|
|
|
Within 2-3 years |
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
64 |
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Operating lease commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future lease payments for non-cancellable operating leases not recorded in the
financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
424 |
|
|
|
380 |
|
|
|
260 |
|
|
|
232 |
|
Within 1-2 years |
|
|
290 |
|
|
|
260 |
|
|
|
170 |
|
|
|
154 |
|
Within 2-3 years |
|
|
201 |
|
|
|
209 |
|
|
|
108 |
|
|
|
117 |
|
Within 3-4 years |
|
|
139 |
|
|
|
149 |
|
|
|
60 |
|
|
|
64 |
|
Within 4-5 years |
|
|
118 |
|
|
|
128 |
|
|
|
47 |
|
|
|
49 |
|
After 5 years |
|
|
358 |
|
|
|
397 |
|
|
|
152 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
1,530 |
|
|
|
1,523 |
|
|
|
797 |
|
|
|
770 |
|
|
|
|
|
|
In addition, in fiscal 2006 the Telstra Group had total future commitments under cancellable
operating leases of $356 million (2005: $343 million). In fiscal 2006, the Telstra Entity has total
future commitments under cancellable operating leases of $354 million (2005: $338 million).
Description of our operating leases
We have operating leases for the following types of assets:
|
|
rental of land and buildings; |
|
|
|
rental of motor vehicles, caravan huts and trailers, and mechanical aids; and |
|
|
|
rental of personal computers, laptops, printers and other related equipment that are used in non
communications plant activities. |
The average lease term is:
|
|
7 years for land and buildings; |
|
|
|
2 years for motor vehicles, 4 years for light commercial vehicles and 7 to 12 years for trucks and mechanical aids; and |
|
|
|
3 years for personal computers and related equipment. |
The majority of our operating leases relate to land and buildings. We have several subleases with
total minimum lease payments of $59 million (2005: $75 million) for the Telstra Group and $43
million (2005: $54 million) for the Telstra Entity. Our property operating leases generally contain
escalation clauses, which are fixed increases generally between 3% and 5%, or increases subject to
the consumer price index. We do not have any significant purchase options.
Contingent rental payments exist for motor vehicles and are not significant compared with total
rental payments made. These are based on unfair wear and tear, excess kilometres travelled,
additional fittings and no financial loss to be suffered by the leasing company from changes to the
original agreements. Our motor vehicles and related equipment must also remain in Australia.
A number of our operating leases are considered onerous due to our transformation project and as
such, have been provided for in our financial statements. Refer to note 19 for details.
81
298
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Expenditure commitments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(c) Finance lease commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
|
|
|
|
13 |
|
|
|
12 |
|
|
|
7 |
|
|
|
5 |
|
Within 1-2 years |
|
|
|
|
|
|
12 |
|
|
|
10 |
|
|
|
6 |
|
|
|
5 |
|
Within 2-3 years |
|
|
|
|
|
|
10 |
|
|
|
10 |
|
|
|
6 |
|
|
|
5 |
|
Within 3-4 years |
|
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
3 |
|
|
|
5 |
|
Within 4-5 years |
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
After 5 years |
|
|
|
|
|
|
52 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
|
|
|
|
100 |
|
|
|
99 |
|
|
|
23 |
|
|
|
21 |
|
Future finance charges on finance leases |
|
|
|
|
|
|
(45 |
) |
|
|
(47 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Present value of net future minimum lease payments |
|
|
|
|
|
|
55 |
|
|
|
52 |
|
|
|
20 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as current borrowings |
|
|
18 |
|
|
|
7 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
Recorded as non current borrowings |
|
|
18 |
|
|
|
48 |
|
|
|
47 |
|
|
|
15 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Total finance lease liabilities |
|
|
18 |
|
|
|
55 |
|
|
|
52 |
|
|
|
20 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Description of our finance leases
We have finance leases for the following types of assets:
|
|
property leases in our controlled entity, Telstra (PSINet) Limited; |
|
|
|
computer mainframes, computer processing equipment and other related equipment. |
The average lease term is:
|
|
24 years for the property leases with a remaining weighted average life of 17 years; and |
|
|
|
5 years for computer mainframe and associated equipment. |
Interest rates for our finance leases are:
|
|
property leases interest rate of 10.5%; and |
|
|
|
computer mainframe, computer processing equipment and associated equipment weighted average interest rate of 7.6%. |
In addition to the above finance lease commitments, we previously entered into US finance leases
for communications exchange equipment with various entities denominated in US dollars. We have
prepaid all lease rentals due under the terms of these leases and have no additional payment
obligations.
These entities lease the communications equipment from the ultimate lessor and then sublease the
equipment to us. We have guaranteed that the lease payments will be paid by these entities to the
ultimate lessor as scheduled over the lease terms (refer to note 27 for further information).
We hold an early buyout option that we could exercise in fiscal 2011 and fiscal 2013, otherwise the
relevant lease period ends during fiscal 2015 and fiscal 2016. Refer to note 14 for further details
on communication assets and equipment that are held under finance lease.
82
299
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Expenditure commitments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(d) Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenditure commitments, other than commitments dealt
with in (a), (b) and (c) above, which have not been recorded in
the financial statements are: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
481 |
|
|
|
600 |
|
|
|
317 |
|
|
|
411 |
|
Within 1-2 years |
|
|
236 |
|
|
|
301 |
|
|
|
118 |
|
|
|
127 |
|
Within 2-3 years |
|
|
176 |
|
|
|
213 |
|
|
|
79 |
|
|
|
64 |
|
Within 3-4 years |
|
|
215 |
|
|
|
160 |
|
|
|
46 |
|
|
|
40 |
|
Within 4-5 years |
|
|
111 |
|
|
|
111 |
|
|
|
16 |
|
|
|
18 |
|
After 5 years |
|
|
1,162 |
|
|
|
1,195 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
2,381 |
|
|
|
2,580 |
|
|
|
581 |
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
Our other expenditure commitments include contracts for printing, engineering
and operational support services, information technology services and
building maintenance. In addition, other commitments also include
commitments relating to our investment in FOXTEL. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments relating to our investment in FOXTEL (i): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
144 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
Within 1-2 years |
|
|
113 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
Within 2-3 years |
|
|
93 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
Within 3-4 years |
|
|
95 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
Within 4-5 years |
|
|
92 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
After 5 years |
|
|
1,140 |
|
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,677 |
|
|
|
1,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Our jointly controlled entity, FOXTEL, has other commitments amounting to approximately $3,354
million (2005: $3,642 million). The majority of our 50% share of these commitments relate to
minimum subscriber guarantees (MSG) for pay television programming agreements. These agreements are
for periods of between 1 and 25 years and are based on current prices and costs under agreements
entered into between the FOXTEL Partnership and various other parties. These minimum subscriber
payments fluctuate in accordance with price escalation/reduction formulas contained in the
agreements, as well as foreign currency movements. In addition to our MSG, FOXTEL has other
commitments including obligations for satellite transponder costs and digital set top box units. |
83
300
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Contingent liabilities and contingent assets
We have no significant contingent assets as at 30 June 2006. The details and maximum amounts
(where reasonable estimates can be made) are set out below for our contingent liabilities.
Telstra Entity
Common law claims
Certain common law claims by employees and third parties are yet to be resolved. As at 30 June
2006, management believes that the resolution of these contingencies will not have a significant
effect on the Telstra Entitys financial position, results of operations or cash flows. The maximum
amount of these contingent liabilities cannot be reasonably estimated.
Included in our common law claims are the following litigation cases:
(a) In November 2002, Seven Network Limited and C7 Pty Limited (Seven) commenced litigation
against us and various other parties (the respondents) in relation to the contracts and
arrangements between us and some of those other parties relating to the right to broadcast
Australian Football League and National Rugby League, the contract between FOXTEL and us for the
provision of HFC cable services (the Broadband Co-operation Agreement) and other matters.
Seven seeks damages and other relief, including that some of these contracts and arrangements are
void. Seven also seeks orders which would, in effect, require a significant restructure of the
subscription television/sports rights markets in Australia. Expert reports filed by Seven were at
one time used to suggest that Seven sought total damages of around $1.1 billion. However, some
significant components of this expert evidence have since been ruled inadmissible by the trial
judge and many of the facts on which Sevens loss claim is based are contested. In addition to
denying liability at all, the respondents have filed expert reports to the effect that, even if
liability were found to exist, damages should be assessed at a very significantly lesser amount. If
Seven obtained any order damages or for legal costs affecting Telstra, the liability arising from
that order may subsequently be apportioned between the relevant respondents, with Telstra bearing
only a portion of the total liability.
The matter is proceeding before the courts, with final oral submissions scheduled to commence in
September 2006. In light of the progress of this case to date, Telstra considers that it is
unlikely to have any material effect on our overall business or financial position.
(b) In January 2006, a shareholder commenced a representative proceeding in the Federal Court
against Telstra. The statement of claim alleges that Telstra breached the Corporations Act and the
Australian Stock Exchange (ASX) Listing Rules by failing to disclose:
|
|
that Telstras senior management had formed an opinion that there had been past deficiencies in
operating expenditure and capital expenditure on telecommunications infrastructure; |
|
|
|
that Telstra had forecast a long term decline in PSTN revenues; and |
|
|
|
that Telstra had communicated these matters to the Government. |
The claim seeks orders for compensation for the class of shareholders who bought shares between the
time that these matters became known to Telstra and the time at which they were disclosed to the
market. The proceeding is at an early stage and is unlikely to have any material effect on our
overall business or financial position. Telstra will vigorously defend the claim.
(c) In December 2005, we increased our prices for line access provided to our competitors to prices
closer to our average costs of providing that access. The ACCC appears to allege that these
increases left insufficient margin for our competitors in respect of a lower spend segment of the
retail market. The ACCC somehow considers that our conduct has or is likely to have the effect of
substantially lessening competition across the retail market and therefore that we are in breach of
the competition rule. On 12 April 2006, the ACCC issued a competition notice against us to this
effect.
The ACCC has yet to commence enforcement proceedings against us but the maximum potential penalties
which had accrued as at 30 June 2006 exceeded $200 million and are accruing at $3 million per day.
Optus has issued proceedings in the Federal Court which, in part, rely on the competition notice
and seek damages, a refund and an injunction preventing us from charging the increased prices and
recovering our costs. Telstra will vigorously defend the Optus proceedings and any enforcement
proceedings which may be brought by the ACCC.
Telstra has challenged the validity of the ACCCs decision to issue the competition notice (and the
preceding consultation notice) in the Federal Court on administrative law grounds. Amongst other
things, we allege that the competition notice (and the preceding consultation notice) should be set
aside for uncertainty and that the ACCC did not accord us procedural fairness by failing to
properly consult with us prior to the issue of the competition notice. The ACCC argues that it does
not owe us any duty of procedural fairness or natural justice when issuing competition notices.
84
301
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Contingent liabilities and contingent assets (continued)
Telstra Entity (continued)
Indemnities, performance guarantees and financial support
We have provided the following indemnities, performance guarantees and financial support through
the Telstra Entity as follows:
|
|
Indemnities to financial institutions to support bank guarantees to the value of $347 million
(2005: $329 million) in respect of the performance of contracts. |
|
|
|
Indemnities to financial institutions in respect of the obligations of our controlled entities.
The maximum amount of our contingent liabilities for this purpose was $311 million (2005: $282
million). |
|
|
|
Financial support for certain controlled entities to the amount necessary to enable those
entities to meet their obligations as and when they fall due. The financial support is subject to
conditions including individual monetary limits totalling $150 million (2005: $69 million) and a
requirement that the entity remains our controlled entity. |
|
|
|
Guarantees of the performance of jointly controlled entities under contractual agreements to a
maximum amount of $69 million (2005: $126 million). |
|
|
|
Guarantees over the performance of third parties under defeasance arrangements, whereby lease
payments are made on our behalf by the third parties over the remaining terms of the finance
leases. The lease payments over the remaining expected term of the leases amount to $843 million
(US$626 million) (2005: $850 million (US$650 million)). We hold an early buyout option that we
could exercise in fiscal 2011 and fiscal 2013, otherwise the relevant lease period ends during
fiscal 2015 and fiscal 2016. Refer to note 26 for further details on the above finance leases. |
|
|
|
During fiscal 1998, we resolved to provide IBM Global Services Australia Limited (IBMGSA) with
guarantees issued on a several basis up to $210 million as a shareholder of IBMGSA. We issued a
guarantee of $68 million on behalf of IBMGSA during fiscal 2000. During fiscal 2004, we sold our
shareholding in this entity. The $68 million guarantee is provided to support service contracts
entered into by IBMGSA and third parties, and was made with IBMGSA bankers, or directly to IBMGSA
customers. As at 30 June 2006, this guarantee has still been provided and $142 million (2005: $142
million) of the $210 million guarantee facility remains unused. |
Upon sale of our shareholding in IBMGSA and under the deed of indemnity between shareholders, our
liability under these performance guarantees has been indemnified for all guarantees that were in
place at the time of sale. Therefore, the overall net exposure to any loss associated with a claim
has effectively been offset.
Controlled entities
Indemnities provided by our controlled entities
In fiscal 2006 and fiscal 2005, our controlled entities had no significant outstanding indemnities
in respect of obligations to financial institutions and corporations.
Other
FOXTEL minimum subscriber guarantees and other obligations
The Telstra Entity and its partners, News Corporation Limited and Publishing and Broadcasting
Limited, and Telstra Media Pty Ltd and its partner, Sky Cable Pty Ltd, have entered into agreements
relating to pay television programming with various parties and other miscellaneous contracts. Our
commitments under these agreements relate mainly to minimum subscriber guarantees (MSG) (refer to
note 26 for details of MSG commitments).
As we are subject to joint and several liability in relation to certain agreements entered into by
the FOXTEL partnership, we would be contingently liable if our partners in this relationship failed
to meet any of their obligations. As a result, our contingent liabilities arising from FOXTELs MSG
and other agreements are $1,531 million (2005: $1,689 million).
FOXTEL Equity Contribution Deed (ECD)
FOXTEL previously entered into a $550 million bank facility arrangement to fund its full digital
conversion and launch of new digital services. As part of this arrangement, we and FOXTELs other
ultimate shareholders, News Corporation Limited and Publishing and Broadcasting Limited, entered
into an ECD. Under the ECD, FOXTEL is required to call on a maximum of $200 million in equity
contributions in certain specified circumstances as necessary to avoid default of a financial
covenant. These equity contributions are based on ownership interests and, as a result, our maximum
contingent liability is $100 million.
We have no joint or several liability relating to our partners contributions under the ECD. On 31
July 2006, FOXTEL entered into a $600 million syndicated secured term loan facility. As a result,
the ECD has subsequently been terminated. Refer to note 34 for further details.
85
302
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Contingent liabilities and contingent assets (continued)
Other (continued)
3GIS Partnership
During fiscal 2005, Telstra OnAir Holdings Pty Ltd and its partner, Hutchison 3G Australia Pty Ltd
entered into agreements relating to the occupation of premises to provide 3GSM radio access network
services.
As we are subject to joint and several liability in relation to agreements entered into by the 3GIS
partnership, we would be contingently liable if our partners in this relationship failed to meet
any of their obligations. As a result, our contingent liabilities arising from the above agreements
are $154 million (2005: $132 million).
Reach working capital facility
We, together with our co-shareholder PCCW Limited (PCCW), previously bought a loan facility owed to
a banking syndicate by Reach Finance Ltd, a subsidiary of our 50% owned joint venture Reach Ltd
(Reach). As part of this arrangement, the shareholders also agreed to provide a US$50 million
working capital facility to Reach. Under the facility Reach is entitled to request from Telstra a
maximum of US$25 million to assist in meeting ongoing operational requirements. Drawdowns under
this facility must be repaid at the end of each interest period as agreed between the parties and
the loan must be fully repaid by 31 December 2007. The applicable interest rate is LIBOR plus 2.5%.
As at 30 June 2006, Reach had not made any drawdown under this facility.
We have no joint or several liability relating to PCCWs US$25 million share of the working capital
facility.
ASIC deed of cross guarantee
A list of the companies that are part of our deed of cross guarantee appear in note 29. Each of
these companies (except Telstra Finance Limited) guarantees the payment in full of the debts of the
other named companies in the event of their winding up. Refer to note 29 for further information.
86
303
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits
The employee superannuation schemes that we participate in or sponsor exist to provide benefits
for our employees and their dependants after finishing employment with us. It is our policy to
contribute to the schemes at rates specified in the governing rules for defined contribution
schemes, or at rates determined by the actuaries for defined benefit schemes.
The defined contribution divisions receive fixed contributions and our legal or constructive
obligation is limited to these contributions.
The present value of our defined benefit obligations for our defined benefit plans are calculated
by an actuary using the projected unit credit method. This method determines each year of service
as giving rise to an additional unit of benefit entitlement and measures each unit separately to
calculate the final obligation.
Details of our plans are set out below.
Telstra Superannuation Scheme (Telstra Super)
On 1 July 1990, Telstra Super was established and the majority of Telstra staff who were previously
members of the Commonwealth Superannuation Scheme (CSS) transferred into Telstra Super. The
Commonwealth has responsibility for past, present and future liabilities in respect of former and
current Telstra employees who remain in the CSS. As a result, we have no current ongoing
obligations for these CSS members, other than associated administration fees.
The Telstra Entity and some of our Australian controlled entities participate in Telstra Super.
Telstra Super has both defined benefit and defined contribution divisions. The defined benefit
divisions of Telstra Super are closed to new members.
Our defined benefit divisions provide benefits based on years of service and final average salary.
Post employment benefits do not include payments for medical costs.
The funding policy adopted in respect of the defined benefit divisions is directed at ensuring that
benefits accruing to members and beneficiaries are fully funded as the benefits fall due. The
benefits received by members of each defined benefit division take into account factors such as the
employees length of service, final average salary, employer and employee contributions.
An actuarial investigation of this scheme is carried out at least every three years.
HK CSL Retirement Scheme
Our controlled entity, Hong Kong CSL Limited (HK CSL), participates in a superannuation scheme
known as the HK CSL Retirement Scheme. This scheme was established under the Occupational
Retirement Schemes Ordinance (ORSO) and is administered by an independent trustee. The scheme has
three defined benefit sections and one defined contribution section.
The benefits received by members of the defined benefit schemes are based on the employees
remuneration and length of service.
Actuarial investigations are undertaken annually for this scheme.
Other defined contribution schemes
A number of our subsidiaries also participate in defined contribution schemes which receive
employer and employee contributions based on a percentage of the employees salaries. Telstra Group
made contribution to these schemes of $32 million for fiscal 2006.
87
304
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
We use the following measurement dates for our defined benefit
plans:
|
|
|
|
|
|
|
Measurement |
|
|
|
date |
|
|
Telstra Super |
|
30 June |
HK CSL Retirement Scheme |
|
31 May |
The fair value of the defined benefit plan assets and the present
value of the defined benefit obligations as at the reporting date
is determined by our actuary. The details of the defined benefit
divisions are set out below:
(a) Net defined benefit plan asset
Our net defined benefit plan asset recognised in the balance
sheet is determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Fair value of defined benefit plan assets |
|
|
4,553 |
|
|
|
4,518 |
|
|
|
4,459 |
|
|
|
4,439 |
|
Present value of the defined benefit obligation |
|
|
3,675 |
|
|
|
4,308 |
|
|
|
3,605 |
|
|
|
4,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit asset before adjustment for contributions tax |
|
|
878 |
|
|
|
210 |
|
|
|
853 |
|
|
|
205 |
|
Adjustment for contributions tax |
|
|
151 |
|
|
|
37 |
|
|
|
151 |
|
|
|
37 |
|
|
|
|
|
|
Net defined benefit asset in the balance sheet at 30 June (i) |
|
|
1,029 |
|
|
|
247 |
|
|
|
1,004 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate actuarial gain included in defined benefit plan assets |
|
|
480 |
|
|
|
155 |
|
|
|
474 |
|
|
|
152 |
|
Aggregate actuarial gain/(loss) included in the defined benefit obligation |
|
|
340 |
|
|
|
(233 |
) |
|
|
329 |
|
|
|
(225 |
) |
|
|
|
|
|
Net actuarial gain/(loss) |
|
|
820 |
|
|
|
(78 |
) |
|
|
803 |
|
|
|
(73 |
) |
|
|
|
|
|
(i) At 30 June the fair value of defined benefit plan assets
exceeds the present value of defined benefit obligations
resulting in a net surplus. We recognise the net surplus as an
asset as we have the ability to control this surplus to generate
future funds that are available to us in the form of reductions
in future contributions, or as a cash refund. The asset
recognised does not exceed the present value of any economic
benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
88
305
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(b) Amounts recognised in the income statement and in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
The components of defined benefit plan expense recognised in the income
statement are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost |
|
|
227 |
|
|
|
214 |
|
|
|
220 |
|
|
|
210 |
|
Interest cost |
|
|
205 |
|
|
|
205 |
|
|
|
202 |
|
|
|
202 |
|
Expected return on plan assets |
|
|
(322 |
) |
|
|
(317 |
) |
|
|
(316 |
) |
|
|
(312 |
) |
Member contributions |
|
|
(40 |
) |
|
|
(20 |
) |
|
|
(39 |
) |
|
|
(20 |
) |
Curtailment gain |
|
|
(17 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
|
|
Plan expenses after tax |
|
|
15 |
|
|
|
16 |
|
|
|
15 |
|
|
|
16 |
|
Notional transfer of funds for defined contribution benefits |
|
|
89 |
|
|
|
75 |
|
|
|
89 |
|
|
|
75 |
|
Adjustment for contributions tax |
|
|
28 |
|
|
|
30 |
|
|
|
28 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
185 |
|
|
|
203 |
|
|
|
182 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The movements in our defined benefit plan asset recognised directly in equity
in the statement of recognised income and expense are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains)/losses on our defined benefit plans |
|
|
(820 |
) |
|
|
78 |
|
|
|
(803 |
) |
|
|
73 |
|
Adjustment to contributions tax |
|
|
(142 |
) |
|
|
12 |
|
|
|
(142 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
90 |
|
|
|
(945 |
) |
|
|
85 |
|
|
|
|
|
|
89
306
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(c) Plan assets
Our weighted average asset allocation by major asset category as
a percentage of the fair value of total plan assets as at 30
June are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Super |
|
|
HK CSL Retirement Scheme |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Target |
|
|
Actual |
|
|
Target |
|
|
Actual |
|
|
Target |
|
|
Actual |
|
|
Target |
|
|
Actual |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
Asset allocations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments |
|
|
68 |
|
|
|
69 |
|
|
|
67 |
|
|
|
62 |
|
|
|
60 |
|
|
|
61 |
|
|
|
60 |
|
|
|
64 |
|
Debt instruments |
|
|
12 |
|
|
|
10 |
|
|
|
10 |
|
|
|
14 |
|
|
|
35 |
|
|
|
32 |
|
|
|
35 |
|
|
|
30 |
|
Property |
|
|
15 |
|
|
|
16 |
|
|
|
18 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
11 |
|
|
|
5 |
|
|
|
7 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
Our defined benefit plans investment strategy is to control the
level of risk by investing in a broad range of quality
investments, and using a range of Australian and International
investment managers who specialise in cash, fixed interest,
shares and property. We constantly review our investments and
adjust our investment strategy in order to maximise returns
within this controlled risk profile and take advantage of
perceived market inefficiencies.
Investment goals are to earn the best possible returns within the
appropriate strategic level of risk, and maintain the financial
viability of the funds by ensuring plan assets exceed benefit
obligations.
Derivatives are used to limit exposure to market fluctuations and
are used within appropriate control environments for direct and
externally managed investments. Derivatives are not used for
speculative purposes.
90
307
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(d) Reconciliation of change in fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Fair value of defined benefit plan assets at beginning of year |
|
|
4,518 |
|
|
|
4,294 |
|
|
|
4,439 |
|
|
|
4,224 |
|
Expected return on plan assets |
|
|
322 |
|
|
|
317 |
|
|
|
316 |
|
|
|
312 |
|
Employer contributions |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Member contributions |
|
|
46 |
|
|
|
24 |
|
|
|
46 |
|
|
|
24 |
|
Notional transfer of funds for defined contribution benefits |
|
|
(89 |
) |
|
|
(75 |
) |
|
|
(89 |
) |
|
|
(75 |
) |
Benefits paid (i) |
|
|
(715 |
) |
|
|
(185 |
) |
|
|
(712 |
) |
|
|
(182 |
) |
Actuarial gains |
|
|
480 |
|
|
|
155 |
|
|
|
474 |
|
|
|
152 |
|
Plan expenses after tax |
|
|
(15 |
) |
|
|
(16 |
) |
|
|
(15 |
) |
|
|
(16 |
) |
Foreign currency exchange rate changes |
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of defined benefit plan assets at end of year |
|
|
4,553 |
|
|
|
4,518 |
|
|
|
4,459 |
|
|
|
4,439 |
|
|
|
|
|
|
Our actual return on defined benefit plan assets was 16.2% (2005:
12.5%) for Telstra Super and 12.5% (2005: 6.8%) for HK CSL
Retirement Scheme.
(e) Reconciliation of change in present value of wholly funded
defined benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Present value of defined benefit obligation at beginning of year |
|
|
4,308 |
|
|
|
3,837 |
|
|
|
4,234 |
|
|
|
3,775 |
|
Current service cost |
|
|
227 |
|
|
|
214 |
|
|
|
220 |
|
|
|
210 |
|
Interest cost |
|
|
205 |
|
|
|
205 |
|
|
|
202 |
|
|
|
202 |
|
Member contributions |
|
|
7 |
|
|
|
4 |
|
|
|
7 |
|
|
|
4 |
|
Benefits paid (i) |
|
|
(715 |
) |
|
|
(185 |
) |
|
|
(712 |
) |
|
|
(182 |
) |
Actuarial (gains)/losses |
|
|
(340 |
) |
|
|
233 |
|
|
|
(329 |
) |
|
|
225 |
|
Curtailment gain |
|
|
(17 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
Present value of wholly funded defined benefit obligation at end of year |
|
|
3,675 |
|
|
|
4,308 |
|
|
|
3,605 |
|
|
|
4,234 |
|
|
|
|
|
|
(i) Benefits paid includes $640 million (2005: $116 million)
of entitlements (to exiting defined benefit members)
which have been retained in Telstra Super but transferred to the
defined contribution scheme.
The following benefit payments, which reflect expected future
service, are expected to be paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 - |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2016 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Expected benefit
payments |
|
|
197 |
|
|
|
204 |
|
|
|
215 |
|
|
|
237 |
|
|
|
257 |
|
|
|
1,712 |
|
|
|
|
91
308
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(f) Principal actuarial assumptions
We used the following major assumptions to determine our defined
benefit plan expense for the year ended 30 June:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Super |
|
|
HK CSL Retirement Scheme |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
Discount rate (i) |
|
|
4.7 |
|
|
|
5.1 |
|
|
|
3.7 |
|
|
|
3.8 |
|
Expected rate of return on plan assets (ii) |
|
|
7.5 |
|
|
|
7.5 |
|
|
|
6.8 |
|
|
|
6.8 |
|
Expected rate of increase in future salaries |
|
|
4.0 |
|
|
|
4.0 |
|
|
|
2.5 |
|
|
|
2.5 |
|
We used the following major assumptions to determine our defined
benefit obligations at 30 June:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Super |
|
|
HK CSL Retirement Scheme |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
Discount rate (i) |
|
|
5.1 |
|
|
|
4.7 |
|
|
|
5.0 |
|
|
|
3.8 |
|
Expected rate of increase in future salaries (ii) . |
|
|
3.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
(i) The present value of our defined benefit obligations is
determined by discounting the estimated future cash outflows
using a discount rate based on government guaranteed securities
with similar due dates to these expected cash flows.
For Telstra Super we have used the 10-year Australian government
bond rate as it has the closest term that one could get from the
Australian bond market to match the term of the defined benefit
obligations. We have not made any adjustment to reflect the
difference between the term of the bonds and the estimated term
of liabilities due to the observation that the current government
bond yield curve is reasonably flat implying that the yields from
government bonds with a term less than 10 years are expected to
be very similar to the extrapolated bond yields with a term of 12
to 13 years.
Based on industry practice in Australia, we have adjusted the
discount rate for Telstra Super to take into account future
investment tax of the fund which is considered part of the
ultimate cost to settle the obligation.
Similarly, for the HK CSL Retirement Scheme we have used the 10
year Hong Kong exchange fund yields as it has the closest term
that one could get from the Hong Kong market to match the term of
the defined benefit obligations.
The discount rate used in calculating the defined benefit
obligation at 30 June 2006 was 5.1% p.a. after the adjustment to
take into account future investment tax. Holding all other
assumptions constant, the effect of a one percentage point
decline in the discount rate assumption would be an increase in
the 2007 defined benefit plan expense of approximately $69
million and an increase in the defined benefit obligation at 30
June 2006 of approximately $334 million.
(ii) The expected rate of return on assets has been based on
historical and future expectations of returns for each of the
major categories of asset classes over the subsequent 10 year
period, or longer. Estimates are based on a combination of
factors including the current market outlook for interest rates,
inflation, earnings growth and currency strength. To determine
the aggregate return, the expected future return of each asset
class is weighted according to the strategic asset allocation of
total plan assets.
Our assumption for the expected long-term rate of return on
assets is 7% for 2007. As a sensitivity measure, holding all
other assumptions constant, the effect of a one percentage point
decline in the return on assets assumption would be an increase
in our fiscal 2007 defined benefit plan expense of approximately
$44 million.
92
309
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(g) Employer contributions
Telstra Super
In accordance with our funding deed with the trustee of Telstra
Super, we are required to make future employer payments to
Telstra Super in relation to the defined benefit plan as may be
required. Our contributions to Telstra Super will recommence when
the vested benefits index (VBI) the ratio of defined benefit
plan assets to defined benefit members vested benefits falls
to 103%. Our actuary is satisfied that contributions to maintain
the VBI at this rate will maintain the financial position of
Telstra Super at a satisfactory level. The VBI of the defined
benefit divisions is 115% as at 30 June 2006 (30 June 2005:
111%).
As at 30 June 2003, K OSullivan FIAA completed an actuarial
investigation of Telstra Super. The next actuarial
investigation of Telstra Super is due to be completed by 30
June 2007 based on the schemes financial position as at 30
June 2006.
The actuarial investigation of Telstra Super reported that a
surplus continued to exist. In accordance with the
recommendations within the actuarial investigation, we were not
expected to, and did not make employer contributions to the
Telstra Super defined benefit divisions for the financial year
ended 30 June 2006 and 30 June 2005. The current contribution
holiday includes the contributions otherwise payable to the
accumulation divisions of Telstra Super. The continuance of the
holiday is however dependent on the performance of the fund and
we are monitoring the situation on a monthly basis in light of
current market performance.
Telstra Entitys contribution to the defined contribution
divisions of Telstra Super were insignificant for fiscal 2006
and fiscal 2005. Based on the latest actuarial investigation, we
do not expect to make any contributions to Telstra Super during
fiscal 2007.
HK CSL Retirement Scheme
The contributions payable to the defined benefit divisions are
determined by the actuary using the attained age normal funding
actuarial valuation method.
Employer contributions made to the HK CSL Retirement Scheme for
the financial year ended 30 June 2006 were $3 million (2005: $3
million). We expect to contribute $3 million (2005: $3 million)
to our HK CSL Retirement Scheme in fiscal 2007.
Annual actuarial investigations are currently undertaken for
this scheme by Watson Wyatt Hong Kong Limited.
93
310
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Post employment benefits (continued)
(h) Net financial position of plan
The financial position of the defined benefit divisions of
Telstra Super and the HK CSL Retirement Scheme is shown as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net scheme assets |
|
|
Accrued benefits |
|
|
Net surplus (i) |
|
|
Vested benefits |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Telstra Super (ii) |
|
|
4,459 |
|
|
|
4,439 |
|
|
|
3,079 |
|
|
|
3,281 |
|
|
|
1,380 |
|
|
|
1,158 |
|
|
|
3,853 |
|
|
|
3,995 |
|
HK CSL Retirement Scheme (iii) |
|
|
94 |
|
|
|
79 |
|
|
|
74 |
|
|
|
74 |
|
|
|
20 |
|
|
|
5 |
|
|
|
68 |
|
|
|
63 |
|
|
|
|
|
|
|
4,553 |
|
|
|
4,518 |
|
|
|
3,153 |
|
|
|
3,355 |
|
|
|
1,400 |
|
|
|
1,163 |
|
|
|
3,921 |
|
|
|
4,058 |
|
|
|
|
(i) In accordance with AAS 25: Financial Reporting by
Superannuation Plans the plans net surplus is determined as the
difference between the present value of the accrued benefits and
the net market value of plan assets.
(ii) Amounts for Telstra Super have been taken from the audited
financial report of the scheme as at 30 June 2006 and 30 June
2005. The scheme assets are stated at net market values.
(iii) Amounts for the defined benefit divisions of the HK CSL
Retirement Scheme have been taken from the actuarial valuation of
the scheme as at 30 June 2006 and 30 June 2005. The scheme
assets are stated at net market values.
The estimated period over which the benefits of our members will
be returned is 11 years for Telstra Super (2005: 12 years) and
14.5 years for the HK CSL Retirement Scheme (2005: 14.7 years).
The net surplus under AAS 25 of $1,400 million (30 June 2005:
$1,163 million) differs from the net defined benefit asset of
$1,029 million (30 June 2005: $247 million) recognised in the
balance sheet due to different measurement rules in the relevant
accounting standards AAS 25 and AASB 119: Employee Benefits.
Both standards require present value discounting of future
benefits, however AAS 25 requires the use of a discount rate
equal to an expected asset return whereas AASB 119 requires an
after-tax bond yield.
94
311
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities
The ultimate parent entity of the Telstra Group is the
Commonwealth Government of Australia. Below is a list of our
investments in controlled entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
Telstra Entitys recorded |
|
|
% of equity held by |
|
Name of entity |
|
incorporation |
|
amount of investment (#) |
|
|
immediate parent |
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
|
|
Parent entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Corporation Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications Equipment Finance Pty Ltd * (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Finance Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Corporate Services Pty Limited * (a) |
|
Australia |
|
|
7 |
|
|
|
7 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Transport Communications Australia Pty Ltd * |
|
Australia |
|
|
4 |
|
|
|
4 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra ESOP Trustee Pty Limited * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Growthshare Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Media Pty Limited * |
|
Australia |
|
|
393 |
|
|
|
380 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Multimedia Pty Limited (a) |
|
Australia |
|
|
2,678 |
|
|
|
2,678 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra International Limited (a) |
|
Australia |
|
|
2 |
|
|
|
84 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra New Wave Pty Ltd * (a) |
|
Australia |
|
|
1 |
|
|
|
1 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Hypertokens Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Hypermax Holdings Pty Ltd * |
|
Australia |
|
|
8 |
|
|
|
8 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Chief Entertainment Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Data & Text Mining Technologies Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Lyrebird Technologies Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra OnAir Infrastructure Holdings Pty Ltd * (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra 3G Spectrum Holdings Pty Ltd * |
|
Australia |
|
|
302 |
|
|
|
302 |
|
|
|
100.0 |
|
|
|
100.0 |
|
1300 Australia Pty Ltd * |
|
Australia |
|
|
5 |
|
|
|
5 |
|
|
|
60.0 |
|
|
|
60.0 |
|
Telstra OnAir Holdings Pty Ltd * |
|
Australia |
|
|
478 |
|
|
|
302 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Converged Networks Pty Ltd * (h) |
|
Australia |
|
|
1 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra Payment Solutions Pty Limited (formerly Keycorp
Solutions Limited) * (c) (h) |
|
Australia |
|
|
56 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
ESA Holding Pty Ltd * (j) |
|
Australia |
|
|
|
|
|
|
16 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Business Systems Pty Ltd * |
|
Australia |
|
|
69 |
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Communications Limited (a) |
|
Australia |
|
|
29 |
|
|
|
29 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telecom Australia (Saudi) Company Limited (d) (e) (f) (g) |
|
Saudi Arabia |
|
|
|
|
|
|
|
|
|
|
50.0 |
|
|
|
50.0 |
|
Telstra Rewards Pty Ltd * |
|
Australia |
|
|
14 |
|
|
|
14 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Visa Card Trust (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Qantas Telstra Card Trust (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Visa Business Card Trust (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Media Holdings Pty Limited (a) |
|
Australia |
|
|
30 |
|
|
|
30 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Enterprise Services Pty Limited * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Pay TV Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Communications Network Holdings Pty Ltd * (h) |
|
Australia |
|
|
4 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Advanced Digital Communications (WA) Pty Ltd * (h) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Western Communications Solutions Pty Ltd * (h) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Adstream (Aust) Pty Ltd (i) |
|
Australia |
|
|
23 |
|
|
|
|
|
|
|
58.0 |
|
|
|
|
|
Adstream Ltd (g) (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Quickcut (Aust) Pty Ltd (i) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
(continued over page)
95
312
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
Telstra Entitys recorded |
|
|
% of equity held by |
|
Name of entity |
|
incorporation |
|
amount of investment (#) |
|
|
immediate parent |
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Holdings Pty Ltd (a) |
|
Australia |
|
|
7,176 |
|
|
|
7,176 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Beijing Australia Telecommunications Technical
Consulting Services Company Limited (e) (g) |
|
China |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Holdings (Bermuda) No. 2 Limited (g) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CSL New World Mobility Limited (formerly Telstra
CSL Limited) (c) (g) (h) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
76.4 |
|
|
|
100.0 |
|
Bestclass Holdings Ltd (g) |
|
British Virgin Islands |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Hong Kong CSL Limited (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Integrated Business Systems Limited (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
One2Free Personalcom Limited (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CSL Limited (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
New World PCS Holdings Limited (g) (h) |
|
Cayman Islands |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
New World 3G Limited (g) (h) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
New World PCS Limited (g) (h) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
New World Mobility Limited (g) (h) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra Holdings (Bermuda) No 1 Limited (g) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra International HK Limited (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Damovo HK Ltd (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Japan Retail K.K. (g) |
|
Japan |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Singapore Pte Ltd (g) |
|
Singapore |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Global Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
PT Telstra Nusantara (g) |
|
Indonesia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Europe Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra (Cable Telecom) Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra (PSINet) Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra (CTE) Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Cable Telecommunication Ltd (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
PSINet Datacentre UK Ltd (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Inteligen Communications Limited (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Jersey Limited (g) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
PSINet Hosting Centre Ltd (g) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Cordoba Holdings Ltd (g) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
London Hosting Centre Ltd (g) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Inc. (g) |
|
United States |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra India (Private) Limited (g) |
|
India |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra New Zealand Holdings Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
TelstraClear Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
TelstraSaturn Holdings Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
(continued over page)
96
313
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
Telstra Entitys recorded |
|
|
% of equity held by |
|
Name of entity |
|
incorporation |
|
amount of investment (#) |
|
|
immediate parent |
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sytec Resources Ltd (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sytec Resources (Australia) Pty Ltd * (g) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
DMZ Global Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
DMZ Global (Australia) Pty Ltd * (g) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CLEAR Communications Limited (g) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Network Design and Construction Limited (a) |
|
Australia |
|
|
20 |
|
|
|
177 |
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Global Holdings Pty Limited * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Telecommunications India Private Limited (g) |
|
India |
|
|
|
|
|
|
|
|
|
|
98.0 |
|
|
|
98.0 |
|
PT NDC Indonesia (d) (g) |
|
Indonesia |
|
|
|
|
|
|
|
|
|
|
95.0 |
|
|
|
95.0 |
|
NDC Global Philippines, Inc (d) (e) (g) |
|
Philippines |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Global Services (Thailand) Limited (d) (g) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.0 |
|
NDC Global Holdings (Thailand) Limited (d) (g) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.0 |
|
NDC Global Services (Thailand) Limited (d) (g) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51.0 |
|
NDC Global Services Pty Limited * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Telecommunications India Private Limited (g) |
|
India |
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
2.0 |
|
Telstra Services Solutions Holdings Limited (a) |
|
Australia |
|
|
911 |
|
|
|
911 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.net Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.Com Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.fs Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra eBusiness Services Pty Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Australasian Insurance Systems Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
TRC Computer Systems Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
DBA Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Brokerlink Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
81.3 |
|
|
|
81.3 |
|
DBA Computer Systems Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Brokerlink Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
18.7 |
|
|
|
18.7 |
|
Unilink Group Pty Ltd * (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
KAZ Group Pty Limited (a) (i) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Computer Services (SEA) Pte Limited (d) (g) |
|
Singapore |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Computer Services (HK) Ltd (g) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
75.0 |
|
|
|
75.0 |
|
Enhanced Processing Technologies Inc (g) (i) |
|
United States |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Australian Administration Services Pty Ltd |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
AAS Superannuation Services Pty Limited |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Business Services Australia Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Business Services Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Software Solutions Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Atune Financial Solutions Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Technology Services Pty Ltd |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
IOCORE Asia Pacific Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Techsouth Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Technology Services Australia Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Fundi Software Pty Ltd * (j) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
(continued over page)
97
314
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
Telstra Entitys recorded |
|
|
% of equity held by |
|
Name of entity |
|
incorporation |
|
amount of investment (#) |
|
|
immediate parent |
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensis Pty Ltd (a) (j) |
|
Australia |
|
|
851 |
|
|
|
851 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Platefood Limited (h) (g) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
61.0 |
|
|
|
|
|
Just Listed Pty Limited * (a) (j) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CitySearch Australia Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CitySearch Canberra Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Group Pty Limited (a) (j) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
33.0 |
|
Trading Post (Australia) Holdings Pty Ltd (a) (j) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Group Pty Limited (a) (j) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
67.0 |
|
The Melbourne Trading Post Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
The National Trading Post Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Australian Retirement Publications
Pty Limited * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Collectormania Australia Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
The Personal Trading Post Pty Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Auto Trader Australia Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
WA Auto Trader Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sydney Buy & Sell Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sydney Auto Trader Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Ad Mag SA & NSW Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Ad Mag AGI Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post (AW) Pty Limited * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Warranty Direct (Australia) Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post (TCA) Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Research Resources Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Queensland Trading Post Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Marketing (Qld) Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post on the Net Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Australia Pty Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Appraised Staff Agency Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Tradernet Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Classifieds Pty Limited * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post On Line Pty Limited * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sensis Holdings Pty Ltd * (i) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Invizage Pty Ltd * (i) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
75.0 |
|
PC S.O.S. Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Universal Publishers Pty Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sensis (Victoria) Pty Ltd * (h) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in consolidated entities |
|
|
|
|
13,062 |
|
|
|
12,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# The amounts recorded are before any provision for reduction
in value.
* These entities are Australian small proprietary limited
companies, which are not required to prepare and lodge
individual audited financial reports with the Australian
Securities and Investment Commission.
98
315
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
(a) ASIC deed of cross guarantee
On 31 May 2006 and 28 June 2006, the Telstra Entity and certain
of its controlled entities entered into two revocation deeds, the
combined effect of which is to revoke the deed of cross guarantee
dated 4 June 1996 (1996 Deed) in its entirety. In accordance
with the terms of the 1996 Deed, revocation of the deed does not
take effect until the date which is 6 months after lodgement of
the relevant revocation deed with the Australian Securities and
Investment Commission (ASIC).
A new deed of cross guarantee was entered into on 28 June 2006
(New Deed), pursuant to an ASIC Order dated 22 June 2006 (ASIC
Order). The New Deed was entered into between the parties to the
revocation deed dated 28 June 2006 and a number of additional
controlled entities of the Telstra Entity. The New Deed took
effect immediately upon lodgement with ASIC on 30 June 2006.
The following companies have entered into the 1996 Deed and/or the New Deed:
|
|
Telstra Corporation Limited (i) (ii); |
|
|
|
Telstra Corporate Services Pty Limited (i) (ii); |
|
|
|
Telstra Multimedia Pty Limited (i) (ii); |
|
|
|
Telstra International Limited (i) (ii); |
|
|
|
Telstra Communications Limited (i) (ii); |
|
|
|
Telstra Media Holdings Pty Limited (i); |
|
|
|
Telstra Enterprise Services Pty Limited (i); |
|
|
|
Telstra Pay TV Pty Ltd (i); |
|
|
|
Telstra Holdings Pty Ltd (i) (ii); |
|
|
|
Network Design and Construction Limited (i) (ii); |
|
|
|
NDC Global Holdings Pty Limited (i) (ii); |
|
|
|
NDC Global Services Pty Limited (i) (ii); |
|
|
|
Telstra Services Solutions Holdings Limited (i) (ii); |
|
|
|
Telstra eBusiness Services Pty Limited (i) (ii); |
|
|
|
Australasian Insurance Systems Pty Ltd (i); |
|
|
|
TRC Computer Systems Pty Ltd (i); |
|
|
|
DBA Ltd (i); |
|
|
|
Brokerlink Pty Ltd (i); |
|
|
|
DBA Computer Systems Pty Ltd (i); |
|
|
|
KAZ Group Limited (ii); |
|
|
|
KAZ Business Services Pty Ltd (ii); |
|
|
|
KAZ Software Solutions Pty Ltd (ii); |
|
|
|
Atune Financial Services Pty Ltd (ii); |
|
|
|
Sensis Pty Ltd (i) (ii); |
|
|
|
Trading Post (Australia) Holdings Pty Ltd (i) (ii); |
|
|
|
Trading Post Group Pty Limited (i) (ii); |
|
|
|
The Melbourne Trading Post Pty Ltd (i) (ii); |
|
|
|
The National Trading Post Pty Ltd (i) (ii); |
|
|
|
Collectormania Australia Pty Ltd (i) (ii); |
|
|
|
Australian Retirement Publications Pty Limited (i); |
|
|
|
The Personal Trading Post Pty Limited (i) (ii); |
|
|
|
Auto Trader Australia Pty Ltd (i) (ii); |
|
|
|
WA Auto Trader Pty Ltd (i) (ii); |
|
|
|
Just Listed Pty Limited (i) (ii); |
|
|
|
Trading Post (TCA) Pty Ltd (i) (ii); |
|
|
|
Trading Post Australia Pty Limited (i) (ii); and |
|
|
|
Universal Publishers Pty Limited (ii). |
|
(i) |
|
Companies which form the 1996 Deed |
|
(ii) |
|
Companies which form the New Deed |
Telstra Finance Limited is trustee under both the 1996 Deed and
the New Deed, however is not a group entity under either deed.
In respect of both the 1996 Deed and the New Deed, the relevant
group entities under the deed:
|
|
form a closed group and extended closed group as defined in
the ASIC Class Order 98/1418 (Class Order) and the ASIC Order; |
|
|
|
do not have to prepare and lodge audited financial
reports under the Corporations Act 2001. This does not apply to
Telstra Corporation Limited; and |
|
|
|
guarantee the payment in full of the debts of the other
parties to the deed in the event of their winding up. |
The following companies ceased to be party to the 1996 Deed due
to a revocation deed as at 11 September 2005:
|
|
Telstra New Wave Pty Ltd; |
|
|
|
Telstra CB.net Limited; |
|
|
|
Telstra CB.Com Limited; and |
|
|
|
Telstra CB.fs Limited. |
(b) ASIC deed of cross guarantee financial information
The consolidated assets and liabilities of the closed group and
extended closed group is presented according to both the Class
Order and the ASIC Order as follows. This excludes Telstra
Finance Limited. All significant transactions between members of
the closed group have been eliminated.
99
316
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
(b) ASIC deed of cross guarantee financial information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed group balance sheet |
|
New Deed |
|
|
1996 Deed |
|
|
|
As at 30 |
|
|
|
|
|
|
June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
479 |
|
|
|
501 |
|
|
|
1,421 |
|
Trade and other receivables |
|
|
3,377 |
|
|
|
3,533 |
|
|
|
3,553 |
|
Inventories |
|
|
182 |
|
|
|
175 |
|
|
|
191 |
|
Derivative financial assets |
|
|
22 |
|
|
|
22 |
|
|
|
4 |
|
Prepayments |
|
|
190 |
|
|
|
202 |
|
|
|
217 |
|
|
|
|
|
|
|
Total current assets |
|
|
4,250 |
|
|
|
4,433 |
|
|
|
5,386 |
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
876 |
|
|
|
870 |
|
|
|
884 |
|
Inventories |
|
|
19 |
|
|
|
19 |
|
|
|
15 |
|
Investments accounted for using the equity method |
|
|
22 |
|
|
|
21 |
|
|
|
46 |
|
Investments other |
|
|
3,348 |
|
|
|
3,421 |
|
|
|
3,244 |
|
Property, plant and equipment |
|
|
21,792 |
|
|
|
21,785 |
|
|
|
21,190 |
|
Intangibles |
|
|
3,491 |
|
|
|
3,389 |
|
|
|
3,655 |
|
Derivative financial assets |
|
|
392 |
|
|
|
392 |
|
|
|
|
|
Defined benefit assets |
|
|
1,004 |
|
|
|
1,004 |
|
|
|
241 |
|
|
|
|
|
|
|
Total non current assets |
|
|
30,944 |
|
|
|
30,901 |
|
|
|
29,275 |
|
|
|
|
|
|
|
Total assets |
|
|
35,194 |
|
|
|
35,334 |
|
|
|
34,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
2,991 |
|
|
|
2,973 |
|
|
|
2,041 |
|
Borrowings |
|
|
2,531 |
|
|
|
2,323 |
|
|
|
2,159 |
|
Current tax liabilities |
|
|
400 |
|
|
|
400 |
|
|
|
518 |
|
Provisions |
|
|
708 |
|
|
|
697 |
|
|
|
378 |
|
Derivative financial liabilities |
|
|
13 |
|
|
|
13 |
|
|
|
11 |
|
Revenue received in advance |
|
|
1,089 |
|
|
|
1,089 |
|
|
|
1,090 |
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,732 |
|
|
|
7,495 |
|
|
|
6,197 |
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
65 |
|
|
|
65 |
|
|
|
62 |
|
Borrowings |
|
|
11,376 |
|
|
|
11,376 |
|
|
|
10,907 |
|
Deferred tax liabilities |
|
|
1,582 |
|
|
|
1,589 |
|
|
|
1,664 |
|
Provisions |
|
|
951 |
|
|
|
945 |
|
|
|
855 |
|
Derivative financial liabilities |
|
|
768 |
|
|
|
768 |
|
|
|
864 |
|
Revenue received in advance |
|
|
401 |
|
|
|
400 |
|
|
|
387 |
|
|
|
|
|
|
|
Total non current liabilities |
|
|
15,143 |
|
|
|
15,143 |
|
|
|
14,739 |
|
|
|
|
|
|
|
Total liabilities |
|
|
22,875 |
|
|
|
22,638 |
|
|
|
20,936 |
|
|
|
|
|
|
|
Net assets |
|
|
12,319 |
|
|
|
12,696 |
|
|
|
13,725 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
5,569 |
|
|
|
5,569 |
|
|
|
5,536 |
|
Reserves |
|
|
18 |
|
|
|
18 |
|
|
|
12 |
|
Retained profits |
|
|
6,732 |
|
|
|
7,109 |
|
|
|
8,177 |
|
|
|
|
|
|
|
Equity available to the closed group |
|
|
12,319 |
|
|
|
12,696 |
|
|
|
13,725 |
|
|
|
|
|
|
|
100
317
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
(b) ASIC deed of cross guarantee financial information (continued)
The consolidated profit for the year of the closed group and
extended closed group is presented according to both the Class
Order and the ASIC Order as follows. This excludes Telstra
Finance Limited. All significant transactions between members of
the closed group have been eliminated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed group income statement and retained profits reconciliation |
|
|
|
|
|
New Deed |
|
|
1996 Deed |
|
|
|
| | | |
Year ended |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (excluding finance income) |
|
|
|
|
|
|
20,323 |
|
|
|
20,594 |
|
|
|
20,173 |
|
Other income |
|
|
|
|
|
|
304 |
|
|
|
318 |
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,627 |
|
|
|
20,912 |
|
|
|
20,427 |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
|
|
|
|
3,843 |
|
|
|
3,796 |
|
|
|
3,387 |
|
Goods and services purchased |
|
|
|
|
|
|
3,372 |
|
|
|
3,652 |
|
|
|
3,266 |
|
Other expenses |
|
|
|
|
|
|
4,317 |
|
|
|
4,349 |
|
|
|
3,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,532 |
|
|
|
11,797 |
|
|
|
10,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of net (gain)/loss from jointly controlled and associated entities |
|
|
|
|
|
|
(10 |
) |
|
|
(12 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,522 |
|
|
|
11,785 |
|
|
|
10,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA) |
|
|
|
|
|
|
9,105 |
|
|
|
9,127 |
|
|
|
10,139 |
|
Depreciation and amortisation |
|
|
|
|
|
|
3,721 |
|
|
|
3,717 |
|
|
|
3,228 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income tax expense (EBIT) |
|
|
|
|
|
|
5,384 |
|
|
|
5,410 |
|
|
|
6,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
120 |
|
|
|
120 |
|
|
|
156 |
|
Finance costs |
|
|
|
|
|
|
978 |
|
|
|
975 |
|
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
|
|
|
|
|
858 |
|
|
|
855 |
|
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
4,526 |
|
|
|
4,555 |
|
|
|
6,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
1,380 |
|
|
|
1,378 |
|
|
|
1,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year available to the closed group |
|
|
|
|
|
|
3,146 |
|
|
|
3,177 |
|
|
|
4,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained profits at the beginning of the financial year available to the closed group |
|
|
|
|
|
|
7,894 |
|
|
|
8,177 |
|
|
|
8,467 |
|
Actuarial gain/(loss) on our defined benefit plans (net of tax effect) |
|
|
|
|
|
|
661 |
|
|
|
661 |
|
|
|
(61 |
) |
Share buy-back |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
(476 |
) |
Transfer out of closed group |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
Transfers to retained profits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total available for distribution |
|
|
|
|
|
|
11,701 |
|
|
|
12,079 |
|
|
|
12,301 |
|
Dividends paid |
|
|
|
|
|
|
4,969 |
|
|
|
4,970 |
|
|
|
4,124 |
|
|
|
|
|
|
|
|
|
|
|
Retained profits at the end of the financial year available to the closed group |
|
|
|
|
|
|
6,732 |
|
|
|
7,109 |
|
|
|
8,177 |
|
|
|
|
|
|
|
|
|
|
|
101
318
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
(c) Change of company names
|
|
Keycorp Solutions Limited changed its name to Telstra
Payment Solutions Limited on 2 September 2005. |
|
|
|
Furthermore, the status of this controlled entity changed from
a public to a private company on 18 May 2006 to be named
Telstra Payment Solutions Pty Limited. |
|
|
|
On 31 March 2006, Telstra CSL Limited changed its name to
CSL New World Mobility Limited. |
(d) Liquidations
As at 30 June 2006, the following controlled entities were in voluntary liquidation:
|
|
Telecom Australia (Saudi) Company Limited; |
|
|
|
NDC Global Philippines, Inc; |
|
|
|
PT NDC Indonesia; |
|
|
|
Qantas Telstra Card Trust; |
|
|
|
Telstra Visa Business Card Trust; |
|
|
|
Telstra Visa Card Trust; and |
|
|
|
KAZ Computer Services (SEA) Pte Limited. |
The following companies were liquidated or deregistered during fiscal 2006:
|
|
NDC Global Services (Thailand) Limited; |
|
|
|
NDC Global Holdings (Thailand) Limited; |
|
|
|
Telecommunications Equipment Finance Pty Ltd; |
|
|
|
Telstra OnAir Infrastructure Holdings Pty Ltd; and |
|
|
|
Unilink Group Pty Ltd. |
(e) Controlled entities with different balance dates
The following companies have balance dates that differ from
our balance date of 30 June for fiscal 2006:
|
|
Telecom Australia (Saudi) Company Limited 31 December; |
|
|
|
Beijing Australia Telecommunications Technical
Consulting Services Company Limited 31 December; and |
|
|
|
NDC Global Philippines, Inc 31 December. |
Financial reports prepared as at 30 June are used for
consolidation purposes.
(f) Controlled entities in which our equity ownership is less
than or equal to 50%
We own 50% of the issued capital of Telecom Australia (Saudi)
Company Limited. We can exercise control over the Board of
Directors of this entity in perpetuity, and therefore we have
consolidated the financial results, position and cash flows of
this entity into our group financial report.
(g) Controlled entities not individually audited by the
Australian National Audit Office
Companies not audited by the Australian National Audit Office,
our Australian statutory auditor.
102
319
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Investments in controlled entities (continued)
(h) New incorporations and investments
|
|
On 11 August 2005, we established a new entity named
Platefood Limited to facilitate a new investment for nominal
consideration. |
|
|
|
On 25 August 2005, we established a new entity named
Sensis (Victoria) Pty Ltd to facilitate a new investment
for nominal consideration. |
|
|
|
On 1 July 2005, we acquired 100% of the issued capital of
Keycorp Solutions Limited for a total consideration of $56
million including acquisition costs. Subsequent to
acquisition, the entity was renamed to Telstra Payment
Solutions Pty Limited. |
|
|
|
On 31 March 2006, we acquired 100% of the issued capital of
the Converged Networks Group for a total consideration of $5
million including acquisition costs. Converged Networks
Group included the following controlled entities: |
|
|
|
Converged Networks Pty Ltd;
|
|
|
|
|
Communications Network Holdings Pty Ltd; |
|
|
|
Advanced Digital Communications (WA) Pty Ltd; and |
|
|
|
|
Western Communications Solutions Pty Ltd. |
Converged Networks Group is a provider of voice and data
networks which operates primarily in Western Australia.
|
|
On 31 March 2006, we merged our 100% owned Hong Kong mobile
operations (Telstra CSL Group) with the Hong Kong mobile
operations of New World PCS Holdings Limited and its
controlled entities (New World Mobility Group) to form the
CSL New World Mobility Group. |
Under the merger agreement, Telstra CSL Limited issued new
shares to New World Mobility Holdings Limited in return for
100% of the issued capital of the New World Mobility Group and
$42 million in net proceeds (net of acquisition costs). The
fair value of the Telstra CSL Limited shares issued amounted to
$577 million and diluted our ownership in the merged group to
76.4%. Our merger with the New World Mobility Group included
the acquisition of the following controlled entities:
|
|
|
New World PCS Holdings Limited; |
|
|
|
|
New World 3G Limited; |
|
|
|
|
New World PCS Limited;
and |
|
|
New World Mobility Limited. |
The CSL New World Mobility Group is a provider of mobile
telecommunication products and services which operates
primarily in Hong Kong.
(i) Other acquisitions
|
|
On 1 July 2005, our controlled entity Sensis Holdings Pty
Ltd acquired a further 25% of the issued share capital of
Invizage Pty Ltd for a total cash consideration of $5
million including acquisition costs. |
|
|
|
Invizage Pty Ltd is a provider of information technology
services for small and medium Australian organisations. |
|
|
|
On 22 December 2005, our controlled entity Kaz Group Pty
Limited acquired a further 40% of the issued share capital
of Enhanced Processing Technologies Inc for nominal
consideration, giving us ownership of the entity. Prior to
this date, Enhanced Processing Technologies was classified
as a jointly controlled entity. |
|
|
|
Enhanced Processing Technologies Inc is a provider of cheque
processing technology and services which operates primarily
in the United States. |
|
|
|
On 1 February 2006, we acquired a further 24.7% of the
issued capital of Adstream (Aust) Pty Ltd and its controlled
entities (Adstream Group) for a total consideration of $21
million including acquisition costs, giving us a controlling
interest of 58%. Prior to
this date, Adstream (Aust) Pty Ltd was classified as a jointly
controlled entity. Our acquisition of the Adstream Group
included the following controlled entities: |
|
|
|
Adstream Ltd; and |
|
|
|
|
Quickcut
(Aust) Pty Ltd. |
The Adstream Group is a provider of on-line services to
advertisers that streamlines client approval and distribution
of electronic advertising to media outlets.
(j) Sales and disposals
|
|
On 31 August 2005, Trading Post Group Pty Limited (TPG)
sold its investment in Just Listed Pty Ltd to Sensis Pty
Ltd (Sensis). |
|
|
|
In addition, Sensis sold its 33% interest in TPG to Trading
Post (Australia) Holdings Pty Ltd on 31 August 2005. |
|
|
|
These controlled entities are all within the Telstra Group. |
|
|
|
On 1 May 2006, our controlled entity KAZ Group Pty
Limited divested its interest in Fundi Software Pty Ltd in
a management buy-out for a total consideration of $4
million. |
|
|
|
On 26 June 2006, ESA Holding Pty Ltd sold its investment in
Telstra Business Systems Pty Ltd to the Telstra Entity. |
103
320
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities
Our investments in jointly controlled and associated entities
are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Ownership |
|
|
Telstra Groups carrying |
|
|
Telstra Entitys carrying |
|
Name of Entity |
|
activities |
|
interest |
|
|
amount of investment(*) |
|
|
amount of investment (*) |
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
% |
|
|
% |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Jointly controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Partnerships (h) (i) |
|
Pay television |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Services Pty Limited (h) |
|
Customer service |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Management Pty Limited |
|
Management services |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Cable Television Pty Ltd (a) (h) |
|
Pay television |
|
|
80.0 |
|
|
|
80.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reach Ltd (incorporated in
Bermuda) (e) (h) |
|
International connectivity services |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xantic B.V. (incorporated in The
Netherlands) (b) |
|
Global satellite communications |
|
|
|
|
|
|
35.0 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
30 |
|
TNAS Limited (incorporated in New Zealand)
(e) (h) |
|
Toll free number portability in New Zealand |
|
|
33.3 |
|
|
|
33.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Solutions Pty Ltd (h) |
|
Financial advice and education services |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HelpYouPay Systems Pty Ltd (b) |
|
Debt management services |
|
|
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HelpYouPay Pty Ltd (b) |
|
Debt management services |
|
|
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Processing Technologies Pty Ltd (a) |
|
Business process outsourcing |
|
|
60.0 |
|
|
|
60.0 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Processing Technologies Inc
(incorporated in United States) (c) |
|
Software sales |
|
|
|
|
|
|
60.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adstream (Aust) Pty Ltd (c) |
|
Digital advertising and asset management |
|
|
|
|
|
|
33.3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
3GIS Pty Ltd (e) |
|
Management services |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3GIS Partnership (e) |
|
3G network services |
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge Mobile Pte Ltd (incorporated in
Singapore) |
|
Regional roaming provider |
|
|
12.5 |
|
|
|
12.5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
m.Net Corporation Limited (d) |
|
Mobile phone content provider |
|
|
26.4 |
|
|
|
39.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
36 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia-Japan Cable Holdings Limited
(incorporated in Bermuda) (d) (e) (h) |
|
Network cable provider |
|
|
46.9 |
|
|
|
39.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Super Pty Ltd (a) (h) |
|
Superannuation trustee |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keycorp Limited (d) |
|
Electronic transactions solutions |
|
|
47.6 |
|
|
|
47.8 |
|
|
|
18 |
|
|
|
8 |
|
|
|
18 |
|
|
|
8 |
|
Telstra Foundation Ltd (a) |
|
Charitable trustee organisation |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LinkMe Pty Ltd |
|
Internet recruitment provider |
|
|
40.0 |
|
|
|
40.0 |
|
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
12 |
|
|
|
18 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless noted at (e), all investments have a balance date of 30 June
and are incorporated in Australia. Our voting power is the same as our
ownership interest unless otherwise noted.
(i) This includes both the FOXTEL Partnership and the FOXTEL
Television Partnership.
(*) The Telstra Group carrying amounts are calculated using the equity
method of accounting. The Telstra Entitys carrying amounts are at
cost less any accumulated impairment loss.
104
321
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities (continued)
(a) Associated entities and jointly controlled
entities in which we own more than 50% equity
|
|
We own 80% of the equity of FOXTEL Cable Television
Pty Ltd. This entity is disclosed as a jointly
controlled entity as the outside equity shareholders
have participating rights that prevent us from
dominating the decision making of the Board of
Directors. Effective voting power is restricted to
50% and we have joint control. |
|
|
|
We own 100% of the equity of Telstra Super Pty Ltd,
the trustee for the Telstra Superannuation Scheme
(Telstra Super). We do not consolidate Telstra
Super Pty Ltd as we do not control the Board of
Directors. We have equal representation with
employee representatives on the Board. Our voting
power is limited to 44%, which is equivalent to our
representation on the Board. The entity is
therefore classified as an associated entity as we
have significant influence over it. |
|
|
|
We own 100% of the equity of Telstra Foundation Ltd
(TFL). TFL is limited by guarantee (guaranteed to
$100) with Telstra Corporation Limited being the
sole member. We did not contribute any equity to
TFL on incorporation. TFL is the trustee of the
Telstra Community Development Fund and manager of
the Telstra Kids Fund. We do not consolidate TFL as
we do not control the Board. However, due to our
Board representation we significantly influence this
entity. Our voting power is limited to 43%, which
is equivalent to our representation on the Board. |
|
|
|
We own 60% of the equity of Enhanced Processing
Technologies Pty Ltd. This entity is subject to
joint control based on the shareholders agreement,
under which mutual consent of the shareholders is
required in determining the financial and operating
policies of the entity. As a result, it has been
classified as a jointly controlled entity. |
(b) Sale of investments
|
|
On 30 July 2005, we completed the sale of our 50%
shareholding in HelpYouPay Pty Ltd. The revenue on
sale of the investment was not considered
significant. |
|
|
|
On 30 July 2005, we completed the sale of our 50%
shareholding in HelpYouPay Systems Pty Ltd. The
revenue on sale of the investment was not considered
significant. |
|
|
|
On 16 February 2006, we completed the sale of our
35% shareholding in Xantic B.V. for $89 million
(US$67 million). During fiscal 2006, we received
$18 million (US$13 million) as a result of a capital
return by Xantic B.V. |
(c) Investments no longer equity accounted
|
|
On 22 December 2005, we acquired the remaining
40% shareholding in Enhanced Processing
Technologies Inc giving us ownership of the
entity. Prior to this date Enhanced Processing
Technologies Inc was a jointly controlled entity
and was equity accounted. Refer to note 29 for
further details. |
|
|
|
On 1 February 2006, we acquired an additional 24.7%
shareholding in Adstream (Aust) Pty Ltd giving us a
controlling interest. Prior to this date Adstream
(Aust) Pty Ltd was a jointly controlled entity and
was equity accounted. Refer to note 29 for further
details. |
(d) Other changes in jointly controlled and associated entities
|
|
On 1 July 2005, we acquired an intangible asset
from our associated entity Keycorp Limited (Keycorp)
for $55 million. We reduced the value of the
intangible asset recognised and increased our
investment in Keycorp to the extent to which this
transaction is unrealised outside the Telstra Group.
This resulted in a $26 million increase in the
carrying value of our investment. Under the terms
of the transaction Keycorp also returned capital to
its shareholders, our share amounting to $16
million. Refer to (g) for details on our movements
in the consolidated equity amount of our associated
entities. |
|
|
|
In addition, our investment in Keycorp decreased from
47.8% to 47.6% on 29 August 2005. The decrease was due
to a dilution in our shareholding. |
|
|
|
On 10 August 2005, our investment in m.Net
Corporation Limited decreased from 39.5% to 26.4%.
The decrease was due to a dilution in our
shareholding. |
|
|
|
On 16 November 2005, our investment in
Australia-Japan Cable Holdings Limited increased
from 39.9% to 46.9%. The increase was due to
another investor forfeiting their interest in the
investment. |
105
322
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities (continued)
(e) Jointly controlled and associated entities with different balance dates
The following jointly controlled and associated entities
have different balance dates to our balance date of 30
June for fiscal 2006:
|
|
Reach Ltd 31 December; |
|
|
|
TNAS Limited 31 March; |
|
|
|
3GIS Pty Ltd 31 December; |
|
|
|
3GIS Partnership 31 December; and |
|
|
|
Australia-Japan Cable Holdings Limited 31 December. |
Financial reports prepared as at 30 June are used for
equity accounting purposes. Our ownership interest in
jointly controlled and associated entities with different
balance dates is the same at that balance date as 30 June
unless otherwise noted.
(f) Share of jointly controlled and associated entities net (profits)/ losses
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
Net (profit)/loss from jointly controlled and
associated entities has been contributed by
the following entities: |
|
|
|
|
|
|
|
|
Jointly controlled entities |
|
|
|
|
|
|
|
|
- FOXTEL Partnerships |
|
|
5 |
|
|
|
5 |
|
- Stellar Call Centres Pty Ltd |
|
|
|
|
|
|
(3 |
) |
- Xantic B.V. |
|
|
(12 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Associated entities |
|
|
|
|
|
|
|
|
- Keycorp Limited |
|
|
1 |
|
|
|
(5 |
) |
- LinkMe Pty Ltd |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
|
Net (profit)/loss from jointly controlled
entities has been adjusted by the following: |
|
|
|
|
|
|
|
|
Jointly controlled entities |
|
|
|
|
|
|
|
|
- Reach Ltd (i) |
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
(5 |
) |
|
|
94 |
|
|
|
|
|
|
|
(i) |
|
In fiscal 2005, previously unrecognised equity
accounted losses in Reach Ltd (Reach) were recognised due
to our commitment to fund 50% of Reachs committed
capital expenditure, which was accounted for as an
investment in Reach. Refer to note 36 for further
details. |
106
323
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities (continued)
(g) Other disclosures for jointly controlled and associated entities
The movements in the consolidated equity accounted amount
of our jointly controlled and associated entities are
summarised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly controlled |
|
|
|
|
|
|
|
|
|
|
entities |
|
|
Associated entities |
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Group |
|
|
|
|
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
|
|
|
|
30 June |
|
|
30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Carrying amount of investments at beginning of year |
|
|
|
|
|
|
36 |
|
|
|
40 |
|
|
|
12 |
|
|
|
|
|
Additional investments made during the year |
|
|
|
|
|
|
5 |
|
|
|
14 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
54 |
|
|
|
12 |
|
|
|
3 |
|
Share of profits/(losses) before income tax expense |
|
|
|
|
|
|
6 |
|
|
|
2 |
|
|
|
(3 |
) |
|
|
12 |
|
Share of income tax expense |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
1 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Share of profits/(losses) for the year after income tax expense |
|
|
|
|
|
|
6 |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
5 |
|
Amortisation of unrealised inter-entity profits after income tax |
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profits/(losses) for the year |
|
|
|
|
|
|
7 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
5 |
|
Dividends and distributions received |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Share of reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Share of foreign currency translation reserve and movements due to exchange rate
translations |
|
|
|
|
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Sale, transfers and reductions of investments during the year |
|
|
|
|
|
|
(47 |
) |
|
|
(16 |
) |
|
|
(15 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of investments before reduction to recoverable amount |
|
|
|
|
|
|
2 |
|
|
|
38 |
|
|
|
21 |
|
|
|
12 |
|
Impairment losses recognised in the income statement during the year |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of investments at end of year |
|
|
13 |
|
|
|
2 |
|
|
|
36 |
|
|
|
21 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of contingent liabilities of jointly controlled and associated
entities we are not directly liable for these |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of capital commitments contracted for by our jointly controlled
and associated entities we are not directly liable for these (i) |
|
|
|
|
|
|
11 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of other expenditure commitments contracted for by our jointly
controlled and associated entities (other than the supply of inventories) we are not
directly liable for these (i) |
|
|
|
|
|
|
40 |
|
|
|
52 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
The commitments and guarantees of our jointly
controlled entities for which we are directly liable are
included within note 26 and note 27 respectively. |
107
324
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities (continued)
(g) Other disclosures for jointly controlled and associated entities (continued)
Summarised presentation of all of our jointly
controlled and associated entities assets,
liabilities, revenue and expense items (including
jointly controlled and associated entities where
equity accounting has been suspended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly controlled |
|
|
|
|
|
|
entities |
|
|
Associated entities |
|
|
|
Telstra Group |
|
|
Telstra Group |
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
30 June |
|
|
30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current assets |
|
|
556 |
|
|
|
695 |
|
|
|
73 |
|
|
|
131 |
|
Non current assets |
|
|
811 |
|
|
|
909 |
|
|
|
346 |
|
|
|
354 |
|
|
|
|
|
|
Total assets |
|
|
1,367 |
|
|
|
1,604 |
|
|
|
419 |
|
|
|
485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
950 |
|
|
|
1,521 |
|
|
|
58 |
|
|
|
88 |
|
Non current liabilities |
|
|
927 |
|
|
|
579 |
|
|
|
536 |
|
|
|
502 |
|
|
|
|
|
|
Total liabilities |
|
|
1,877 |
|
|
|
2,100 |
|
|
|
594 |
|
|
|
590 |
|
|
|
|
|
|
Net assets |
|
|
(510 |
) |
|
|
(496 |
) |
|
|
(175 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
2,152 |
|
|
|
2,335 |
|
|
|
150 |
|
|
|
174 |
|
Total expenses |
|
|
2,067 |
|
|
|
2,140 |
|
|
|
180 |
|
|
|
211 |
|
|
|
|
|
|
Profit/(loss) before income tax expense |
|
|
85 |
|
|
|
195 |
|
|
|
(30 |
) |
|
|
(37 |
) |
Income tax expense |
|
|
3 |
|
|
|
8 |
|
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
Profit/(loss) for the year |
|
|
82 |
|
|
|
187 |
|
|
|
(34 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarised presentation of our share of all our jointly controlled and associated
entities revenue and expense items (including jointly controlled entities where
equity accounting has been suspended): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
1,369 |
|
|
|
1,377 |
|
|
|
71 |
|
|
|
81 |
|
Total expenses |
|
|
1,326 |
|
|
|
1,280 |
|
|
|
85 |
|
|
|
96 |
|
|
|
|
|
|
Profit/(loss) before income tax expense |
|
|
43 |
|
|
|
97 |
|
|
|
(14 |
) |
|
|
(15 |
) |
Income tax expense |
|
|
2 |
|
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
Profit/(loss) for the year |
|
|
41 |
|
|
|
92 |
|
|
|
(16 |
) |
|
|
(18 |
) |
|
|
|
|
|
108
325
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. Investments in jointly controlled and associated entities (continued)
(h) Suspension of equity accounting
Our unrecognised share of (profits)/losses for the period
and cumulatively, for our entities where equity
accounting has ceased and the investment is recorded at
zero due to losses made by these entities and/or
reductions in the equity accounted carrying amount, is
shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
Period |
Cumulative |
|
|
Period |
Cumulative |
|
|
|
|
|
2006 |
2006 |
|
|
|
|
2005 |
2005 |
|
|
|
|
|
$m |
$m |
|
|
|
|
$m |
$m |
|
|
|
|
Jointly controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Partnerships |
|
|
|
|
(1 |
) |
117 |
|
|
|
|
|
80 |
|
118 |
|
Reach Ltd |
|
|
|
|
(34 |
) |
575 |
|
|
|
|
|
(206 |
) |
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia-Japan Cable Holdings Limited |
|
|
|
|
36 |
|
143 |
|
|
|
|
|
14 |
|
107 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
835 |
|
|
|
|
|
(112 |
) |
834 |
|
|
|
|
|
|
Equity accounting has also been suspended for the following jointly
controlled and associated entities:
|
|
Customer Services Pty Limited; |
|
|
|
FOXTEL Cable Television Pty Ltd; |
|
|
|
TNAS Limited; |
|
|
|
Money Solutions Pty Ltd; and |
|
|
|
Telstra Super Pty Ltd. |
There are no significant unrecognised profits/losses in these entities.
109
326
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans
The Company has a number of employee share plans
that are available for directors, executives and
employees, these include:
|
|
the Telstra Employee Share Ownership Plans
(TESOP99 and TESOP97); and |
|
|
|
those conducted
through the Telstra Growthshare Trust. |
The nature of each plan, details of plan holdings,
movements in holdings, and other relevant
information is disclosed below:
(a) TESOP99 and TESOP97
As part of the Commonwealths sale of its shareholding
in fiscal 2000 and fiscal 1998 we offered eligible
employees the opportunity to buy ordinary shares of
Telstra. These share plans were:
|
|
the Telstra Employee Share Ownership Plan II
(TESOP99); and |
|
|
|
the Telstra Employee Share Ownership
Plan (TESOP97). |
Participating employees are entitled to receive dividends
and voting rights in the shares. Telstra ESOP Trustee
Pty Ltd is the trustee for TESOP99 and TESOP97 and holds
the shares on behalf of participants. This company is
100% owned by Telstra.
Generally, employees were offered interest free loans by
the Telstra Entity to acquire certain shares and in some
cases became entitled to certain extra shares and loyalty
shares as a result of participating in the plans. All
shares acquired under the plans were transferred from the
Commonwealth either to the employees or to the trustee
for the benefit of the employees.
While a participant remains an employee of the Telstra
Entity, a company in which Telstra owns greater than 50%
equity, or the company which was their employer when the
shares were acquired, there is no date by which the
employee has to repay the loan. The loan may, however,
be repaid in full at any time by the employee using his
or her own funds.
The loan shares, extra shares and in the case of
TESOP99, the loyalty shares, were subject to a
restriction on the sale of the shares or transfer to the
employee for three years, or until the relevant
employment ceased. This restriction period has now been
fulfilled under each plan.
If a participating employee leaves the Telstra Entity, a
company in which Telstra owns greater than 50% equity, or
the company which was their employer when the shares were
acquired, to acquire the relevant shares the employee
must repay their loan within two months of leaving. This
is the case except where the restriction period has ended
because of the
employees death or disablement (in this case the loan
must be repaid within 12 months).
If the employee does not repay the loan when required,
the trustee can sell the shares. The sale proceeds must
then be used to pay the costs of the sale and any amount
outstanding on the loan, after which the balance will be
paid to the employee. The Telstra Entitys recourse
under the loan is limited to the amount recoverable
through the sale of the employees shares.
110
327
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(a) TESOP99 and TESOP97 (continued)
The following information details the number of
outstanding equity instruments and loan balances relevant
to the TESOP99 and TESOP97 plans:
|
|
|
|
|
|
|
|
|
|
|
Employee share plans |
|
|
As at 30 June |
|
|
2006 |
|
2005 |
|
Market price of Telstra shares |
|
$3.68 per share |
|
$5.06 per share |
Employee share loan balance |
|
$130 million |
|
$154 million |
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
|
|
|
|
|
|
Remaining number of loan shares |
|
|
14,387,400 |
|
|
|
14,535,900 |
|
|
|
|
|
|
|
|
|
|
TESOP97 |
|
|
|
|
|
|
|
|
Remaining number of loan shares |
|
|
32,573,300 |
|
|
|
36,674,100 |
|
Remaining
number of extra shares |
|
|
8,143,325 |
|
|
|
9,168,525 |
|
The fair value of these shares as at 30 June 2006 based
on the market value of Telstra shares at balance date
amounts to $203 million (2005: $306 million).
The Telstra ESOP Trustee continues to hold the loan
shares where the employee has ceased employment and
elected not to repay the loan, until the share price is
sufficient to recover the loan amount and associated
costs. The Trustee will then sell the shares. As at 30
June 2006, there were 6,418,300 shares held for this
purpose (2005: 5,603,100).
The movements in the number of instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
TESOP97 |
|
TESOP99 |
|
|
number |
|
number |
|
Equity instruments outstanding as
at 30 June 2004 |
|
|
48,327,000 |
|
|
|
14,622,000 |
|
Exercised |
|
|
(2,484,375 |
) |
|
|
(86,100 |
) |
|
|
|
Equity instruments outstanding as
at 30 June 2005 |
|
|
45,842,625 |
|
|
|
14,535,900 |
|
Exercised |
|
|
(5,126,000 |
) |
|
|
(148,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments outstanding as
at 30 June 2006 |
|
|
40,716,625 |
|
|
|
14,387,400 |
|
|
|
|
The weighted average loan still to be repaid for the
TESOP97 equity instrument is $1.04 (2005: $1.33), and
TESOP99 equity instrument is $6.13 (2005: $6.42).
The weighted average share price at the date of the transfers of Telstra shares relating to the exercise of these instruments was
$3.95 for TESOP 99 (2005: $4.77) and $3.96 for TESOP 97 (2005: $4.77) based on the closing market price on those dates. The
total proceeds received on exercise of TESOP99 was $5 million (2005: $4 million) and TESOP97 was $19 million (2005: $15 million).
111
328
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust
The Telstra Growthshare Trust commenced in fiscal 2000.
Under the trust, Telstra operates a number of different
short and long term incentive equity plans whereby the
following equity based instruments may be allocated:
|
|
incentive shares; |
|
|
|
sign-on bonus shares; |
|
|
|
performance rights; |
|
|
|
deferred shares; |
|
|
|
restricted shares; and |
|
|
|
options. |
In addition, the following share plans are operated
for our non executive directors and certain
eligible employees:
|
|
directshares; and |
|
|
|
ownshares. |
The trustee for the trust is Telstra Growthshare Pty Ltd.
This company is 100% owned by Telstra. Funding is
provided to the Telstra Growthshare Trust to purchase
Telstra shares on the market to underpin the equity
instruments issued.
In fiscal 2006, we recorded an expense of $15 million for
our share based payments (2005: $10 million). As at 30
June 2006, we had a total expense yet to be recognised of
$25 million (2005: $17 million), which is expected to be
recognised over a weighted average of 2 years (2005: 2
years).
Our election not to apply AASB 2: Share based payment
(AASB 2) to equity instruments granted prior to 7
November 2002, as permitted under AASB 1: First-time
Adoption of Australian Equivalents to International
Financial Reporting Standards (AASB 1), has reduced the
expense we have recorded, as well as the total expense we
are yet to recognise. Refer to note 36(a) for further
details.
Short term incentive equity plan
Incentive shares
In fiscal 2006, the Board allocated the executives half
of their short term incentive payments as rights to
acquire Telstra shares. These incentive shares vest in
equal parts over a period of one, two and three years on
the anniversary of their allocation date, subject to the
executives continued employment with any entity that
forms part of the Telstra Group. The executive can
exercise their vested incentive shares at a cost of $1 in
total for all of the incentive shares exercised on a
particular day.
Once the vested incentive shares are exercised, Telstra
shares will be transferred to the executive. Until this
time, the executive cannot use the incentive shares (or
vested incentive shares) to vote or receive dividends.
Any dividends paid by the Company prior to exercise will
increase the number of incentive shares allocated to the
executive. The Board has decided not to continue the
short term incentive share plan and the short term
incentive payment for fiscal 2006 will be delivered in
cash.
Incentive shares movements during the year
The following incentive shares were granted during fiscal 2006:
|
|
|
|
|
Effective commencement date of instruments |
|
19 August 2005 |
Number of incentive shares issued |
|
1,986,435 |
Market price of Telstra shares on grant date |
|
|
$4.77 |
Exercise date - 1 year incentive shares |
|
19 August 2006 |
Exercise date - 2 year incentive shares |
|
19 August 2007 |
Exercise date - 3 year incentive shares |
|
19 August 2008 |
Expiration date |
|
2 years from each exercise
date |
During fiscal 2006, 53,467 incentive shares were
forfeited due to resignation, and 97,382 incentive shares
were exercised as a result of those executives being made
redundant. As a result of the above movements, 1,835,586
incentive shares were outstanding as at 30 June 2006.
There were no incentive shares that were exercisable at
30 June 2006.
The fair value of the August 2005 allocation of incentive
shares was $4.77. This was calculated using a Black
Scholes option pricing model. The following weighted
average assumptions were used in determining the
valuation:
|
|
|
|
|
|
|
Growthshare |
|
|
incentive shares |
|
|
August 2005 |
|
Risk free rate - 1 year incentive shares |
|
|
5.12 |
% |
Risk free rate - 2 year incentive shares |
|
|
5.06 |
% |
Risk free rate - 3 year incentive shares |
|
|
5.06 |
% |
Expected stock volatility |
|
|
15 |
% |
Long term incentive equity plans
(i) Nature of share plans
The purpose of the long term incentive plans is to align
key executives rewards with shareholders interests, and
reward performance improvement whilst supporting business
plans and corporate strategies. These plans are
administered through the Telstra Growthshare Trust. The
Board determines who is invited to participate in the
share plans.
112
329
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
Long term incentive equity plans
(i) Nature of share plans (continued)
Allocations have been made over a number of years in the
form of performance rights, restricted shares and options
under our long term incentive plan, and deferred shares
under our deferred remuneration plan. Instruments issued
represent a right to acquire a share in Telstra.
Generally, the performance rights, restricted shares and
options may only be exercised to acquire Telstra shares
if a performance hurdle is satisfied in the performance
period and in the case of options, the exercise price is
paid by the executive. Deferred shares may only be
exercised when a prescribed period of service has been
completed.
Performance rights
We have seven types of performance rights on issue. These are:
|
|
total shareholder return (TSR) performance rights are
based on Telstras total shareholder return; |
|
|
|
earnings
per share (EPS) performance rights are based on the
growth of earnings per share in the year of allocation
and two subsequent years; |
|
|
|
operating expense growth
(OEG) performance rights are based on a reduction in
Telstras operating expenses; |
|
|
|
revenue growth (RG)
performance rights are based on increases in Telstras
revenue; |
|
|
|
network transformation (NT) performance rights
are based on completion of certain elements in
Telstras network transformation program; |
|
|
|
information
technology transformation (ITT) performance rights are
based on a reduction in the number of business support
systems (BSS) and operational support systems (OSS)
systems used by companies in the Telstra Group; and |
|
|
|
return on investment (ROI) performance rights are based
on an increase in the earnings before interest and tax
for Telstra relative to the average investment. |
For all types of performance rights, an executive is not
entitled to Telstra shares before the performance rights
allocated under Telstra Growthshare become vested
performance rights and are therefore exercisable. If the
performance hurdle is satisfied during the performance
period, a specified number of performance rights as
determined in accordance with the trust deed and terms of
issue, will become vested performance rights. The vested
performance rights can then be exercised at any time
before the expiry date, otherwise they will lapse. Once
the vested performance rights are exercised, Telstra
shares will be transferred to the executive. Until this
time, the executive cannot use the performance rights (or
vested performance rights) to vote or receive dividends.
Telstra shares will be transferred to the executive on
exercise of vested performance rights. The executive may
exercise the performance rights at a cost of $1 in total
for all of the performance rights exercised on a
particular day.
Deferred shares
The executives were previously provided part of their
annual fixed remuneration in the form of rights to
Telstra shares that vest upon completing certain
employment requirements. Generally, if an executive
continues to be employed by an entity that forms part
of the Telstra Group three years after the commencement
date of the instrument, the deferred share will become
a vested deferred share.
Vested deferred shares must be exercised before the
expiry date, otherwise they will lapse. Once exercised,
Telstra shares will be transferred to the executive.
Until this time, the executive can not use the deferred
shares or vested deferred shares to vote or receive
dividends. The executive may exercise the deferred
shares at a cost of $1 in total for all of the deferred
shares exercised on a particular day.
Restricted shares
The executive is not entitled to Telstra shares before
the restricted shares allocated under the trust are
exercised. If the performance hurdle is satisfied in the
performance period, the restricted shares will vest and
may be exercised at any time before the expiry date,
otherwise they will lapse. Once the restricted shares
have vested, they become restricted trust shares, which
will generally be held by the trustee for the executive
for a certain period. Once converted into restricted
trust shares, the executive has an interest in Telstra
shares and is entitled to dividends, other distributions,
and voting rights.
Restricted trust shares are held by the Trustee until the earlier of:
|
|
the period determined in accordance with the
trust deed; |
|
|
|
the executive finishes employment
with Telstra; or |
|
|
|
a date nominated by the Board. |
The executive may exercise restricted shares at a cost of
$1 in total for all of the restricted shares exercised on
a particular day.
113
330
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(i) Nature of the share plans (continued)
Options
An executive is not entitled to Telstra shares before the
options allocated under Telstra Growthshare initially
vest, and then are exercised. This means that the
executive cannot use options to vote or receive
dividends. If the performance hurdle is satisfied in the
performance period, options may be exercised at any time
before the expiry date otherwise they will lapse.
Details of the performance hurdle for options is detailed
below.
Once the options are exercised and the option price
paid, Telstra shares will be transferred to the
executive.
(ii) Performance hurdles
Performance hurdles for instruments issued in fiscal 2006
TSR performance rights
For allocations of TSR performance rights issued in
fiscal 2006, the applicable performance hurdle is based
on the market value of Telstra shares and the value of
accumulated dividends paid to Telstra shareholders. TSR
performance rights vest if Telstras total shareholder
return exceeds certain targets over the performance
period, which is the five years to 30 June 2010. If the
total shareholder return is:
|
|
equal to the minimum target then 50% of the allocation
becomes exercisable (except for the CEO, who will receive
75% of the allocated performance rights); |
|
|
|
between the
maximum and minimum targets then the number of
exercisable TSR performance rights is scaled
proportionately between 50% and 100% (with the exception
of the CEO whose number of performance rights is scaled
proportionately between 75% and 100%); |
|
|
|
equal to or
greater than the maximum target then 100% of the TSR
performance rights will become exercisable; or |
|
|
|
is less
than the minimum target all TSR performance rights will
lapse. |
OEG, RG, NT and ITT performance rights
For allocations of the OEG, RG, NT and ITT performance
rights issued in fiscal 2006, the performance hurdles
for the initial performance period are:
|
|
if the minimum target is achieved in the initial
performance period, (1 July 2005 to 30 June 2008) then
50% of the allocation of performance rights will become
exercisable (except for the CEO, who will receive 75% of
the allocated performance rights); |
|
|
if the result achieved is between the maximum and
minimum targets, then the number of exercisable
performance rights is scaled proportionately between 50%
and 100% (with the exception of the CEO whose number of
performance rights is scaled proportionately between 75%
and 100%); |
|
|
|
if the maximum target is achieved then 100%
of the performance rights will become exercisable; or |
|
|
|
if the minimum target is not achieved 25% of the
performance rights allocated to the initial performance
period will lapse. |
Of the performance rights that have not become
exercisable in the initial performance period, 75%
will be added to the subsequent performance period
allocation. The performance targets for the
subsequent performance period (1 July 2005 to 30 June
2010) are:
|
|
if the minimum target is met, 50% of the allocation
will become exercisable (except for the CEO, who will
receive 75% of the allocated performance rights); |
|
|
|
if
the result achieved is between the maximum and minimum
targets, then the number of exercisable performance
rights is scaled proportionately between 50% and 100%
(with the exception of the CEO whose number of
performance rights is scaled proportionately between 75%
and 100%); or |
|
|
|
if the maximum target is achieved then
all of the performance rights will become exercisable. |
If the minimum target is not met in the subsequent
performance period, all performance rights will
lapse.
ROI performance rights
For the allocation of ROI performance rights issued in
fiscal 2006, if the return on investment is:
|
|
equal to the minimum target then 50% of the allocation
will become exercisable (except for the CEO, who will
receive 75% of the allocated performance rights); |
|
|
|
between the maximum and minimum targets, the number of
exercisable ROI performance rights is scaled
proportionately between 50% and 100% (with the exception
of the CEO whose number of performance rights is scaled
proportionately between 75% and 100%); |
|
|
|
greater than the
maximum target then 100% of the ROI performance rights
will become exercisable; or |
|
|
|
is less than the minimum
target 25% of the allocated ROI performance rights will
lapse. |
If the ROI performance rights have not become exercisable
in this period, 75% of these performance rights will be
added to the allocation of TSR performance rights for
measurement against the TSR performance hurdle. If this
TSR performance hurdle is not achieved, all ROI
performance rights will lapse.
114
331
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(ii) Performance hurdles (continued)
Performance hurdle for instruments issued between 30 June
2001 and 30 June 2005
EPS performance rights
The number of EPS performance rights that become vested
EPS performance rights, and therefore become exercisable,
is based on the following:
|
|
if the cumulative growth in EPS from 1 July 2004 to 30
June 2007 is equal to 15.7% then 50% of the allocation
becomes exercisable; |
|
|
|
if the cumulative growth in EPS is
greater than 15.7% and less than 33.1% then the number of
exercisable performance rights is scaled proportionately
between 50% and 100%; |
|
|
|
if the cumulative growth in EPS
exceeds 33.1% then 100% of the EPS performance rights
will become exercisable; or |
|
|
|
if Telstra does not achieve
cumulative growth in EPS of 15.7%, all EPS performance
rights will lapse. |
TSR performance rights and options
For allocations of TSR performance rights made between 30
June 2001 and 30 June 2005, and options issued during
fiscal 2002, the applicable performance hurdle is based
on comparing Telstras total shareholder return (TSR)
with the TSRs of the companies in the S&P/ASX 200
(Industrial) Index (peer group) within the performance
period.
The companies in the peer group are anchored at the
effective date of allocation, and this same peer group of
companies are then tracked during the performance period.
At the end of each quarter during the performance
period, the 30 day average TSR is calculated for Telstra
and the companies in the peer group for each trading day
during that quarter.
Both the number of TSR performance rights and the number
of options potentially exercisable are based on the
following.
If in the first quarter of the performance period,
Telstras percentile ranking is the 50th percentile or
above then:
|
|
the number of TSR performance rights and options that
become exercisable for that quarter is scaled
proportionately from the 50th percentile (at which 50% of
the allocation becomes exercisable) to the 75th
percentile (at which 100% of the allocation becomes
exercisable); and |
|
|
|
in subsequent quarters, the number that become
exercisable is based on the same proportionate scale,
but is reduced by the number of performance rights or
options that have previously become exercisable. The
percentile ranking achieved needs to be above that
achieved in previous
quarters for additional performance rights and options
to become exercisable. |
If in the first quarter of the performance period, the
percentile ranking is less than the 50th percentile then:
|
|
half of the allocation will lapse; and |
|
|
|
in subsequent quarters, the remaining 50% of the
options or performance rights will become
exercisable if the ranking is the 50th percentile or
above for that quarter. |
If Telstra does not achieve or exceed the 50th percentile
ranking in any quarter of the performance period, all TSR
performance rights and options will lapse.
Performance hurdle for instruments issued prior to 30 June 2001
For all allocations prior to 30 June 2001, which include
restricted shares and options, the applicable
performance hurdle was that the average Telstra
Accumulation Index must exceed the average S&P/ ASX 200
(Industrial) Index (replacing the superseded All
Industrials Accumulation Index) for thirty consecutive
days within the performance period. If the performance
hurdle is satisfied for these allocations, all of the
relevant options or restricted shares would become
exercisable (i.e. they do not become exercisable on a
proportionate basis).
115
332
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(ii) Performance hurdles (continued)
The following outlines the targets to be achieved for
the fiscal 2006 allocation of performance rights to
become exercisable:
|
|
|
|
|
|
|
|
|
|
|
3 Year performance rights |
|
5 Year performance rights |
|
|
Initial performance period |
|
Subsequent performance period |
|
|
Minimum target |
|
Maximum target |
|
Minimum target |
|
Maximum target |
|
TSR performance rights
|
|
N/A
|
|
N/A
|
|
(a)
|
|
(a) |
|
|
|
OEG performance rights
|
|
2.2% operating
expense growth
|
|
1.2% operating
expense growth
|
|
1.1% operating
expense growth
|
|
0.0% operating
expense growth |
|
|
|
RG performance rights
|
|
2.0% revenue growth
|
|
2.5% revenue growth
|
|
2.0% revenue growth
|
|
2.5% revenue growth |
|
|
|
NT performance rights
|
|
IP Core and Ethernet
complete by 30 June
2008
|
|
IP Core and Ethernet
complete by 31
December 2007
|
|
Multi Service Edge,
Soft
Switch Platform, Fibre
to the Node and
Wireless NGN complete
by 30 June 2010
|
|
Multi Service Edge, Soft
Switch Platform, Fibre
to the Node and
Wireless NGN complete
by 31 December 2009 |
|
|
|
ITT performance rights
|
|
350 OSS and BSS
systems
|
|
250 OSS and BSS
systems
|
|
250 OSS and BSS
systems
|
|
200 OSS and BSS
systems |
|
|
|
ROI performance rights
|
|
23.5% return on
investment
|
|
24.5% return on
investment
|
|
N/A
|
|
N/A |
|
|
|
(a) |
|
The applicable performance hurdle is based on the
market value of Telstra shares and the value of
accumulated dividends paid to Telstra shareholders. This
has been set by the Board. |
116
333
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iii) Instruments outstanding at the beginning of fiscal 2006
The following performance rights, deferred shares,
restricted shares and options were outstanding at the
start of fiscal 2006, but were yet to vest with
executives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise date |
|
|
|
instruments |
|
|
Commencement |
|
|
Performance |
|
|
Exercise |
|
|
(once performance |
|
|
|
outstanding |
|
|
date |
|
|
hurdle period |
|
|
price |
|
|
hurdle met) |
|
|
|
|
|
|
|
|
|
|
|
from |
|
|
to |
|
anytime before: |
|
Growthshare 2001 - Sept 2000 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
2,413,900 |
|
|
8 Sept 2000 |
|
|
8 Sept 2003 |
|
|
8 Sept 2005 |
|
|
$ |
6.28 |
|
|
8 Sept 2010 |
|
Restricted shares |
|
|
500,600 |
|
|
8 Sept 2000 |
|
|
8 Sept 2003 |
|
|
8 Sept 2005 |
|
|
$1 per parcel exercised |
|
|
8 Sept 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2001 - March 2001 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
150,000 |
|
|
16 March 2001 |
|
|
16 March 2004 |
|
|
16 March 2006 |
|
|
$ |
6.55 |
|
|
16 March 2011 |
Restricted shares |
|
|
40,000 |
|
|
16 March 2001 |
|
|
16 March 2004 |
|
|
16 March 2006 |
|
|
$1 per parcel exercised |
|
|
16 March 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2002 - Sept 2001 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
13,325,153 |
|
|
6 Sept 2001 |
|
|
6 Sept 2004 |
|
|
6 Sept 2006 |
|
|
$ |
4.90 |
|
|
6 Sept 2011 |
|
TSR Performance rights |
|
|
1,273,782 |
|
|
6 Sept 2001 |
|
|
6 Sept 2004 |
|
|
6 Sept 2006 |
|
|
$1 per parcel exercised |
|
|
8 Dec 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2002 - March 2002 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
1,602,000 |
|
|
14 March 2002 |
|
|
14 March 2005 |
|
|
14 March 2007 |
|
|
$ |
5.63 |
|
|
14 March 2012 |
|
TSR Performance rights |
|
|
136,000 |
|
|
14 March 2002 |
|
|
14 March 2005 |
|
|
14 March 2007 |
|
|
$1 per parcel exercised |
|
|
14 June 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2003 - Sept 2002 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
1,774,023 |
|
|
5 Sept 2002 |
|
|
|
N/A |
|
|
|
|
|
|
$1 per parcel exercised |
|
|
5 Sept 2007 |
|
TSR Performance rights |
|
|
3,687,224 |
|
|
5 Sept 2002 |
|
|
5 Sept 2005 |
|
|
5 Sept 2007 |
|
|
$1 per parcel exercised |
|
|
5 Dec 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2003 - March 2003 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
18,600 |
|
|
7 March 2003 |
|
|
|
N/A |
|
|
|
|
|
|
$1 per parcel exercised |
|
|
7 March 2008 |
|
TSR Performance rights |
|
|
37,200 |
|
|
7 March 2003 |
|
|
7 March 2006 |
|
|
7 March 2008 |
|
|
$1 per parcel exercised |
|
|
7 June 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2004 - Sept 2003 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
2,025,008 |
|
|
5 Sept 2003 |
|
|
|
N/A |
|
|
|
|
|
|
$1 per parcel exercised |
|
|
5 Sept 2008 |
|
TSR Performance rights |
|
|
4,099,546 |
|
|
5 Sept 2003 |
|
|
5 Sept 2006 |
|
|
5 Sept 2008 |
|
|
$1 per parcel exercised |
|
|
5 Dec 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2004 - February 2004 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
18,350 |
|
|
20 Feb 2004 |
|
|
|
N/A |
|
|
|
|
|
|
$1 per parcel exercised |
|
|
20 Feb 2009 |
|
TSR Performance rights |
|
|
36,700 |
|
|
20 Feb 2004 |
|
|
20 Feb 2007 |
|
|
20 Feb 2009 |
|
|
$1 per parcel exercised |
|
|
20 May 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2005 - August 2004 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR Performance rights |
|
|
2,424,714 |
|
|
20 Aug 2004 |
|
|
20 Aug 2007 |
|
|
20 Aug 2009 |
|
|
$1 per parcel exercised |
|
|
20 Nov 2009 |
|
EPS Performance rights |
|
|
2,424,714 |
|
|
20 Aug 2004 |
|
|
1 July 2004 |
|
|
30 June 2007 |
|
|
$1 per parcel exercised |
|
|
20 Nov 2009 |
|
As deferred shares are allocated as annual fixed
remuneration, there is no performance hurdle.
Generally, deferred shares will become vested deferred
shares after a specified service period.
117
334
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iv) Instruments granted during the financial year
The following performance rights were granted in
February 2006 in relation to the 2005 long term
incentive plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR |
|
|
OEG |
|
|
RG |
|
|
NT |
|
|
ITT |
|
|
ROI |
|
|
|
performance |
|
|
performance |
|
|
performance |
|
|
performance |
|
|
performance |
|
|
performance |
|
|
|
rights |
|
|
rights |
|
|
rights |
|
|
rights |
|
|
rights |
|
|
rights |
|
Number of executives who were allocated
performance rights |
|
|
220 |
|
|
220 |
|
|
220 |
|
|
220 |
|
|
220 |
|
|
220 |
Effective commencement date of instruments |
|
|
24 Feb 2006 |
|
|
24 Feb 2006 |
|
|
24 Feb 2006 |
|
|
24 Feb 2006 |
|
|
24 Feb 2006 |
|
|
24 Feb 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance hurdle period i.e. over what
time period executives have to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
satisfy the
performance hurdle for the instruments to vest |
|
|
30 June 2010 |
|
|
30 June 2008 |
|
|
30 June 2008 |
|
|
30 June 2008 |
|
|
30 June 2008 |
|
|
30 June 2008 |
|
|
|
|
|
Subsequent performance hurdle period |
|
|
|
|
|
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
1 July 2005 to |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
30 June 2010 |
|
|
30 June 2010 |
|
|
30 June 2010 |
|
|
30 June 2010 |
|
|
|
|
N/A |
|
|
|
|
|
Number of performance rights issued |
|
|
|
|
571,943 |
|
|
|
|
1,143,886 |
|
|
|
|
1,143,886 |
|
|
857,914 |
|
|
857,914 |
|
|
|
|
1,143,886 |
|
|
|
|
|
Exercise price (once the performance rights |
|
$ |
1 per parcel |
|
$ |
1 per parcel |
|
$ |
1 per parcel |
|
$ |
1 per parcel |
|
$ |
1 per parcel |
|
$ |
1 per parcel |
become exercisable) |
|
|
of instruments |
|
|
of instruments |
|
|
of instruments |
|
|
of instruments |
|
|
of instruments |
|
|
of instruments |
|
|
|
exercised |
|
|
exercised |
|
|
exercised |
|
|
exercised |
|
|
exercised |
|
|
exercised |
|
|
|
|
|
Market price of Telstra shares on
commencement date |
|
$ |
|
|
3.87 |
|
$ |
|
|
3.87 |
|
$ |
|
3.87 |
|
$ |
|
3.87 |
|
$ |
|
3.87 |
|
$ |
|
|
3.87 |
|
|
|
|
|
Fair value (per instrument) |
|
$ |
|
|
0.66 |
|
$ |
|
|
3.18 |
|
$ |
|
|
3.18 |
|
$ |
|
|
3.18 |
|
$ |
|
|
3.18 |
|
$ |
|
|
3.37 |
|
|
|
|
|
Exercise date (once the instruments become |
|
|
any time |
|
|
any time |
|
|
any time |
|
|
any time |
|
|
any time |
|
|
any time |
exercisable) |
|
|
before |
|
|
before |
|
|
before |
|
|
before |
|
|
before |
|
|
before |
|
|
|
19 Aug 2012 |
|
|
19 Aug 2012 |
|
|
19 Aug 2012 |
|
|
19 Aug 2012 |
|
|
19 Aug 2012 |
|
|
19 Aug 2012 |
|
|
|
|
|
The following performance rights were granted in August 2004:
|
|
|
|
|
|
|
|
|
|
|
TSR performance |
|
|
EPS performance |
|
|
|
rights |
|
|
rights |
|
|
Number of executives who were allocated
performance rights |
|
|
178 |
|
|
178 |
Effective commencement date of performance
rights |
|
20 Aug 2004 |
|
20 Aug 2004 |
|
|
|
|
|
|
|
|
|
Performance hurdle period i.e. over what time
period executives have to satisfy the
performance hurdle for the instruments to vest |
|
20 Aug 2007 to
20 Aug 2009 |
|
1 Jul 2004 to
30 Jun 2007 |
|
|
|
Number of performance rights issued |
|
|
2,473,000 |
|
|
2,473,000 |
|
|
|
Exercise price (once the instruments become exercisable) |
|
$ |
1 per parcel of |
|
$ |
1 per parcel of |
|
instruments |
|
instruments |
|
exercised |
|
exercised |
|
|
|
Market price of Telstra shares on commencement
date |
|
$ |
4.89 |
|
$ |
4.89 |
|
|
|
Fair value (per instrument) |
|
$ |
2.63 |
|
$ |
4.18 |
|
|
|
Exercise
date (once the instruments become exercisable) |
|
any time before |
|
any time before |
|
20 Nov 2009 |
|
20 Nov 2009 |
|
|
|
118
335
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iv) Instruments granted during the financial year (continued)
The fair value was calculated using a valuation technique
that is consistent with the Black Scholes methodology and
utilises Monte Carlo simulations. The following weighted
average assumptions were used in determining the
valuation:
|
|
|
|
|
|
|
|
|
|
|
Growthshare |
|
|
performance
rights |
|
|
Feb 2006 |
|
Aug 2004 |
|
Share price |
|
$ |
3.87 |
|
|
$ |
4.89 |
|
Risk free rate |
|
|
5.20 |
% |
|
|
5.39 |
% |
Dividend yield |
|
|
6.0 |
% |
|
|
5.5 |
% |
Expected stock volatility |
|
|
19 |
% |
|
|
13.1 |
% |
Expected life performance rights |
|
date the instruments become exercisable
|
|
|
5.25 years |
|
Expected rate of achievement of TSR
performance hurdles |
|
|
15 |
% |
|
|
62 |
% |
|
|
|
The expected stock volatility is a measure of the amount
by which the price is expected to fluctuate during a
period. This was based on historical daily and weekly
closing share prices.
As the RG, OEG, NTT, IT and ROI performance rights are
not based on market conditions, no adjustment for the
expected achievement of the performance hurdles was made
in the valuation.
119
336
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(v) Instruments which have been forfeited during the financial year
The following instruments issued to participating
employees have been forfeited during the financial
year due to cessation of employment:
|
|
|
|
|
|
|
|
|
|
|
Instruments forfeited |
|
|
|
during year ended 30 June |
|
Allocation |
|
2006 |
|
|
2005 |
|
|
Options |
|
|
|
|
|
|
|
|
September 2000 |
|
|
|
|
|
|
419,447 |
|
September 2001 |
|
|
888,153 |
|
|
|
1,631,444 |
|
March 2002 |
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
September 2000 |
|
|
|
|
|
|
86,608 |
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
|
|
|
|
|
|
September 2002 |
|
|
41,292 |
|
|
|
105,856 |
|
March 2003 |
|
|
506 |
|
|
|
3,500 |
|
September 2003 |
|
|
94,713 |
|
|
|
116,595 |
|
|
|
|
|
|
|
|
|
|
TSR Performance rights |
|
|
|
|
|
|
|
|
September 2001 |
|
|
5,500 |
|
|
|
158,762 |
|
March 2002 |
|
|
|
|
|
|
6,800 |
|
September 2002 |
|
|
180,281 |
|
|
|
223,096 |
|
March 2003 |
|
|
1,012 |
|
|
|
7,000 |
|
September 2003 |
|
|
272,118 |
|
|
|
244,648 |
|
August 2004 |
|
|
198,314 |
|
|
|
48,286 |
|
February 2006 |
|
|
4,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Performance rights |
|
|
|
|
|
|
|
|
August 2004 |
|
|
198,314 |
|
|
|
48,286 |
|
|
|
|
|
|
|
|
|
|
OEG Performance rights |
|
|
|
|
|
|
|
|
February 2006 |
|
|
9,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RG Performance rights |
|
|
|
|
|
|
|
|
February 2006 |
|
|
9,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NT Performance rights |
|
|
|
|
|
|
|
|
February 2006 |
|
|
6,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITT Performance rights |
|
|
|
|
|
|
|
|
February 2006 |
|
|
6,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROI Performance rights |
|
|
|
|
|
|
|
|
February 2006 |
|
|
9,225 |
|
|
|
|
|
(vi) Instruments exercised during the financial year
In fiscal 2006, there were 2,000 (2005: nil) options that
were exercised from the September 2001 allocation at the
exercise price of $4.90. The total proceeds received on
exercise of these options was $9,800 (2005: nil). The
share price at the date of the transfers of Telstra
shares relating to these options was $4.81 (2005: nil).
There were 1,241,282 (2005: nil) performance rights
exercised from the September 2001 allocation. These
instruments were exercised at various dates throughout
the year. The weighted average share price at the date
of the transfers of Telstra shares relating to the
exercise of these instruments was $4.69 (2005: nil) based
on the closing market price on those dates.
There was also 1,516,003 deferred shares (2005: 49,834)
that were exercised from the September 2002 allocation,
2,094 (2005: nil) deferred shares from the March 2003 and
500,054 deferred shares (2005: 27,486) that were
exercised from the September 2003 allocation. These
instruments were exercised at various dates throughout
the year. The weighted average share price at the date
of the transfers of Telstra shares relating to the
exercise of these instruments was $4.43 (2005: $4.87)
based on the closing market price on those dates.
The total proceeds received on exercise of our options,
deferred shares and performance rights was $10,027 (2005:
$8), which includes $9,800 from the exercise of our
September 2001 allocation of options.
120
337
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(vii) Instruments which have expired during the financial year
The following instruments issued to participating
employees have expired due to the performance hurdle
not being met:
|
|
|
|
|
|
|
|
|
|
|
Instruments expired |
|
|
|
during year ended 30 June |
|
Allocation |
|
2006 |
|
|
2005 |
|
|
Options |
|
|
|
|
|
|
|
|
September 1999 |
|
|
|
|
|
|
1,395,000 |
|
September 2000 |
|
|
2,413,900 |
|
|
|
|
|
March 2001 |
|
|
150,000 |
|
|
|
|
|
September 2001 |
|
|
|
|
|
|
16,846,680 |
|
March 2002 |
|
|
801,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
September 1999 |
|
|
|
|
|
|
236,500 |
|
September 2000 |
|
|
500,600 |
|
|
|
|
|
March 2001 |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR Performance rights |
|
|
|
|
|
|
|
|
September 2001 |
|
|
|
|
|
|
1,607,066 |
|
March 2002 |
|
|
68,000 |
|
|
|
|
|
September 2002 |
|
|
1,865,832 |
|
|
|
|
|
(viii) Instruments outstanding at the end of fiscal 2006
After movements in our share plans during the
financial year, the following instruments remain
outstanding as at 30 June 2006:
|
|
|
|
|
|
|
Number |
|
|
outstanding |
|
|
As at 30 June 2006 |
Growthshare 2002 - Sept 2001 allocation |
|
|
|
|
Options |
|
|
12,435,000 |
|
TSR Performance rights |
|
|
27,000 |
|
|
|
|
|
|
Growthshare 2002 - March 2002 allocation |
|
|
|
|
Options |
|
|
801,000 |
|
TSR Performance rights |
|
|
68,000 |
|
|
|
|
|
|
Growthshare 2003 - Sept 2002 allocation |
|
|
|
|
Deferred shares |
|
|
216,728 |
|
TSR Performance rights |
|
|
1,641,111 |
|
|
|
|
|
|
Growthshare 2003 - March 2003 allocation |
|
|
|
|
Deferred shares |
|
|
16,000 |
|
TSR Performance rights |
|
|
36,188 |
|
|
|
|
|
|
Growthshare 2004 - Sept 2003 allocation |
|
|
|
|
Deferred shares |
|
|
1,430,241 |
|
TSR Performance rights |
|
|
3,827,428 |
|
|
|
|
|
|
Growthshare 2004 - February 2004 allocation |
|
|
|
|
Deferred shares |
|
|
18,350 |
|
TSR Performance rights |
|
|
36,700 |
|
|
|
|
|
|
Growthshare 2005 - August 2004 allocation |
|
|
|
|
TSR Performance Rights |
|
|
2,226,400 |
|
EPS Performance Rights |
|
|
2,226,400 |
|
|
|
|
|
|
Growthshare 2006 - February 2006 allocation |
|
|
|
|
TSR Performance Rights |
|
|
567,331 |
|
OEG Performance Rights |
|
|
1,134,661 |
|
RG Performance Rights |
|
|
1,134,661 |
|
NT Performance Rights |
|
|
850,996 |
|
ITT Performance Rights |
|
|
850,996 |
|
ROI Performance Rights |
|
|
1,134,661 |
|
Only the September 2001 allocation of options and TSR
performance rights, and the September 2002 allocation of
deferred shares have become vested instruments, however,
they are yet to be exercised.
121
338
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(ix) Summary of movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive shares (i) |
|
Options |
|
Restricted shares |
|
Deferred shares |
|
Performance rights (ii) |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
average fair |
|
|
|
|
|
average fair |
|
|
|
|
|
average fair |
|
|
|
|
|
average fair |
|
|
|
|
|
average fair |
|
|
Number |
|
value |
|
Number |
|
value |
|
Number |
|
value |
|
Number |
|
value |
|
Number |
|
value |
|
|
|
|
|
|
|
|
|
Equity instruments outstanding
as at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
37,863,624 |
|
|
$ |
1.18 |
|
|
|
863,708 |
|
|
$ |
4.18 |
|
|
|
4,139,252 |
|
|
$ |
4.34 |
|
|
|
11,517,824 |
|
|
$ |
2.98 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,946,000 |
|
|
$ |
3.41 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
(2,130,891 |
) |
|
$ |
1.22 |
|
|
|
(86,608 |
) |
|
$ |
3.62 |
|
|
|
(225,951 |
) |
|
$ |
4.34 |
|
|
|
(736,878 |
) |
|
$ |
3.04 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,320 |
) |
|
$ |
4.37 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
(18,241,680 |
) |
|
$ |
1.15 |
|
|
|
(236,500 |
) |
|
$ |
5.64 |
|
|
|
|
|
|
|
|
|
|
|
(1,607,066 |
) |
|
$ |
2.86 |
|
|
|
|
Equity instruments outstanding
as at 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
17,491,053 |
|
|
$ |
1.20 |
|
|
|
540,600 |
|
|
$ |
3.63 |
|
|
|
3,835,981 |
|
|
$ |
4.34 |
|
|
|
14,119,880 |
|
|
$ |
3.14 |
|
Granted |
|
|
1,986,435 |
|
|
$ |
4.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,719,429 |
|
|
$ |
2.97 |
|
Forfeited |
|
|
(150,849 |
) |
|
$ |
4.77 |
|
|
|
(888,153 |
) |
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
(136,511 |
) |
|
$ |
4.32 |
|
|
|
(901,662 |
) |
|
$ |
3.19 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(2,000 |
) |
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
(2,018,151 |
) |
|
$ |
4.38 |
|
|
|
(1,241,282 |
) |
|
$ |
2.86 |
|
Expired |
|
|
|
|
|
|
|
|
|
|
(3,364,900 |
) |
|
$ |
1.49 |
|
|
|
(540,600 |
) |
|
$ |
3.63 |
|
|
|
|
|
|
|
|
|
|
|
(1,933,832 |
) |
|
$ |
2.99 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments outstanding
as at 30 June 2006 |
|
|
1,835,586 |
|
|
$ |
4.77 |
|
|
|
13,236,000 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
1,681,319 |
|
|
$ |
4.30 |
|
|
|
15,762,533 |
|
|
$ |
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments exercisable
as at 30 June 2006 |
|
|
105,899 |
|
|
$ |
4.77 |
|
|
|
12,435,000 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
216,728 |
|
|
$ |
4.41 |
|
|
|
27,000 |
|
|
$ |
2.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
The incentive shares exercisable relate to those executives that have
been made redundant and are then consequently entitled to the incentive
shares. |
|
(ii) |
|
Performance rights include TSR, EPS, OEG, RG, NT, ITT and ROI performance rights. |
122
339
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
Telstra directshare and ownshare
(i) Nature of Telstra directshare and ownshare
Telstra directshare
Non-executive directors are required to sacrifice a
minimum of 20% of their fees toward the acquisition of
restricted Telstra shares, known as directshares. Shares
are acquired by the trustee from time to time and
allocated to the participating directors on a 6 monthly
basis, on dates determined by the trustee at its
discretion. Although the trustee holds the shares in
trust, the participant retains the beneficial interest in
the shares (dividends, voting rights, bonuses and rights
issues) until they are transferred at expiration of the
restriction period.
The restriction period continues:
|
|
for five years from the date of allocation of the shares; |
|
|
|
until the participating director is no longer a
director of, or is no longer employed by, a company in
the Telstra Group; or |
|
|
|
until the Board of Telstra
determines that an event has occurred. |
At the end of the restriction period, the directshares
will be transferred to the participating director. The
participating director is not able to deal in the shares
until this transfer has taken place.
The expense associated with shares allocated under
this plan is included in the disclosure for
directors remuneration.
Telstra ownshare
Certain eligible employees may be provided part of their
remuneration in Telstra shares. Those employees indicate
a preference to be provided Telstra shares as part of
their remuneration. Shares are acquired by the trustee
from time to time and allocated to these employees at the
time their application is accepted. Although the trustee
holds the shares in trust, the participant retains the
beneficial interest in the shares (dividends, voting
rights, bonuses or rights issues) until they are
transferred at expiration of the restriction period.
The restriction period continues:
|
|
for three years or five years depending on the
elections available to the participant at the time of
allocation; |
|
|
|
until the participant ceases employment
with the Telstra Group; or |
|
|
|
until the Board of Telstra
determines that an event has occurred. |
At the end of the restriction period, the ownshares will
be transferred to the participant. The participant is
not able to deal in the shares until this transfer has
taken place.
(ii) Instruments outstanding at the beginning of fiscal 2006
The following directshares and ownshares were
outstanding at the start of fiscal 2006 but were held by
the trustee for the benefit of the relevant directors or
employees pending expiration of the restriction period:
|
|
|
|
|
|
|
Number of |
|
|
|
instruments |
|
Directshares |
|
outstanding |
|
|
15 September 2000 allocation |
|
|
4,364 |
|
19 March 2001 allocation |
|
|
7,439 |
|
14 September 2001 allocation |
|
|
9,463 |
|
14 March 2002 allocation |
|
|
11,857 |
|
5 September 2002 allocation |
|
|
12,937 |
|
7 March 2003 allocation |
|
|
29,922 |
|
5 September 2003 allocation |
|
|
23,132 |
|
20 February 2004 allocation |
|
|
26,369 |
|
20 August 2005 allocation |
|
|
7,567 |
|
19 February 2005 allocation |
|
|
26,013 |
|
|
|
|
|
|
|
|
159,063 |
|
|
|
|
|
|
|
|
|
|
Ownshares |
|
|
|
|
|
15 September 2000 allocation |
|
|
49,928 |
|
14 September 2001 allocation |
|
|
47,202 |
|
5 September 2002 allocation |
|
|
471,135 |
|
28 October 2002 allocation |
|
|
138,232 |
|
5 September 2003 allocation |
|
|
333,587 |
|
31 October 2003 allocation |
|
|
207,140 |
|
20 August 2004 allocation |
|
|
318,074 |
|
29 October 2004 allocation |
|
|
247,168 |
|
|
|
|
|
|
|
|
1,812,466 |
|
|
|
|
|
123
340
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iii) Instruments granted during the financial year
The following directshares were granted in August and
February of fiscal 2006 and fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directshare Equity Plan |
|
|
|
|
|
Aug 2005 |
|
Feb 2006 |
|
Aug 2004 |
|
Feb 2005 |
|
Number of eligible non-executive directors |
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
8 |
Number of participants in the plan |
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
8 |
Grant date of shares |
|
19 August 2005 |
|
17 February 2006 |
|
20 August 2004 |
|
19 February 2005 |
|
|
|
Number of shares allocated |
|
|
|
20,699 |
|
|
|
31,286 |
|
|
|
7,567 |
|
|
|
26,013 |
Fair value of shares allocated |
|
$ |
4.78 per share |
|
$ |
4.05 per share |
|
$ |
4.89 per share |
|
$ |
5.29 per share |
Total fair value of shares allocated |
|
$ |
|
98,941 |
|
$ |
|
126,708 |
|
$ |
|
37,003 |
|
$ |
|
137,609 |
|
|
|
The following ownshares were granted in August and
October of fiscal 2006 and fiscal 2005:
|
|
|
|
|
|
|
|
Ownshare Equity Plan |
|
|
|
|
|
Aug 2005 |
|
Oct 2005 |
|
Aug 2004 |
|
Oct 2004 |
|
Number of eligible participants |
|
|
|
9,612 |
|
|
|
17,559 |
|
|
|
8,975 |
|
|
|
16,062 |
Number of participants in the plan |
|
|
|
414 |
|
|
|
151 |
|
|
|
311 |
|
|
|
173 |
Grant date of shares |
|
19 August 2005 |
|
28 October 2005 |
|
20 August 2004 |
|
29 October 2004 |
|
|
|
Number of shares allocated |
|
|
|
506,420 |
|
|
|
270,415 |
|
|
|
348,240 |
|
|
|
250,386 |
Fair value of shares allocated |
|
$ |
4.78 per share |
|
$ |
4.18 per share |
|
$ |
4.89 per share |
|
$ |
4.67 per share |
Total fair value of shares allocated |
|
$ |
|
2,420,688 |
|
$ |
|
1,130,335 |
|
$ |
|
1,702,894 |
|
$ |
|
1,169,303 |
|
|
|
On an allocation of directshares and ownshares, the
participants in the plans are not required to make any
payment to the Telstra Entity. The August allocation of
ownshares relates to employees short term incentive
payments and the October allocation relates to shares
acquired through salary sacrifice by employees.
The fair value of the instruments issued is determined by
the remuneration foregone by the participant. The number
of directshares or ownshares allocated is based on the
weighted average price of a Telstra share in the week
ending on the day before allocation date, in conjunction
with the remuneration foregone.
124
341
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
31. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iv) Instruments exercised during the financial year
Directshares and ownshares are not required to be exercised. The fully paid shares held by the
Telstra Growthshare Trust relating to these instruments are merely transferred to the
participants at the completion of the restriction period.
The following fully paid shares have been distributed from the Telstra Growthshare Trust at
various dates throughout fiscal 2006 to directors and executives under the directshare and
ownshare plans respectively:
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
|
|
distributed |
|
Fair value |
|
Directshares |
|
|
45,060 |
|
|
$ |
189,415 |
|
Ownshares |
|
|
901,607 |
|
|
$ |
3,763,870 |
|
The following fully paid shares relating to the same plans were distributed during fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
|
|
distributed |
|
Fair value |
|
Directshares |
|
|
13,644 |
|
|
$ |
68,629 |
|
Ownshares |
|
|
425,950 |
|
|
$ |
2,033,620 |
|
The fair value of directshares and ownshares distributed is determined through reference to the
closing market price of a Telstra share on the date of transfer.
(v) Instruments outstanding at the end of fiscal 2006
|
|
|
|
|
|
|
No. of instruments |
|
|
|
outstanding as at |
|
Directshares |
|
30 June 2006 |
|
|
14 September 2001 allocation |
|
|
5,616 |
|
14 March 2002 allocation |
|
|
8,348 |
|
5 September 2002 allocation |
|
|
8,933 |
|
7 March 2003 allocation |
|
|
23,879 |
|
5 September 2003 allocation |
|
|
18,488 |
|
20 February 2004 allocation |
|
|
21,380 |
|
20 August 2005 allocation |
|
|
6,223 |
|
19 February 2005 allocation |
|
|
21,136 |
|
19 August 2005 allocation |
|
|
20,699 |
|
17 February 2006 allocation |
|
|
31,286 |
|
|
|
|
|
|
|
|
165,988 |
|
|
|
|
|
|
|
|
|
|
|
|
No. of instruments |
|
|
|
outstanding as at |
|
Ownshares |
|
30 June 2006 |
|
|
14 September 2001 allocation |
|
|
32,395 |
|
5 September 2003 allocation |
|
|
293,764 |
|
31 October 2003 allocation |
|
|
165,932 |
|
20 August 2004 allocation |
|
|
282,031 |
|
29 October 2004 allocation |
|
|
194,084 |
|
19 August 2005 allocation |
|
|
474,237 |
|
28 October 2005 allocation |
|
|
245,251 |
|
|
|
|
|
|
|
|
1,687,694 |
|
|
|
|
|
Sign-on bonus shares
Certain eligible employees may be provided sign-on bonus
shares upon commencing employment at Telstra. These
shares are held in trust, although the participant
retains the beneficial interest in the shares
(dividends, voting rights, bonuses or rights issues)
until they are transferred at expiration of the
restriction period.
The restriction period continues:
|
|
until a date determined by the chief executive officer; or |
|
|
until the Board of Telstra determines that an event has occurred. |
At the end of the restriction period, the sign-on bonus
shares will be transferred to the participating
employee. The employee is not able to deal in the
shares until this transfer has taken place.
There were 67,694 (2005: nil) sign-on bonus shares issued
in fiscal 2006 to one employee (2005: nil) on 30 March
2006. The fair value of the shares allocated was $3.69
with a total fair value allocated of $249,791. These
shares were still outstanding at 30 June 2006.
The fair value of the sign-on bonus shares is based on
the weighted average price of a Telstra share in the week
ending on the day before allocation date.
125
342
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation
Our key management personnel (KMP) have authority and responsibility for planning,
directing and controlling the activities of the Telstra Group. Our KMP consist of:
|
|
the directors of the Telstra Entity; and |
|
|
certain executives in the Chief Executive Officers (CEOs) senior
leadership team, referred to as a senior executive in this report. |
Directors
During fiscal 2006 and fiscal 2005, the directors of the Telstra Entity were:
|
|
|
Name |
|
Position |
|
Current directors |
|
|
Donald G McGauchie
|
|
Chairman, Non Executive Director, appointed Chairman 20 July 2004 |
Solomon D Trujillo
|
|
Chief Executive Officer and Executive Director, appointed 1 July 2005 |
Belinda J Hutchinson
|
|
Non Executive Director, |
Catherine B Livingstone
|
|
Non Executive Director, |
Charles Macek
|
|
Non Executive Director, |
John W Stocker
|
|
Non Executive Director, |
Peter Willcox
|
|
Non Executive Director, appointed 17 May 2006 |
John Zeglis
|
|
Non Executive Director, appointed 17 May 2006 |
|
|
|
Former directors |
|
|
John T Ralph
|
|
Deputy Chairman, Non Executive Director, retired 11 August 2005 |
Zygmunt E Switkowski
|
|
Chief Executive Officer and Executive Director, resigned 1 July 2005 |
Samuel H Chisholm
|
|
Non Executive Director, resigned 28 October 2004 |
Anthony J Clark
|
|
Non Executive Director, retired 11 August 2005 |
John E Fletcher
|
|
Non Executive Director, resigned 30 June 2006 |
Senior executives
On 1 July 2005, Mr Solomon Trujillo was appointed CEO and
Executive Director. Subsequent to Mr Trujillos
appointment, we reassessed our KMP in light of the new
organisational structure. The senior executives that
qualified as KMP for the current year were:
|
|
|
Name |
|
Position |
|
Fiscal 2006 senior
executives |
|
|
Bruce Akhurst
|
|
Chief Executive Officer, Sensis |
Kate McKenzie
|
|
Group Managing Director, Telstra Wholesale, appointed 16 January 2006 |
David Moffatt
|
|
Group Managing Director, Telstra Consumer Marketing and Channels |
Deena Shiff
|
|
Group Managing Director, Telstra Business, appointed 30 January 2006;
previously Group Managing Director
Telstra Wholesale from 1 January 2005 to 30 January 2006 |
John Stanhope
|
|
Chief Financial Officer and Group Managing Director, Finance and Administration |
David Thodey
|
|
Group Managing Director, Telstra Enterprise and Government |
Gregory Winn
|
|
Group Managing Director, Telstra Operations, appointed 11 August 2005 |
126
343
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
Senior executives (continued)
During fiscal 2005, the senior executives that formed
part of our KMP were:
|
|
|
Name |
|
Position |
|
Fiscal 2005 senior
executives |
|
|
Bruce Akhurst
|
|
Chief Executive Officer, Sensis, appointed 1 January 2005; previously Group
General Council and
Group Managing Director, Telstra Wholesale, Telstra Broadband and Media until 31 December 2004 |
Douglas Campbell
|
|
Group Managing Director, Telstra Country Wide, retired 31 December 2005 |
David Moffatt
|
|
Group Managing Director, Telstra Consumer and Marketing |
Ted Pretty
|
|
Group Managing Director, Telstra Technology, Innovation and Products, ceased
19 August 2005 |
Michael Rocca
|
|
Group Managing Director, Infrastructure Services |
Bill Scales
|
|
Group Managing Director, Regulatory, Corporate and Human Relations, retired 12
August 2005 |
Deena Shiff
|
|
Group Managing Director, Telstra Wholesale appointed 1 January 2005 |
John Stanhope
|
|
Chief Financial Officer and Group Managing Director, Finance and Administration |
David Thodey
|
|
Group Managing Director, Telstra Enterprise and Government |
Certain senior executives classified as KMP in the
prior year have either resigned, retired or are no
longer considered KMP for the purposes of the
applicable accounting standard in fiscal 2006.
KMP aggregate compensation
During fiscal 2006 and fiscal 2005, the aggregate
compensation provided to our KMP was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Short term employee benefits |
|
|
21,841,244 |
|
|
|
16,183,799 |
|
|
|
21,841,244 |
|
|
|
16,183,799 |
|
Post employment benefits |
|
|
2,029,681 |
|
|
|
1,468,559 |
|
|
|
2,029,681 |
|
|
|
1,468,559 |
|
Other long term benefits |
|
|
245,279 |
|
|
|
272,833 |
|
|
|
245,279 |
|
|
|
272,833 |
|
Termination benefits |
|
|
4,027,495 |
|
|
|
|
|
|
|
4,027,495 |
|
|
|
|
|
Equity settled share based payments |
|
|
4,907,315 |
|
|
|
9,249,062 |
|
|
|
4,907,315 |
|
|
|
9,249,062 |
|
|
|
|
|
|
|
|
|
33,051,014 |
|
|
|
27,174,253 |
|
|
|
33,051,014 |
|
|
|
27,174,253 |
|
|
|
|
|
|
The compensation for each individual KMP with additional
details regarding the category of compensation is
provided on the following pages.
127
344
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
KMP individual compensation
During fiscal 2006, the compensation provided to each individual KMP was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term employee benefits |
|
|
Post employment |
|
|
Other long |
|
|
Termin- |
|
|
Equity settled share based payments |
|
|
|
|
|
|
Salary & |
|
|
Short term |
|
|
Non- |
|
|
|
|
|
|
Superan- |
|
|
Retirement |
|
|
term |
|
|
ation |
|
|
Short term |
|
|
|
|
|
|
Deferred |
|
|
Other |
|
|
|
|
Year ended |
|
fees |
|
|
incentives |
|
|
monetary |
|
|
Other |
|
|
nuation |
|
|
benefits |
|
|
benefits |
|
|
benefits |
|
|
incentives |
|
|
Directshare |
|
|
shares |
|
|
equity |
|
|
Total |
|
30 June 2006 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D McGauchie |
|
|
312,236 |
|
|
|
|
|
|
|
3,078 |
|
|
|
|
|
|
|
12,158 |
|
|
|
60,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,099 |
|
|
|
|
|
|
|
|
|
|
|
468,665 |
|
J Ralph (a) (e) |
|
|
17,474 |
|
|
|
|
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,402 |
|
S Trujillo (b) (c) |
|
|
2,987,861 |
|
|
|
2,581,200 |
|
|
|
|
|
|
|
1,745,011 |
|
|
|
1,012,139 |
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309,305 |
|
|
|
8,710,516 |
|
Z Switkowski (a)
(d) |
|
|
5,451 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
3,151,526 |
|
|
|
|
|
|
|
|
|
|
|
491,049 |
|
|
|
4,516 |
|
|
|
3,652,858 |
|
A Clark (a) (e) |
|
|
9,015 |
|
|
|
|
|
|
|
458 |
|
|
|
|
|
|
|
970 |
|
|
|
|
|
|
|
|
|
|
|
278,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289,289 |
|
J Fletcher (a) (e) |
|
|
94,209 |
|
|
|
|
|
|
|
2,775 |
|
|
|
|
|
|
|
8,056 |
|
|
|
|
|
|
|
|
|
|
|
134,575 |
|
|
|
|
|
|
|
26,422 |
|
|
|
|
|
|
|
|
|
|
|
266,037 |
|
B Hutchinson |
|
|
100,611 |
|
|
|
|
|
|
|
2,288 |
|
|
|
|
|
|
|
18,551 |
|
|
|
11,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,740 |
|
|
|
|
|
|
|
|
|
|
|
163,133 |
|
C Livingstone |
|
|
113,063 |
|
|
|
|
|
|
|
2,288 |
|
|
|
|
|
|
|
10,998 |
|
|
|
11,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,015 |
|
|
|
|
|
|
|
|
|
|
|
169,213 |
|
C Macek |
|
|
123,032 |
|
|
|
|
|
|
|
2,748 |
|
|
|
|
|
|
|
11,227 |
|
|
|
12,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,565 |
|
|
|
|
|
|
|
|
|
|
|
182,671 |
|
J Stocker |
|
|
110,817 |
|
|
|
|
|
|
|
2,288 |
|
|
|
|
|
|
|
39,006 |
|
|
|
13,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,390 |
|
|
|
|
|
|
|
|
|
|
|
202,527 |
|
P Willcox (b) |
|
|
11,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
|
|
|
|
|
|
|
|
16,176 |
|
J Zeglis (b) |
|
|
12,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
|
|
|
|
|
|
|
|
16,176 |
|
|
|
|
|
|
|
3,898,582 |
|
|
|
2,581,200 |
|
|
|
16,338 |
|
|
|
1,745,011 |
|
|
|
1,114,455 |
|
|
|
109,011 |
|
|
|
75,000 |
|
|
|
4,027,495 |
|
|
|
|
|
|
|
245,701 |
|
|
|
491,049 |
|
|
|
313,821 |
|
|
|
14,617,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
executives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Akhurst |
|
|
984,974 |
|
|
|
1,519,035 |
|
|
|
11,740 |
|
|
|
|
|
|
|
188,026 |
|
|
|
|
|
|
|
29,325 |
|
|
|
|
|
|
|
276,443 |
|
|
|
|
|
|
|
115,592 |
|
|
|
650,036 |
|
|
|
3,775,171 |
|
K McKenzie (b) |
|
|
223,280 |
|
|
|
180,950 |
|
|
|
|
|
|
|
|
|
|
|
20,787 |
|
|
|
|
|
|
|
6,026 |
|
|
|
|
|
|
|
22,067 |
|
|
|
|
|
|
|
|
|
|
|
30,871 |
|
|
|
483,981 |
|
D Moffatt |
|
|
876,970 |
|
|
|
1,019,991 |
|
|
|
18,138 |
|
|
|
|
|
|
|
316,030 |
|
|
|
|
|
|
|
29,825 |
|
|
|
|
|
|
|
131,095 |
|
|
|
|
|
|
|
129,101 |
|
|
|
779,461 |
|
|
|
3,300,611 |
|
D Shiff |
|
|
645,857 |
|
|
|
768,951 |
|
|
|
6,062 |
|
|
|
|
|
|
|
116,643 |
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
155,829 |
|
|
|
|
|
|
|
37,438 |
|
|
|
214,391 |
|
|
|
1,965,171 |
|
J Stanhope |
|
|
919,499 |
|
|
|
655,412 |
|
|
|
9,668 |
|
|
|
|
|
|
|
101,001 |
|
|
|
|
|
|
|
25,825 |
|
|
|
|
|
|
|
126,792 |
|
|
|
|
|
|
|
76,968 |
|
|
|
335,804 |
|
|
|
2,250,969 |
|
D Thodey |
|
|
1,031,086 |
|
|
|
926,798 |
|
|
|
8,248 |
|
|
|
|
|
|
|
52,914 |
|
|
|
|
|
|
|
27,100 |
|
|
|
|
|
|
|
108,869 |
|
|
|
|
|
|
|
105,198 |
|
|
|
560,789 |
|
|
|
2,821,002 |
|
G Winn (b) (f) |
|
|
1,280,944 |
|
|
|
1,408,918 |
|
|
|
1,685 |
|
|
|
1,101,907 |
|
|
|
10,814 |
|
|
|
|
|
|
|
32,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,836,446 |
|
|
|
|
|
|
|
5,962,610 |
|
|
|
6,480,055 |
|
|
|
55,541 |
|
|
|
1,101,907 |
|
|
|
806,215 |
|
|
|
|
|
|
|
170,279 |
|
|
|
|
|
|
|
821,095 |
|
|
|
|
|
|
|
464,297 |
|
|
|
2,571,352 |
|
|
|
18,433,351 |
|
|
|
|
|
|
|
9,861,192 |
|
|
|
9,061,255 |
|
|
|
71,879 |
|
|
|
2,846,918 |
|
|
|
1,920,670 |
|
|
|
109,011 |
|
|
|
245,279 |
|
|
|
4,027,495 |
|
|
|
821,095 |
|
|
|
245,701 |
|
|
|
955,346 |
|
|
|
2,885,173 |
|
|
|
33,051,014 |
|
|
|
|
128
345
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
KMP individual compensation (continued)
|
|
|
(a) |
|
These personnel retired or resigned from their position during fiscal 2006. After the date of
retirement or resignation, these personnel were not considered to be KMP. As a result, the
disclosed compensation includes only compensation during their period of services as a KMP. |
|
(b) |
|
These personnel were appointed to the position during fiscal 2006. Prior to the date of
appointment, these personnel were not considered to be KMP. As a result, the disclosed
compensation includes only compensation from the date of appointment. |
|
(c) |
|
On commencement of employment, Mr Trujillo received a one-off sign-on bonus of $1,000,000.
This bonus was subsequently transferred to superannuation during fiscal 2006. |
|
In addition, Mr Trujillo received a sign-on incentive in the amount of 50% of his maximum potential
benefit under the short term incentive plan ($1,500,000), which has been included in short term
incentives. The amount of the sign-on incentive was deducted from his potential short term
incentive for the first year of employment. |
|
Other compensation for Mr Trujillo relates to compensation provided for tax equalisation, travel,
accommodation and certain relocation costs. |
|
(d) |
|
Dr Switkowski ceased employment with the Company effective 1 July 2005. As a result, Dr
Switkowskis compensation includes one day of benefits, together with his termination benefits and
equity settled share based payments. |
|
Termination benefits relate to entitlements under Dr Switkowskis employment contract, equal to 12
months fixed remuneration, in addition to accrued annual leave and long service leave entitlements.
Fixed remuneration comprises salary, superannuation and the value of salary sacrificed items. |
|
Other equity compensation represents one day of expense for various instruments, including options,
performance rights and restricted shares. These instruments are subject to performance hurdles and
may become exercisable in future reporting periods. Refer note 33 for further details on Dr.
Switkowskis holdings of equity instruments upon leaving the Company. |
|
Upon ceasing employment, the deferred shares previously allocated to Dr Switkowski vested and
became immediately exercisable. As such, the unamortised amount of compensation was immediately
recognised. |
|
(e) |
|
Termination benefits paid during fiscal 2006 are to directors that resigned or retired during
the year. Termination benefits represent the payment of retirement benefits that accumulated
during the period of employment. |
|
(f) |
|
Other compensation for Mr Winn comprises a one-off sign-on bonus of $500,000 and compensation
provided for tax equalisation, travel, accommodation and certain relocation costs. |
129
346
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
KMP individual compensation (continued)
During fiscal 2005, the compensation provided to each individual KMP was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term employee benefits |
|
|
Post employment |
|
|
Other long |
|
|
Equity settled share based payments |
|
|
|
|
|
|
|
|
|
|
Short term |
|
|
Non- |
|
|
|
|
|
|
Superan- |
|
|
Retirement |
|
|
term |
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
Year ended |
|
Salary & fees |
|
|
incentives |
|
|
monetary |
|
|
Other |
|
|
nuation |
|
|
benefits |
|
|
benefits |
|
|
Directshare |
|
|
shares |
|
|
Other equity |
|
|
Total |
|
30 June 2005 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D McGauchie |
|
|
225,503 |
|
|
|
|
|
|
|
2,317 |
|
|
|
2,837 |
|
|
|
11,484 |
|
|
|
195,396 |
|
|
|
|
|
|
|
60,054 |
|
|
|
|
|
|
|
|
|
|
|
497,591 |
|
J Ralph |
|
|
142,957 |
|
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
|
|
|
|
79,940 |
|
|
|
|
|
|
|
19,305 |
|
|
|
|
|
|
|
|
|
|
|
244,455 |
|
Z Switkowski |
|
|
1,830,900 |
|
|
|
1,961,000 |
|
|
|
24,357 |
|
|
|
|
|
|
|
101,850 |
|
|
|
|
|
|
|
52,300 |
|
|
|
|
|
|
|
725,912 |
|
|
|
2,045,313 |
|
|
|
6,741,632 |
|
S Chisholm (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A Clark |
|
|
75,706 |
|
|
|
|
|
|
|
2,753 |
|
|
|
|
|
|
|
8,493 |
|
|
|
48,811 |
|
|
|
|
|
|
|
13,114 |
|
|
|
|
|
|
|
|
|
|
|
148,877 |
|
J Fletcher |
|
|
43,795 |
|
|
|
|
|
|
|
3,015 |
|
|
|
|
|
|
|
6,705 |
|
|
|
35,603 |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
129,118 |
|
B Hutchinson |
|
|
70,065 |
|
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
6,692 |
|
|
|
32,004 |
|
|
|
|
|
|
|
19,189 |
|
|
|
|
|
|
|
|
|
|
|
130,203 |
|
C Livingstone |
|
|
77,764 |
|
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
8,537 |
|
|
|
46,216 |
|
|
|
|
|
|
|
21,575 |
|
|
|
|
|
|
|
|
|
|
|
156,345 |
|
C Macek |
|
|
79,584 |
|
|
|
|
|
|
|
2,057 |
|
|
|
|
|
|
|
8,717 |
|
|
|
40,160 |
|
|
|
|
|
|
|
22,075 |
|
|
|
|
|
|
|
|
|
|
|
152,593 |
|
J Stocker |
|
|
71,975 |
|
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
6,478 |
|
|
|
73,130 |
|
|
|
|
|
|
|
52,173 |
|
|
|
|
|
|
|
|
|
|
|
206,009 |
|
|
|
|
|
|
|
2,618,249 |
|
|
|
1,961,000 |
|
|
|
43,511 |
|
|
|
2,837 |
|
|
|
158,956 |
|
|
|
551,260 |
|
|
|
52,300 |
|
|
|
247,485 |
|
|
|
725,912 |
|
|
|
2,045,313 |
|
|
|
8,406,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior executives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Akhurst |
|
|
927,664 |
|
|
|
523,600 |
|
|
|
11,893 |
|
|
|
|
|
|
|
177,086 |
|
|
|
|
|
|
|
29,325 |
|
|
|
|
|
|
|
196,141 |
|
|
|
732,594 |
|
|
|
2,598,303 |
|
D Campbell |
|
|
941,394 |
|
|
|
310,600 |
|
|
|
10,149 |
|
|
|
|
|
|
|
88,356 |
|
|
|
|
|
|
|
26,825 |
|
|
|
|
|
|
|
196,141 |
|
|
|
732,354 |
|
|
|
2,305,819 |
|
D Moffatt (c) |
|
|
1,133,165 |
|
|
|
248,300 |
|
|
|
18,781 |
|
|
|
400,000 |
|
|
|
11,585 |
|
|
|
|
|
|
|
29,825 |
|
|
|
|
|
|
|
220,968 |
|
|
|
801,183 |
|
|
|
2,863,807 |
|
T Pretty (c) |
|
|
1,120,581 |
|
|
|
540,500 |
|
|
|
22,370 |
|
|
|
260,000 |
|
|
|
24,169 |
|
|
|
|
|
|
|
29,825 |
|
|
|
|
|
|
|
224,936 |
|
|
|
789,217 |
|
|
|
3,011,598 |
|
M Rocca |
|
|
735,791 |
|
|
|
416,600 |
|
|
|
9,817 |
|
|
|
|
|
|
|
140,459 |
|
|
|
|
|
|
|
23,375 |
|
|
|
|
|
|
|
145,754 |
|
|
|
401,479 |
|
|
|
1,873,275 |
|
B Scales |
|
|
681,167 |
|
|
|
428,700 |
|
|
|
9,635 |
|
|
|
|
|
|
|
117,583 |
|
|
|
|
|
|
|
21,625 |
|
|
|
|
|
|
|
121,946 |
|
|
|
326,788 |
|
|
|
1,707,444 |
|
D Shiff (b) |
|
|
277,321 |
|
|
|
295,150 |
|
|
|
1,326 |
|
|
|
|
|
|
|
47,680 |
|
|
|
|
|
|
|
8,058 |
|
|
|
|
|
|
|
30,641 |
|
|
|
102,562 |
|
|
|
762,738 |
|
J Stanhope |
|
|
800,685 |
|
|
|
240,150 |
|
|
|
11,398 |
|
|
|
|
|
|
|
99,065 |
|
|
|
|
|
|
|
24,575 |
|
|
|
|
|
|
|
105,628 |
|
|
|
365,338 |
|
|
|
1,646,839 |
|
D Thodey |
|
|
966,890 |
|
|
|
206,200 |
|
|
|
8,375 |
|
|
|
|
|
|
|
52,360 |
|
|
|
|
|
|
|
27,100 |
|
|
|
|
|
|
|
176,235 |
|
|
|
560,447 |
|
|
|
1,997,607 |
|
|
|
|
|
|
|
7,584,658 |
|
|
|
3,209,800 |
|
|
|
103,744 |
|
|
|
660,000 |
|
|
|
758,343 |
|
|
|
|
|
|
|
220,533 |
|
|
|
|
|
|
|
1,418,390 |
|
|
|
4,811,962 |
|
|
|
18,767,430 |
|
|
|
|
|
|
|
10,202,907 |
|
|
|
5,170,800 |
|
|
|
147,255 |
|
|
|
662,837 |
|
|
|
917,299 |
|
|
|
551,260 |
|
|
|
272,833 |
|
|
|
247,485 |
|
|
|
2,144,302 |
|
|
|
6,857,275 |
|
|
|
27,174,253 |
|
|
|
|
130
347
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
KMP individual compensation (continued)
|
|
|
(a) |
|
During fiscal 2005, Mr Chisholm declined to receive fees for his Board duties to Telstra. Mr
Chisholm resigned during fiscal 2005. |
|
(b) |
|
Ms Shiff was appointed to the position of Group Managing Director during fiscal 2005. Prior to
the date of appointment, Ms Shiff was not considered to be a KMP. As a result, the disclosed
compensation includes only compensation from the date of appointment. |
|
(c) |
|
Relates to annual contract payments made to certain executives for continued service with
Telstra or as part of their employment contract. These payments were determined at the executives
initial entry into their contract for employment with the Company. |
Principles of compensation
Our directors are remunerated in accordance with the constitution, which provides for the aggregate
limit for directors fees to be set and varied only by approval of a resolution at the annual
general meeting of shareholders. Our constitution provides that the allocation of fees to
directors within the pool limit shall be determined by the Board.
In order to maintain the directors independence and impartiality, the compensation of the
non-executive directors is not linked to the performance of the Company, except through their
participation in Directshares. Our directors must sacrifice at least 20% of their fees into
Telstra shares to align their interests with those of our shareholders, refer to note 31 for
further details on Directshares.
The Telstra Entity has a Remuneration Committee, which is a committee of Board members responsible
for reviewing and recommending to the Board the compensation arrangements for the CEO and
executives, which includes the senior executives defined as KMP.
Our compensation structure includes both fixed remuneration and performance incentives designed to
complement each other and support the execution of our business strategy in both the short and long
term. Fixed compensation comprised salary, superannuation and the value of salary sacrificed
items.
We reward our senior executives for performance through a combination of short term incentives
(STI) and long term incentives (LTI). The STI rewards the CEO and executives for meeting or
exceeding specific key annual business and individual performance measures. Measures and targeted
achievement levels are reviewed each year to reflect changes in the business priorities for the
forthcoming year.
The STI in relation to fiscal 2006 will be delivered in cash. The STI in relation to fiscal 2005
was allocated half in cash and half in rights to Telstra shares, called incentive shares. The
cash portion of the fiscal 2005 STI was included in short term employee benefits during fiscal
2005 and the incentive shares component was included in equity settled share based payments
during fiscal 2006 to represent when the instruments were granted.
The incentive shares vest equally over a period of one, two and three years on the anniversary of
their allocation date, subject to the executives continued employment with any entity that forms
part of the Telstra Group. The first third granted will vest on 19 August 2006.
In fiscal 2005, Mr Scales and Dr Switkowski were the only senior executives that received their
STI in cash, as they ceased employment with the Company prior to the allocation of the equity
component.
The LTI is intended to support our business strategy by aligning executive compensation with key
performance measures and targets that support our transformation. On an annual basis, we invite
selected executives who contribute significantly to sustained improvement in shareholder value to
participate in an equity based LTI plan, administered through Growthshare. LTI equity
instruments issued through the trust can only be exercised to obtain normal ordinary shares
between certain time periods and if specific long term Company performance hurdles have been
achieved.
During fiscal 2006 and fiscal 2005, our executives received performance rights which will vest in
future reporting periods depending upon the companys achievement of the relevant performance
measures. The performance rights have been recorded in other equity in the KMP individual
compensation tables.
During fiscal 2005, our deferred share program was discontinued. As the deferred shares will
continue to vest over the relevant performance periods, a portion of the value of the deferred
shares will continue to be allocated to the executives compensation until all deferred shares
have vested or lapsed. This treatment is consistent with our other equity plans which have been
discontinued, such as our option plan and restricted share plan. The deferred shares have been
recorded as deferred remuneration in the KMP individual compensation tables.
For further details of our LTI plans, including detailed explanation of performance hurdles and
allocations, refer to note 31.
We recognise an expense for all share-based compensation determined with reference to the fair
value at grant date of the equity instruments issued. The fair value is reflected in the KMPs
compensation over the relevant vesting periods, adjusted to reflect actual and expected levels of
vesting. Refer to note 2.25 for details on our accounting policy for equity settled share based
payments.
131
348
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
32. Key management personnel compensation (continued)
Individual contracts for services
There are no individual contracts for service with our non-executive directors other than
retirement benefits classified as post employment benefits. Only directors appointed prior to 30
June 2002 are eligible to receive retirement benefits upon leaving office.
Our individual senior executives are employed under contracts without a fixed duration, except Mr
Winn who was appointed on a two year fixed duration contract. Where both parties mutually agree,
Mr Winns contract can be extended for a further one year.
Where Telstra terminates an executives employment prior to the expiration of their employment
contract for reasons other than for misconduct, the senior executive is entitled to between 1 and 6
months notice depending on their respective contract conditions. Alternatively, the individual is
entitled to payment in lieu of notice and between 6 and 12 months pay depending on their respective
contract conditions. Both elements are calculated on fixed remuneration at the time of
termination.
We have included detailed disclosures in relation to the principles of compensation and individual
contracts for services in the Remuneration Report, which forms part of the Directors Report for
the year ended 30 June 2006. In accordance with the Corporations Amendment Regulations 2006
(No.4), 2001, please refer to the Remuneration Report for detailed commentary.
132
349
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures
Transactions involving our controlled entities
Our transactions with our controlled entities recorded in the income statement and balance sheet
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
|
|
|
|
30 June |
|
|
30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Income from controlled entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods and services (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
1,072 |
|
Finance income (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
5 |
|
Dividend revenue (b) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
560 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses to controlled entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of goods and services (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399 |
|
|
|
362 |
|
Finance costs (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment in amounts owed by controlled
entities (c) |
|
|
7 |
(a) |
|
|
|
|
|
|
|
|
|
|
382 |
|
|
|
475 |
|
Reversal of impairment in amounts owed
by controlled entities (c) |
|
|
7 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts receivable at 30 June from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled entities (a) (d) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
2,267 |
|
|
|
2,194 |
|
Allowance for amounts owed by controlled
entities (c) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
(1,851 |
) |
|
|
(1,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled entities (a) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts payable at 30 June to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled entities payables (a) (d) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
197 |
|
|
|
5 |
|
Controlled entities loans (e) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
1,408 |
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,605 |
|
|
|
2,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Telstra Entity sold and purchased goods and
services and received and paid interest to its controlled
entities. These transactions are in the ordinary course
of business and are on normal commercial terms and
conditions. |
The Telstra Entity and certain Australian controlled
entities have entered into a deed of cross guarantee.
Under this deed, each company (except Telstra Finance
Limited) guarantees the payment in full of the debts of
the other named companies in the event of their winding
up. Refer to note 29 for further details regarding our
closed group.
Details of our individual significant transactions
involving our controlled entities during fiscal
2006 are detailed as follows:
|
|
the Telstra Entity received procurement fees from its controlled entity Sensis Pty Ltd for
the use of Yellow Pages® and White Pages® trademarks amounting to $647 million (2005: $628
million). As at 30 June 2006, the Telstra Entity recorded revenue received in advance amounting
to $332 million (2005: $344 million) for the use of these trademarks; |
|
|
|
the Telstra Entity paid management fees to its controlled entity
Sensis Pty Ltd amounting to $218 million (2005: $211 million) for
undertaking agency and contract management services for the
national directory service; and |
|
|
|
the Telstra Entity received income from its controlled entity Telstra Multimedia Pty Ltd
amounting to $292 million (2005: $284 million) for access to ducts that store the national hybrid
fibre coaxial (HFC) cable network. |
133
350
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
Transactions
involving our controlled entities (continued)
(b) The Telstra Entity recorded dividend revenue
during fiscal 2006 from the following controlled
entities:
|
|
Network Design and Construction Limited of $200
million (2005: $nil); and |
|
|
Telstra International Limited of $360 million (2005: $nil). |
During fiscal 2005, the Telstra Entity recognised tax consolidation distributions from certain
wholly owned Australian entities amounting to $223 million in relation to tax losses incurred by
these entities that were able to be utilised by the Telstra Entity. This was on the basis that
no tax funding arrangement was in place between the entities within the tax consolidated group.
Refer to note 9 for further details on tax consolidation.
(c) The profit before income tax expense of the Telstra Entity included an impairment loss of
$382 million (2005: $475 million) relating to a movement in allowance for amounts owed by a
controlled entity. Refer to note 25 for further details regarding impairment.
(d) The Telstra Entity and its Australian controlled entities have formed a tax consolidated
group, which is treated as a single entity for income tax purposes.
During fiscal 2006, the entities within the tax consolidated group entered into a tax funding
arrangement. The amounts receivable or amounts payable to the Telstra Entity under this
arrangements are due in the next financial year upon final settlement of the current tax payable
for the tax consolidated group. During fiscal 2005, no tax funding arrangement was in place and
as a result, these funding amounts were recorded in our investment in controlled entities. Refer
to note 9 for further details on tax consolidation.
(e) The Telstra Entity operates a current account with some of its Australian controlled
entities, being an internal group bank account used to settle transactions with its controlled
entities or between two controlled entities. Cash deposit balances in the current account owed
to our controlled entities are recorded as loans. All loan balances with our controlled entities
are unsecured, with settlement required in cash. Refer to note 18 for further discussion on our
borrowings.
Transactions involving our parent entity
The Commonwealth of Australia is the ultimate parent and controlling entity of the Telstra Group.
Telstra Corporation Limited is the parent entity in the Telstra Group comprising the Telstra
Entity and its controlled entities.
We supply telecommunications services to, and acquire other services from, the Commonwealth of
Australia, its Departments of State, trading and other agencies. These transactions are made
within normal customer/supplier relationships on terms and conditions no more favourable than those
available to other customers or suppliers. There are no exclusive rights to supply any of these
services.
Services provided to any one governmental department or agency or the combination of all of these
services in total, do not represent a significant component of our operating revenues. For these
reasons, the financial report does not disclose transactions relating to the purchase and sale of
goods and services from or to the Commonwealth of Australia, its Departments of State, trading and
other agencies.
134
351
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
Transactions involving our jointly controlled and associated entities
Our transactions with our jointly controlled and associated entities recorded in the income
statement and balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
|
|
|
|
30 June |
|
|
30 June |
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Income from jointly controlled and associated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods and services (a) |
|
|
|
|
|
|
177 |
|
|
|
165 |
|
|
|
83 |
|
|
|
97 |
|
Finance income (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Dividend revenue |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses to jointly controlled and associated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of goods and services (a) |
|
|
|
|
|
|
510 |
|
|
|
533 |
|
|
|
245 |
|
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment in amounts owed by jointly controlled entities |
|
|
7 |
(a) |
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts receivable at 30 June from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly controlled and associated entities trade debtors (a) |
|
|
|
|
|
|
32 |
|
|
|
16 |
|
|
|
22 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly controlled and associated entities loans (b) |
|
|
11 |
|
|
|
229 |
|
|
|
242 |
|
|
|
210 |
|
|
|
204 |
|
Allowance for amounts owed by jointly controlled and associated entities (b) |
|
|
11 |
|
|
|
(215 |
) |
|
|
(210 |
) |
|
|
(210 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts payable at 30 June to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly controlled and associated entities payables (a) |
|
|
|
|
|
|
62 |
|
|
|
21 |
|
|
|
59 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We sold and purchased goods and services, and received interest from our jointly controlled
and associated entities. These transactions are in the ordinary course of business and are on
normal commercial terms and conditions. |
Details of our individual significant transactions involving our jointly controlled and
associated entities during fiscal 2006 are detailed as follows:
|
|
we purchased pay television services amounting to $250 million (2005: $218 million) from our
jointly controlled entity FOXTEL. The purchases were to enable the resale of FOXTEL services,
including pay television content, to our existing customers as part of our ongoing product
bundling initiatives. In addition, we made sales for our cost recoveries from FOXTEL of $77
million (2005: $55 million); and |
|
|
purchases were made by the Telstra Group of $198 million (2005: $226 million) and Telstra
Entity of $192 million (2005: $192 million) from our jointly controlled entity Reach Ltd (Reach)
in line with market prices. These were for both the purchase of, and entitlement to, capacity and
connectivity services. Sales were made for international inbound call termination services,
construction and consultancy by the Telstra Group of $61 million (2005: $71 million) and the
Telstra Entity of $52 million (2005: $62 million) to Reach. |
135
352
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
Transactions involving our jointly controlled and associated entities (continued)
(b) Loans provided to jointly controlled and associated entities relates mainly to loans provided
to Reach Ltd (Reach) of $210 million (2005: $204 million) and the 3GIS Partnership (3GIS) of $14
million (2005: $32 million).
Previously, the Telstra Entity and co-shareholder PCCW Limited (PCCW) bought out a loan facility
owed to a banking syndicate by Reach Finance Ltd, a controlled entity of our 50% jointly
controlled entity Reach. Our share of the acquisition cost of the loan was US$155.5 million,
which was recognised as a receivable at the date of the transaction. During fiscal 2005, we
restructured our arrangements with Reach. As a result, the terms of maturity were altered such
that the facility is now an interest free loan and repayable on or after 31 December 2010 upon
the giving of 6 months notice by both PCCW and us. We have provided for the non-recoverability
of the loan as we do not consider that Reach is in a position to be able to repay the loan amount
in the medium term.
During fiscal 2005, we formed the jointly controlled entity 3GIS, together with Hutchison 3G
Australia Pty Ltd (H3GA), to jointly own and operate H3GAs existing 3G radio access network and
fund future network development. We provided interest free funding to 3GIS for operational
expenditure purposes. As a result, we have recognised our share of the loan outstanding by 3GIS
amounting to $14 million (2005: $32 million).
Transactions involving other related entities
Post-employment benefits
As at 30 June 2006, Telstra Super owned 12,881,343 (2005: 13,280,885) shares in Telstra
Corporation Limited at a cost of $56 million (2005: $67 million) and a market value of $47
million (2005: $67 million). In fiscal 2006, we paid dividends to Telstra Super of $4 million
(2005: $5 million). We own 100% of the equity of Telstra Super Pty Ltd, the trustee for Telstra
Super.
Telstra Super also holds bonds issued by Telstra Corporation Limited. As at 30 June 2006,
Telstra Super holds bonds with a cost of $9 million (2005: $13 million) and a market value of $9
million (2005: $12 million).
All purchases and sales of Telstra shares and bonds by Telstra Super are determined by the
trustee and/or its investment managers on behalf of the members of Telstra Super.
Key management personnel (KMP)
Our KMP consists of the Telstra Entity non executive directors and certain senior executives who
form part of the chief executive officers senior leadership team. Our KMP have authority and
responsibility for planning, directing and controlling the activities of the Telstra Group.
Compensation to our KMP
The compensation of each individual director and senior executive defined as a KMP including our
compensation policy are discussed in note 32.
Other transactions with our KMP and their related entities
Our KMP have telecommunications services transactions with the Telstra Group, which are not
significant and are both trivial and domestic in nature. The KMP related entities also have
telecommunications services with us on normal commercial terms and conditions.
Our KMP are provided with telecommunications and other services and equipment to assist them in
performing their duties. From time to time, we also make products and services available to our
KMP without charge to enable them to familiarise themselves with our products, services and recent
technological developments. To the extent it is considered that this provides a benefit to a KMP,
it is included in their compensation. Refer note 32 for compensation details.
136
353
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in shares of Telstra Entity
During fiscal 2006, our KMP and their related entities held share capital of the Telstra Entity
directly, indirectly or beneficially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares |
|
|
|
|
|
Equity |
|
Shares acquired |
|
Total shares |
|
|
|
|
held at |
|
Directshare |
|
instruments |
|
or disposed of |
|
held at |
|
Shares that are |
|
|
30 June 2005 |
|
allocation (a) |
|
exercised |
|
by other means |
|
30 June 2006 (b) |
|
held nominally |
|
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald G McGauchie |
|
|
41,445 |
|
|
|
16,196 |
|
|
|
|
|
|
|
|
|
|
|
57,641 |
|
|
|
55,775 |
|
John T Ralph (b) |
|
|
105,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,641 |
|
|
|
104,641 |
|
Solomon D Trujillo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski (b) |
|
|
155,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,810 |
|
|
|
109,010 |
|
Anthony J Clark (b) |
|
|
83,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,026 |
|
|
|
73,026 |
|
John E Fletcher (b) |
|
|
52,934 |
|
|
|
9,870 |
|
|
|
|
|
|
|
|
|
|
|
62,804 |
|
|
|
61,567 |
|
Belinda J Hutchinson |
|
|
67,107 |
|
|
|
5,870 |
|
|
|
|
|
|
|
1,801 |
|
|
|
74,778 |
|
|
|
35,866 |
|
Catherine B Livingstone |
|
|
39,734 |
|
|
|
6,104 |
|
|
|
|
|
|
|
10,000 |
|
|
|
55,838 |
|
|
|
44,201 |
|
Charles Macek |
|
|
44,005 |
|
|
|
6,571 |
|
|
|
|
|
|
|
|
|
|
|
50,576 |
|
|
|
50,576 |
|
John W Stocker |
|
|
109,657 |
|
|
|
7,374 |
|
|
|
|
|
|
|
|
|
|
|
117,031 |
|
|
|
114,078 |
|
Peter Willcox |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
10,000 |
|
John Zeglis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709,359 |
|
|
|
51,985 |
|
|
|
|
|
|
|
11,801 |
|
|
|
773,145 |
|
|
|
658,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior executives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
62,491 |
|
|
|
|
|
|
|
125,900 |
|
|
|
(150,532 |
) |
|
|
37,859 |
|
|
|
32,979 |
|
Kate McKenzie |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
3,700 |
|
|
|
|
|
|
|
147,300 |
|
|
|
|
|
|
|
151,000 |
|
|
|
3,100 |
|
Deena Shiff |
|
|
14,480 |
|
|
|
|
|
|
|
36,800 |
|
|
|
(36,800 |
) |
|
|
14,480 |
|
|
|
8,800 |
|
John Stanhope |
|
|
10,940 |
|
|
|
|
|
|
|
46,800 |
|
|
|
3,441 |
|
|
|
61,181 |
|
|
|
3,960 |
|
David Thodey |
|
|
18,262 |
|
|
|
|
|
|
|
51,000 |
|
|
|
(5,000 |
) |
|
|
64,262 |
|
|
|
800 |
|
Gregory Winn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,873 |
|
|
|
|
|
|
|
407,800 |
|
|
|
(188,891 |
) |
|
|
328,782 |
|
|
|
49,639 |
|
|
|
|
|
|
|
819,232 |
|
|
|
51,985 |
|
|
|
407,800 |
|
|
|
(177,090 |
) |
|
|
1,101,927 |
|
|
|
708,379 |
|
|
|
|
|
|
|
Total shareholdings include shares held by our KMP and their related entities. Unless related to
our employee share plans, shares acquired or disposed by our KMP during fiscal 2006 were on an
arms length basis at market price. |
|
(a) |
|
Shares provided to directors under directshare are subject to a restriction period. The
participating directors are not able to deal in the shares until the end of the restriction
period, refer to note 31 for further details. |
|
(b) |
|
During fiscal 2006, certain directors resigned or retired from office. For these KMP, the
number of shares represent those held at the date of leaving office. |
137
354
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in shares of Telstra Entity (continued)
During fiscal 2005, our KMP and their related entities held share capital of the Telstra Entity
directly, indirectly or beneficially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares acquired or |
|
|
|
|
|
|
|
|
|
Total shares held |
|
|
Directshare |
|
|
disposed of by |
|
|
Total shares held |
|
|
Shares that are |
|
|
|
at 30 June 2004 |
|
|
allocation (a) |
|
|
other means |
|
|
at 30 June 2005 |
|
|
held nominally |
|
|
|
Number |
|
|
Number |
|
|
Number |
|
|
Number |
|
|
Number |
|
|
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald G McGauchie |
|
|
34,328 |
|
|
|
7,117 |
|
|
|
|
|
|
|
41,445 |
|
|
|
41,445 |
|
John T Ralph |
|
|
101,943 |
|
|
|
3,698 |
|
|
|
|
|
|
|
105,641 |
|
|
|
104,641 |
|
Zygmunt E Switkowski |
|
|
155,810 |
|
|
|
|
|
|
|
|
|
|
|
155,810 |
|
|
|
109,010 |
|
Anthony J Clark |
|
|
89,196 |
|
|
|
2,523 |
|
|
|
(8,693 |
) |
|
|
83,026 |
|
|
|
73,026 |
|
John E Fletcher |
|
|
48,060 |
|
|
|
4,874 |
|
|
|
|
|
|
|
52,934 |
|
|
|
52,934 |
|
Belinda J Hutchinson |
|
|
64,948 |
|
|
|
2,159 |
|
|
|
|
|
|
|
67,107 |
|
|
|
29,996 |
|
Catherine B Livingstone |
|
|
37,191 |
|
|
|
2,543 |
|
|
|
|
|
|
|
39,734 |
|
|
|
29,334 |
|
Charles Macek |
|
|
41,462 |
|
|
|
2,543 |
|
|
|
|
|
|
|
44,005 |
|
|
|
44,005 |
|
John W Stocker |
|
|
101,534 |
|
|
|
8,123 |
|
|
|
|
|
|
|
109,657 |
|
|
|
108,857 |
|
|
|
|
|
|
|
674,472 |
|
|
|
33,580 |
|
|
|
(8,693 |
) |
|
|
699,359 |
|
|
|
593,248 |
|
|
|
|
Senior executives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
62,491 |
|
|
|
|
|
|
|
|
|
|
|
62,491 |
|
|
|
54,711 |
|
Douglas Campbell |
|
|
37,200 |
|
|
|
|
|
|
|
|
|
|
|
37,200 |
|
|
|
27,500 |
|
David Moffatt |
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
3,700 |
|
|
|
3,100 |
|
Ted Pretty |
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
2,400 |
|
Michael Rocca |
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
Bill Scales |
|
|
9,916 |
|
|
|
|
|
|
|
|
|
|
|
9,916 |
|
|
|
1,400 |
|
Deena Shiff |
|
|
14,480 |
|
|
|
|
|
|
|
|
|
|
|
14,480 |
|
|
|
8,800 |
|
John Stanhope |
|
|
10,940 |
|
|
|
|
|
|
|
|
|
|
|
10,940 |
|
|
|
3,960 |
|
David Thodey |
|
|
18,262 |
|
|
|
|
|
|
|
|
|
|
|
18,262 |
|
|
|
5,800 |
|
|
|
|
|
|
|
171,389 |
|
|
|
|
|
|
|
|
|
|
|
171,389 |
|
|
|
107,671 |
|
|
|
|
|
|
|
845,861 |
|
|
|
33,580 |
|
|
|
(8,693 |
) |
|
|
870,748 |
|
|
|
700,919 |
|
|
|
|
|
|
|
Total shareholdings include shares held by the KMP and their related entities. Unless related to
our employee share plans, shares acquired or disposed by our KMP during fiscal 2005 were on an
arms length basis at market price. |
|
(a) |
|
Shares provided to directors under directshare are subject to a restriction period. The
participating directors are not able to deal in the shares until the end of the restriction
period, refer to note 31 for further details. |
138
355
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in equity instruments of Telstra Entity
The following details the balances and changes in
instruments issued for our KMP and their related entities
during fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and |
|
|
|
|
Total held |
|
Granted |
|
Exercised |
|
|
|
|
|
Total held |
|
exercisable |
|
|
|
|
at 30 June |
|
during the |
|
during the |
|
Other |
|
at 30 June |
|
at 30 June |
|
Vested during |
Instrument type |
|
2005 |
|
year |
|
year |
|
changes (a) |
|
2006 (b) |
|
2006 |
|
the year |
director/senior executive |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Performance rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solomon D Trujillo |
|
|
|
|
|
|
836,821 |
|
|
|
|
|
|
|
|
|
|
|
836,821 |
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
473,600 |
|
|
|
147,240 |
|
|
|
(59,000 |
) |
|
|
(66,900 |
) |
|
|
494,940 |
|
|
|
|
|
|
|
|
|
Kate McKenzie |
|
|
36,000 |
|
|
|
55,576 |
|
|
|
|
|
|
|
|
|
|
|
91,576 |
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
521,600 |
|
|
|
149,750 |
|
|
|
(71,000 |
) |
|
|
(76,300 |
) |
|
|
524,050 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
151,600 |
|
|
|
100,420 |
|
|
|
(17,000 |
) |
|
|
(19,800 |
) |
|
|
215,220 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
290,000 |
|
|
|
129,666 |
|
|
|
(23,000 |
) |
|
|
(23,800 |
) |
|
|
372,866 |
|
|
|
|
|
|
|
|
|
David Thodey |
|
|
427,200 |
|
|
|
136,068 |
|
|
|
(51,000 |
) |
|
|
(59,000 |
) |
|
|
453,268 |
|
|
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
39,000 |
|
|
|
|
|
|
|
|
|
|
|
(39,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
(40,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
|
(14,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
805,000 |
|
|
|
|
|
|
|
|
|
|
|
(188,000 |
) |
|
|
617,000 |
|
|
|
617,000 |
|
|
|
|
|
David Moffatt |
|
|
890,000 |
|
|
|
|
|
|
|
|
|
|
|
(150,000 |
) |
|
|
740,000 |
|
|
|
740,000 |
|
|
|
|
|
Deena Shiff |
|
|
202,200 |
|
|
|
|
|
|
|
|
|
|
|
(24,200 |
) |
|
|
178,000 |
|
|
|
178,000 |
|
|
|
|
|
John Stanhope |
|
|
310,000 |
|
|
|
|
|
|
|
|
|
|
|
(69,000 |
) |
|
|
241,000 |
|
|
|
241,000 |
|
|
|
|
|
David Thodey |
|
|
534,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534,000 |
|
|
|
534,000 |
|
|
|
|
|
Incentive shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
|
|
|
|
109,540 |
|
|
|
|
|
|
|
11,427 |
|
|
|
120,967 |
|
|
|
|
|
|
|
|
|
Kate McKenzie |
|
|
|
|
|
|
17,119 |
|
|
|
|
|
|
|
1,786 |
|
|
|
18,905 |
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
|
|
|
|
51,946 |
|
|
|
|
|
|
|
5,419 |
|
|
|
57,365 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
|
|
|
|
61,747 |
|
|
|
|
|
|
|
6,441 |
|
|
|
68,188 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
|
|
|
|
50,241 |
|
|
|
|
|
|
|
5,241 |
|
|
|
55,482 |
|
|
|
|
|
|
|
|
|
David Thodey |
|
|
|
|
|
|
43,139 |
|
|
|
|
|
|
|
4,500 |
|
|
|
47,639 |
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
135,300 |
|
|
|
|
|
|
|
(66,900 |
) |
|
|
|
|
|
|
68,400 |
|
|
|
|
|
|
|
66,900 |
|
David Moffatt |
|
|
152,400 |
|
|
|
|
|
|
|
(76,300 |
) |
|
|
|
|
|
|
76,100 |
|
|
|
|
|
|
|
76,300 |
|
Deena Shiff |
|
|
42,300 |
|
|
|
|
|
|
|
(19,800 |
) |
|
|
|
|
|
|
22,500 |
|
|
|
|
|
|
|
19,800 |
|
John Stanhope |
|
|
73,200 |
|
|
|
|
|
|
|
(23,800 |
) |
|
|
|
|
|
|
49,400 |
|
|
|
|
|
|
|
23,800 |
|
David Thodey |
|
|
121,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,600 |
|
|
|
59,000 |
|
|
|
59,000 |
|
TESOP97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
139
356
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in equity instruments of Telstra Entity (continued)
(a) During fiscal 2006, other changes for our performance rights, restricted shares and options are
a result of instruments expiring due to the specified performance hurdles not being achieved.
Other changes for incentive shares relate to additional incentive shares provided to our senior
executives. Any dividends paid by the Company prior to the exercise of their incentives shares
will increase the number of Telstra shares allocated to the senior executive when the vested
incentive shares are exercised.
(b) For those KMP that have resigned or retired during fiscal 2006, the number of equity
instruments represent those instruments held at the date of leaving office.
Equity instruments held by the former chief executive officer
Dr Switkowski ceased employment with the Company effective 1 July 2005. The number of equity
instruments held by Dr Switkowski at the date of leaving office were:
|
|
|
|
|
|
|
Holding as at 1 July |
|
|
2005 |
|
|
Number |
|
Performance rights |
|
|
1,643,600 |
|
Restricted shares |
|
|
96,000 |
|
Options |
|
|
1,810,000 |
|
Deferred shares |
|
|
500,700 |
|
TESOP97 |
|
|
2,500 |
|
TESOP99 |
|
|
400 |
|
Upon ceasing employment, the deferred shares allocated to Dr Switkowski vested and became
immediately exercisable, and as such were included in fiscal 2006 compensation. In addition, the
TESOP97 shares were exercised during fiscal 2006.
Other equity instruments held by Dr Switkowski were not exercised. These equity instruments are
subject to performance hurdles and may become exercisable during future reporting periods.
140
357
Telstra Corporation Limited and controlled
entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in equity instruments of Telstra Entity (continued)
The following table details the balances and changes in
equity instruments issued under our employee share plans
for our KMP and their related entities during fiscal
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and |
|
|
|
|
Total held |
|
Granted during |
|
Other |
|
Total held |
|
exercisable at |
|
Vested during |
Instrument type |
|
at 30 June 2004 |
|
the year |
|
changes (a) |
|
at 30 June 2005 |
|
30 June 2005 |
|
the year |
director/senior executive |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Performance rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
1,259,400 |
|
|
|
513,200 |
|
|
|
(129,000 |
) |
|
|
1,643,600 |
|
|
|
129,000 |
|
|
|
129,000 |
|
Bruce Akhurst |
|
|
388,600 |
|
|
|
144,000 |
|
|
|
(59,000 |
) |
|
|
473,600 |
|
|
|
59,000 |
|
|
|
59,000 |
|
Douglas Campbell |
|
|
388,600 |
|
|
|
131,600 |
|
|
|
(59,000 |
) |
|
|
461,200 |
|
|
|
59,000 |
|
|
|
59,000 |
|
David Moffatt |
|
|
446,200 |
|
|
|
146,400 |
|
|
|
(71,000 |
) |
|
|
521,600 |
|
|
|
71,000 |
|
|
|
71,000 |
|
Ted Pretty |
|
|
446,200 |
|
|
|
146,400 |
|
|
|
|
|
|
|
592,600 |
|
|
|
|
|
|
|
|
|
Michael Rocca |
|
|
251,200 |
|
|
|
115,000 |
|
|
|
(25,000 |
) |
|
|
341,200 |
|
|
|
25,000 |
|
|
|
25,000 |
|
Bill Scales |
|
|
210,400 |
|
|
|
106,400 |
|
|
|
(21,000 |
) |
|
|
295,800 |
|
|
|
21,000 |
|
|
|
21,000 |
|
Deena Shiff |
|
|
118,600 |
|
|
|
50,000 |
|
|
|
(17,000 |
) |
|
|
151,600 |
|
|
|
17,000 |
|
|
|
17,000 |
|
John Stanhope |
|
|
192,400 |
|
|
|
120,600 |
|
|
|
(23,000 |
) |
|
|
290,000 |
|
|
|
23,000 |
|
|
|
23,000 |
|
David Thodey |
|
|
345,200 |
|
|
|
133,000 |
|
|
|
(51,000 |
) |
|
|
427,200 |
|
|
|
51,000 |
|
|
|
51,000 |
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
146,000 |
|
|
|
|
|
|
|
(50,000 |
) |
|
|
96,000 |
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
60,000 |
|
|
|
|
|
|
|
(21,000 |
) |
|
|
39,000 |
|
|
|
|
|
|
|
|
|
Douglas Campbell |
|
|
68,000 |
|
|
|
|
|
|
|
(26,000 |
) |
|
|
42,000 |
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
Ted Pretty |
|
|
21,000 |
|
|
|
|
|
|
|
(21,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Michael Rocca |
|
|
22,000 |
|
|
|
|
|
|
|
(9,000 |
) |
|
|
13,000 |
|
|
|
|
|
|
|
|
|
Bill Scales |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
25,000 |
|
|
|
|
|
|
|
(11,000 |
) |
|
|
14,000 |
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
3,456,000 |
|
|
|
|
|
|
|
(1,646,000 |
) |
|
|
1,810,000 |
|
|
|
1,346,000 |
|
|
|
1,346,000 |
|
Bruce Akhurst |
|
|
1,542,000 |
|
|
|
|
|
|
|
(737,000 |
) |
|
|
805,000 |
|
|
|
617,000 |
|
|
|
617,000 |
|
Douglas Campbell |
|
|
1,597,000 |
|
|
|
|
|
|
|
(777,000 |
) |
|
|
820,000 |
|
|
|
617,000 |
|
|
|
617,000 |
|
David Moffatt |
|
|
1,630,000 |
|
|
|
|
|
|
|
(740,000 |
) |
|
|
890,000 |
|
|
|
740,000 |
|
|
|
740,000 |
|
Ted Pretty |
|
|
1,722,000 |
|
|
|
|
|
|
|
(120,000 |
) |
|
|
1,602,000 |
|
|
|
|
|
|
|
|
|
Michael Rocca |
|
|
640,000 |
|
|
|
|
|
|
|
(315,000 |
) |
|
|
325,000 |
|
|
|
262,000 |
|
|
|
262,000 |
|
Bill Scales |
|
|
465,000 |
|
|
|
|
|
|
|
(220,000 |
) |
|
|
245,000 |
|
|
|
220,000 |
|
|
|
220,000 |
|
Deena Shiff |
|
|
380,200 |
|
|
|
|
|
|
|
(178,000 |
) |
|
|
202,200 |
|
|
|
178,000 |
|
|
|
178,000 |
|
John Stanhope |
|
|
616,000 |
|
|
|
|
|
|
|
(306,000 |
) |
|
|
310,000 |
|
|
|
241,000 |
|
|
|
241,000 |
|
David Thodey |
|
|
1,068,000 |
|
|
|
|
|
|
|
(534,000 |
) |
|
|
534,000 |
|
|
|
534,000 |
|
|
|
534,000 |
|
Deferred Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
500,700 |
|
|
|
|
|
|
|
|
|
|
|
500,700 |
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
135,300 |
|
|
|
|
|
|
|
|
|
|
|
135,300 |
|
|
|
|
|
|
|
|
|
Douglas Campbell |
|
|
135,300 |
|
|
|
|
|
|
|
|
|
|
|
135,300 |
|
|
|
|
|
|
|
|
|
David Moffatt |
|
|
152,400 |
|
|
|
|
|
|
|
|
|
|
|
152,400 |
|
|
|
|
|
|
|
|
|
Ted Petty |
|
|
155,100 |
|
|
|
|
|
|
|
|
|
|
|
155,100 |
|
|
|
|
|
|
|
|
|
Michael Rocca |
|
|
100,600 |
|
|
|
|
|
|
|
|
|
|
|
100,600 |
|
|
|
|
|
|
|
|
|
Bill Scales |
|
|
84,200 |
|
|
|
|
|
|
|
|
|
|
|
84,200 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
42,300 |
|
|
|
|
|
|
|
|
|
|
|
42,300 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
73,200 |
|
|
|
|
|
|
|
|
|
|
|
73,200 |
|
|
|
|
|
|
|
|
|
David Thodey |
|
|
121,600 |
|
|
|
|
|
|
|
|
|
|
|
121,600 |
|
|
|
|
|
|
|
|
|
141
358
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
33. Related party disclosures (continued)
KMP interests in equity instruments issued from
Growthshare (continued)
The following table details the balances and changes in
equity instruments issued from Growthshare for our KMP
and their related entities during fiscal 2005
(continued).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and |
|
|
|
|
Total held |
|
Granted during |
|
Other |
|
Total held |
|
exercisable at |
|
Vested during |
Instrument type |
|
at 30 June 2004 |
|
the year |
|
changes (a) |
|
at 30 June 2005 |
|
30 June 2005 |
|
the year |
director/senior executive |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
TESOP97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
Douglas Campbell |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
Michael Rocca |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
Bruce Akhurst |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
Douglas Campbell |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
Deena Shiff |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
John Stanhope |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other changes have arisen in fiscal 2005 as a result
of instruments lapsing due to the specified performance
hurdles not being achieved. |
142
359
Telstra Corporation
Limited and controlled
entities
Notes to the Financial Statements (continued)
34. Events after balance date
We are not aware of any matter or circumstance that has occurred since 30 June 2006 that, in
our opinion, has significantly affected or may significantly affect in future years:
|
|
the results of those operations; or |
|
|
the state of our affairs; |
other than:
Dividend declaration
On 10 August 2006, the directors of Telstra Corporation Limited declared a fully franked final
dividend of 14 cents per ordinary share. The record date for the final dividend will be 25 August
2006 with payment being made on 22 September 2006. Shares will trade excluding the entitlement to
the dividend on 21 August 2006.
A provision for dividend payable has been raised as at the date of declaration, amounting to $1,739
million. The final dividend will be fully franked at a tax rate of 30%. The financial effect of
the dividend declaration was not brought to account as at 30 June 2006.
There are no income tax consequences for the Telstra Group and Telstra Entity resulting from the
declaration and payment of the final ordinary dividend, except for $745 million franking debits
arising from the payment of this dividend that will be adjusted in our franking account balance.
FOXTEL loan facility
On 31 July 2006, our 50% owned pay television joint venture FOXTEL entered into a new $600 million
syndicated secured term loan facility to fund the refinancing of previous loan facilities
(including the $550 million syndicated facility), and to enable it to meet future cash flow and
expenditure requirements.
The equity contribution deed (ECD) entered into by us and FOXTELs other ultimate shareholders,
News Corporation Limited and Publishing and Broadcasting Limited has been terminated.
Under this arrangement, recourse to our controlled entity Telstra Media Pty Ltd, as a FOXTEL
partner, is limited to the assets of the FOXTEL Partnerships.
143
360
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management
Financial risk factors
We undertake transactions in a range of financial instruments including:
|
|
cash assets; |
|
|
|
receivables; |
|
|
|
payables; |
|
|
|
deposits; |
|
|
|
bills of exchange and commercial paper; |
|
|
|
listed investments and investments in other corporations; |
|
|
|
various forms of borrowings,
including medium term notes, commercial paper, bank loans and private placements; and |
|
|
|
derivatives. |
Our activities result in exposure to a number of financial risks, including market risk (interest
rate risk, foreign currency risk and other price risk), credit risk, operational risk and liquidity
risk.
Our overall risk management program seeks to mitigate these risks and reduce volatility on our
financial performance. Risk management is carried out centrally by our Treasury department, which
is part of our Finance and Administration business unit, under policies approved by the Board of
Directors. The Board provides written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk,
use of derivative financial instruments and non-derivative financial instruments, and the
investment of excess liquidity.
We enter into derivative transactions in accordance with Board approved policies to manage our
exposure to market risks and volatility of financial outcomes that arise as part of our normal
business operations. These derivative instruments create an obligation or right that effectively
transfers one or more of the risks associated with an underlying financial instrument, asset or
obligation. Derivative instruments that we use to hedge risks such as interest rate and foreign
currency movements include:
|
|
cross currency swaps; |
|
|
|
interest rate swaps; and |
|
|
|
forward foreign currency contracts |
We do not speculatively trade in derivative instruments. Our derivative transactions are entered
into to hedge the risks relating to underlying physical positions arising from our business
activities.
Comparatives
We have elected to apply the exemption available under AASB 1: First-time Adoption of Australian
Equivalents to International Financial Reporting Standards (AASB 1) to apply AASB132: Financial
Instruments: Disclosure and Presentation and AASB 139: Financial Instruments: Recognition and
Measurement from 1 July 2005. Accordingly, we have changed our accounting policies for financial
instruments from 1 July 2005. We have elected to early adopt AASB 7: Financial Instruments:
Disclosures from 1 July 2005. AASB 7 supersedes the disclosure requirements, but not the
presentation requirements of AASB 132. The early adoption of AASB 7 did not require comparative
information for fiscal 2005 to be restated and disclosed.
Risks and mitigation
The risks associated with our main financial instruments and our policies for minimising these
risks are detailed below.
(a) Market risk
Market risk is the risk that the fair value or future cash flows of our financial instruments will
fluctuate because of changes in market prices. Components of market risk to which we are exposed
are discussed below.
(i) Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows
associated with the instrument will fluctuate due to changes in market interest rates.
Interest rate risk arises from interest bearing financial assets and liabilities that we use.
Non-derivative interest-bearing assets are predominantly short term liquid assets. Our interest
rate liability risk arises primarily from long term foreign debt issued at fixed rates which
exposes us to fair value interest rate risk. Our borrowings which have a variable interest rate
attached give rise to cash flow interest rate risk.
144
361
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(a) Market risk (continued)
(i) Interest rate risk (continued)
Our debt is sourced from a number of financial markets covering domestic and offshore, short term
and long term funding. The majority of our debt consists of foreign currency denominated
borrowings. We manage our debt in accordance with targeted currency, interest rate, liquidity, and
debt portfolio maturity profiles. Specifically, we manage interest rate risk on our net debt
portfolio by:
|
|
controlling the proportion of fixed to variable rate positions in accordance with target levels; |
|
|
ensuring access to diverse sources of funding; |
|
|
reducing risks of refinancing by establishing and managing in accordance with target maturity profiles; and |
|
|
undertaking hedging activities through the use of derivative instruments. |
We manage the interest rate exposure on our net debt portfolio to adjust the ratio of fixed
interest debt to variable interest debt to our target rates, as required by our debt management
policy. Where the actual interest rate profile on the physical debt profile differs substantially
from our desired target, we use derivatives, principally interest rate swaps, to adjust towards the
target net debt profile. Under the interest rate swaps we agree with other parties to exchange, at
specified intervals (mainly quarterly), the difference between fixed contract rates and floating
rate interest amounts calculated by reference to the agreed notional principal amounts.
We hedge interest rate and currency risk on most of our foreign currency borrowings by entering
into cross currency principal swaps and interest rate swaps when required, which have the economic
effect of converting foreign currency borrowings to Australian dollar borrowings.
The Derivative financial instruments and hedging activities contained in this note provides
further information.
The exposure to interest rate changes and the contractual repricing timeframes at 30 June 2006 on
our floating rate financial instruments, which do not have offsetting risk positions, are shown in
Table A below. These instruments also include cross currency swaps used to hedge our net foreign
investments.
|
|
|
|
|
|
|
|
|
|
|
Contractual repricing dates |
|
|
|
Notional / Principal |
|
Table A |
|
amounts |
|
|
|
6 months or less |
|
|
|
Telstra |
|
|
Telstra |
|
|
|
Group |
|
|
Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2006 |
|
|
2006 |
|
|
|
$m |
|
|
$m |
|
|
|
|
Floating rate instruments |
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
Cash at bank |
|
|
181 |
|
|
|
32 |
|
Bills of exchange and commercial paper |
|
|
451 |
|
|
|
387 |
|
Cross currency swaps |
|
|
511 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
Bills of exchange and commercial paper |
|
|
1,457 |
|
|
|
1,457 |
|
Interest rate swaps |
|
|
450 |
|
|
|
450 |
|
Cross currency swaps |
|
|
5,246 |
|
|
|
5,246 |
|
Bank loans |
|
|
111 |
|
|
|
110 |
|
|
|
|
|
|
|
|
145
362
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(a) Market risk (continued)
(i) Interest rate risk (continued)
Interest rates on our fixed and floating rate financial instruments which do not have offsetting
risk positions are shown in Table B below. Foreign interest rate positions on our foreign cross
currency and foreign interest rate swaps and on the majority of our foreign borrowings are fully
offset, resulting in a nil net foreign interest position.
Accordingly, apart from some foreign borrowings and cross currency swaps which are used to hedge
our net foreign investments, only the Australian interest rate positions are included in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table B |
|
Telstra Group |
|
Telstra Entity |
|
|
As at 30 June 2006 |
|
As at 30 June 2006 |
|
|
|
|
|
|
Interest rate range |
|
|
|
|
|
Interest rate range |
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
rate (a) |
|
From |
|
To |
|
rate (a) |
|
From |
|
To |
Note |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
Australian dollar interest rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
6.47 |
|
|
|
5.60 |
|
|
|
7.66 |
|
|
|
6.47 |
|
|
|
5.60 |
|
|
|
7.66 |
|
Cross currency swaps |
|
|
6.69 |
|
|
|
6.25 |
|
|
|
7.05 |
|
|
|
6.69 |
|
|
|
6.25 |
|
|
|
7.05 |
|
Telstra bonds |
|
|
7.21 |
|
|
|
6.48 |
|
|
|
12.60 |
|
|
|
7.21 |
|
|
|
6.48 |
|
|
|
12.60 |
|
Finance lease liabilities |
|
|
9.33 |
|
|
|
7.56 |
|
|
|
10.50 |
|
|
|
7.56 |
|
|
|
7.56 |
|
|
|
7.56 |
|
Deferred cash settlements |
|
|
12.40 |
|
|
|
12.00 |
|
|
|
12.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
5.87 |
|
|
|
5.75 |
|
|
|
5.93 |
|
|
|
5.87 |
|
|
|
5.75 |
|
|
|
5.93 |
|
Cross currency swaps |
|
|
5.89 |
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
5.89 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bills of exchange and commercial paper |
|
|
5.68 |
|
|
|
5.65 |
|
|
|
5.73 |
|
|
|
5.68 |
|
|
|
5.65 |
|
|
|
5.73 |
|
Interest rate swaps |
|
|
6.21 |
|
|
|
5.34 |
|
|
|
7.71 |
|
|
|
6.21 |
|
|
|
5.34 |
|
|
|
7.71 |
|
Cross currency swaps |
|
|
6.67 |
|
|
|
5.88 |
|
|
|
7.49 |
|
|
|
6.67 |
|
|
|
5.88 |
|
|
|
7.49 |
|
Bank loans |
|
|
5.82 |
|
|
|
5.80 |
|
|
|
5.85 |
|
|
|
5.82 |
|
|
|
5.80 |
|
|
|
5.85 |
|
Foreign currency interest rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans (c) |
|
|
7.11 |
|
|
|
7.03 |
|
|
|
7.19 |
|
|
|
7.11 |
|
|
|
7.03 |
|
|
|
7.19 |
|
Floating rate instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bills of exchange and commercial paper (c) |
|
|
7.48 |
|
|
|
7.44 |
|
|
|
7.54 |
|
|
|
7.48 |
|
|
|
7.44 |
|
|
|
7.54 |
|
Cross currency swaps Hong Kong dollar (c) |
|
|
4.61 |
|
|
|
4.60 |
|
|
|
4.62 |
|
|
|
4.61 |
|
|
|
4.60 |
|
|
|
4.62 |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank |
|
|
5.00 |
|
|
|
0.16 |
|
|
|
7.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The average rate is calculated as the weighted average (based on principal/notional value)
effective interest rate. |
|
(b) |
|
The effective yield (effective interest rate) on our net debt at 30 June 2006 was 6.85% for the
Telstra Group and 6.51% for the Telstra Entity. |
|
(c) |
|
Used to hedged our net foreign investments. |
146
363
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(a) Market risk (continued)
(i) Interest rate risk (continued)
Sensitivity analysis
Table C shows the effect on profit and equity after tax as at 30 June 2006 if interest rates at
that date had been 10 per cent higher or lower with all other variables held constant, taking into
account all underlying exposures and related hedges. Concurrent movements in interest rates and
parallel shifts in the yield curves is assumed.
Also included in Table C is the effect on finance costs on our floating rate instruments if
interest rates had been 10 per cent higher or lower during the year.
A sensitivity of 10 per cent has been selected as this is considered reasonable given the current
level of both short term and long term Australian dollar interest rates. A 10 per cent sensitivity
would move short term interest rates from around 6.25% to 6.875% representing a 62.5 basis points
shift. This would represent two to three rate increases which is reasonably possible in the current
environment with the bias coming from the Reserve Bank of Australia and confirmed by market
expectations that interest rates in Australia are more likely to move up than down in the coming
period.
It should be noted that the results reflect the net impact on a hedged basis which will be
primarily reflecting the Australian dollar floating or Australian dollar fixed position from the
cross currency and interest rate swap hedges and therefore it is the movement in the Australian
dollar interest rates which is the important assumption in this sensitivity analysis.
The impact of the sensitivity analysis on finance costs is due to two factors, the impact on
interest expense being incurred on our net floating rate Australian dollar positions during the
year and the ineffectiveness resulting from the change in fair value of both our derivatives and
borrowings which are designated in a fair value hedge. These two factors offset each other as the
ineffective component results in a gain and the increase in finance costs results in an increase in
expense. The net impact on net profit is relatively small reflecting the hedge strategy adopted by
Telstra in
terms of repricing risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table C |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
|
|
|
|
|
|
|
|
Equity (Cash |
|
|
|
|
|
|
Equity (Cash |
|
|
|
|
|
|
|
|
|
|
|
flow hedging |
|
|
|
|
|
|
Profit before flow hedging |
|
|
|
Finance costs |
|
|
Net profit |
|
|
reserve) |
|
|
Finance costs |
|
|
income tax |
reserve |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
If interest rates were 10 per cent higher
with all other
variables held constant increase/(decrease) |
|
|
8 |
|
|
|
(8 |
) |
|
|
29 |
|
|
|
8 |
|
|
|
(8 |
) |
|
|
29 |
|
If interest rates were 10 per cent lower
with all other
variables held constant increase/(decrease) |
|
|
(8 |
) |
|
|
8 |
|
|
|
(29 |
) |
|
|
(8 |
) |
|
|
8 |
|
|
|
(29 |
) |
(ii) Foreign currency risk
Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset
or liability will fluctuate due to changes in foreign currency rates. Our foreign currency exchange
risk arises primarily from:
|
|
borrowings denominated in foreign currencies; |
|
|
firm commitments or highly probable forecast transactions for receipts and payments settled
in foreign currencies or with prices dependent on foreign currencies; and |
|
|
net investments in foreign operations. |
We are exposed to foreign exchange risk from various currency exposures, primarily with respect to:
|
|
British pounds sterling; |
147
364
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(a) Market risk (continued)
(ii) Foreign currency risk (continued)
Our economic foreign currency risk is assessed for each individual currency and for each hedge
type, calculated by aggregating the net exposure for that currency for that hedge type.
We minimise our exposure to foreign currency risk by initially seeking contracts effectively
denominated in Australian dollars where possible and economically favourable to do so. Where this
is not possible we manage our exposure as follows.
Foreign exchange risk that arises from firm commitments or highly probable transactions are managed
principally through the use of forward foreign currency derivatives. We hedge a proportion of these
transactions (such as international telecommunications traffic transactions settled in foreign
currencies) in each currency in accordance with our risk management policy.
Cash flow foreign currency risk arises primarily from foreign currency overseas borrowings. We
hedge this risk on the major part of our foreign currency denominated borrowings by effectively
converting them to Australian dollar borrowings by entering into cross currency swaps at inception
to maturity. A relatively small proportion of our foreign currency borrowings are not swapped into
Australian dollars where they are used as hedges for foreign exchange exposure such as translation
foreign exchange risk from our offshore business investments.
Foreign currency risk also arises on translation of the net assets of our non-Australian controlled
entities which have a different functional currency. The foreign currency gains or losses arising
from this risk are recorded through the foreign currency translation reserve. We manage this
translation foreign exchange risk with forward foreign currency contracts, cross currency swaps
and/or borrowings denominated in the currency of the entity concerned.
Where a subsidiary hedges foreign exchange transactions it designates hedging instruments with the
Treasury department as fair value hedges or cash flow hedges as appropriate. External foreign
exchange contracts are designated at the group level as hedges of foreign exchange risk on specific
assets, liabilities or future transactions.
Also refer to Derivative financial instruments and hedging activities contained in this note.
Sensitivity analysis
The following Table D shows the effect on profit and equity after tax as at 30 June 2006 from a 10
percent adverse/favourable movement in exchange rates at that date on a total portfolio basis with
all other variables held constant, taking into account all underlying exposures and related hedges.
Adverse versus favourable movements are determined relative to the underlying exposure. An adverse
movement in exchange rates implies an increase in our foreign currency risk exposure and a
worsening of our financial position. A favourable movement in exchange rates implies a reduction in
our foreign currency risk exposure and an improvement of our financial position.
A sensitivity of 10 per cent has been selected as this is considered reasonable given the current
level of exchange rates and the volatility observed both on an historical basis and market
expectations for future movement. Looking at the Australian dollar exchange rate against the United
States dollar, the year end rate of 0.74235 would generate a 10 per cent adverse position of 0.6681
and a favourable position of 0.8166. This range is considered reasonable given the historic ranges
that have been observed, for example over the last five years, the Australian dollar exchange rate
against the US dollar has traded in the range 0.7985 to 0.4848.
Our foreign currency risk exposure from recognised assets and liabilities arises primarily from our
long term borrowings denominated in foreign currencies. There is no significant impact on profit
from foreign currency movements associated with these borrowings as they are effectively hedged.
The net gain in the cash flow hedge reserve reflects the result of exchange rate movements on the
derivatives held in our cash flow hedges which will be released to the income statement in the
future as the underlying hedged items affect profit.
For the Telstra Group, our foreign currency translation risk associated with our foreign
investments results in some volatility to the foreign currency translation reserve. The impact on
the foreign currency translation reserve relates to
the hedging of our net investments in New Zealand dollars and Hong Kong dollars where the notional
amount hedged equates to approximately 40%. The net loss of $211 million in the foreign currency
translation reserve takes into account the related hedges and represents the impact of the unhedged
portion. For the Telstra Entity there is a gain of $78 million resulting from the hedging
instruments used to hedge our net foreign investments. This amount is transferred to the foreign
currency translation reserve in the Telstra Group.
148
365
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Sensitivity analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table D |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
(foreign |
|
|
Equity |
|
|
|
|
|
|
(foreign |
|
|
Equity |
|
|
|
currency |
|
|
(cash flow |
|
|
|
|
|
|
currency |
|
|
(cash flow |
|
|
|
translation |
|
|
hedging |
|
|
|
|
|
|
translation |
|
|
hedging |
|
|
|
reserve) |
|
|
reserve) |
|
|
Net profit |
|
|
reserve) |
|
|
reserve) |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
If there was a 10% adverse movement in exchange rates with all
other variables held constant increase/(decrease) |
|
|
(211 |
) |
|
|
43 |
|
|
|
78 |
|
|
|
|
|
|
|
41 |
|
If there was a 10% favourable movement in exchange rates with
all
other variables held constant increase/(decrease) |
|
|
211 |
|
|
|
(43 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
(41 |
) |
(b) Credit risk
Credit risk is the risk that a contracting entity will not complete its obligations under a
financial instrument and cause us to make a financial loss. We have exposure to credit risk on all
financial assets included in our balance sheet. To help manage this risk:
|
|
we have a policy for establishing credit limits for the entities we
deal with; |
|
|
|
we may require collateral where appropriate; and |
|
|
|
we manage exposure to individual entities we either transact with
or enter into derivative contracts with (through a system of credit
limits). |
The major
concentrations of credit risk for the Telstra Group and the
Telstra Entity arise from our transactions in money market
instruments, forward foreign currency contracts, cross currency and
interest rate swaps. For credit purposes, there is only a credit risk
where the contracting entity is liable to pay us in the event of a
closeout. We have policies that
limit the amount of credit exposure to any financial institution.
Derivative counterparties and
cash transactions are limited to financial institutions that meet
minimum credit rating criteria in
accordance with our policy requirements.
One of the methods that we use to manage the risk relating to these instruments is to monitor our
exposure by country of financial institution. When reviewing concentrations of risk, we adjust for
the period to maturity of relevant instruments in our portfolio to accurately consider our exposure
at a point in time. On this basis, our credit risk exposure on financial assets outstanding at
balance date (which includes a time based volatility allowance (VAR)) by country of financial
institution is included in Table E below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table E |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Credit risk concentrations (VAR based) |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
% |
|
|
$m |
|
|
% |
|
|
$m |
|
|
|
|
Australia |
|
|
34.6 |
|
|
|
1,983 |
|
|
|
35.1 |
|
|
|
1,983 |
|
United States |
|
|
32.5 |
|
|
|
1,858 |
|
|
|
32.9 |
|
|
|
1,858 |
|
Japan |
|
|
3.9 |
|
|
|
223 |
|
|
|
3.9 |
|
|
|
223 |
|
Europe |
|
|
14.1 |
|
|
|
807 |
|
|
|
14.3 |
|
|
|
807 |
|
United Kingdom |
|
|
4.0 |
|
|
|
229 |
|
|
|
4.1 |
|
|
|
229 |
|
Canada |
|
|
2.3 |
|
|
|
133 |
|
|
|
2.4 |
|
|
|
133 |
|
Switzerland |
|
|
7.1 |
|
|
|
409 |
|
|
|
7.2 |
|
|
|
409 |
|
Hong Kong |
|
|
1.0 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
New Zealand |
|
|
0.5 |
|
|
|
26 |
|
|
|
0.1 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
5,727 |
|
|
|
100.0 |
|
|
|
5,651 |
|
|
|
|
|
|
Our maximum exposure to credit risk based on the recorded amounts of our financial assets reported
at 30 June 2006, net of any applicable provisions for loss, amounts to $4,889 million for the
Telstra Group and $4,357 million for the Telstra Entity. For the Telstra Group this comprises
current financial assets of $4,411 million (Telstra Entity: $3,839 million) and non current
financial assets of $478 million (Telstra Entity: $518 million). Details of our financial assets
are shown in Table G. Where entities have a right of set-off and intend to settle on a net basis
under master netting arrangements, this set-off has been recognised in the financial statements on
a net basis.
We do not have any other significant operating exposure to any individual contracting entity.
We may also be subject to credit risk for transactions which are not included in the balance sheet,
such as when we provide a guarantee for another party. Details of our contingent liabilities and
contingent assets are available at note 27.
149
366
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(c) Liquidity risk
Liquidity risk includes the risk that, as a result of our operational liquidity requirements:
|
|
we will not have sufficient funds to settle a transaction on the due date; |
|
|
|
we will be forced to sell financial assets at a value which is less than what they are worth; or |
|
|
|
we may be unable to settle or recover a financial asset at all. |
To help reduce these risks we:
|
|
have a liquidity policy which targets a minimum and average level of cash and cash equivalents to be maintained; |
|
|
|
have readily accessible standby facilities and other funding arrangements in place; |
|
|
|
generally use instruments that are tradeable in highly liquid markets; and |
|
|
|
have a liquidity portfolio structure that requires surplus funds to be invested within
various bands of liquid instruments ranging from ultra liquid, highly liquid and liquid
instruments. |
150
367
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
(c) Liquidity risk (continued)
The contractual maturity of our fixed and floating rate financial liabilities and derivatives at 30
June 2006 are shown in Table F below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table F |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Contractual maturity |
|
|
Contractual maturity |
|
|
|
(nominal cash flows) |
|
|
(nominal cash flows) |
|
|
|
Less than |
|
|
1 to 2 |
|
|
2 to 5 |
|
|
over |
|
|
Less than |
|
|
1 to 2 |
|
|
2 to 5 |
|
|
over 5 |
|
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
1 year |
|
|
years |
|
|
years |
|
|
years |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Derivative financial assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps pay fixed (i) |
|
|
(17 |
) |
|
|
(15 |
) |
|
|
(16 |
) |
|
|
(16 |
) |
|
|
(17 |
) |
|
|
(15 |
) |
|
|
(16 |
) |
|
|
(16 |
) |
Interest rate swaps pay variable (i) |
|
|
2 |
|
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
2 |
|
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
Cross currency swaps AUD leg (fixed)
(ii) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(54 |
) |
|
|
(316 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(54 |
) |
|
|
(316 |
) |
Cross currency swaps AUD leg
(variable) (ii) |
|
|
(837 |
) |
|
|
(1,648 |
) |
|
|
(3,716 |
) |
|
|
(3,153 |
) |
|
|
(837 |
) |
|
|
(1,648 |
) |
|
|
(3,716 |
) |
|
|
(3,153 |
) |
Forward foreign currency contracts (ii) |
|
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps receive fixed (i) |
|
|
61 |
|
|
|
39 |
|
|
|
97 |
|
|
|
56 |
|
|
|
61 |
|
|
|
39 |
|
|
|
97 |
|
|
|
56 |
|
Interest rate swaps receive variable (i) |
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
|
|
Cross currency swaps foreign leg (fixed)
(ii) |
|
|
53 |
|
|
|
1,072 |
|
|
|
69 |
|
|
|
166 |
|
|
|
53 |
|
|
|
1,072 |
|
|
|
69 |
|
|
|
166 |
|
Cross currency swaps foreign leg
(variable) (ii) |
|
|
647 |
|
|
|
359 |
|
|
|
3,351 |
|
|
|
2,724 |
|
|
|
647 |
|
|
|
359 |
|
|
|
3,351 |
|
|
|
2,724 |
|
Forward foreign currency contracts (ii) |
|
|
773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds |
|
|
(184 |
) |
|
|
(184 |
) |
|
|
(1,428 |
) |
|
|
(2,014 |
) |
|
|
(184 |
) |
|
|
(184 |
) |
|
|
(1,428 |
) |
|
|
(2,014 |
) |
Bank loans |
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other loans |
|
|
(866 |
) |
|
|
(1,813 |
) |
|
|
(4,656 |
) |
|
|
(4,553 |
) |
|
|
(866 |
) |
|
|
(1,813 |
) |
|
|
(4,656 |
) |
|
|
(4,553 |
) |
Finance lease liabilities |
|
|
(13 |
) |
|
|
(12 |
) |
|
|
(23 |
) |
|
|
(52 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(10 |
) |
|
|
|
|
Bills of exchange and commercial paper |
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred cash settlements |
|
|
(123 |
) |
|
|
(10 |
) |
|
|
(29 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bills of exchange and commercial paper |
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
net amounts for interest rate swaps for which net cash flows are exchanged. |
|
(ii) |
|
contractual amounts to be exchanged representing gross cash flows to be exchanged. |
|
(iii) |
|
for floating rate instruments, the amount disclosed is determined by reference to the
interest rate at the last re-pricing date. |
151
368
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Net fair value of our financial assets and financial liabilities
The carrying amounts and fair value of our financial assets and financial liabilities is shown in
Table G below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table G |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
amount |
|
|
Fair value |
|
|
amount |
|
|
Fair value |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
Financial assets current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and on hand |
|
|
238 |
|
|
|
238 |
|
|
|
87 |
|
|
|
87 |
|
Bills of exchange and commercial paper |
|
|
451 |
|
|
|
451 |
|
|
|
387 |
|
|
|
387 |
|
Trade debtors |
|
|
2,421 |
|
|
|
2,421 |
|
|
|
1,771 |
|
|
|
1,771 |
|
Accrued revenue |
|
|
1,027 |
|
|
|
1,027 |
|
|
|
971 |
|
|
|
971 |
|
Amounts owed by controlled entities |
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
416 |
|
Other receivables |
|
|
253 |
|
|
|
253 |
|
|
|
186 |
|
|
|
186 |
|
Cross currency swap hedge receivable |
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
Forward contract asset |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
4,411 |
|
|
|
4,411 |
|
|
|
3,839 |
|
|
|
3,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by jointly controlled and associated entities |
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Amounts owed by controlled entities |
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
60 |
|
Other receivables |
|
|
73 |
|
|
|
73 |
|
|
|
67 |
|
|
|
67 |
|
Cross currency swap hedge receivable |
|
|
222 |
|
|
|
222 |
|
|
|
222 |
|
|
|
222 |
|
Interest rate swap asset |
|
|
169 |
|
|
|
169 |
|
|
|
169 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
478 |
|
|
|
478 |
|
|
|
518 |
|
|
|
518 |
|
|
|
|
|
|
|
|
|
4,889 |
|
|
|
4,889 |
|
|
|
4,357 |
|
|
|
4,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade creditors |
|
|
738 |
|
|
|
738 |
|
|
|
586 |
|
|
|
586 |
|
Accrued interest and other accrued expenses |
|
|
2,440 |
|
|
|
2,440 |
|
|
|
2,111 |
|
|
|
2,111 |
|
Other creditors |
|
|
269 |
|
|
|
269 |
|
|
|
171 |
|
|
|
171 |
|
Amounts owed to controlled entities |
|
|
|
|
|
|
|
|
|
|
197 |
|
|
|
197 |
|
Deferred cash settlements |
|
|
123 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
Loans from wholly owned controlled entities |
|
|
|
|
|
|
|
|
|
|
1,408 |
|
|
|
1,408 |
|
Bills of exchange and commercial paper |
|
|
1,457 |
|
|
|
1,481 |
|
|
|
1,457 |
|
|
|
1,481 |
|
Bank loans |
|
|
111 |
|
|
|
111 |
|
|
|
110 |
|
|
|
110 |
|
Other loans |
|
|
394 |
|
|
|
396 |
|
|
|
394 |
|
|
|
396 |
|
Finance leases |
|
|
7 |
|
|
|
7 |
|
|
|
5 |
|
|
|
5 |
|
Cross currency swap hedge payable |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Forward contract liability |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
5,551 |
|
|
|
5,577 |
|
|
|
6,451 |
|
|
|
6,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other creditors |
|
|
70 |
|
|
|
70 |
|
|
|
65 |
|
|
|
65 |
|
Deferred cash settlements |
|
|
127 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
Telstra bonds |
|
|
2,613 |
|
|
|
2,658 |
|
|
|
2,613 |
|
|
|
2,658 |
|
Other loans |
|
|
8,748 |
|
|
|
9,336 |
|
|
|
8,748 |
|
|
|
9,273 |
|
Finance leases |
|
|
48 |
|
|
|
48 |
|
|
|
15 |
|
|
|
15 |
|
Cross currency hedge payable |
|
|
612 |
|
|
|
612 |
|
|
|
612 |
|
|
|
612 |
|
Interest rate swap payable |
|
|
156 |
|
|
|
156 |
|
|
|
156 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
12,374 |
|
|
|
13,007 |
|
|
|
12,209 |
|
|
|
12,779 |
|
|
|
|
|
|
|
|
|
17,925 |
|
|
|
18,584 |
|
|
|
18,660 |
|
|
|
19,256 |
|
|
|
|
|
|
152
369
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Net fair value of our financial assets and financial liabilities (continued)
(i) Unless there is evidence to suggest otherwise, financial assets and financial liabilities with
a short term to maturity are considered to approximate net fair value.
(ii) The reported balance of our borrowings and derivative instruments excludes accrued interest
which is recorded in current trade and other receivables and current trade and other payables
in the balance sheet.
(iii) Derivative financial assets and derivative financial liabilities are carried at fair value.
Fair value is based on the present value of the estimated future cash flows using an appropriate
market based yield curve (also refer to note 2.27).
(iv) The fair value of the Telstra bonds is calculated as the present value of the estimated future
cash flows using an appropriate market based yield curve (refer also to note 2.27). The carrying
value of Telstra bonds is at amortised cost.
(v) Other loans comprise predominantly foreign denominated debt. The difference between the fair
value and carrying value arises from the mixed measurement bases where only part of the foreign
currency borrowing portfolio is carried at fair value with the remaining part at amortised cost.
Fair value is based on the present value of the estimated future cash flows using an appropriate
market based yield curve (also refer to note 2.27).
The carrying amount of other loans are denominated in the following currencies:
|
|
|
|
|
|
|
|
|
Table H |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Carrying value |
|
|
|
As at |
|
|
As at |
|
|
|
30 June 2006 |
|
|
30 June 2006 |
|
|
|
$m |
|
|
$m |
|
Australian dollar |
|
|
245 |
|
|
|
245 |
|
Euro |
|
|
6,336 |
|
|
|
6,336 |
|
United States dollar |
|
|
1,028 |
|
|
|
1,028 |
|
United Kingdom pound |
|
|
487 |
|
|
|
487 |
|
Japanese yen |
|
|
472 |
|
|
|
472 |
|
New Zealand dollar |
|
|
164 |
|
|
|
164 |
|
Swiss francs |
|
|
326 |
|
|
|
326 |
|
Singapore dollar |
|
|
84 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
9,142 |
|
|
|
9,142 |
|
|
|
|
|
|
|
|
(vi) During the year we incurred impairment losses on our financial assets of $163 million for
the Telstra Group and $520 million for the Telstra Entity. For the Telstra Group impairment losses
comprised $161 million on trade and other receivables and $2 million on amounts owed by associated
entities. For the Telstra Entity impairment losses comprised $138 million on trade and other
receivables and $382 million on amounts owed by controlled entities.
153
370
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities
We hold a number of different financial instruments to hedge risks relating to underlying
transactions. Our major exposure to interest rate risk and foreign currency risk arises from our
long term borrowings. Details of our hedging activities are provided below.
We designate certain derivatives as either:
|
|
hedges of the fair value of recognised liabilities (fair value hedges); |
|
|
|
hedges of foreign currency risk associated with recognised liabilities or highly probable
forecast transactions (cash flow hedges); or |
|
|
|
hedges of a net investment in a foreign operation (net investment hedge). |
Derivatives are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured at their fair value.
The terms and conditions in relation to our derivative instruments are similar to the terms and
conditions of the underlying hedged items. During the year we discontinued hedge accounting for our
British pound borrowing in a fair value hedge. There was no material impact on our income
statement. All other hedging relationships were effective at the reporting date.
For further details reference should be made to note 2.26.
(a) Fair value hedges
During the period we held cross currency principal and interest rate swaps to mitigate our exposure
to changes in the fair value of foreign denominated debt from fluctuations in foreign currency and
interest rates. The hedged items designated were a portion of our foreign currency denominated
borrowings. The changes in the fair values of the hedged items resulting from movements in exchange
rates and interest rates are offset against the changes in the value of the cross currency and
interest rate swaps. The objective of this hedging is to convert foreign currency borrowings to
floating Australian dollar borrowings.
Gains or losses from remeasuring the fair value of the hedge instrument are recognised within
finance costs in the income statement, together with gains and losses in relation to the hedged
item where those gains or losses relate to the hedged risks. This net result largely represents
ineffectiveness attributable to movements in Telstras borrowing margins. The remeasurement of the
hedged items resulted in a loss before tax of $3 million (Telstra Entity: $3 million) and the
changes in the fair value of the hedging instruments resulted in a gain before tax of $29 million
(Telstra Entity: $29 million) resulting in a net gain before tax of $26 million (Telstra Entity:
$26 million) recorded in finance costs in the 2006 financial year.
The effectiveness of the hedging relationship is tested prospectively and retrospectively by means
of statistical methods using a regression analysis. Regression analysis is used to analyse the
relationship between the derivative instruments (the dependent variable) and the underlying
borrowings (the independent variable). The primary objective is to determine if changes to the
hedged item and derivative are highly correlated and, thus, supportive of the assertion that there
will be a high degree of offset in fair values achieved by the hedge.
Refer to Table J and Table K for the value of our derivatives designated as fair value hedges at 30
June 2006.
(b) Cash flow hedges
Cash flow hedges are used to hedge exposures relating to our borrowings and our ongoing business
activities, where we have highly probable purchase or settlement commitments in foreign currencies.
During the year, we entered into cross currency and interest rate swaps as cash flow hedges of
future payments denominated in foreign currency resulting from our long-term overseas borrowings.
The hedged items designated were a portion of the outflows associated with these foreign
denominated borrowings. The objective of this hedging is to hedge foreign currency risks arising
from spot rate changes and thereby mitigate the risk of payment fluctuations as a result of
exchange rate movements.
We also entered into forward foreign currency contracts as cash flow hedges to hedge forecast
transactions denominated in foreign currency which hedge foreign currency risk arising from spot
rate changes. The hedged items comprised highly probable forecast foreign currency payments for
operating and capital items.
The effectiveness of the hedging relationship relating to our borrowings is calculated
prospectively and retrospectively by means of statistical methods using a regression analysis. The
actual derivative instruments in a cash flow hedge are regressed against the hypothetical
derivative. The primary objective is to determine if changes to the hedged item and derivative are
highly correlated and, thus, supportive of the assertion that there will be a high degree of offset
in cash flows achieved by the hedge.
The effectiveness of our hedges relating to highly probable transactions is assessed prospectively
based on matching of critical terms. As both the nominal volumes and currencies of the hedged item
and the hedging instrument are identical, a highly effective hedging relationship is expected. An
effectiveness test is carried out retrospectively using the cumulative dollar-offset method. For
this, the changes in the fair values of the hedging instrument and the hedged item attributable to
exchange rate changes are calculated and a ratio is created. If this ratio is between 80 and 125
per cent, the hedge is effective.
154
371
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities (continued)
(b) Cash flow hedges (continued)
The effective portion of gains or losses on remeasuring the fair value of the hedge instrument are
recognised directly in equity in the cash flow hedging reserve until such time as the hedged item
affects profit or loss, then the gains or losses are transferred to other revenue or other expenses
in the income statement. In our hedge of forecast transactions, when the forecast transaction that
is hedged results in the recognition of a non-financial asset (for example, inventory or fixed
asset), the gains and losses previously deferred in equity are transferred from equity and included
in the measurement of the initial cost or carrying amount of the asset. Gains or losses on any
portion of the hedge determined to be ineffective are recognised immediately in the income
statement within other expenses or other revenue. During the year there was no material
ineffectiveness attributable to our cash flow hedges.
If a forecast transaction is no longer expected to occur, the cumulative gains or losses on the
hedging instrument that were deferred in equity are transferred immediately to the income
statement. During the year we did not discontinue hedge accounting for forecast transactions no
longer expected to occur.
During 2006, net gains totalling $229 million after tax (Telstra Entity: $229 million) resulting
from the change in the fair value of derivatives were taken directly to equity in the cash flow
hedge reserve. These changes constitute the effective portion of the hedging relationship. Net
gains amounting to $294 million after tax (Telstra Entity: $295 million) recognised in the cash
flow hedge reserve were transferred to the income statement during the year.
Refer to Table J, Table K and Table L for the value of our derivatives designated as cash flow
hedges at 30 June 2006.
The following table shows the maturities of the payments, that is when the cash flows are expected
to occur.
|
|
|
|
|
|
|
|
|
Table I |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Nominal cash outflows |
|
|
|
As at |
|
|
As at |
|
|
|
30 June 2006 |
|
|
30 June 2006 |
|
|
|
$m |
|
|
$m |
|
|
|
|
|
Highly probable forecast
purchases (i) |
|
|
|
|
|
|
|
|
- less than one year |
|
|
(757 |
) |
|
|
(734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (ii) |
|
|
|
|
|
|
|
|
- less than one year |
|
|
(431 |
) |
|
|
(431 |
) |
- one to five years |
|
|
(2,924 |
) |
|
|
(2,924 |
) |
- greater than five years |
|
|
(1,978 |
) |
|
|
(1,978 |
) |
|
|
|
|
|
|
|
|
|
|
(5,333 |
) |
|
|
(5,333 |
) |
|
|
|
|
|
|
|
|
|
|
(i) |
|
These amounts will affect our income statement in the same time period as the cash flows are
expected to occur except for purchases of fixed assets in which case the gains and losses on the
associated hedging instruments are included in the measurement of the initial cost of the asset.
The hedged asset purchases affect profit as the assets are depreciated over their useful lives.
Included in the forecast purchases of $757 million (Telstra Entity: $734 million) are $593 million
of fixed asset purchases (Telstra Entity: $593 million). |
|
(ii) |
|
The impact on our income statement from foreign currency translation movements associated with
these hedged borrowings is expected to be nil as these borrowings are effectively hedged. |
(c) Hedges of net investments in foreign operations
We have exposure to foreign currency risk as a result of our investments in offshore activities,
including our investments in TelstraClear Limited and Hong Kong CSL Limited (CSL). This risk is
created by the translation of the net assets of these entities from their functional currency to
Australian dollars. We hedge our investments in foreign operations to mitigate exposure to this
risk using forward foreign currency contracts, cross currency swaps and/or borrowings in the
relevant currency of the investment.
The effectiveness of the hedging relationship is tested using prospective and retrospective
effectiveness tests. In a retrospective effectiveness test, the changes in the fair value of the
hedging instruments and the change in the value of the hedged net investment from spot rate changes
are calculated and a ratio is created. If this ratio is between 80 and 125 per cent, the hedge is
effective. The prospective effectiveness test is performed based on matching of critical terms. As
both the nominal volumes and currencies of the hedged item and the hedging instrument are
identical, a highly effective hedging relationship is expected.
155
372
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities (continued)
(c) Hedges of net investments in foreign operations (continued)
Gains or losses on remeasurement of our derivative instruments designated as hedges of foreign
investments are recognised in the foreign currency translation reserve in equity to the extent they
are effective. The cumulative amount of the recognised gains or losses included in equity are
transferred to the income statement when the foreign operation is sold.
Gains or losses on any portion of the hedge determined to be ineffective are recognised in the
income statement within other expenses or other revenue. During the year there was no material
ineffectiveness attributable to our net investment hedges.
During the year net gains of $50 million on our hedging instruments were taken directly to equity
in the foreign currency translation reserve in the consolidated balance sheet.
Refer to Table J and Table L for the value of our derivatives designated as hedges of net foreign
investments at 30 June 2006.
In addition, included in the carrying value of other loans and bills of exchange and commercial
paper at 30 June 2006 are New Zealand dollar denominated borrowings of $164 million (fair value:
$164 million) and New Zealand dollar denominated commercial paper of $334 million (fair value: $334
million). These were designated as a hedging instrument of our net investment in TelstraClear. The
loans are included within non current financial liabilities and the commercial paper is included
within current financial liabilities of the Telstra Group and the Telstra Entity. A foreign
exchange gain of $58 million on translation of these borrowings and commercial paper to Australian
dollars was recognised in equity in the foreign currency translation reserve in the consolidated
balance sheet.
156
373
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities (continued)
(d) Hedging instruments
Derivative hedging instruments
Details of our derivative hedging instruments as at balance date are shown in Table J, Table K and
Table L below. The fair value of a hedging derivative is classified as a non-current asset or
liability if the remaining maturity of the hedged item is more than 12 months, and as a current
asset or liability if the remaining maturity of the hedged item is less than 12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table J |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps designated cash flow hedges of other loans (i) |
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
Cross currency swaps designated fair value hedges of other loans |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
Cross currency swaps designated hedge of net foreign investment |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
Total |
|
|
20 |
|
|
|
6 |
|
|
|
20 |
|
|
|
6 |
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps designated cash flow hedges of other loans (i) |
|
|
53 |
|
|
|
350 |
|
|
|
53 |
|
|
|
350 |
|
Cross currency swaps designated fair value hedges of other loans |
|
|
169 |
|
|
|
259 |
|
|
|
169 |
|
|
|
259 |
|
Cross currency swaps designated hedge of net foreign investment |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
Total |
|
|
222 |
|
|
|
612 |
|
|
|
222 |
|
|
|
612 |
|
|
|
|
|
|
|
|
|
(i) |
|
Gains or losses recognised in the cash flow hedging reserve
in equity (refer note 22) on cross currency swap contracts as at 30
June 2006 will be continuously released to the income statement until
the underlying borrowings are repaid. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table K |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps designated cash flow hedges of other loans (ii) |
|
|
106 |
|
|
|
107 |
|
|
|
106 |
|
|
|
107 |
|
Interest swaps designated fair value hedges of other loans |
|
|
63 |
|
|
|
49 |
|
|
|
63 |
|
|
|
49 |
|
|
|
|
|
|
Total |
|
|
169 |
|
|
|
156 |
|
|
|
169 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
(ii) |
|
Gains or losses recognised in the cash flow hedging reserve in
equity (refer to note 22) on interest rate swap contracts as at 30 June
2006 will be continuously released to the income statement until the
underlying borrowings are repaid. |
157
374
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities (continued)
(d) Hedging instruments (continued)
Derivative hedging instruments (continued)
The fair value of our net Australian dollar amounts receivable/ (payable), settlement dates and
average contractual forward exchange rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table L |
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June 2006 |
|
|
As at 30 June 2006 |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
Liabilities |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
Forward foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States (US) dollars designated as cash flow hedges: highly
probable purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- less than 3 months, at contractual forward exchange rates averaging
United States dollars 0.7328 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
- 3 to 12 months, at contractual forward exchange rates averaging United
States dollars 0.7347 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
New Zealand (NZ) dollars designated as hedge: net foreign investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 3 than 12 months, at contractual forward exchange rates averaging New
Zealand dollars 1.1946 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
Hong Kong (HK) dollars designated as hedge: net foreign investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 3 to 12 months, at contractual forward exchange rates averaging Hong
Kong dollars 5.7248 |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
(i) |
|
Gains or losses recognised in the cash flow hedging reserve in equity (refer to note 22) on
forward foreign exchange contracts as at 30 June 2006 will be released to the income statement at
dates when the cash flow from the underlying forecast transactions will occur. However, where the
underlying forecast transaction is a purchase of a non-financial asset (for example, inventory or a
fixed asset) the gain or loss in the cash flow hedging reserve will be transferred and
included in the measurement of the initial cost of the asset at the date the asset is recognised. |
|
(ii) |
|
Other forward exchange contracts which are not included in the above designated hedging
relationships have been entered into to hedge exposure of other payables and receivables recognised
in the balance sheet. These balances are not significant. |
158
375
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
35. Financial and capital risk management (continued)
Derivative financial instruments and hedging activities (continued)
Breaches
During the year we have not breached any of our agreements with our lenders.
Capital Risk Management
Our objectives when managing capital are to safeguard the Groups ability to continue as a going
concern, so that it can continue to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, we may adjust the amount of dividends paid to
shareholders, return capital to shareholders or issue new shares.
We monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided
by total capital. Net debt is calculated as total borrowings (including borrowings and
derivative financial instruments as shown in the consolidated balance sheet) less cash and cash
equivalents. Total capital is calculated as equity as shown in the consolidated balance sheet plus
net debt.
During 2006, our strategy was to maintain the net debt gearing ratio within 55 to 75 per cent, in
order to secure access to finance at a reasonable cost.
The gearing ratios at 30 June 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at |
|
|
As at |
|
|
|
30 June 2006 |
|
|
30 June 2006 |
|
|
|
$m |
|
|
$m |
|
Total borrowings |
|
|
13,746 |
|
|
|
14,642 |
|
less cash and cash equivalents |
|
|
(689 |
) |
|
|
(474 |
) |
Net debt |
|
|
13,057 |
|
|
|
14,168 |
|
Total equity |
|
|
12,832 |
|
|
|
12,115 |
|
Total capital |
|
|
25,889 |
|
|
|
26,283 |
|
|
|
|
|
|
|
|
Gearing ratio |
|
|
50.4 |
% |
|
|
53.9 |
% |
|
|
|
|
|
|
|
159
376
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards
We are required by the Corporations Act 2001 to prepare our financial reports for financial
years commencing on or after 1 January 2005 under the Australian equivalents of International
Financial Reporting Standards (A-IFRS) as adopted by the Australian Accounting Standards Board
(AASB). We implemented accounting policies in accordance with A-IFRS on 1 July 2004, except for
those relating to financial instruments, which were implemented on 1 July 2005.
The transitional rules for first time adoption of A-IFRS required that we restate our comparative
financial report using A-IFRS, except for AASB
132: Financial Instruments: Disclosure and Presentation and AASB
139: Financial Instruments: Recognition and Measurement, where
comparative information was not required to be restated. In addition, we have elected to early
adopt AASB 7: Financial Instruments: Disclosures, which supersedes the disclosure requirements of
AASB 132.
Comparatives were remeasured and restated for the year ended 30 June 2005. Most of the adjustments
on transition were required to be made to opening retained profits at the beginning of the first
comparative period (i.e. at 1 July 2004).
Amendments to A-IFRS transition adjustments disclosed at 31 December 2005
We have made certain amendments to the impacts of adopting A-IFRS on the Telstra Group disclosed at
31 December 2005. These amendments are set out below.
(i) 3G spectrum licence
Under previous Australian Generally Accepted Accounting Principles (AGAAP) we expensed the annual
payments made under our Hong Kong 3G spectrum licence as incurred, except for those incurred during
the construction of our 3G network in Hong Kong which were capitalised as part of the asset cost.
Based on the IFRS interpretation adopted by other 3G mobile operators in Hong Kong, on transition
we have recorded an intangible asset of $121 million (30 June 2005: $108 million) associated with
our Hong Kong 3G spectrum licence. This includes $25 million (30 June 2005: $24 million) previously
capitalised under AGAAP as part of property, plant
and equipment. A corresponding accrual liability has also been recorded.
This intangible asset is amortised over the term of the licence agreement. Net profit before tax
has increased by $4 million for the year ended 30 June 2005 due to this additional amortisation and
the unwinding of the present value discount on the accrual, partially offset by the elimination of
the licence expense. For further details refer to note 36(k).
The recognition of this spectrum licence has resulted in a reduction in the deferred tax liability
of the Telstra Group as at 1 July 2004 of $21 million (30 June 2005: $19 million).
(ii) Determination of tax bases
The tax base of our defined benefit asset changed as a result of an interpretation on the treatment
of the contribution tax adjustment made to the carrying value of the asset. As a result there was
an increase to the deferred tax liability associated with the defined benefit asset on transition
of $24 million (30 June 2005: $11 million).
In addition, we reduced the deferred tax asset of one of our controlled entities due to the
reassessment of the tax base of certain items of property, plant and equipment on transition by $28
million (30 June 2005: $29 million).
For further details refer to note 36(c).
(iii) Operating leases
Under A-IFRS operating lease rental expense is recognised on a straight line basis over the term of
the lease, even if the payments are not on that basis. Under previous AGAAP operating lease rentals
were expensed as incurred. This has resulted in the recognition of an additional non-current
liability on transition to A-IFRS of $37 million (30 June 2005: $48 million). Operating lease
expense increased by $11 million for the year ended 30 June 2005. Refer to note 36(e) for further
details.
A-IFRS adjustments with effect from 1 July 2004
(a) AASB 2: Share-Based Payment (AASB 2)
Under previous AGAAP we recognised an expense for all restricted shares, performance rights,
deferred shares and Telstra shares (consisting of directshares and ownshares) issued. This
expense was equal to the funding provided to the Telstra Growthshare Trust (Growthshare) to
purchase Telstra shares on market to underpin these equity instruments, and was recognised in full
in the income statement when the funding was provided. Under previous AGAAP, we did not recognise
an expense for options issued on the basis that instrument holders are required to pay the option
exercise price once the options vest and are exercised.
Under AASB 2, we recognise an expense for all share-based remuneration. This expense is based on
the fair value of the equity instruments issued, determined at the grant date. The fair value is
calculated using an appropriate valuation technique to estimate the price of those equity
instruments in an arms length transaction between knowledgeable, willing parties. The fair value
calculated is charged against profit over the relevant vesting period, adjusted to reflect actual
and expected levels of vesting.
160
377
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(a) AASB 2: Share-Based Payment (AASB 2) (continued)
Under the transitional exemptions of AASB 1: First-time
Adoption of Australian Equivalents to International
Financial Reporting Standards (AASB 1), we elected not
to apply AASB 2 to equity instruments granted prior to 7
November 2002.
This approach gave rise to a net positive transitional
adjustment to retained profits. If we had not made this
election, resulting in all equity instruments granted
prior to 7 November 2002 being subject to AASB 2, then
opening retained profits on transition would decrease,
with a corresponding increase in share capital.
Furthermore, there would have been an increase in labour
expense for the year ended 30 June 2005. Equity
instruments granted prior to 7 November 2002, for which
we have elected not to apply AASB 2, include those
granted under Telstra Employee Share Ownership Plan Trust
(TESOP97) and Telstra Employee Share Ownership Plan Trust
II (TESOP99), as well as certain Growthshare issues.
We own 100% of the equity of Telstra Growthshare Pty Ltd
and the Telstra ESOP Trustee Pty Ltd, the corporate
trustees for the Telstra Growthshare Trust (Growthshare),
TESOP97 and TESOP99, which administer our share-based
payment plans. Under previous AGAAP we did not control or
significantly influence these trusts, as beneficial
ownership and control remained with the employees who
participate in the share plans, administered by the
Trustee on their behalf.
Under A-IFRS, we have included the results, position and
cash flows of Growthshare, TESOP97 and TESOP99 within our
financial statements.
(i) On transition as at 1 July 2004
To record the initial recognition of Growthshare within
the Telstra Group and Telstra Entity, the loan receivable
from Growthshare was eliminated ($65 million), share
capital reduced to reflect the shares held by Growthshare
in the Telstra Entity ($117 million), and the cash held
by Growthshare was recognised ($3 million).
Other assets and liabilities held by the trusts
were considered insignificant to Telstra Group and
Telstra Entity.
Shares issued under TESOP97 and TESOP99, in conjunction
with the non-recourse loans, have been accounted for as
options. As a result, the outstanding balance of the
loans to employees under TESOP97 and TESOP99 amounting to
$174 million (comprising $24 million current receivables
and $150 million non current receivables), was deducted
from share capital of the Telstra Group and Telstra
Entity on transition to A-IFRS.
A transitional adjustment to increase Telstra Group and
Telstra
Entity opening retained profits by $55 million
represents the reversal of the expense previously
recorded under AGAAP. We also recognised a transitional
expense in retained profits under AASB 2 of $4 million
relating to the amortisation over the vesting period of
equity instruments issued subsequent to 7 November 2002.
This transitional expense increased share capital by $4
million.
(ii) At 30 June 2005
The cumulative effect on the Telstra Group and Telstra
Entity at 30 June 2005 was to increase cash assets by $8
million, decrease current receivables by $24 million,
non current receivables by $175 million, and share
capital by $257 million. Labour expense decreased by $10
million, finance income decreased by $2 million, and
dividends decreased by $7 million for the year ended 30
June 2005.
(b) AASB 3: Business Combinations (AASB 3)
We previously amortised goodwill over the period of
expected benefit, not exceeding 20 years. Under A-IFRS
goodwill acquired in a business combination is not
amortised, but instead is subject to impairment testing
at each reporting date, or upon the occurrence of
triggers that may indicate a potential impairment. If
there is an indication of impairment resulting in an
impairment loss, it is recognised immediately in the
income statement.
Under the transitional arrangements of AASB 1 we had the
option of applying AASB 3 prospectively from the
transition date to A-IFRS (from 1 July 2004). We chose
this option rather than to restate all previous business
combinations. If this election had not been made, there
would not have been a significant impact on the balance
sheet or income statement because our accounting for
significant business combinations under previous AGAAP
was consistent with A-IFRS and USGAAP, whereby we
recognised all identifiable assets and liabilities upon
acquisition, including intangible assets.
The impact of AASB 3 and associated transitional
arrangements is as follows:
|
|
all prior business combination accounting was frozen as at 1 July 2004; and |
|
|
|
the value of
goodwill was frozen as at transition date, with any amortisation that was reported under previous
AGAAP subsequent to transition date was reversed for A-IFRS restatements. |
(i) On transition as at 1 July 2004
There were no adjustments on transition as a result of AASB 3.
161
378
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(b) AASB 3: Business Combinations (AASB 3) (continued)
(ii) At 30 June 2005
The effect on the Telstra Group at 30 June 2005 of the
cessation of amortisation of goodwill was to increase
goodwill and decrease amortisation expense by $145
million (Telstra Entity: $4 million). Investments
accounted for using the equity method increased by $2
million for the Telstra Group, with a corresponding
decrease in share of net loss from jointly controlled
and associated entities.
(c) AASB 112: Income Taxes (AASB 112)
On transition to A-IFRS, a new method of accounting for
income taxes, known as the balance sheet approach, was
adopted, replacing the income statement approach
required by previous AGAAP. Under the new method we
generally recognise deferred tax balances in the balance
sheet when there is a difference between the carrying
value of an asset or liability and its tax base.
The adoption of the balance sheet approach has
resulted in a number of additional deferred tax balances
being recognised, as well as adjustments to existing
deferred tax balances. Furthermore, additional deferred
tax liabilities have been recognised associated with
fair value adjustments on entities acquired by us. Where
the acquisition has occurred after 1 July 2004 a
corresponding adjustment has been made to goodwill in
accordance with AASB 3.
The Telstra Entity has formed a tax consolidated group
with its Australian resident wholly owned subsidiaries.
Under previous AGAAP the Telstra Entity, as head entity
of the tax consolidated group, recognised tax balances
for all entities in the group.
Under A-IFRS and in accordance with UIG 1052 Tax
Consolidation Accounting (UIG 1052), the Telstra
Entity only accounts for its own tax balances, with the
exception of the following:
|
|
the current tax liability for the tax consolidated group; and |
|
|
the current and deferred tax arising from unused tax losses and tax credits for all
entities in the tax consolidated group. |
Under UIG 1052, the current tax liability of the tax
consolidated group is required to be allocated to each
of the entities in the group. As there was no tax
funding arrangement in place at 30 June 2005, this
allocation was recorded as a contribution by or
distribution to the Telstra Entity.
(i) On transition as at 1 July 2004
The Telstra Group and Telstra Entitys deferred tax liabilities decreased as a result of
the transition to other A-IFRS standards. The transition adjustment comprised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
Telstra |
|
|
|
|
|
|
Group |
|
Entity |
|
|
Note |
|
$m |
|
$m |
|
Operating leases |
|
|
36 |
(e) |
|
|
(11 |
) |
|
|
(11 |
) |
Defined benefit asset |
|
|
36 |
(f) |
|
|
159 |
|
|
|
158 |
|
Borrowing costs |
|
|
36 |
(h) |
|
|
(129 |
) |
|
|
(129 |
) |
3G spectrum licence |
|
|
36 |
(k) |
|
|
(21 |
) |
|
|
|
|
Handset subsidies |
|
|
36 |
(k) |
|
|
(72 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
Net decrease in deferred tax liabilities |
|
|
|
|
|
|
(74 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
A corresponding increase in opening retained profits was
recorded as a result of these adjustments.
In addition, there was a transitional adjustment to
deferred tax liabilities as a result of the change in
accounting for income taxes to the balance sheet
approach, and the adoption of UIG 1052. This adjustment
consisted of:
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
Telstra |
|
|
Group |
|
Entity |
|
|
$m |
|
$m |
|
Tax base differences on buildings |
|
|
77 |
|
|
|
77 |
|
Tax effect of fair value adjustments on entities
acquired by us |
|
|
66 |
|
|
|
|
|
Adoption of UIG 1052 |
|
|
|
|
|
|
329 |
|
Adjustments to plant and equipment and
other temporary differences |
|
|
(105 |
) |
|
|
(104 |
) |
|
|
|
Net increase in deferred tax liabilities |
|
|
38 |
|
|
|
302 |
|
|
|
|
For the Telstra Group opening retained profits decreased
by $6 million (Telstra Entity: $142 million), and the
asset revaluation reserve reduced by $32 million
(Telstra Entity: $83 million) as a result of these
entries. Furthermore, the balance of investments
recorded by the Telstra Entity increased by $77 million.
162
379
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(c) AASB 112: Income Taxes (AASB 112) (continued)
(ii) At 30 June 2005
The Telstra Group and Telstra Entitys deferred tax liabilities decreased as a result of the impact
of other A-IFRS standards as at 30 June 2005. This adjustment consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
|
Telstra |
|
|
|
|
|
|
|
Group |
|
|
Entity |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
Deferred payment for equipment |
|
|
36 |
(d) |
|
|
(8 |
) |
|
|
|
|
Operating leases |
|
|
36 |
(e) |
|
|
(14 |
) |
|
|
(14 |
) |
Defined benefit asset |
|
|
36 |
(f) |
|
|
79 |
|
|
|
79 |
|
Borrowing costs |
|
|
36 |
(h) |
|
|
(129 |
) |
|
|
(129 |
) |
3G spectrum licence |
|
|
36 |
(k) |
|
|
(19 |
) |
|
|
|
|
Handset subsidies |
|
|
36 |
(k) |
|
|
(91 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
Net decrease in deferred tax liabilities |
|
|
|
|
|
|
(182 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
|
The Telstra Group and Telstra Entity retained profits increased by $24 million due to the tax
effect of the defined benefit actuarial loss. Telstra Group tax expense for the year ended 30 June
2005 decreased by $84 million (Telstra Entity: $77 million).
In addition, an adjustment to deferred tax liabilities was attributable to the change in accounting
for income taxes to the balance sheet approach and the adoption of UIG 1052. This adjustment
consisted of:
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
|
Telstra |
|
|
|
Group |
|
|
Entity |
|
|
|
$m |
|
|
$m |
|
|
Tax base differences on buildings |
|
|
74 |
|
|
|
74 |
|
Tax effect of fair value adjustments on
entities acquired by us |
|
|
104 |
|
|
|
|
|
Adoption of UIG 1052 |
|
|
|
|
|
|
299 |
|
Adjustments to plant and equipment and
other temporary differences |
|
|
(77 |
) |
|
|
(83 |
) |
|
|
|
Net increase in deferred tax liabilities |
|
|
101 |
|
|
|
290 |
|
|
|
|
As a result of adjustments associated with the change to the balance sheet approach, Telstra Group
goodwill increased by $63 million and the FCTR increased by $9 million as at 30 June 2005. Income
tax expense for the Telstra Group for the year ended 30 June 2005 increased by $8 million.
For the Telstra Entity, investments increased by $107 million as at 30 June 2005. Dividend revenue
increased by $223 million and income tax expense increased by $182 million for the year ended 30
June 2005.
(d) AASB 116: Property, Plant and Equipment (AASB 116)
Under the transitional exemptions of AASB 1 we had the option to use an assets fair value, or
previously revalued amount, as its deemed cost from the date of transition. We elected to apply the
cost model under AASB 116, and therefore the carrying value of our property, plant and equipment
(some of which had been previously revalued) and intangible assets on the date of transition were
deemed to be cost under A-IFRS. If this election had not been made, we would have had to restate
these assets to their original historical cost.
On transition to A-IFRS an entity is required to derecognise items where A-IFRS does not permit
such recognition. As we have adopted the cost model under AASB 116, the asset revaluation reserve
will be derecognised as it is not a valid reserve under the cost model. The balance, after taking
into consideration other A-IFRS adjustments, has been transferred to the general reserve.
Under previous AGAAP, we recognised the gross proceeds on sale of non current assets as revenue and
the cost in other expenses. A-IFRS requires the net gain on sale of non current assets to be
classified as other income, not separately treated as revenue and other expenses.
(i) On transition as at 1 July 2004
For the Telstra Entity, the balance of the asset revaluation reserve of $194 million was
transferred to the general reserve on transition to A-IFRS.
(ii) At 30 June 2005
On 6 December 2004, we acquired a 50% interest in the 3G Radio Access Network (RAN) assets of
Hutchison 3G Australia Pty Ltd (H3GA) for $450 million, payable over 2 years. Due to the deferred
payment terms, under previous AGAAP our property, plant and equipment balance increased by $428
million, representing the present value of the purchase price calculated using our incremental
borrowing rate. AASB 116 requires that a discount rate specific to the asset be used, rather than
our incremental borrowing rate.
Under previous AGAAP, the release of interest associated with the unwinding of the present value
discount was capitalised as part of property, plant and equipment until the assets were installed
ready for use. Under A-IFRS the release of interest associated with the unwinding of the present
value discount was expensed as incurred.
For the Telstra Group, the change in the discount rate and the cessation of interest capitalisation
resulted in a decrease in our property, plant and equipment of $37 million, and a decrease in
current and non current payables of $10 million (comprising $3 million current and $7 million non
current). Finance costs of the Telstra Group for the year ended 30 June 2005 increased by $27
million.
163
380
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(d) AASB 116: Property, Plant and Equipment (AASB 116) (continued)
For the Telstra Group we have reclassified revenue of $476 million (Telstra Entity: $336 million)
and other expenses of $215 million (Telstra Entity: $203 million) to other income associated with
the net gain on sale of non current assets for the year ended 30 June 2005.
(e) AASB 117: Leases (AASB 117)
Under previous AGAAP, operating lease payments were expensed in the periods in which they were
incurred. Under A-IFRS, operating lease payments are expensed on a straight line basis over the
term of the lease, even if the payments are not on that basis. Where the lease contains a fixed
rental increase each year, the total impact of the rental increase is expensed evenly over the
lease term.
(i) On transition as at 1 July 2004
For the Telstra Group and Telstra Entity, non-current trade and other payables increased by $37
million, representing an increase to previously recognised operating lease expense associated with
using the straight line method for A-IFRS, with a corresponding decrease in opening retained
profits.
(ii) At 30 June 2005
For the Telstra Group and Telstra Entity, non-current trade and other payables increased by $48
million. For the year ended 30 June 2005, operating lease expense increased by $11 million.
(f) AASB 119: Employee Benefits (AASB 119)
Under previous AGAAP, we did not recognise an asset or liability on our balance sheet for the net
position of the defined benefit plans we sponsor in Australia and Hong Kong.
On adoption of A-IFRS, we recognised the net position of each plan as a transitional adjustment to
the balance sheet, with a corresponding entry to retained profits. The transitional adjustment was
based on an actuarial valuation of each scheme at transition date determined in accordance with
AASB 119.
A revised AASB 119 was issued in December 2004 and applies to annual reporting periods beginning on
or after 1 January 2006. We have elected under s.334(5) of the Corporations Act 2001 to early adopt
this revised accounting standard for the financial year commencing 1 July 2004.
This revised standard is similar to the current accounting standard, with the exception of the
treatment of actuarial gains and losses. This revised standard enables us to either:
|
|
recognise actuarial gains and losses directly in the income statement; |
|
|
|
recognise actuarial gains and losses in the income statement using the corridor approach; or |
|
|
|
recognise actuarial gains and losses directly in retained profits. |
Under this revised standard, we have elected to recognise actuarial gains and losses directly in
retained profits. The actuarial gains and losses are based on an actuarial valuation of each plan
at reporting date. Other components of pension costs are recognised in the income statement as a
labour expense. Where appropriate, this additional labour cost is capitalised as part of our
constructed plant and equipment.
(i) On transition as at 1 July 2004
The Telstra Group adjustment on transition resulted in the recognition of a defined benefit asset
of $537 million (Telstra Entity: $529 million), with a corresponding increase in opening retained
profits.
(ii) At 30 June 2005
The cumulative effect on the Telstra Group balance sheet at 30 June 2005 was to recognise a defined
benefit asset of $247 million, increase property, plant and equipment by $24 million and decrease
retained profits for actuarial losses by $90 million. Telstra Group labour expense increased by
$175 million and depreciation expense increased by $1 million for the year ended 30 June 2005
The cumulative effect on the Telstra Entity balance sheet at 30 June 2005 was to recognise a
defined benefit asset of $242 million, increase property, plant and equipment by $24 million and
decrease retained profits for actuarial losses by $85 million. Telstra Group labour expense
increased by $176 million and depreciation expense increased by $1 million for the year ended 30
June 2005.
(g) AASB 121: The Effects of Changes in Foreign Exchange Rates (AASB 121)
AASB 121 requires goodwill and fair value adjustments arising on the acquisition of a foreign
controlled entity to be expressed in the functional currency of the foreign operation. Previously,
we fixed goodwill and certain fair value adjustments in Australian dollars based on the exchange
rate at the acquisition date.
164
381
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(g) AASB 121: The Effects of Changes in Foreign Exchange Rates (AASB 121) (continued)
Under the transitional rules of AASB 1 we have taken advantage of an exemption that permits
application of AASB 121 retrospectively to goodwill and fair value adjustments arising in all
business combinations that occurred before the date of transition to A-IFRS. This exemption allows
us to reset the goodwill and fair value adjustments to the functional currency of the foreign
operations at the original date of acquisition. This adjustment is primarily attributable to our
investments in the Telstra CSL Group (HKCSL) and TelstraClear Limited (TelstraClear).
Under AASB 1 we have also applied an exemption that permitted the resetting of the FCTR to nil as
at the date of transition to A-IFRS.
(i) On transition as at 1 July 2004
The Telstra Group transitional adjustments to reset goodwill and fair value adjustments of foreign
controlled entities resulted in a decrease to the FCTR of $297 million, corresponding with an
increase to property, plant and equipment of $3 million, an increase of $14 million to intangible
assets and a decrease in goodwill of $314 million. The A-IFRS FCTR following these and other A-IFRS
adjustments was $343 million. This FCTR balance was reset to nil with a corresponding decrease to
opening retained profits.
(ii) At 30 June 2005
The cumulative effect on the Telstra Group balance sheet at 30 June 2005 was to decrease goodwill
by $454 million, increase other intangibles by $9 million, increase property, plant and equipment
by $2 million and decrease FCTR by $111 million. The impact on the income statement for the year
ended 30 June 2005 was a decrease in other expenses of $11 million representing a change in the
functional currency of a foreign controlled entity.
(h) AASB 123: Borrowing Costs
In accordance with previous AGAAP, we previously capitalised borrowing costs incurred in respect of
internally constructed property, plant and equipment and software assets that met the criteria for
qualifying assets. The benchmark treatment required under A-IFRS is to expense borrowing costs.
AASB 123 does however permit the alternative treatment of capitalising these costs where they
relate to qualifying assets. We have elected to change our policy in line with the benchmark
treatment and expense our borrowing costs.
(i) On transition as at 1 July 2004
We transferred the unamortised balance of capitalised borrowing costs included in property, plant
and equipment and software assets to retained profits. This gave rise to a reduction in Telstra
Group property, plant and equipment of $399 million (Telstra Entity: $367 million) and a reduction
in software assets of $63 million (Telstra Entity: $63 million), with a corresponding decrease in
opening retained profits.
(ii) At 30 June 2005
For the Telstra Group the effect on the balance sheet at 30 June 2005 was to decrease property,
plant and
equipment by $401 million (Telstra Entity: $374 million) and reduce software assets by $57 million
(Telstra Entity: $57 million). Telstra Group depreciation expense decreased by $94 million (Telstra
Entity: $90 million) and finance costs increased by $90 million (Telstra Entity: $90 million) for
the year ended 30 June 2005.
(i) AASB 128: Investments in Associates (AASB 128) and AASB 131: Interests in Joint Ventures
(AASB 131)
AASB 128/131 requires amounts that are in substance part of the net investment in associates or
jointly controlled entities to be accounted for as part of the carrying value of the investment for
the purposes of equity accounting the results of the associate or jointly controlled entity.
Accordingly, we have reclassified amounts that are not currently recorded in the carrying value of
our investment in associates or jointly controlled entities to be treated as an extension of our
equity investment. This treatment gave rise to the continuation of equity accounting of our share
of the operating losses in respect of those associates and jointly controlled entities that are
incurring losses and have balances as described above.
(i) On transition as at 1 July 2004
On transition to AASB 128/131, there was a decrease to Telstra Group non current receivables of
$208 million representing the capacity prepayment with our joint venture entity Reach Ltd (Reach).
This non current asset was deemed to be an extension of our investment in Reach under A-IFRS and
was absorbed by the carried forward losses in Reach not previously recognised. The impact of this
change on the Telstra Group was to decrease opening retained profits by $348 million for our share
of the accumulated losses, offset by an increase of $140 million to the FCTR for the translation
differences on our investment in Reach. The FCTR attributable to Reach was reset to nil as detailed
in the adjustment outlined in note 36(g).
165
382
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS
adjustments with effect from 1 July 2004 (continued)
(i) AASB
128: Investments in Associates (AASB 128) and AASB 131: Interests in Joint Ventures (AASB 131) (continued)
(ii) At 30 June 2005
On 16 April 2005 we swapped our capacity prepayment with Reach for an Indefeasible Right of Use
(IRU). This IRU was recorded as a deferred expense under previous AGAAP and was being amortised
over the term of the IRU being 15 years. As part of this arrangement, we agreed to fund Reachs
committed capital expenditure together with our co-shareholder PCCW Limited for the period until
2022, up to a value of US$106 million each, if required. Our share was disclosed as a contingent
liability under previous AGAAP.
Under A-IFRS, the IRU was deemed to be an extension of our investment in Reach, similar to the
capacity prepayment. Furthermore, our commitment to Reach for the committed capital expenditure
required us to recognise additional equity accounted losses in Reach of $102 million for the year
ended 30 June 2005. This gave rise to a provision of $90 million ($32 million current and $58
million non current) as at 30 June 2005 for the net present value of our share of the committed
capital expenditure. Other assets current decreased by $1 million, intangibles decreased by $217
million and trade and other payables decreased by $1 million. For the year ended 30 June 2005,
finance costs increased by $2 million associated with the unwinding of the present value discount,
amortisation expense decreased by $3 million, finance income decreased by $18 million and exchange
losses decreased by $20 million.
The effect on the Telstra Entity for our commitment to Reach for the committed capital expenditure
was to recognise a provision of $90 million ($32 million current and $58 million non current) as at
30 June 2005. Other current assets decreased by $1 million, intangible assets increased by $87
million and trade and other payables decrease by $1 million. For the year ended 30 June 2005,
finance costs increased by $2 million and amortisation expense increased by $1 million.
Investments accounted for using the equity method decreased by $3 million as a result of the
adoption of A-IFRS by our jointly controlled and associated entities. For the year ended 30 June
2005, our share of equity accounted losses increased by $3 million.
(j) AASB 136: Impairment of Assets (AASB 136)
Our accounting policy under previous AGAAP was to assess our current and non current assets for
impairment by determining the recoverable amount of those assets. We wrote down the value of the
non current asset where the carrying amount exceeded recoverable amount. We assessed recoverable
amount for a group of non current assets where those assets were considered to work together as
one.
With the adoption of AASB 136, impairment of assets is assessed on the basis of individual cash
generating units. We have assessed our Australian telecommunications network to be a single cash
generating unit for the purpose of this standard with the exception of the HFC network. This
approach has been adopted as we consider that, in the generation of our revenue streams, the
delivery of our end products or services is heavily reliant on the use of one core of commonly
shared communication assets, encompassing the customer access network and the core network. This
ubiquitous network carries all our telecommunications traffic throughout Australia.
Under previous AGAAP, we assessed recoverable amount on this same ubiquitous network basis, and as
a result, there were no initial adjustments to the value of our network assets under A-IFRS.
Each of our controlled entities, jointly controlled entities and associated entities has also been
assessed, and generally each significant entity has at least one separate cash generating unit in
its own right. Under AGAAP, we assessed recoverable amount on a similar basis, and there is no
initial adjustment to the value of our assets. In accordance with AASB 1, the carrying amount of
goodwill at transition date has been tested for impairment and no initial impairment losses were
recognised on transition to A-IFRS.
(k) AASB 138: Intangible Assets (AASB 138)
As part of the IFRS project, intangibles recognised under previous AGAAP, including software assets
developed for internal use and deferred expenditure, were reviewed to confirm that the criteria in
AASB 138 have been met. Software assets developed for internal use, and deferred expenditure were
reclassified from other current and non current assets to intangible assets on transition to AASB
138. We have also reclassified some software assets from property, plant and equipment to
intangible assets for software that is not an integral part of property, plant and equipment.
Under previous AGAAP, we capitalised the subsidised component of mobile handsets that were sold as
part of a service contract as a subscriber acquisition cost. This capitalised balance was then
amortised over the contract term.
UIG 1042 Subscriber Acquisition Costs in the Telecommunications Industry (UIG 1042) was released
by the AASB in December 2004 and prescribes the appropriate accounting treatment of subscriber
acquisition costs based on the requirements of AASB 138. Specifically, UIG 1042 requires the cost
of telephones provided to subscribers to be excluded from subscriber acquisition costs. As a
result, under A-IFRS we have elected to expense mobile handset subsidies as incurred.
166
383
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2004 (continued)
(k) AASB 138: Intangible Assets (AASB 138) (continued)
Our subsidiary in Hong Kong, HKCSL, has a licence to utilise 3G spectrum in Hong Kong until 2016.
As part of this licence agreement, HKCSL are required to make annual payments for the right to use
this spectrum. Under previous AGAAP we expensed these payments as incurred, except for those
incurred during the construction of our 3G network in Hong Kong which were capitalised as part of
the asset cost.
On adoption of AASB 138 and consistent with other 3G mobile operators in Hong Kong, the Telstra
Group has recorded an intangible asset for this 3G spectrum licence, based on the present value of
our expected future payments. This intangible asset is amortised over the term of the agreement. A
corresponding accrual has also been recorded for our future obligations.
(i) On transition as at 1 July 2004
On transition, other current and non current assets of the Telstra Group and Telstra Entity
decreased by $205 million and $34 million respectively for the write-off of deferred mobile handset
subsidies, with a corresponding decrease in opening retained profits.
The intangible asset associated with our Hong Kong 3G spectrum licence amounted to $121 million on
transition in the Telstra Group, representing the present value of our expected future payments
under the licence. Under previous AGAAP these payments were expensed as incurred, with certain
payments capitalised as part of the cost of our Hong Kong 3G network. Of the balance of the
intangible asset, $25 million has been reclassified from property, plant and equipment that was
capitalised under previous AGAAP. Trade and other payables have increased by $96 million ($3
million current and $93 million non current).
Software assets developed for internal use and deferred expenditure were reclassified from other
assets and property, plant and equipment to intangible assets on transition to A-IFRS. This
reclassification adjustment for the Telstra Group amounted to $2,601 million (Telstra Entity:
$2,375 million) as at transition date. This comprised $286 million (Telstra Entity: $249 million)
from other current assets, $2,292 million (Telstra Entity: $2,126 million) from other non current
assets and $23 million from property, plant and equipment.
(ii) At 30 June 2005
The write-off of deferred mobile handset subsidies decreased other current and non current assets
of the Telstra Group and Telstra Entity by $241 million and $62 million respectively. Goods and
services purchased for the year ended 30 June 2005 increased by $64 million.
The recognition of the Hong Kong 3G spectrum licence increased intangibles by $108 million,
decreased property, plant and equipment by $24 million and increased trade and other payables by
$89 million ($2 million current and $87 million non current) for the Telstra Group as at 30 June
2005. Other expenses decreased by $5 million, amortisation increased by $4 million and finance
costs increased by $5 million for the year ended 30 June 2005.
The cumulative effect on the Telstra Group balance sheet at 30 June 2005 for the reclassification
of software and deferred expenditure was to increase intangibles by $2,875 million (Telstra Entity:
$2,534 million). This
comprised $305 million (Telstra Entity: $264 million) from other current assets, $2,546 million
(Telstra Entity: $2,270 million) from other non current assets and $24 million from property, plant
and equipment.
(l) Nature of A-IFRS adjustments with effect from 1 July 2004
In the following tables, presentation adjustments reflect the reclassification of previously
recognised amounts into their A-IFRS categories.
Accounting adjustments reflect the remeasurement of previously recognised amounts, or the
recognition of additional amounts required under A-IFRS.
167
384
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of profit under previous AGAAP to A-IFRS for the year ended 30 June 2005 for the
consolidated Telstra Group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (excluding finance income) |
|
|
36 |
(d) |
|
|
22,657 |
|
|
|
(476 |
) |
|
|
|
|
|
|
22,181 |
|
Other income |
|
|
36 |
(d) |
|
|
|
|
|
|
261 |
|
|
|
|
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,657 |
|
|
|
(215 |
) |
|
|
|
|
|
|
22,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
36(a), |
(f) |
|
|
3,693 |
|
|
|
|
|
|
|
165 |
|
|
|
3,858 |
|
Goods and services purchased |
|
|
36 |
(k) |
|
|
4,147 |
|
|
|
|
|
|
|
64 |
|
|
|
4,211 |
|
Other expenses |
|
|
36(d),(e),(g),(i), |
(k) |
|
|
4,055 |
|
|
|
(215 |
) |
|
|
(25 |
) |
|
|
3,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,895 |
|
|
|
(215 |
) |
|
|
204 |
|
|
|
11,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of net (gain)/loss from
jointly controlled and
associated entities |
|
|
36(b), |
(i) |
|
|
(9 |
) |
|
|
|
|
|
|
103 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,886 |
|
|
|
(215 |
) |
|
|
307 |
|
|
|
11,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, income
tax expense, depreciation and
amortisation (EBITDA) |
|
|
|
|
|
|
10,771 |
|
|
|
|
|
|
|
(307 |
) |
|
|
10,464 |
|
Depreciation and amortisation |
|
|
36(b),(f),(h),(i), |
(k) |
|
|
3,766 |
|
|
|
|
|
|
|
(237 |
) |
|
|
3,529 |
|
|
|
|
|
|
|
|
Earnings before interest and
income tax expense (EBIT) |
|
|
|
|
|
|
7,005 |
|
|
|
|
|
|
|
(70 |
) |
|
|
6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
36(a), |
(i) |
|
|
103 |
|
|
|
|
|
|
|
(20 |
) |
|
|
83 |
|
Finance costs |
|
|
36(d),(h),(i), |
(k) |
|
|
839 |
|
|
|
|
|
|
|
124 |
|
|
|
963 |
|
|
|
|
|
|
|
|
Net finance costs |
|
|
|
|
|
|
736 |
|
|
|
|
|
|
|
144 |
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
6,269 |
|
|
|
|
|
|
|
(214 |
) |
|
|
6,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
36 |
(c) |
|
|
1,822 |
|
|
|
|
|
|
|
(76 |
) |
|
|
1,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
4,447 |
|
|
|
|
|
|
|
(138 |
) |
|
|
4,309 |
|
|
|
|
|
|
|
|
168
385
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of profit under previous AGAAP to A-IFRS for the year ended 30 June 2005 for the
Telstra Entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (excluding finance income) |
|
|
36(c),(d |
) |
|
|
19,944 |
|
|
|
(336 |
) |
|
|
223 |
|
|
|
19,831 |
|
Other income |
|
|
36 (d |
) |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,944 |
|
|
|
(203 |
) |
|
|
223 |
|
|
|
19,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
36(a),(f |
) |
|
|
2,916 |
|
|
|
|
|
|
|
166 |
|
|
|
3,082 |
|
Goods and services purchased |
|
|
37 (k |
) |
|
|
2,894 |
|
|
|
|
|
|
|
64 |
|
|
|
2,958 |
|
Other expenses |
|
|
36(d),(e),(i |
) |
|
|
3,666 |
|
|
|
(203 |
) |
|
|
15 |
|
|
|
3,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,476 |
|
|
|
(203 |
) |
|
|
245 |
|
|
|
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, income
tax expense, depreciation and
amortisation (EBITDA) |
|
|
|
|
|
|
10,468 |
|
|
|
|
|
|
|
(22 |
) |
|
|
10,446 |
|
Depreciation and amortisation |
|
|
36(b),(f),(h),(i |
) |
|
|
3,298 |
|
|
|
|
|
|
|
(92 |
) |
|
|
3,206 |
|
|
|
|
|
|
|
|
Earnings before interest and
income tax expense (EBIT) |
|
|
|
|
|
|
7,170 |
|
|
|
|
|
|
|
70 |
|
|
|
7,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
36 (a |
) |
|
|
103 |
|
|
|
|
|
|
|
(2 |
) |
|
|
101 |
|
Finance costs |
|
|
36(h),(i |
) |
|
|
851 |
|
|
|
|
|
|
|
92 |
|
|
|
943 |
|
|
|
|
|
|
|
|
Net finance costs |
|
|
|
|
|
|
748 |
|
|
|
|
|
|
|
94 |
|
|
|
842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
6,422 |
|
|
|
|
|
|
|
(24 |
) |
|
|
6,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
36 (c |
) |
|
|
1,777 |
|
|
|
|
|
|
|
105 |
|
|
|
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
4,645 |
|
|
|
|
|
|
|
(129 |
) |
|
|
4,516 |
|
|
|
|
|
|
|
|
169
386
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of balance sheet under previous AGAAP to A-IFRS as at transition date, 1 July
2004, for the consolidated Telstra Group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
1 July 2004 |
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
36(a |
) |
|
|
687 |
|
|
|
|
|
|
|
3 |
|
|
|
690 |
|
Trade and other receivables |
|
|
36(a),(m |
) |
|
|
3,608 |
|
|
|
(192 |
) |
|
|
|
|
|
|
3,416 |
|
Inventories |
|
|
|
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
229 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
169 |
|
Other assets |
|
|
36(k |
) |
|
|
803 |
|
|
|
(286 |
) |
|
|
(205 |
) |
|
|
312 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,327 |
|
|
|
(309 |
) |
|
|
(202 |
) |
|
|
4,816 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
36(a),(i)(m |
) |
|
|
740 |
|
|
|
(387 |
) |
|
|
(273 |
) |
|
|
80 |
|
Inventories |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Investments accounted for using
the equity method |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Available for sale investments |
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Property, plant and equipment |
|
|
36(g),(h),(k |
) |
|
|
22,863 |
|
|
|
(23 |
) |
|
|
(421 |
) |
|
|
22,419 |
|
Intangibles |
|
|
36(g),(h),(k),(m |
) |
|
|
3,605 |
|
|
|
2,580 |
|
|
|
(242 |
) |
|
|
5,943 |
|
Deferred tax assets |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
238 |
|
|
|
|
|
|
|
238 |
|
Other assets |
|
|
36(f),(k |
) |
|
|
2,326 |
|
|
|
(2,292 |
) |
|
|
503 |
|
|
|
537 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
29,666 |
|
|
|
116 |
|
|
|
(433 |
) |
|
|
29,349 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
34,993 |
|
|
|
(193 |
) |
|
|
(635 |
) |
|
|
34,165 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(k |
) |
|
|
2,338 |
|
|
|
|
|
|
|
3 |
|
|
|
2,341 |
|
Borrowings |
|
|
|
|
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
3,246 |
|
Current tax liabilities |
|
|
|
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
539 |
|
Provisions |
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
358 |
|
Revenue received in advance |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,576 |
|
|
|
|
|
|
|
3 |
|
|
|
7,579 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(e),(k |
) |
|
|
49 |
|
|
|
|
|
|
|
130 |
|
|
|
179 |
|
Borrowings |
|
|
36(m |
) |
|
|
9,014 |
|
|
|
(429 |
) |
|
|
|
|
|
|
8,585 |
|
Deferred tax liabilities |
|
|
36(c |
) |
|
|
1,807 |
|
|
|
|
|
|
|
(36 |
) |
|
|
1,771 |
|
Provisions |
|
|
|
|
|
|
778 |
|
|
|
|
|
|
|
|
|
|
|
778 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
410 |
|
Revenue received in advance |
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
12,056 |
|
|
|
(19 |
) |
|
|
94 |
|
|
|
12,131 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
19,632 |
|
|
|
(19 |
) |
|
|
97 |
|
|
|
19,710 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
15,361 |
|
|
|
(174 |
) |
|
|
(732 |
) |
|
|
14,455 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
36(a |
) |
|
|
6,073 |
|
|
|
(174 |
) |
|
|
(113 |
) |
|
|
5,786 |
|
Reserves |
|
|
36(c),(g),(i |
) |
|
|
(105 |
) |
|
|
|
|
|
|
154 |
|
|
|
49 |
|
Retained profits |
|
|
|
|
|
|
9,391 |
|
|
|
|
|
|
|
(773 |
) |
|
|
8,618 |
|
|
|
|
|
|
|
|
Equity
available to Telstra Entity shareholders |
|
|
|
|
|
|
15,359 |
|
|
|
(174 |
) |
|
|
(732 |
) |
|
|
14,453 |
|
Minority interests |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
15,361 |
|
|
|
(174 |
) |
|
|
(732 |
) |
|
|
14,455 |
|
|
|
|
|
|
|
|
170
387
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of balance sheet under previous AGAAP to A-IFRS as at transition date, 1 July
2004, for the Telstra Entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
1 July 2004 |
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
36(a |
) |
|
|
543 |
|
|
|
|
|
|
|
3 |
|
|
|
546 |
|
Trade and other receivables |
|
|
36(a),(m |
) |
|
|
3,258 |
|
|
|
(192 |
) |
|
|
|
|
|
|
3,066 |
|
Inventories |
|
|
|
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
206 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
169 |
|
Other assets |
|
|
36(k |
) |
|
|
687 |
|
|
|
(249 |
) |
|
|
(205 |
) |
|
|
233 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
4,694 |
|
|
|
(272 |
) |
|
|
(202 |
) |
|
|
4,220 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
36(a),(m |
) |
|
|
1,047 |
|
|
|
(387 |
) |
|
|
(65 |
) |
|
|
595 |
|
Inventories |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Investments accounted for using
the equity method |
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Investments other |
|
|
36(c |
) |
|
|
5,435 |
|
|
|
|
|
|
|
77 |
|
|
|
5,512 |
|
Property, plant and equipment |
|
|
36(h |
) |
|
|
21,600 |
|
|
|
|
|
|
|
(367 |
) |
|
|
21,233 |
|
Intangibles |
|
|
36(h),(k),(m |
) |
|
|
236 |
|
|
|
2,354 |
|
|
|
(63 |
) |
|
|
2,527 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
238 |
|
|
|
|
|
|
|
238 |
|
Other assets |
|
|
36(f),(k |
) |
|
|
2,160 |
|
|
|
(2,126 |
) |
|
|
495 |
|
|
|
529 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,520 |
|
|
|
79 |
|
|
|
77 |
|
|
|
30,676 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
35,214 |
|
|
|
(193 |
) |
|
|
(125 |
) |
|
|
34,896 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
1,891 |
|
|
|
|
|
|
|
|
|
|
|
1,891 |
|
Borrowings |
|
|
|
|
|
|
5,527 |
|
|
|
|
|
|
|
|
|
|
|
5,527 |
|
Current tax liabilities |
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
512 |
|
Provisions |
|
|
|
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
331 |
|
Revenue received in advance |
|
|
|
|
|
|
885 |
|
|
|
|
|
|
|
|
|
|
|
885 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
9,146 |
|
|
|
|
|
|
|
|
|
|
|
9,146 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(e |
) |
|
|
46 |
|
|
|
|
|
|
|
37 |
|
|
|
83 |
|
Borrowings |
|
|
36(m |
) |
|
|
9,014 |
|
|
|
(429 |
) |
|
|
|
|
|
|
8,585 |
|
Deferred tax liabilities |
|
|
36(c |
) |
|
|
1,748 |
|
|
|
|
|
|
|
248 |
|
|
|
1,996 |
|
Provisions |
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
740 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
410 |
|
Revenue received in advance |
|
|
|
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
398 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
11,946 |
|
|
|
(19 |
) |
|
|
285 |
|
|
|
12,212 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
21,092 |
|
|
|
(19 |
) |
|
|
285 |
|
|
|
21,358 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
14,122 |
|
|
|
(174 |
) |
|
|
(410 |
) |
|
|
13,538 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
36(a |
) |
|
|
6,073 |
|
|
|
(174 |
) |
|
|
(113 |
) |
|
|
5,786 |
|
Reserves |
|
|
36(c |
) |
|
|
277 |
|
|
|
|
|
|
|
(83 |
) |
|
|
194 |
|
Retained profits |
|
|
|
|
|
|
7,772 |
|
|
|
|
|
|
|
(214 |
) |
|
|
7,558 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
14,122 |
|
|
|
(174 |
) |
|
|
(410 |
) |
|
|
13,538 |
|
|
|
|
|
|
|
|
171
388
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of balance sheet under previous AGAAP to A-IFRS as at 30 June 2005 for the
consolidated Telstra Group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
30 June 2005 |
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
36(a |
) |
|
|
1,540 |
|
|
|
|
|
|
|
8 |
|
|
|
1,548 |
|
Trade and other receivables |
|
|
36(a),(m |
) |
|
|
3,577 |
|
|
|
(28 |
) |
|
|
|
|
|
|
3,549 |
|
Inventories |
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
232 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Other assets |
|
|
36(i),(k |
) |
|
|
796 |
|
|
|
(305 |
) |
|
|
(242 |
) |
|
|
249 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
6,145 |
|
|
|
(329 |
) |
|
|
(234 |
) |
|
|
5,582 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
36(a |
) |
|
|
272 |
|
|
|
(131 |
) |
|
|
(44 |
) |
|
|
97 |
|
Inventories |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Investments accounted for using
the equity method |
|
|
36(b),(i |
) |
|
|
49 |
|
|
|
|
|
|
|
(1 |
) |
|
|
48 |
|
Property, plant and equipment |
|
|
36(d),(f),(g),(h),(k |
) |
|
|
23,351 |
|
|
|
(24 |
) |
|
|
(436 |
) |
|
|
22,891 |
|
Intangibles |
|
|
36(b),(c),(g),(h),(i),(k),(m |
) |
|
|
3,868 |
|
|
|
2,864 |
|
|
|
(403 |
) |
|
|
6,329 |
|
Deferred tax assets |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Other assets |
|
|
36(f),(k |
) |
|
|
2,608 |
|
|
|
(2,546 |
) |
|
|
185 |
|
|
|
247 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,165 |
|
|
|
163 |
|
|
|
(699 |
) |
|
|
29,629 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
36,310 |
|
|
|
(166 |
) |
|
|
(933 |
) |
|
|
35,211 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(d),(i),(k |
) |
|
|
2,809 |
|
|
|
|
|
|
|
(2 |
) |
|
|
2,807 |
|
Borrowings |
|
|
36(m |
) |
|
|
1,518 |
|
|
|
(11 |
) |
|
|
|
|
|
|
1,507 |
|
Current tax liabilities |
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
534 |
|
Provisions |
|
|
36(i |
) |
|
|
389 |
|
|
|
|
|
|
|
32 |
|
|
|
421 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
Revenue received in advance |
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
6,382 |
|
|
|
|
|
|
|
30 |
|
|
|
6,412 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(d),(e),(k |
) |
|
|
122 |
|
|
|
|
|
|
|
128 |
|
|
|
250 |
|
Borrowings |
|
|
36(m |
) |
|
|
11,816 |
|
|
|
(875 |
) |
|
|
|
|
|
|
10,941 |
|
Deferred tax liabilities |
|
|
36(c |
) |
|
|
1,885 |
|
|
|
|
|
|
|
(81 |
) |
|
|
1,804 |
|
Provisions |
|
|
36(i |
) |
|
|
836 |
|
|
|
|
|
|
|
58 |
|
|
|
894 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
864 |
|
|
|
|
|
|
|
864 |
|
Revenue received in advance |
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,047 |
|
|
|
(11 |
) |
|
|
105 |
|
|
|
15,141 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
21,429 |
|
|
|
(11 |
) |
|
|
135 |
|
|
|
21,553 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
14,881 |
|
|
|
(155 |
) |
|
|
(1,068 |
) |
|
|
13,658 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
36(a |
) |
|
|
5,793 |
|
|
|
(155 |
) |
|
|
(102 |
) |
|
|
5,536 |
|
Reserves |
|
|
36(c),(g),(i |
) |
|
|
(157 |
) |
|
|
|
|
|
|
4 |
|
|
|
(153 |
) |
Retained profits |
|
|
|
|
|
|
9,243 |
|
|
|
|
|
|
|
(970 |
) |
|
|
8,273 |
|
|
|
|
|
|
|
|
Equity available to Telstra
Entity shareholders |
|
|
|
|
|
|
14,879 |
|
|
|
(155 |
) |
|
|
(1,068 |
) |
|
|
13,656 |
|
Minority interests |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
14,881 |
|
|
|
(155 |
) |
|
|
(1,068 |
) |
|
|
13,658 |
|
|
|
|
|
|
|
|
172
389
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation
of balance sheet under previous AGAAP to A-IFRS as at 30 June 2005 for the Telstra Entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
30 June 2005 |
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
Presentation |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
A-IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
36(a |
) |
|
|
1,360 |
|
|
|
|
|
|
|
8 |
|
|
|
1,368 |
|
Trade and other receivables |
|
|
36(a),(m |
) |
|
|
3,566 |
|
|
|
(28 |
) |
|
|
|
|
|
|
3,538 |
|
Inventories |
|
|
|
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
194 |
|
Derivative financial assets |
|
|
36(m |
) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Other assets |
|
|
36(i),(k |
) |
|
|
679 |
|
|
|
(264 |
) |
|
|
(242 |
) |
|
|
173 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,799 |
|
|
|
(288 |
) |
|
|
(234 |
) |
|
|
5,277 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
36(a |
) |
|
|
290 |
|
|
|
(131 |
) |
|
|
(44 |
) |
|
|
115 |
|
Inventories |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Investments accounted for using
the equity method |
|
|
36(i |
) |
|
|
44 |
|
|
|
|
|
|
|
(3 |
) |
|
|
41 |
|
Investments other |
|
|
36(c |
) |
|
|
6,029 |
|
|
|
|
|
|
|
107 |
|
|
|
6,136 |
|
Property, plant and equipment |
|
|
36(f),(h |
) |
|
|
21,573 |
|
|
|
|
|
|
|
(350 |
) |
|
|
21,223 |
|
Intangibles |
|
|
36(b),(h),(i),(k),(m |
) |
|
|
194 |
|
|
|
2,523 |
|
|
|
34 |
|
|
|
2,751 |
|
Other assets |
|
|
36(f),(k |
) |
|
|
2,332 |
|
|
|
(2,270 |
) |
|
|
180 |
|
|
|
242 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,477 |
|
|
|
122 |
|
|
|
(76 |
) |
|
|
30,523 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
36,276 |
|
|
|
(166 |
) |
|
|
(310 |
) |
|
|
35,800 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(i |
) |
|
|
1,957 |
|
|
|
|
|
|
|
(1 |
) |
|
|
1,956 |
|
Borrowings |
|
|
36(m |
) |
|
|
3,903 |
|
|
|
(11 |
) |
|
|
|
|
|
|
3,892 |
|
Current tax liabilities |
|
|
|
|
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
519 |
|
Provisions |
|
|
36(i |
) |
|
|
324 |
|
|
|
|
|
|
|
32 |
|
|
|
356 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
Revenue received in advance |
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,615 |
|
|
|
|
|
|
|
31 |
|
|
|
7,646 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
36(e |
) |
|
|
13 |
|
|
|
|
|
|
|
48 |
|
|
|
61 |
|
Borrowings |
|
|
36(m |
) |
|
|
11,782 |
|
|
|
(875 |
) |
|
|
|
|
|
|
10,907 |
|
Deferred tax liabilities |
|
|
36(c |
) |
|
|
1,826 |
|
|
|
|
|
|
|
135 |
|
|
|
1,961 |
|
Provisions |
|
|
36(i |
) |
|
|
779 |
|
|
|
|
|
|
|
58 |
|
|
|
837 |
|
Derivative financial liabilities |
|
|
36(m |
) |
|
|
|
|
|
|
864 |
|
|
|
|
|
|
|
864 |
|
Revenue received in advance |
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
14,781 |
|
|
|
(11 |
) |
|
|
241 |
|
|
|
15,011 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
22,396 |
|
|
|
(11 |
) |
|
|
272 |
|
|
|
22,657 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
13,880 |
|
|
|
(155 |
) |
|
|
(582 |
) |
|
|
13,143 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
36(a |
) |
|
|
5,793 |
|
|
|
(155 |
) |
|
|
(102 |
) |
|
|
5,536 |
|
Reserves |
|
|
36(c |
) |
|
|
277 |
|
|
|
|
|
|
|
(83 |
) |
|
|
194 |
|
Retained profits |
|
|
|
|
|
|
7,810 |
|
|
|
|
|
|
|
(397 |
) |
|
|
7,413 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
13,880 |
|
|
|
(155 |
) |
|
|
(582 |
) |
|
|
13,143 |
|
|
|
|
|
|
|
|
173
390
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of equity under previous AGAAP to A-IFRS for the consolidated Telstra Group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Consoli- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
Asset |
|
|
currency |
|
|
|
|
|
|
dation |
|
|
Retained |
|
|
Minority |
|
|
|
|
|
|
|
|
|
|
capital |
|
|
revaluation |
|
|
translation |
|
|
General |
|
|
fair value |
|
|
profits |
|
|
interests |
|
|
Total |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Balance at 1 July 2004 under AGAAP |
|
|
|
|
|
|
6,073 |
|
|
|
32 |
|
|
|
(186 |
) |
|
|
5 |
|
|
|
44 |
|
|
|
9,391 |
|
|
|
2 |
|
|
|
15,361 |
|
Share-based payments |
|
|
36 |
(a) |
|
|
(287 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
(236 |
) |
Income taxes |
|
|
36 |
(c) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
36 |
|
Operating leases |
|
|
36 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
(37 |
) |
Net defined benefit asset |
|
|
36 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
537 |
|
Foreign currency |
|
|
36 |
(g) |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
(343 |
) |
|
|
|
|
|
|
(297 |
) |
Expensing of borrowing costs previously
capitalised |
|
|
36 |
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(462 |
) |
|
|
|
|
|
|
(462 |
) |
Equity accounting for
Reach Ltd |
|
|
36 |
(i) |
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
(348 |
) |
|
|
|
|
|
|
(208 |
) |
Expensing handset subsidies previously
deferred |
|
|
36 |
(k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239 |
) |
|
|
|
|
|
|
(239 |
) |
|
|
|
|
|
|
|
Balance at 1 July 2004 under A-IFRS |
|
|
|
|
|
|
5,786 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
44 |
|
|
|
8,618 |
|
|
|
2 |
|
|
|
14,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 June 2005 under AGAAP |
|
|
|
|
|
|
5,793 |
|
|
|
32 |
|
|
|
(231 |
) |
|
|
4 |
|
|
|
38 |
|
|
|
9,243 |
|
|
|
2 |
|
|
|
14,881 |
|
Share-based payments |
|
|
36 |
(a) |
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
(191 |
) |
Cease amortisation of
goodwill |
|
|
36 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
147 |
|
Income taxes |
|
|
36 |
(c) |
|
|
|
|
|
|
(32 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
|
|
|
|
144 |
|
Deferred payment for
equipment |
|
|
36 |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
(27 |
) |
Operating leases |
|
|
36 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
(48 |
) |
Net defined benefit asset |
|
|
36 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
271 |
|
|
|
|
|
|
|
271 |
|
Foreign currency |
|
|
36 |
(g) |
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
(332 |
) |
|
|
|
|
|
|
(443 |
) |
Expensing of borrowing costs previously
capitalised |
|
|
36 |
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(458 |
) |
|
|
|
|
|
|
(458 |
) |
Equity accounting for
Reach Ltd |
|
|
36 |
(i) |
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
(450 |
) |
|
|
|
|
|
|
(310 |
) |
Recognition of Hong Kong 3G spectrum
licence |
|
|
36 |
(k) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(5 |
) |
Expensing handset subsidies previously
deferred |
|
|
36 |
(k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303 |
) |
|
|
|
|
|
|
(303 |
) |
|
|
|
|
|
|
|
Balance at 30 June 2005 under A-IFRS |
|
|
|
|
|
|
5,536 |
|
|
|
|
|
|
|
(195 |
) |
|
|
4 |
|
|
|
38 |
|
|
|
8,273 |
|
|
|
2 |
|
|
|
13,658 |
|
|
|
|
|
|
|
|
174
391
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of equity under previous AGAAP to A-IFRS for the Telstra Entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
Asset |
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
capital |
|
|
revaluation |
|
|
General |
|
|
profits |
|
|
Total |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Balance at 1 July 2004 under
AGAAP |
|
|
|
|
|
|
6,073 |
|
|
|
277 |
|
|
|
|
|
|
|
7,772 |
|
|
|
14,122 |
|
Share-based payments |
|
|
36 |
(a) |
|
|
(287 |
) |
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
(236 |
) |
Income taxes |
|
|
36 |
(c) |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
(88 |
) |
|
|
(171 |
) |
Property, plant and equipment |
|
|
36 |
(d) |
|
|
|
|
|
|
(194 |
) |
|
|
194 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
36 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
(37 |
) |
Net defined benefit asset |
|
|
36 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529 |
|
|
|
529 |
|
Expensing of borrowing costs previously
capitalised |
|
|
36 |
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(430 |
) |
|
|
(430 |
) |
Expensing handset subsidies previously
deferred |
|
|
36 |
(k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239 |
) |
|
|
(239 |
) |
|
|
|
|
|
|
|
Balance at 1 July 2004 under
A-IFRS |
|
|
|
|
|
|
5,786 |
|
|
|
|
|
|
|
194 |
|
|
|
7,558 |
|
|
|
13,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 June 2005 under
AGAAP |
|
|
|
|
|
|
5,793 |
|
|
|
277 |
|
|
|
|
|
|
|
7,810 |
|
|
|
13,880 |
|
Share-based payments |
|
|
36 |
(a) |
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
(191 |
) |
Cease amortisation of goodwill |
|
|
36 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
Income taxes |
|
|
36 |
(c) |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
55 |
|
|
|
(28 |
) |
Property, plant and equipment |
|
|
36 |
(d) |
|
|
|
|
|
|
(194 |
) |
|
|
194 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
36 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
(48 |
) |
Net defined benefit asset |
|
|
36 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266 |
|
|
|
266 |
|
Expensing of borrowing costs previously
capitalised |
|
|
36 |
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(431 |
) |
|
|
(431 |
) |
Accounting for investments |
|
|
36 |
(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
Expensing handset subsidies previously
deferred |
|
|
36 |
(k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303 |
) |
|
|
(303 |
) |
|
|
|
|
|
|
|
Balance at 30 June 2005 under A-IFRS |
|
|
|
|
|
|
5,536 |
|
|
|
|
|
|
|
194 |
|
|
|
7,413 |
|
|
|
13,143 |
|
|
|
|
|
|
|
|
175
392
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(l) Reconciliation of the statement of cash flows under previous AGAAP to A-IFRS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2005 |
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Previous |
|
|
|
|
|
|
|
|
|
|
Previous |
|
|
|
|
|
|
|
|
|
|
|
|
|
AGAAP |
|
|
Adjustments |
|
|
A-IFRS |
|
|
AGAAP |
|
|
Adjustments |
|
|
A-IFRS |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Cash flows from
operating
activities |
|
(i),(ii),(iii) |
|
|
8,163 |
|
|
|
797 |
|
|
|
8,960 |
|
|
|
7,742 |
|
|
|
810 |
|
|
|
8,552 |
|
Cash flows from
investing
activities |
|
(i),(iii),(iv),(v) |
|
|
(3,809 |
) |
|
|
43 |
|
|
|
(3,766 |
) |
|
|
(2,890 |
) |
|
|
80 |
|
|
|
(2,810 |
) |
Cash flows from
financing
activities |
|
(ii),(iv),(v) |
|
|
(3,512 |
) |
|
|
(835 |
) |
|
|
(4,347 |
) |
|
|
(4,035 |
) |
|
|
(885 |
) |
|
|
(4,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
(v) |
|
|
842 |
|
|
|
5 |
|
|
|
847 |
|
|
|
817 |
|
|
|
5 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
As a result of the adoption of A-IFRS, the following reclassifications have been made to the
statement of cash flows:
(i) Interest received has been reclassified from operating activities to investing activities
(Telstra Group: $80 million, Telstra Entity: $81 million);
(ii) Borrowing costs paid has been reclassified from operating activities to cash flows from
financing activities and renamed finance costs (Telstra Group: $879 million, Telstra Entity: $892
million);
(iii) Dividends received are classified as cash flows from investing activities after previously
being included in cash flows from operating activities (Telstra Group: $2 million, Telstra Entity:
$1 million);
(iv) Loans to jointly controlled and associated entities was reclassified from financing activities
to investing activities (Telstra Group: $37 million, Telstra Entity: nil); and
(v) Adjustments required as a result of the consolidation of Growthshare. For further information
refer to note 36(a).
176
393
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
A-IFRS adjustments with effect from 1 July 2005
(m) AASB 132: Financial Instruments: Disclosure and Presentation (AASB 132), AASB 139: Financial
Instruments: Recognition and Measurement (AASB 139) and AASB 7: Financial Instruments:
Disclosures (AASB 7)
We have elected to apply the exemption available under AASB 1 to apply AASB 132: Financial
Instruments: Disclosure and Presentation and AASB 139: Financial Instruments: Recognition and
Measurement from 1 July 2005. Accordingly, we have changed our accounting policies for financial
instruments from 1 July 2005.
In addition, we have elected to early adopt AASB 7 from 1 July 2005. AASB 7 supersedes the
disclosure requirements, but not the presentation requirements of AASB 132.
The transitional rules for first time adoption of A-IFRS required that we restate our
comparative financial report using A-IFRS, except for financial instruments within the scope of
AASB 132 and AASB 139 where comparative information was not required to be restated. The early
adoption of AASB 7 did not require comparative information for fiscal 2005 to be restated and
disclosed. Accordingly, we have applied previous AGAAP in the comparative information on financial
instruments within the scope of AASB 132 and AASB 139.
Under previous AGAAP disclosures, derivative financial instruments were classified within other
assets and other liabilities. For comparative purposes these previous AGAAP amounts have been
reclassified to derivative financial assets or liabilities on the balance sheet on transition to
A-IFRS. The effect of changes in the accounting policies for financial instruments including
derivatives, as a result of the adoption of AASB 132 and AASB 139 as at 1 July 2005 is shown below.
177
394
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(m) Reconciliation of balance sheet under A-IFRS for AASB 132/139 adoption as at 1 July 2005 for
the consolidated Telstra Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
A-IFRS |
|
|
AASB 132/139 |
|
|
A-IFRS |
|
|
|
|
|
|
|
30 June 2005 |
|
|
adjustments |
|
|
1 July 2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
1,548 |
|
|
|
|
|
|
|
1,548 |
|
Trade and other receivables |
|
|
|
|
|
|
3,549 |
|
|
|
|
|
|
|
3,549 |
|
Inventories |
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
232 |
|
Derivative financial assets |
|
|
(i |
) |
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
Prepayments |
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,582 |
|
|
|
6 |
|
|
|
5,588 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
97 |
|
Inventories |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Investments accounted for using the equity
method |
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
48 |
|
Property, plant and equipment |
|
|
|
|
|
|
22,891 |
|
|
|
|
|
|
|
22,891 |
|
Intangibles |
|
|
|
|
|
|
6,329 |
|
|
|
|
|
|
|
6,329 |
|
Deferred tax assets |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Derivative financial assets |
|
|
(i |
) |
|
|
|
|
|
|
512 |
|
|
|
512 |
|
Defined benefit assets |
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
29,629 |
|
|
|
512 |
|
|
|
30,141 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
35,211 |
|
|
|
518 |
|
|
|
35,729 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
2,807 |
|
|
|
|
|
|
|
2,807 |
|
Borrowings |
|
(ii) |
|
|
1,507 |
|
|
|
3 |
|
|
|
1,510 |
|
Current tax liabilities |
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
534 |
|
Provisions |
|
|
|
|
|
|
421 |
|
|
|
|
|
|
|
421 |
|
Derivative financial liabilities |
|
|
(i |
) |
|
|
11 |
|
|
|
5 |
|
|
|
16 |
|
Revenue received in advance |
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
6,412 |
|
|
|
8 |
|
|
|
6,420 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
250 |
|
Borrowings |
|
(ii) |
|
|
10,941 |
|
|
|
219 |
|
|
|
11,160 |
|
Deferred tax liabilities |
|
(iii) |
|
|
1,804 |
|
|
|
32 |
|
|
|
1,836 |
|
Provisions |
|
|
|
|
|
|
894 |
|
|
|
|
|
|
|
894 |
|
Derivative financial liabilities |
|
|
(i |
) |
|
|
864 |
|
|
|
185 |
|
|
|
1,049 |
|
Revenue received in advance |
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,141 |
|
|
|
436 |
|
|
|
15,577 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
21,553 |
|
|
|
444 |
|
|
|
21,997 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
13,658 |
|
|
|
74 |
|
|
|
13,732 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
5,536 |
|
|
|
|
|
|
|
5,536 |
|
Reserves |
|
(iv) |
|
|
(153 |
) |
|
|
79 |
|
|
|
(74 |
) |
Retained profits |
|
|
(v |
) |
|
|
8,273 |
|
|
|
(5 |
) |
|
|
8,268 |
|
|
|
|
|
|
|
|
Equity available to Telstra Entity shareholders |
|
|
|
|
|
|
13,656 |
|
|
|
74 |
|
|
|
13,730 |
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
13,658 |
|
|
|
74 |
|
|
|
13,732 |
|
|
|
|
|
|
|
|
178
395
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(m) Reconciliation of balance sheet under A-IFRS for AASB 132/139 adoption as at 1 July 2005 for
the Telstra Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra
Entity |
|
|
|
|
|
|
|
A-IFRS |
|
|
AASB 132/139 |
|
|
A-IFRS |
|
|
|
|
|
|
|
30 June 2005 |
|
|
adjustments |
|
|
1 July 2005 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
1,368 |
|
|
|
|
|
|
|
1,368 |
|
Trade and other receivables |
|
|
|
|
|
|
3,538 |
|
|
|
3 |
|
|
|
3,541 |
|
Inventories |
|
|
|
|
|
|
194 |
|
|
|
|
|
|
|
194 |
|
Derivative financial assets |
|
|
(i |
) |
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
Prepayments |
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,277 |
|
|
|
9 |
|
|
|
5,286 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
|
|
|
|
115 |
|
|
|
1 |
|
|
|
116 |
|
Inventories |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Investments accounted for using the equity method |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
41 |
|
Investments other |
|
|
|
|
|
|
6,136 |
|
|
|
|
|
|
|
6,136 |
|
Property, plant and equipment |
|
|
|
|
|
|
21,223 |
|
|
|
|
|
|
|
21,223 |
|
Intangibles |
|
|
|
|
|
|
2,751 |
|
|
|
|
|
|
|
2,751 |
|
Derivative financial assets |
|
|
(i |
) |
|
|
|
|
|
|
512 |
|
|
|
512 |
|
Defined benefit assets |
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,523 |
|
|
|
513 |
|
|
|
31,036 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
35,800 |
|
|
|
522 |
|
|
|
36,322 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
1,956 |
|
|
|
|
|
|
|
1,956 |
|
Borrowings |
|
(ii) |
|
|
3,892 |
|
|
|
3 |
|
|
|
3,895 |
|
Current tax liabilities |
|
|
|
|
|
|
519 |
|
|
|
|
|
|
|
519 |
|
Provisions |
|
|
|
|
|
|
356 |
|
|
|
|
|
|
|
356 |
|
Derivative financial liabilities |
|
|
(i |
) |
|
|
11 |
|
|
|
5 |
|
|
|
16 |
|
Revenue received in advance |
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,646 |
|
|
|
8 |
|
|
|
7,654 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
61 |
|
|
|
1 |
|
|
|
62 |
|
Borrowings |
|
(ii) |
|
|
10,907 |
|
|
|
219 |
|
|
|
11,126 |
|
Deferred tax liabilities |
|
(iii) |
|
|
1,961 |
|
|
|
32 |
|
|
|
1,993 |
|
Provisions |
|
|
|
|
|
|
837 |
|
|
|
|
|
|
|
837 |
|
Derivative financial liabilities |
|
|
(i |
) |
|
|
864 |
|
|
|
185 |
|
|
|
1,049 |
|
Revenue received in advance |
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,011 |
|
|
|
437 |
|
|
|
15,448 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
22,657 |
|
|
|
445 |
|
|
|
23,102 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
13,143 |
|
|
|
77 |
|
|
|
13,220 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
5,536 |
|
|
|
|
|
|
|
5,536 |
|
Reserves |
|
(iv) |
|
|
194 |
|
|
|
82 |
|
|
|
276 |
|
Retained profits |
|
|
(v |
) |
|
|
7,413 |
|
|
|
(5 |
) |
|
|
7,408 |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
13,143 |
|
|
|
77 |
|
|
|
13,220 |
|
|
|
|
|
|
|
|
179
396
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
36. Adoption of International Financial Reporting Standards (continued)
(m) AASB 132: Financial Instruments: Disclosure and
Presentation (AASB 132), AASB 139: Financial
Instruments: Recognition and Measurement (AASB 139) and
AASB 7: Financial Instruments: Disclosures (AASB 7)
(continued)
Adjustments were made at the date of transition (1 July
2005) to restate the opening balance sheet of the
Telstra Group to a position consistent with the
accounting policies specified in note 2. These are
listed below. Also included is where the transitional
provisions will have an effect on future periods.
(i) From 1 July 2005, the recognition and measurement of
all derivatives (including any embedded derivatives) is
at fair value. Changes in fair value are either taken to
the income statement or an equity reserve. At 1 July
2005, a $328 million increase in net assets for the
Telstra Group and Telstra Entity was recognised
representing:
|
|
a gain of $333 million on the remeasurement of our interest rate swaps and cross
currency swaps to fair value; and |
|
|
a loss of $5 million on the remeasurement of forward foreign exchange contracts to
fair value. |
These adjustments are reflected in the previous table as:
|
|
an increase in current assets (derivative financial assets) of $6 million for the
Telstra Group and the Telstra Entity; |
|
|
an increase in non current assets (derivative financial assets) of $512 million for
the Telstra Group and Telstra Entity; |
|
|
offset by an increase in current liabilities (derivative financial liabilities) of $5
million for the Telstra Group and Telstra Entity; and |
|
|
an increase in non current liabilities (derivative financial liabilities) of $185
million for the Telstra Group and Telstra Entity. |
At 1 July 2005, there were no material embedded
derivatives which required separate measurement and
reporting.
(ii) From 1 July 2005, the carrying value of the hedged
item in fair value hedges is adjusted for fair value
movements attributable to the hedged risk. At 1 July
2005 a loss of $222 million was recognised for the
Telstra Group and Telstra Entity on the remeasurement of
our foreign currency borrowings in fair value hedges.
This loss is capped such that the adjustment is the
lower of:
|
|
the remeasurement to fair value of the hedged item for the designated hedged risk; and |
|
|
the remeasurement to fair value of the hedging instrument. |
At 1 July 2005, the impact of capping the fair value
movement on our foreign currency borrowings in fair
value hedges was $70 million for both the Telstra Group
and Telstra Entity. This capping
amount will be amortised to the income statement on an
effective yield to maturity basis over the term of the
underlying borrowing.
This adjustment is reflected in the above table as an
increase in current borrowings of $3 million and an
increase in non current borrowings of $219 million
for both the Telstra Group and Telstra Entity.
(iii) At 1 July 2005, a $32 million increase in non
current deferred tax liabilities was recognised for
both the Telstra Group and Telstra Entity, representing
the tax effect of the above adjustments.
(iv) From 1 July 2005, the effective portion of the
movement in fair value of derivatives accounted for as
cash flow hedges is deferred in equity until such time
as the hedged item affects profit or loss. The
ineffective portion is recognised immediately in the
income statement. At 1 July 2005 a post tax net increase
in reserves of $79 million for the Telstra Group and $82
million for the Telstra Entity was recognised
representing:
|
|
an increase of $81 million for both the Telstra Group and Telstra Entity to the cash
flow hedging reserve, comprising the deferred portion of the fair value of our interest
rate swaps and cross currency swaps in cash flow hedges relating to our foreign currency
borrowings; and |
|
|
a decrease of $2 million (Telstra Entity: an increase of $1 million) to the cash flow
hedging reserve, comprising the deferred portion of the fair value of our forward foreign
exchange contracts in cash flow hedges of highly probable forecast transactions. |
(v) At 1 July 2005, the reduction to retained earnings of $5 million for
both the Telstra Group and Telstra Entity comprised:
|
|
a decrease of $222 million on the remeasurement of our foreign currency borrowings in
fair value hedges; |
|
|
an increase of $215 million on the remeasurement of our derivatives, excluding the
portion deferred in equity relating to our cash flow hedges; and |
|
|
an increase of $2 million for the tax effect. |
(vi) From 1 July 2005, movement in the fair value of derivatives
accounted for as fair value hedges, together with the
gain or loss on the related hedged item attributable to
the hedged risk will be recognised in the income
statement.
180
397
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures
Reconciliations to financial reports prepared using USGAAP
Our consolidated financial report is prepared in accordance with the Australian equivalents of
International Financial Reporting Standards (A-IFRS), which differs in certain respects from the
accounting principles generally accepted in the United States (USGAAP). The significant
differences between A-IFRS and USGAAP are presented throughout note 37.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
2006 |
|
2006 |
|
2005 |
|
|
Note |
|
$m |
|
US$m |
|
$m |
|
Reconciliation of net income to USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-IFRS net income reported in income statement |
|
|
|
|
|
|
3,181 |
|
|
|
2,362 |
|
|
|
4,309 |
|
|
Adjustments required to agree with USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
37 |
(c) |
|
|
(26 |
) |
|
|
(19 |
) |
|
|
(61 |
) |
Borrowing costs |
|
|
37 |
(d) |
|
|
(27 |
) |
|
|
(20 |
) |
|
|
(18 |
) |
Investments |
|
|
37 |
(e) |
|
|
|
|
|
|
|
|
|
|
17 |
|
Retirement benefit (expense)/gain |
|
|
37 |
(f) |
|
|
(44 |
) |
|
|
(33 |
) |
|
|
1 |
|
Income tax expense |
|
|
37 |
(g) |
|
|
(85 |
) |
|
|
(63 |
) |
|
|
(10 |
) |
Employee compensation expense |
|
|
37 |
(h) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Derivative financial instruments and hedging activities |
|
|
37 |
(i) |
|
|
192 |
|
|
|
144 |
|
|
|
(96 |
) |
CSL New World Mobility Limited (formerly Telstra CSL Limited) |
|
|
37 |
(j) |
|
|
(634 |
) |
|
|
(471 |
) |
|
|
|
|
Fair value / general reserve adjustments |
|
|
37 |
(k) |
|
|
|
|
|
|
|
|
|
|
5 |
|
Redundancy and restructuring provision |
|
|
37 |
(m) |
|
|
161 |
|
|
|
119 |
|
|
|
|
|
Mobile handset subsidies |
|
|
37 |
(n) |
|
|
|
|
|
|
|
|
|
|
64 |
|
Cumulative effect of changes in accounting principles, net of tax |
|
|
37 |
(b) |
|
|
(245 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income per USGAAP |
|
|
|
|
|
|
2,473 |
|
|
|
1,838 |
|
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement measured and classified per USGAAP(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
|
|
|
|
|
22,779 |
|
|
|
16,909 |
|
|
|
22,167 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
|
|
|
|
4,381 |
|
|
|
3,252 |
|
|
|
3,865 |
|
Goods and services purchased (ii) |
|
|
|
|
|
|
4,235 |
|
|
|
3,144 |
|
|
|
3,442 |
|
Depreciation and amortisation |
|
|
|
|
|
|
4,871 |
|
|
|
3,616 |
|
|
|
3,715 |
|
Other operating expenses |
|
|
|
|
|
|
4,829 |
|
|
|
3,585 |
|
|
|
4,556 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
18,316 |
|
|
|
13,597 |
|
|
|
15,578 |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
4,463 |
|
|
|
3,312 |
|
|
|
6,589 |
|
Net interest expense |
|
|
|
|
|
|
(672 |
) |
|
|
(499 |
) |
|
|
(767 |
) |
Share of net gain/(loss) of jointly controlled and associated
entities |
|
|
|
|
|
|
5 |
|
|
|
4 |
|
|
|
(94 |
) |
Other income |
|
|
|
|
|
|
387 |
|
|
|
288 |
|
|
|
232 |
|
|
|
|
|
|
|
|
Net income before income tax expense and minority interests |
|
|
|
|
|
|
4,183 |
|
|
|
3,105 |
|
|
|
5,960 |
|
Income tax expense |
|
|
37 |
(g) |
|
|
1,465 |
|
|
|
1,086 |
|
|
|
1,756 |
|
|
|
|
|
|
|
|
Net income before cumulative effect adjustments |
|
|
|
|
|
|
2,718 |
|
|
|
2,019 |
|
|
|
4,204 |
|
Cumulative effect of changes in accounting principles, net of tax |
|
|
37 |
(b) |
|
|
(245 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income per USGAAP |
|
|
|
|
|
|
2,473 |
|
|
|
1,838 |
|
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¢ |
|
|
US¢ |
|
|
|
¢ |
|
|
|
|
|
|
|
|
Dividends paid per share per USGAAP(iii) |
|
|
|
|
|
|
40.0 |
|
|
|
29.7 |
|
|
|
33.0 |
|
|
|
|
|
|
|
|
181
398
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
USGAAP earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
2006 |
|
2006 |
|
2005 |
|
|
Note |
|
¢ |
|
US¢ |
|
¢ |
|
Basic earnings per share before cumulative effect of change in accounting principles |
|
|
|
|
|
|
22.0 |
|
|
|
16.3 |
|
|
|
33.8 |
|
Cumulative effect of change in accounting principles (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile handset subsidies |
|
|
37 |
(b) |
|
|
(1.7 |
) |
|
|
(1.3 |
) |
|
|
|
|
Capitalisation of pension cost |
|
|
37 |
(b) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share per USGAAP (cents) |
|
|
|
|
|
|
20.0 |
|
|
|
14.8 |
|
|
|
33.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings per share before cumulative effect of change in accounting principles |
|
|
|
|
|
|
21.9 |
|
|
|
16.3 |
|
|
|
33.7 |
|
Cumulative effect of change in accounting principles (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile handset subsidies |
|
|
37 |
(b) |
|
|
(1.7 |
) |
|
|
(1.3 |
) |
|
|
|
|
Capitalisation of pension cost |
|
|
37 |
(b) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share per USGAAP (cents) |
|
|
|
|
|
|
19.9 |
|
|
|
14.8 |
|
|
|
33.7 |
|
|
|
|
|
|
|
|
182
399
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Total comprehensive income disclosure
Total comprehensive income is calculated by adding net
income and other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
Net income per USGAAP |
|
|
2,473 |
|
|
|
4,204 |
|
USGAAP other comprehensive income/(loss) |
|
|
125 |
|
|
|
(273 |
) |
|
|
|
USGAAP total comprehensive income |
|
|
2,598 |
|
|
|
3,931 |
|
|
|
|
Other comprehensive income/(loss) represents
movements in shareholders equity that are not
related to contributions from owners or payments to
owners.
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended |
|
|
30 June |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
Foreign currency translation reserve |
|
|
125 |
|
|
|
(241 |
) |
Unrealised gain on available-for-sale securities,
after tax of $nil (2005: $4 million decrease) |
|
|
|
|
|
|
14 |
|
Realised gain on sale of available-for-sale
securities transferred to net income, after tax of
$nil (2005: $10 million decrease) |
|
|
|
|
|
|
(46 |
) |
|
|
|
USGAAP other comprehensive income/(loss) |
|
|
125 |
|
|
|
(273 |
) |
|
|
|
The reclassification from accumulated other comprehensive income/ (loss) to net income was
determined on the basis of specific identification. Included within other comprehensive income
for the year ended 30 June 2006 is the reclassification of $132 million from the foreign currency
translation reserve to the dilution loss recognised as part of the merger between CSL and New
World PCS Holdings Limited (New World Mobility). Refer to note 37(j) for further details.
In fiscal 2006, the proceeds from sales of available-for-sale equity securities was $nil (2005:
$141 million).
The gain recorded as part of other comprehensive income/(loss) in relation to derivative and non
derivative instruments that have been designated as hedges of the foreign currency exposure of
our net investments in foreign operations for fiscal 2006 was $50 million (2005: $31 million
gain).
(i) Income statement reclassifications
Various income statement items under A-IFRS have been reclassified to comply with USGAAP
presentation rules. These include:
|
|
net gain on disposal of non current assets of $85 million (2005: $88
million) is recorded as other operating income under A-IFRS but
other non-operating income for USGAAP; |
|
|
rent from property and motor vehicles of $22 million (2005: $20
million) is recorded as other operating revenue under A-IFRS but
other non-operating income for USGAAP; |
|
|
loss on foreign currency transactions of $2 million (2005: $40
million gain) is recorded as other operating expenses under A-IFRS
but other non-operating income for USGAAP; |
|
|
miscellaneous income of $243 million (2005: $173 million) is
recorded in other operating income under A-IFRS but other non-operating income for USGAAP; and |
|
|
under A-IFRS, dealer commissions and bonuses of $493 million
(2005: $711 million) are included in goods and services purchased
as they are directly related to our sales revenue. Under USGAAP
they are classified as other operating expenses. |
(ii) Goods and services purchased
Cost of sales includes both direct and indirect costs
involved in the sale of the Companys goods and
services. For a service company this would commonly
include depreciation and other indirect costs associated
with the provision of services. However, we do not
report our costs according to this description and
classify all of our expenses according to the nature of
the expense, referred to as goods and services
purchased in relation to the sale of goods and
services.
Goods and services purchased mainly comprises:
|
|
network service capacity from external communication service providers; |
|
|
mobile handsets sold to customers; |
|
|
cost of goods sold (other than mobile handsets); and |
Goods and services purchased does not equate to cost of
sales due to the non inclusion of depreciation and other
indirect costs associated with the provision of our
telecommunications services.
(iii) Dividends paid per share
Dividends paid per share for USGAAP includes TESOP97 and
TESOP99 options outstanding as issued shares. Refer to
note 37(h).
183
400
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
Reconciliation of shareholders equity to USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-IFRS shareholders equity per balance sheet |
|
|
|
|
|
|
12,832 |
|
|
|
9,525 |
|
|
|
13,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustments required to agree with USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
37 |
(c) |
|
|
(203 |
) |
|
|
(151 |
) |
|
|
(177 |
) |
Borrowing costs |
|
|
37 |
(d) |
|
|
543 |
|
|
|
403 |
|
|
|
570 |
|
Investments |
|
|
37 |
(e) |
|
|
(63 |
) |
|
|
(47 |
) |
|
|
(63 |
) |
Minority interests(iii) |
|
|
|
|
|
|
(246 |
) |
|
|
(183 |
) |
|
|
(2 |
) |
Retirement benefits |
|
|
37 |
(f) |
|
|
(1,242 |
) |
|
|
(921 |
) |
|
|
(193 |
) |
Income tax |
|
|
37 |
(g) |
|
|
255 |
|
|
|
189 |
|
|
|
(59 |
) |
Derivative financial instruments and hedging activities |
|
|
37 |
(i) |
|
|
(195 |
) |
|
|
(145 |
) |
|
|
(370 |
) |
CSL New World Mobility Limited (formerly Telstra CSL
Limited) |
|
|
37 |
(j) |
|
|
(56 |
) |
|
|
(42 |
) |
|
|
542 |
|
Fair value / general reserve adjustments |
|
|
37 |
(k) |
|
|
(54 |
) |
|
|
(40 |
) |
|
|
(54 |
) |
Goodwill and other intangible asset adjustments |
|
|
37 |
(l) |
|
|
71 |
|
|
|
53 |
|
|
|
41 |
|
Redundancy and restructuring provision |
|
|
37 |
(m) |
|
|
161 |
|
|
|
120 |
|
|
|
|
|
Mobile handset subsidies |
|
|
37 |
(n) |
|
|
|
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
|
Shareholders equity per USGAAP |
|
|
|
|
|
|
11,803 |
|
|
|
8,761 |
|
|
|
14,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet measured and classified per USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
10 |
|
|
|
689 |
|
|
|
511 |
|
|
|
1,548 |
|
Receivables |
|
|
|
|
|
|
3,701 |
|
|
|
2,747 |
|
|
|
3,515 |
|
Inventories |
|
|
12 |
|
|
|
224 |
|
|
|
166 |
|
|
|
232 |
|
Deferred tax asset |
|
|
37 |
(g) |
|
|
376 |
|
|
|
279 |
|
|
|
294 |
|
Other assets |
|
|
|
|
|
|
243 |
|
|
|
181 |
|
|
|
249 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,233 |
|
|
|
3,884 |
|
|
|
5,838 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
|
|
|
|
121 |
|
|
|
90 |
|
|
|
65 |
|
Derivative financial instruments |
|
|
|
|
|
|
214 |
|
|
|
159 |
|
|
|
369 |
|
Inventories |
|
|
12 |
|
|
|
20 |
|
|
|
15 |
|
|
|
15 |
|
Investments accounted for using the equity method |
|
|
|
|
|
|
27 |
|
|
|
20 |
|
|
|
52 |
|
Property, plant and equipment |
|
|
|
|
|
|
50,632 |
|
|
|
37,584 |
|
|
|
48,380 |
|
Accumulated depreciation of property, plant and equipment |
|
|
|
|
|
|
(26,663 |
) |
|
|
(19,792 |
) |
|
|
(25,037 |
) |
Goodwill, net |
|
|
|
|
|
|
2,087 |
|
|
|
1,549 |
|
|
|
2,618 |
|
Other intangible assets, net |
|
|
|
|
|
|
4,101 |
|
|
|
3,044 |
|
|
|
4,662 |
|
Prepaid pension assets |
|
|
37 |
(f) |
|
|
5 |
|
|
|
4 |
|
|
|
78 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,544 |
|
|
|
22,673 |
|
|
|
31,202 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
35,777 |
|
|
|
26,557 |
|
|
|
37,040 |
|
|
|
|
|
|
|
|
184
401
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
Balance sheet measured and classified per USGAAP (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
|
3,570 |
|
|
|
2,650 |
|
|
|
2,766 |
|
Borrowings short term debt |
|
|
|
|
|
|
1,583 |
|
|
|
1,175 |
|
|
|
463 |
|
Borrowings long term debt due within one year |
|
|
|
|
|
|
401 |
|
|
|
298 |
|
|
|
1,061 |
|
Income tax payable |
|
|
|
|
|
|
428 |
|
|
|
318 |
|
|
|
534 |
|
Provisions |
|
|
19 |
|
|
|
662 |
|
|
|
491 |
|
|
|
421 |
|
Other
current liabilities |
|
|
|
|
|
|
1,187 |
|
|
|
881 |
|
|
|
1,150 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,831 |
|
|
|
5,813 |
|
|
|
6,395 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
|
112 |
|
|
|
83 |
|
|
|
257 |
|
Derivative financial instruments |
|
|
|
|
|
|
525 |
|
|
|
390 |
|
|
|
859 |
|
Borrowings long term debt |
|
|
|
|
|
|
11,734 |
|
|
|
8,710 |
|
|
|
11,641 |
|
Deferred tax liability |
|
|
37 |
(g) |
|
|
1,971 |
|
|
|
1,463 |
|
|
|
2,300 |
|
Provisions |
|
|
|
|
|
|
888 |
|
|
|
659 |
|
|
|
894 |
|
Accrued pension liability |
|
|
37 |
(f) |
|
|
172 |
|
|
|
128 |
|
|
|
|
|
Other non
current liabilities |
|
|
|
|
|
|
495 |
|
|
|
367 |
|
|
|
496 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,897 |
|
|
|
11,800 |
|
|
|
16,447 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
23,728 |
|
|
|
17,613 |
|
|
|
22,842 |
|
|
|
|
|
|
|
|
|
Minority interests(iii) |
|
|
23 |
|
|
|
246 |
|
|
|
183 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
11,803 |
|
|
|
8,761 |
|
|
|
14,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital - 12,443,074,357 shares issued at 30 June
2006 (2005: 12,443,074,357 shares) (i) |
|
|
21 |
|
|
|
5,793 |
|
|
|
4,300 |
|
|
|
5,793 |
|
Share loan to employees - 55,104,025 shares at 30 June 2006
(2005: 60,378,525 shares) |
|
|
21 |
|
|
|
(130 |
) |
|
|
(96 |
) |
|
|
(154 |
) |
Shares held by employee share plan trusts - 17,931,918 shares at 30 June 2006 (2005:
20,216,091 shares) |
|
|
|
|
|
|
(99 |
) |
|
|
(73 |
) |
|
|
(113 |
) |
Additional paid in capital from employee share plans |
|
|
|
|
|
|
390 |
|
|
|
289 |
|
|
|
395 |
|
|
|
|
|
|
|
|
Total share capital |
|
|
|
|
|
|
5,954 |
|
|
|
4,420 |
|
|
|
5,921 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (ii) |
|
|
|
|
|
|
(604 |
) |
|
|
(448 |
) |
|
|
(729 |
) |
Retained earnings |
|
|
|
|
|
|
6,453 |
|
|
|
4,789 |
|
|
|
9,004 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
11,803 |
|
|
|
8,761 |
|
|
|
14,196 |
|
|
|
|
|
|
|
|
185
402
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
(i) Share capital
Number of shares issued includes shares issued to
employees under share loans and shares held by employee
share plan trusts. Net balance of shares issued and
outstanding at 30 June 2006 is 12,370,038,414 shares
(2005: 12,362,479,741 shares).
(ii) Accumulated other comprehensive loss
Accumulated other comprehensive loss, net of
related tax, for USGAAP consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
Foreign currency translation reserve |
|
|
(591 |
) |
|
|
(716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
(19 |
) |
|
|
(19 |
) |
(tax effect) |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
|
Accumulated other comprehensive loss (net of
tax) |
|
|
(604 |
) |
|
|
(729 |
) |
|
|
|
As part of the merger between CSL and New World Mobility, $132 million was reclassified from
accumulated other comprehensive loss to the dilution loss recognised on the merger. Refer to note
37(j) for further details.
(iii) Minority interest
Under A-IFRS, minority interests are presented within equity, but separate from the parent
shareholders equity. Under USGAAP, minority interests are presented outside equity, in between
liabilities and equity. The effect of this adjustment has been disclosed in the reconciliation of
shareholders equity to USGAAP.
37(a) Immaterial adjustments to previously reported USGAAP amounts
As discussed in note 36, we have adopted A-IFRS from 1 July 2005. This adoption required us to
restate our financial information for the year ended 30 June 2005 to comply with A-IFRS. As part
of this process, a number of immaterial adjustments have been made to our previously reported
USGAAP amounts. As such we have restated certain USGAAP financial measures for the year ended 30
June 2005. The impact of these adjustments is as follows:
|
|
|
|
|
|
|
Telstra Group |
|
|
|
30 June 2005 |
|
|
|
$m |
|
|
Reconciliation of net income
|
|
|
|
|
Net income per USGAAP as previously reported |
|
|
4,172 |
|
Adjustments: |
|
|
|
|
- Hong Kong 3G spectrum licence |
|
|
(5 |
) |
- Reach committed capex liability |
|
|
(90 |
) |
- Operating leases |
|
|
(11 |
) |
- Functional currency |
|
|
11 |
|
- Income taxes |
|
|
123 |
|
- Tax effect of above adjustments |
|
|
4 |
|
|
|
|
|
|
Net income per USGAAP restated |
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
cents per |
|
|
|
share |
|
Basic earnings per share per USGAAP as previously
reported |
|
|
33.6 |
|
Basic earnings per share per USGAAP restated |
|
|
33.8 |
|
Diluted earnings per share per USGAAP as previously
reported |
|
|
33.5 |
|
Diluted earnings per share per USGAAP restated |
|
|
33.7 |
|
|
|
|
|
|
Reconciliation of shareholders equity |
|
$m |
|
Shareholders equity per USGAAP as previously
reported |
|
|
14,367 |
|
Adjustments: |
|
|
|
|
- Hong Kong 3G spectrum licence |
|
|
14 |
|
- Reach committed capex liability |
|
|
(93 |
) |
- Operating leases |
|
|
(34 |
) |
- Income taxes |
|
|
(58 |
) |
|
|
|
|
|
Shareholders equity per USGAAP restated |
|
|
14,196 |
|
|
|
|
|
|
Hong
Kong 3G spectrum licence
Our subsidiary in Hong Kong, HKCSL, has a licence to
utilise 3G spectrum in Hong Kong until 2016. As part of
this licence agreement, HKCSL are required to make
annual payments for the right to use this spectrum.
Under previous AGAAP we expensed these payments as
incurred and historically we have not recorded a USGAAP
adjustment for this licence.
186
403
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
Hong
Kong 3G spectrum licence (continued)
However, under USGAAP this licence should have been
capitalised as an intangible asset on acquisition, based
on the present value of the expected future payments,
with a corresponding liability also recorded.
The adjustment to decrease net income per USGAAP for the
year ended 30 June 2005 of $5 million is a result of
additional amortisation of $5 million and an increase in
net interest expense of $4 million associated with the
unwinding of the present value discount, offset by a
decrease in other operating expenses of $4 million due
to the reversal of the licence payments expense.
The increase in shareholders equity per USGAAP as at 30
June 2005 of $14 million represents an increase in
intangible assets ($108 million), a decrease in
property, plant and equipment ($24 million), an increase
in current and non-current payables ($2 million and $87
million respectively) and a decrease in deferred tax
liabilities ($19 million).
Due to the adoption of A-IFRS there is no longer a
USGAAP adjustment for this 3G spectrum licence. Refer to
note 36(k).
Reach
committed capex liability
During fiscal 2005, we agreed to fund the committed
capital expenditure of our jointly controlled entity
Reach, together with our co-shareholder PCCW Limited,
for the period until 2022. Our share of this commitment
was disclosed as a contingent liability under previous
AGAAP and a USGAAP adjustment was recorded in our 30
June 2005 financial statements to recognise additional
equity accounted losses only to the extent of our actual
payments under the commitment to 30 June 2005.
However, under USGAAP we were required to recognise
additional equity accounted losses in Reach for our
entire capital expenditure commitment, not just the
amount paid. This adjustment has given rise to an
additional $88 million of equity accounted losses and
an additional $2 million of interest expense for the
year ended 30 June 2005.
The decrease in shareholders equity per USGAAP as at 30
June 2005 of $93 million represents an increase in
current and non-current provisions of $32 million and
$58 million respectively and a decrease in investments
accounted for using the equity method of $3 million.
Due to the adoption of A-IFRS there is no longer a
USGAAP adjustment for our commitment to Reach. Refer to
note 36(i).
Operating
leases
Under previous AGAAP we expensed our operating lease
payments as incurred and in our previously published
financial statements we did not record a USGAAP
adjustment to recognise operating lease expenses on a
straight line basis. The impact of this adjustment is an
increase to other operating expenses of $11 million for
the year ended 30 June 2005. Non-current payables
increased by $48 million and deferred tax liability
decreased by $14 million as at 30 June 2005.
Due to the adoption of A-IFRS there is no longer a
USGAAP adjustment for operating leases. Refer to note
36(e).
Functional
currency
During the assessment of the functional currency for
each of our overseas operations as part of our adoption
of A-IFRS, we discovered that the functional currency of
Telstra Global Limited under USGAAP was incorrect. This
restatement has resulted in a decrease in other
operating expenses of $11 million for the year ended 30
June 2005, with a corresponding increase in other
comprehensive income.
Due to the adoption of A-IFRS there is no longer a
USGAAP adjustment for the functional currency of our
overseas operations. Refer to note 36(g).
Income
taxes
In our 30 June 2005 financial statements, the USGAAP
adjustment to net income for income taxes has been
adjusted by $123 million due to the following:
|
|
adjusting the tax effect of our USGAAP adjustments for property, plant and equipment,
resulting in a decrease in tax expense of $44 million; |
|
|
adjustment to the deferred tax on our investments accounted for using the equity
method, resulting in a decrease in tax expense of $93 million; and |
|
|
not appropriately recognising deferred taxes for various balances, including
intangible assets recognised on acquisitions, resulting in a $14 million increase in tax
expense. |
The majority of these adjustments to tax expense have
arisen as a result of the related deferred tax balances
being written off under USGAAP during the year ended 30
June 2005. However, with the adoption of A-IFRS these
adjustments were recorded in the A-IFRS opening
transition balance sheet at 1 July 2004. As such, the
different timing of recording these adjustments for
A-IFRS and USGAAP purposes has resulted in the majority
of these adjustments. The decrease in shareholders
equity for USGAAP as at 30 June 2005 of $58 million
represents a decrease in goodwill of $6 million and an
increase in deferred tax liability of $52 million.
Accumulated other comprehensive income was also reduced
by $26 million.
187
404
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
37(b) Changes in accounting principles under USGAAP
Mobile
handset subsidies
We previously deferred subsidies on mobile handset sold
as part of a bundled arrangement under USGAAP. This was
based on the fact that the revenue allocated to
subsidised handsets in accordance with EITF 00-21
Revenue Arrangements with Multiple Deliverables (EITF
00-21), is contingent upon the delivery of the contracted
services and is therefore recognised over the expected
customer contract life. As such we previously recognised
the subsidised cost of the handsets on a similar basis.
From 1 July 2005, we have changed our accounting
principle to expense handset subsidies as incurred. This
change was adopted in order to ensure consistency with
the accounting principle we have elected to adopt under
A-IFRS. Furthermore, this change in principle treats the
handset as a separate deliverable from a cost viewpoint
which is consistent with the principles of EITF 00-21.
This change in accounting principle has resulted in the
write off of $303 million of previously deferred handset
subsidies as at 1 July 2005, with an adjustment to
deferred tax liability of $91 million.
Capitalisation
of pension cost
Historically we have recorded a USGAAP adjustment to
recognise an expense (or benefit) for the defined benefit
plans that we sponsor (refer to note 37(f)). From 1 July
2005 we have changed our accounting principle to
capitalise a portion of our pension cost/benefit under
USGAAP, where that cost/benefit is attributable to
employees who are directly engaged in the construction of
our property, plant and equipment, for the period of time
that those employees spend on the construction work.
Previously we have not capitalised a portion of this
cost/benefit.
This change in accounting principle is preferable as the
pension cost/ benefit is considered an additional labour
cost and this change would ensure consistency with how we
treat other labour costs. It is also consistent with our
accounting principle under A-IFRS.
This change has resulted in a decrease to property,
plant and equipment on 1 July 2005 of $47 million, with
an associated increase in deferred tax liability of $14
million.
188
405
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP
37(c) Property, plant and equipment
Revaluations
Certain items of property, plant and equipment had been previously revalued under A-IFRS.
Revaluations of property, plant and equipment are not allowed under USGAAP, except for permanent
impairments. As such we have reversed previously revalued property, plant and equipment to
historical cost for USGAAP purposes.
Under A-IFRS, we have deemed the carrying value of our property, plant and equipment to be cost
and as such we no longer revalue property, plant and equipment.
Depreciation expense and disposal gains or losses under A-IFRS are based on the recorded amount
of the asset and are therefore higher (or lower for disposal losses) for assets that had been
previously revalued upwards. Depreciation expense and disposal gains and losses have been
adjusted to reflect amounts based on the original cost of the asset for USGAAP.
Impairment
loss reversal Hybrid Fibre Coaxial (HFC) cable network
In fiscal 1997, we wrote down the value of our HFC cable network by $587 million. This writedown
continues to be reflected in the HFC networks carrying value under A-IFRS. Under USGAAP, the
initial future undiscounted cash flows derived from our HFC network were greater than the
recorded value and continue to be as at 30 June 2006. As a result, the writedown has been
reversed for USGAAP.
Depreciation expense has also been increased under USGAAP due to the higher asset value.
Indirect
costs
Before 1 July 1996, we expensed all indirect costs as incurred. Under USGAAP, those indirect
costs associated with operations and management personnel directly involved in the construction
of our communication assets have been systematically allocated and recorded as part of the cost
of those assets and depreciated accordingly.
From 1 July 1996, we changed our accounting policy in relation to indirect cost capitalisation to
be consistent with USGAAP.
Sale of
property sold as part of a sale and lease back transaction
In fiscal 2003, we sold certain land and buildings under a sale and leaseback arrangement. The
net gain on the sale was recognised in net income.
Under USGAAP, the gains made on the sale of land and buildings as part of the sale and leaseback
transaction were deferred and are currently being recognised over the period of the underlying
leases. The original gain deferred for USGAAP was $177 million.
Purchase
of radio access network (RAN) assets
In fiscal 2005, we entered into an arrangement with Hutchison 3G Australia Pty Ltd (H3GA) to
jointly own and operate H3GAs existing third generation RAN assets and fund future network
development. The purchase consideration for our share of the RAN assets was $447 million, payable
over 2 years.
Under A-IFRS, the purchase consideration was discounted using an asset specific discount rate.
Under USGAAP, an incremental borrowing rate was used to discount the purchase consideration. The
difference in the discount rate has resulted in a higher asset value and depreciation expense
under USGAAP, offset by lower borrowing costs associated with the unwinding of the discount.
Refer to note 37(e) for further information on the 3G Partnership.
Summary
of property, plant and equipment adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Revaluations |
|
|
6 |
|
|
|
6 |
|
|
|
(593 |
) |
|
|
(599 |
) |
HFC cable network |
|
|
(23 |
) |
|
|
(25 |
) |
|
|
144 |
|
|
|
167 |
|
Indirect costs |
|
|
(39 |
) |
|
|
(60 |
) |
|
|
342 |
|
|
|
381 |
|
Sale and leaseback |
|
|
18 |
|
|
|
18 |
|
|
|
(108 |
) |
|
|
(126 |
) |
RAN assets |
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
(61 |
) |
|
|
(203 |
) |
|
|
(177 |
) |
|
|
|
37(d) Borrowing costs
Under A-IFRS, we expense all borrowing costs when
incurred. Under USGAAP, borrowing costs relating to the
construction of property, plant and equipment and
software developed for internal use are recorded as part
of the asset cost. The capitalised borrowing costs also
result in higher depreciation expense under USGAAP.
For USGAAP purposes, we have capitalised borrowing costs
with a net book value of $543 million as at 30 June 2006
(2005: $570 million). Additional depreciation and
disposals of $108 million (2005: $108 million) have been
recorded for the year ended 30 June 2006, offset by a
decrease in interest expense of $81 million (2005: $90
million).
189
406
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(e) Investments
3GIS
Partnership
The 3GIS Partnership was established to operate the
third generation radio access network (RAN) as discussed
in note 37(c). The partners each made an initial
investment of $1 but provide additional capital as
required in the form of interest-free loans.
Under A-IFRS, we recognise our share of the RAN assets
held by the partnership within property, plant and
equipment. Expenses incurred by the partnership are
on-charged to the partners in equal proportion.
Under USGAAP, we account for the 3GIS Partnership using
the equity method. As such, the interest-free loans are
considered to form part of the investment in the
partnership, and we record our share of the
partnerships results against this investment.
PCCW
Limited (PCCW) Converting Note
Under A-IFRS, our converting note issued by PCCW was
carried at face value, with adjustments for accrued
interest and foreign exchange movements recorded in the
income statement in operating expenses. Under USGAAP,
the instrument was classified as an available-for-sale
security with changes in fair value being recorded in
other comprehensive income.
On 30 June 2005, the note expired and was redeemed for
$76 million. Under USGAAP, the balance recorded in other
comprehensive income was transferred to net income on
redemption.
Reach
Ltd (Reach)
In fiscal 2001, as a part of the strategic alliance with
PCCW, a jointly controlled entity, Reach, was formed
through the combination of our international wholesale
business and certain other wholesale assets together
with certain PCCW assets.
Under USGAAP, this investment was recorded at the net
book value of the assets and liabilities transferred,
reduced by the amount of cash received. This resulted in
a negative carrying value, with the excess credit being
recognised as an adjustment to the amount of goodwill on
other components of the interdependent transactions in
this case a reduction in the goodwill of CSL (refer to
note 37(l)).
As at 31 December 2002, we wrote down the entire
carrying amount of our investment in Reach under both
A-IFRS and USGAAP, which eliminated most of the USGAAP
difference previously reported for Reach.
For both A-IFRS and USGAAP we ceased equity accounting
our investment in Reach in fiscal 2003 due to the
investment, including other non-participating
interests in Reach, being written down to zero.
Summary
of investment adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
3GIS partnership |
|
|
|
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
PCCW converting note |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Reach Ltd |
|
|
|
|
|
|
|
|
|
|
(90 |
) |
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
(63 |
) |
|
|
(63 |
) |
|
|
|
190
407
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(f) Retirement benefits
Under USGAAP, our defined benefit plans are accounted for under Statement of Financial Accounting
Standards No. 87 (SFAS 87) Employers Accounting for Pensions. While the requirements of this
standard are broadly consistent with our policy under A-IFRS (refer note 2.24), there are a
number of key differences.
Under A-IFRS, actuarial gains and losses are recognised directly in retained earnings. Under
USGAAP, the recognition of certain gains and losses is delayed. Aggregated unrecorded gains and
losses exceeding 10% of the greater of the aggregated projected benefit obligation or the market
value of the plan assets are amortised over the average expected service period of active
employees expected to receive benefits under the plan.
Under USGAAP, future investment and contribution taxes of the fund are not taken into account,
with only current taxes reflected in the measurement of the net periodic pension cost and prepaid
pension asset.
Based on industry practice in Australia, under A-IFRS the defined benefit asset is adjusted for
the estimated impact of future investment and contribution taxes of the fund, which are
considered part of the ultimate cost to settle the obligation. Future investment tax is taken
into account through an adjustment to the discount rate, while a separate tax reserve is created
to take into account future contribution tax benefits.
Due to a change in accounting principle we now capitalise a portion of the net period pension
cost under USGAAP (refer to note 37(b)), consistent with our policy under A-IFRS. However, under
A-IFRS we have only applied this policy from 1 July 2004, our transition date to A-IFRS. Under
USGAAP, we have adjusted our property, plant and equipment to reflect this policy as if it had
always been applied. Furthermore, differences in the pension cost have lead to differences in
amounts capitalised. These differences between A-IFRS and USGAAP have an ongoing impact on
depreciation and amortisation.
Presented below are the disclosures required by USGAAP that are different from A-IFRS. These
disclosures have been prepared with respect to only the defined benefit components of our pension
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
Net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic pension cost for our defined
benefit plans are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost on benefits earned |
|
|
214 |
|
|
|
159 |
|
|
|
200 |
|
Interest cost on projected benefit obligation |
|
|
226 |
|
|
|
168 |
|
|
|
223 |
|
Expected return on assets |
|
|
(333 |
) |
|
|
(247 |
) |
|
|
(317 |
) |
Expenses and taxation |
|
|
16 |
|
|
|
12 |
|
|
|
16 |
|
Member contributions for defined benefits |
|
|
(20 |
) |
|
|
(15 |
) |
|
|
(21 |
) |
Transfer of funds to defined contribution plan (i) |
|
|
93 |
|
|
|
69 |
|
|
|
78 |
|
Curtailment loss |
|
|
58 |
|
|
|
43 |
|
|
|
|
|
Settlement gain |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
|
Net periodic pension cost per USGAAP |
|
|
247 |
|
|
|
184 |
|
|
|
175 |
|
Net periodic pension cost per A-IFRS |
|
|
182 |
|
|
|
136 |
|
|
|
201 |
|
Net impact on net income due to different pension cost capitalised |
|
|
21 |
|
|
|
15 |
|
|
|
(25 |
) |
|
|
|
Total USGAAP adjustment |
|
|
44 |
|
|
|
33 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used the following major assumptions to determine net periodic
pension
cost/(benefit) under USGAAP : |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.98 |
% |
|
|
5.98 |
% |
|
|
5.99 |
% |
Expected rate of increase in future salaries |
|
|
3.02 |
% |
|
|
3.02 |
% |
|
|
3.97 |
% |
Expected long-term rate of return on assets |
|
|
7.00 |
% |
|
|
7.00 |
% |
|
|
7.50 |
% |
|
|
|
191
408
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using
USGAAP (continued)
37(f) Retirement benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2006 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
US$m | |
|
$m | |
|
Projected benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of change in projected benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
|
3,964 |
|
|
|
2,942 |
|
|
|
3,540 |
|
Service cost |
|
|
214 |
|
|
|
159 |
|
|
|
200 |
|
Interest cost |
|
|
226 |
|
|
|
168 |
|
|
|
223 |
|
Member contributions |
|
|
7 |
|
|
|
5 |
|
|
|
4 |
|
Benefit payments (i) |
|
|
(715 |
) |
|
|
(531 |
) |
|
|
(69 |
) |
Curtailment loss |
|
|
58 |
|
|
|
43 |
|
|
|
|
|
Foreign currency exchange rate changes |
|
|
2 |
|
|
|
1 |
|
|
|
(7 |
) |
Actuarial (gain)/loss |
|
|
(379 |
) |
|
|
(281 |
) |
|
|
73 |
|
|
|
|
Projected benefit obligation at end of year per USGAAP |
|
3,377 |
|
|
|
2,506 |
|
|
|
3,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used the following major assumptions to determine benefit
obligations under USGAAP: |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.98 |
% |
|
|
5.98 |
% |
|
|
5.48 |
% |
Expected rate of increase in future salaries |
|
|
3.02 |
% |
|
|
3.02 |
% |
|
|
3.99 |
% |
|
|
|
|
Accumulated benefit obligation at end of year |
|
|
2,374 |
|
|
|
1,762 |
|
|
|
2,472 |
|
|
|
|
|
Plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
4,519 |
|
|
|
3,354 |
|
|
|
4,302 |
|
Actual return on plan assets |
|
|
825 |
|
|
|
612 |
|
|
|
360 |
|
Transfer of funds to defined contribution plan (i) |
|
|
(93 |
) |
|
|
(69 |
) |
|
|
(78 |
) |
Employer contributions |
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
Member contributions for defined benefits |
|
|
20 |
|
|
|
15 |
|
|
|
21 |
|
Transfers/member contributions for accumulation benefits |
|
|
7 |
|
|
|
5 |
|
|
|
4 |
|
Benefit payments (i) |
|
|
(715 |
) |
|
|
(531 |
) |
|
|
(69 |
) |
Plan expenses |
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(17 |
) |
Foreign currency exchange rate changes |
|
|
2 |
|
|
|
1 |
|
|
|
(7 |
) |
|
|
|
Fair value of plan assets at end of year per USGAAP |
|
|
4,552 |
|
|
|
3,377 |
|
|
|
4,519 |
|
|
|
|
192
409
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using
USGAAP (continued)
37(f) Retirement benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2006 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
US$m | |
|
$m | |
|
Reconciliation of funded status of plan |
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
(3,377 |
) |
|
|
(2,506 |
) |
|
|
(3,964 |
) |
Plan assets at fair value |
|
|
4,552 |
|
|
|
3,377 |
|
|
|
4,519 |
|
|
|
|
Funded status |
|
|
1,175 |
|
|
|
871 |
|
|
|
555 |
|
Unrecognised net transition liability |
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
Unrecognised net actuarial gain |
|
|
(1,346 |
) |
|
|
(998 |
) |
|
|
(481 |
) |
|
|
|
Pension (liability)/asset per USGAAP |
|
|
(167 |
) |
|
|
(124 |
) |
|
|
78 |
|
Prepaid pension asset per A-IFRS |
|
|
1,029 |
|
|
|
764 |
|
|
|
247 |
|
Differences in pension cost capitalised |
|
|
46 |
|
|
|
33 |
|
|
|
24 |
|
|
|
|
Total USGAAP adjustment |
|
|
(1,242 |
) |
|
|
(921 |
) |
|
|
(193 |
) |
|
|
|
(i) Benefits payments include payments out of the
defined benefit plan into the defined contribution
plan.
193
410
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(g) Income tax
Under A-IFRS, we apply the balance sheet liability
method of accounting for deferred taxes, which is
broadly consistent with Statement of Financial
Accounting Standards No. 109 (SFAS 109) Accounting
for Income Taxes.
Our other USGAAP adjustments disclosed in note 37 have
amended the carrying values of certain assets and
liabilities under USGAAP and has resulted in an
adjustment to the deferred tax balances.
Under A-IFRS, deferred taxes that arise on the initial
recognition of an asset or liability are not recognised
where the transaction is not a business combination and
affects neither accounting profit nor taxable profit at
the time of the transaction. USGAAP contains no such
exemption and as such additional deferred tax balances
have been recognised for USGAAP.
We have a number of intangible assets with an indefinite
life, most notably our Trading Post mastheads. Under
A-IFRS, the tax base used in the deferred tax calculation
is the assets disposal value. It is assumed that the
accounting carrying value will only be consumed upon
disposal due to the fact that these intangible assets are
not being amortised for accounting purposes.
However, under USGAAP the tax base used in the deferred
tax calculation is the depreciable tax value, which is
generally nil for these assets. This is because the
intangible assets are not being specifically held for
disposal and therefore the disposal value cannot be used
for USGAAP purposes. This has resulted in an increase in
deferred tax liability for USGAAP, with a corresponding
increase in goodwill.
For A-IFRS, we classify all deferred tax balances as non
current. For USGAAP, the classification between current
and non current is based on the balance sheet
classification of the underlying net current and non
current asset or liability. Where there is no underlying
asset or liability the classification is based on when
the temporary difference is expected to reverse. The
effect of this has been disclosed in the balance sheet
measured and classified per USGAAP.
Summary
of income tax adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
Initial recognition exemption |
|
|
(7 |
) |
|
|
1 |
|
|
|
(43 |
) |
|
|
(35 |
) |
Indefinite life intangibles |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
8 |
|
Property, plant and
equipment (note 37(c)) |
|
|
10 |
|
|
|
18 |
|
|
|
68 |
|
|
|
58 |
|
Borrowing costs (note 37(d)) |
|
|
7 |
|
|
|
4 |
|
|
|
(157 |
) |
|
|
(164 |
) |
Investments (note 37(e)) |
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
Retirement benefits (note
37(f)) |
|
|
14 |
|
|
|
(2 |
) |
|
|
373 |
|
|
|
56 |
|
Derivatives and hedging
(note 37(i)) |
|
|
(58 |
) |
|
|
29 |
|
|
|
59 |
|
|
|
111 |
|
CSL New World Mobility (note
37(j)) |
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
General reserve (note 37(k)) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Redundancy and
restructuring (note 37(m)) |
|
|
(48 |
) |
|
|
|
|
|
|
(48 |
) |
|
|
|
|
Mobile handset subsidies
(note 37(n)) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(91 |
) |
|
|
|
|
|
|
(85 |
) |
|
|
(10 |
) |
|
|
255 |
|
|
|
(59 |
) |
|
|
|
194
411
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using
USGAAP (continued)
37(g) Income tax (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
2006 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
US$m | |
|
$m | |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation, hedge and other finance costs |
|
|
58 |
|
|
|
43 |
|
|
|
117 |
|
Employee entitlements |
|
|
268 |
|
|
|
199 |
|
|
|
281 |
|
Revenue received in advance |
|
|
148 |
|
|
|
110 |
|
|
|
130 |
|
Provisions |
|
|
164 |
|
|
|
122 |
|
|
|
64 |
|
Trade and other payables |
|
|
57 |
|
|
|
42 |
|
|
|
38 |
|
Accrued pension liability |
|
|
68 |
|
|
|
50 |
|
|
|
|
|
Tax losses |
|
|
291 |
|
|
|
216 |
|
|
|
230 |
|
Other |
|
|
78 |
|
|
|
58 |
|
|
|
23 |
|
|
|
|
Total gross deferred tax assets under USGAAP |
|
|
1,132 |
|
|
|
840 |
|
|
|
883 |
|
Valuation allowance |
|
|
(185 |
) |
|
|
(137 |
) |
|
|
(161 |
) |
|
|
|
Total net deferred tax assets under USGAAP |
|
|
947 |
|
|
|
703 |
|
|
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
2,047 |
|
|
|
1,520 |
|
|
|
2,003 |
|
Prepaid pension asset |
|
|
|
|
|
|
|
|
|
|
23 |
|
Intangible assets |
|
|
495 |
|
|
|
367 |
|
|
|
611 |
|
Mobile handset subsidies |
|
|
|
|
|
|
|
|
|
|
91 |
|
|
|
|
Total deferred tax liabilities under USGAAP |
|
|
2,542 |
|
|
|
1,887 |
|
|
|
2,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability under USGAAP |
|
|
(1,595 |
) |
|
|
(1,184 |
) |
|
|
(2,006 |
) |
Net deferred tax liability under A-IFRS |
|
|
1,703 |
|
|
|
1,264 |
|
|
|
1,802 |
|
|
|
|
Difference |
|
|
108 |
|
|
|
80 |
|
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows for the USGAAP balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset |
|
|
376 |
|
|
|
279 |
|
|
|
294 |
|
Net non current deferred tax liability |
|
|
(1,971 |
) |
|
|
(1,463 |
) |
|
|
(2,300 |
) |
|
|
|
|
|
|
(1,595 |
) |
|
|
(1,184 |
) |
|
|
(2,006 |
) |
|
|
|
As at 30 June 2006, our foreign operations have
operating loss carryforwards of $291 million of which $9
million will expire in 2027. The remaining balance does
not have an expiration date. We have established a
valuation allowance of $185 million to provide for the
operating loss carryforward due to our uncertainty over
our ability to utilise these operating loss carryforwards.
As at 30 June 2005, our foreign operations have
operating loss carryforwards of $230 million of which
$13 million will expire in fiscal year 2027. We have
established a valuation allowance of $161 million to
provide for the operating loss carryforward due to our
uncertainty over our ability to utilise these operating
loss carryforwards
195
412
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(g) Income tax (continued)
The following table represents the domestic and foreign
components of net income before income tax expense and
minority interests and income tax expense/(benefit),
calculated in accordance with USGAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
US$m | |
|
$m | |
|
Net income before income tax expense and minority
interests consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
4,829 |
|
|
|
3,586 |
|
|
|
5,940 |
|
Foreign |
|
|
(646 |
) |
|
|
(481 |
) |
|
|
20 |
|
|
|
|
Net income before income tax expense and minority interest |
|
|
4,183 |
|
|
|
3,105 |
|
|
|
5,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit) consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
1,785 |
|
|
|
1,325 |
|
|
|
1,718 |
|
Foreign |
|
|
15 |
|
|
|
11 |
|
|
|
22 |
|
|
|
|
Total current income tax expense |
|
|
1,800 |
|
|
|
1,336 |
|
|
|
1,740 |
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
(326 |
) |
|
|
(243 |
) |
|
|
22 |
|
Foreign |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
|
Total deferred income tax expense/(benefit) |
|
|
(335 |
) |
|
|
(250 |
) |
|
|
16 |
|
|
|
|
Income tax expense, net |
|
|
1,465 |
|
|
|
1,086 |
|
|
|
1,756 |
|
|
|
|
Actual income tax expense differs from the amounts
computed by applying the statutory Australian income tax
rate of 30% to net income before income tax expense and
minority interests. The following table represents the
reconciliation of the expected income tax expense to
actual income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
US$m | |
|
$m | |
|
Expected income tax expense |
|
|
1,255 |
|
|
|
931 |
|
|
|
1,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of different rates of tax on overseas income |
|
|
(19 |
) |
|
|
(14 |
) |
|
|
(11 |
) |
Non assessable and non deductible items |
|
|
88 |
|
|
|
64 |
|
|
|
(23 |
) |
Cumulative effect of changes in accounting principles |
|
|
105 |
|
|
|
78 |
|
|
|
|
|
Under/(over) provision of tax in prior years |
|
|
36 |
|
|
|
27 |
|
|
|
2 |
|
|
|
|
Actual income tax expense for USGAAP |
|
|
1,465 |
|
|
|
1,086 |
|
|
|
1,756 |
|
|
|
|
196
413
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(h) Employee share plans and compensation expenses
Our employee and executive share plans are described in note 31.
As at 1 July 2005 for USGAAP purposes, we have adopted
Statement of Financial Accounting Standards No. 123
Revised (SFAS 123R), Share-Based Payment using the
modified prospective application method. This standard
requires entities to recognise an expense for the issue
of employee stock options and similar awards based on
their fair value on the grant date and recognised over
the associated service period, which is usually the
vesting period. However there is no financial statement
effect for us upon adoption of SFAS 123R, as we
previously adopted the fair value method of valuing
employee stock options and similar awards under SFAS No.
123, Accounting for Stock Based Compensation.
Under A-IFRS, we have adopted AASB 2 Share-based
Payment which is broadly consistent with SFAS 123R. As
permitted under A-IFRS and described in note 31, we have
elected to apply AASB 2 only to equity instruments
granted after 7 November 2002, which have not vested as
at 1 January 2005. Therefore a USGAAP adjustment is
still required to record the compensation expense for
equity instruments issued prior to 7 November 2002.
As a result of this adjustment, we have recorded nil
compensation expense for the year ended 30 June 2006 in
the reconciliation of net income to USGAAP (2005: $7
million).
37(i) Derivative financial instruments and hedging activities
Our risk management policies and objectives of
entering into derivative financial instruments have
been disclosed in note 35, Financial and capital
risk management.
As permitted on the first-time adoption of A-IFRS, the
Company elected to not restate comparative information
for financial instruments within the scope of AASB 139:
Financial Instruments: Recognition and Measurement
(AASB 139). Therefore, for the year end 30 June 2005 the
fair value of derivatives were not recorded under
A-IFRS. Beginning 1 July 2005, derivative financial
instruments are recognised and measured at fair value.
Under USGAAP, certain derivative instruments are
designated as fair value hedges. The gain or loss on the
derivative instrument, as well as the offsetting loss or
gain on the hedged item attributable to the hedged risk,
is recognised in other income/expense as part of net
income during the period of the change in fair values.
Under A-IFRS, the same derivative instruments are
designated as cash flow hedges. The effective portion of
the gain or loss on the derivative instrument is reported
as a component of accumulated other comprehensive income
and reclassified into net income in the same period or
periods during which the hedged transaction affects net
income. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if
any, is recognised in other income/ expense as part of
net income during the period of change.
We enter into forward foreign exchange contracts to hedge
certain firm commitments denominated in foreign
currencies relating to our capital expenditure programs.
Under A-IFRS, realised gains and losses on termination of
these hedges are recognised as a net cost of the
equipment acquired.
We do not designate specific forward foreign exchange
contracts as hedges under USGAAP. As a result, changes
in fair value of the forward foreign exchange contracts
are required to be recognised in net income for USGAAP
purposes. We have recorded a marked to market adjustment
in other income per USGAAP for the forward foreign
exchange contracts outstanding at 30 June 2006.
As a result of the change in the capital expenditure
foreign exchange contract rates, we also recorded an
adjustment to increase fixed assets and depreciation
expense. Additionally, another adjustment to other
income per USGAAP was recorded to reverse net realised
foreign exchange gains/losses capitalised in property,
plant and equipment under A-IFRS.
We enter into interest rate swaps to manage our exposure
to interest rate risk relating to our outstanding
short-term commercial paper. We do not designate the
interest rate swaps used to manage our interest rate
exposure as hedges under USGAAP. As a result, changes in
the fair values of these interest rate swaps are required
to be included in the reconciliation of net income to
USGAAP. We have recorded a marked to market adjustment in
other income under USGAAP for changes in fair value of
interest rate swap contracts outstanding at the fiscal
year end.
We enter into cross currency interest rate swaps to hedge
our exposure to the risk of overall changes in fair value
relating to interest rate and foreign currency risk of
our foreign currency borrowings. The ineffective portion
of our hedging instruments (inclusive of the time value
of money) is taken to other income/expense.
Under USGAAP we record our derivative instruments on a
net basis by counterparty where a master netting
agreement is in place. Under
A-IFRS we are precluded from
netting our derivative instruments by counterparty in the
balance sheet.
197
414
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(i) Derivative financial instruments and hedging
activities (continued)
Summary of derivative financial instruments and hedging
activities adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
Forward foreign exchange
contracts |
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
Interest rate swaps |
|
|
21 |
|
|
|
(85 |
) |
|
|
|
|
|
|
(163 |
) |
Cross currency interest rate
swaps |
|
|
(214 |
) |
|
|
(13 |
) |
|
|
(198 |
) |
|
|
(209 |
) |
|
|
|
|
|
|
192 |
|
|
|
(96 |
) |
|
|
(195 |
) |
|
|
(370 |
) |
|
|
|
37(j) CSL New World Mobility Limited (formerly Telstra
CSL Limited (CSL))
Original
acquisition
Under previous AGAAP, acquisition costs of $999 million
were written off on acquisition of CSL in January 2001.
USGAAP did not allow such a write-off, as it could not
be supported by an analysis of the undiscounted cash
flows of the entity. Accordingly, the goodwill write-off
was reversed and is carried forward as a difference in
the reconciliation of shareholders equity to USGAAP.
USGAAP adjustments were also recorded on the acquisition
of CSL for the following:
|
|
losses of $30 million on the hedge of the purchase of CSL were included in the cost
of acquisition under previous AGAAP, but were recognised in net income under USGAAP; and |
|
|
recognition of a deferred tax asset of $33 million under USGAAP associated with fair
value acquisition adjustments, with a corresponding decrease to goodwill. This deferred
tax asset was realised in fiscal 2005. |
Goodwill
impairment
On 31 March 2006, we merged the CSL Group with the
mobile operations of New World PCS Holdings Limited and
its controlled entities (New World Mobility Group) to
form the CSL New World Mobility Group. Our carrying
value of goodwill under USGAAP for CSL has historically
been higher than under A-IFRS due to the USGAAP
adjustments on original acquisition, and the merger
transaction indicated that a pre-existing impairment
under USGAAP existed in CSL.
We performed an impairment test on our goodwill balance
in CSL prior to recording the merger and as a result we
recognised an impairment loss in our net income per
USGAAP. The fair value of CSL for the purposes of the
impairment test was calculated using a discounted cash
flow technique.
Historically under USGAAP, we have recorded impairment
losses of $394 million. These impairment losses were
based on a discounted cash flow technique used to
calculate the fair value of CSL.
New
World Mobility merger
Under the merger agreement, CSL issued new shares to New
World Mobility Holdings Limited for 100% of the issued
capital of the New World Mobility Group and $44 million
cash. The issue of new shares diluted our ownership
interest in the merged group to 76.4%.
Under A-IFRS, a dilution gain was recognised directly in
equity, being the difference between the fair value of
the interest acquired in the New World Mobility Group
and the carrying value of the diluted interest in the
merged group, including any foreign currency translation
reserve balance.
Due to the USGAAP impairment recorded in CSL goodwill
just prior to the merger transaction, the carrying value
of CSL at the date of the merger was lower under USGAAP
compared to A-IFRS. Furthermore, the foreign currency
translation reserve balance associated with CSL under
USGAAP at the date of the merger was significantly
higher than the balance under A-IFRS due to the USGAAP
adjustments described in note 37(l). This lead to us
recording a dilution loss on the merger under USGAAP
primarily due to the reclassification of $132 million
from accumulated other comprehensive loss. This dilution
has been recorded directly in equity for USGAAP
purposes.
198
415
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(j) CSL New World Mobility Limited (continued)
Summary
of CSL New World Mobility adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
Original acquisition |
|
|
|
|
|
|
|
|
|
|
936 |
|
|
|
936 |
|
Goodwill impairment |
|
|
(634 |
) |
|
|
|
|
|
|
(1,028 |
) |
|
|
(394 |
) |
New World Mobility merger |
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
(634 |
) |
|
|
|
|
|
|
(56 |
) |
|
|
542 |
|
|
|
|
|
37(k) Fair value and general reserve adjustments
Under A-IFRS, we recorded a reserve of $54 million on
the acquisition of a controlling interest in
TelstraClear Limited in December 2001, representing our
share of the fair value adjustments attributed to our
previous equity accounted ownership interest. Under
USGAAP this reserve adjustment was offset against
goodwill.
Under A-IFRS, the effect of dilutions of ownership due
to equity transactions conducted by third parties are
recorded in a reserve. Under USGAAP, this is treated as
a sale of ownership interest and taken to net income.
For the year ended 30 June 2006, the adjustment to net
income was $nil (2005: $5 million gain).
37(l) Goodwill and other intangible asset adjustments
Under both A-IFRS and USGAAP, goodwill is not amortised
but reviewed for impairment annually, or more frequently
if certain indicators or triggers arise. However, we
ceased amortising goodwill under USGAAP from 1 July 2002
but did not cease amortisation under A-IFRS until 1 July
2004. As such we continue to record a historical USGAAP
adjustment.
Under both A-IFRS and USGAAP, goodwill in foreign
controlled entities is denominated in the functional
currency of the foreign operation, with translation
adjustments recorded in equity. Where there is a
difference between the A-IFRS and USGAAP balance of
goodwill, an adjustment is also made to the translation
effect. Furthermore, on transition to A-IFRS we reset
our foreign currency translation reserve to zero, which
has been reversed for USGAAP purposes.
Summary
of goodwill and other intangible asset adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Shareholders |
|
|
Net Income |
|
Equity |
|
|
Year ended / As at 30 June |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
Amortisation difference |
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
229 |
|
Translation differences of goodwill in
foreign operations |
|
|
|
|
|
|
|
|
|
|
(158 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
41 |
|
|
|
|
Intangible
assets subject to amortisation
Our intangible assets still subject to amortisation are
brandnames, customer bases, patents, trademarks and
licences. The carrying amount of these intangibles are
disclosed in note 15. The following table represents
the estimated aggregate amortisation expense for these
intangible assets which are still amortised under
USGAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
$m | |
|
Estimated aggregate
amortisation expense |
|
|
169 |
|
|
|
141 |
|
|
|
107 |
|
|
|
104 |
|
|
|
102 |
|
|
|
|
199
416
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using
USGAAP (continued)
37(l) Goodwill and other intangible asset adjustments (continued)
The following table is a reconciliation of the carrying amount of our
goodwill under USGAAP by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
|
|
|
|
|
|
|
|
|
Enterprise & |
|
Telstra |
|
|
|
|
|
|
|
|
Government |
|
International |
|
Sensis |
|
Other |
|
Total |
Telstra Group |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
Carrying
amount of goodwill (USGAAP) at 30 June 2004 |
|
|
83 |
|
|
|
1,962 |
|
|
|
235 |
|
|
|
1 |
|
|
|
2,281 |
|
Additional goodwill recognised |
|
|
360 |
|
|
|
2 |
|
|
|
153 |
|
|
|
4 |
|
|
|
519 |
|
Foreign currency translation adjustment |
|
|
(6 |
) |
|
|
(176 |
) |
|
|
|
|
|
|
|
|
|
|
(182 |
) |
|
|
|
Carrying amount of goodwill (USGAAP)
at 30 June 2005 |
|
|
437 |
|
|
|
1,788 |
|
|
|
388 |
|
|
|
5 |
|
|
|
2,618 |
|
Additional goodwill recognised |
|
|
4 |
|
|
|
287 |
|
|
|
33 |
|
|
|
|
|
|
|
324 |
|
Disposals |
|
|
(4 |
) |
|
|
(272 |
) |
|
|
|
|
|
|
|
|
|
|
(276 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Impairment losses |
|
|
|
|
|
|
(634 |
) |
|
|
|
|
|
|
|
|
|
|
(634 |
) |
|
|
|
Carrying amount of goodwill (USGAAP)
at 30 June 2006 |
|
|
437 |
|
|
|
1,224 |
|
|
|
421 |
|
|
|
5 |
|
|
|
2,087 |
|
|
|
|
37(m) Redundancy and restructuring
The principal difference between A-IFRS and USGAAP with
respect to accruing for restructuring costs is that
A-IFRS places emphasis on the recognition of the costs
of the exit plan as a whole whereas USGAAP requires that
each type of cost be examined individually to determine
when it may be accrued. The differences are primarily
related to the timing of the recognition of
restructuring costs.
As a result we have recorded an adjustment of $46
million to reduce
the provision related to contractual obligations. Under
USGAAP, a liability is incurred for contractual
obligations when the Company ceases using the right
conveyed by the contract. As of 30 June 2006, the
Company has not ceased using the rights conveyed by
these contracts.
An adjustment of $115 million is recorded to reduce the
provision for other exit costs. Under USGAAP, a
liability is incurred for other exit costs if the
Company has already incurred the cost. As of 30 June
2006, the Company has not incurred these expenses.
There is no significant GAAP difference between A-IFRS
and USGAAP in relation to the redundancy provision we
have recognised at 30 June 2006.
37(n) Mobile handset subsidies
In fiscal 2005 under USGAAP, we deferred our mobile
handset subsidies and recognised them over the expected
customer life. Under A-IFRS we expense handset subsidies
as incurred.
On 1 July 2005, we changed our accounting principle
under USGAAP to expense handset subsidies as incurred,
consistent with our policy under A-IFRS. As such there
is no longer a USGAAP adjustment. Refer to note 37(b)
for further details.
The impact of this adjustment on net income for the year
ended 30 June 2005 was an increase of $64 million.
Shareholders equity under USGAAP at 30 June 2005
increased by $303 million.
200
417
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(o) Consolidation of variable interest entities
A-IFRS requires consolidation of an entity where we are
able to dominate decision making, directly or
indirectly, relating to the financial and operating
policies of that entity to enable it to operate with us
in achieving our objectives. Ownership percentage as a
single factor does not determine consolidation under
A-IFRS.
USGAAP requires a beneficiary to consolidate a variable
interest entity if it is the primary beneficiary of that
entity. The primary beneficiary is defined as having a
variable interest in a variable interest entity that
will absorb a majority of the entitys expected losses,
receive a majority of the entitys expected residual
returns (if no party absorbs a majority of the entitys
expected losses), or both. A variable interest entity is
any legal structure used to conduct activities or hold
assets that either:
|
|
has an insufficient amount of equity to carry out its principal activities without
additional subordinated financial support; |
|
|
has a group of equity owners that are unable to make significant decisions about its
activities; or |
|
|
has a group of equity owners that do not have the obligation to absorb losses or the
right to receive returns generated by its operations. |
We have identified the following variable interest
entities for which we are considered to be the primary
beneficiary:
|
|
Telstra Employee Share Ownership Plan Trust (TESOP97); |
|
|
Telstra Employee Share Ownership Plan Trust II (TESOP99); and |
|
|
Telstra Growthshare Trust. |
These entities have been consolidated under both A-IFRS and USGAAP.
We have also identified the 3GIS Partnership to be a
variable interest entity, of which we have a significant
variable interest, but we are not the primary
beneficiary. As such, we have not consolidated the 3GIS
Partnership. For further information, refer to notes 30
and 37(c).
37(p) Arrangements that contain leases
Based on the requirements of Emerging Issues Task Force
Issue No. 01-8 (EITF 01-8), Determining Whether an
Arrangement Contains a Lease, an arrangement contains a
lease if fulfilment of that arrangement is dependent upon
the use of specific property, plant and equipment and it
conveys the right to control the use of the specific
property, plant and equipment to the purchaser.
If an arrangement is considered to contain a lease
under EITF 01-8 then it is split into its lease and
non-lease components using the relative fair value
method, with each component accounted for separately.
EITF 01-8 is only applicable to arrangements that we
entered into or modified after 1 July 2003.
Currently under A-IFRS, and for arrangements entered into
prior to 1 July 2003 for USGAAP, we account for these
types of arrangements as service agreements. There is no
material impact on the reconciliations of net income and
shareholders equity to USGAAP of this difference in
accounting for embedded leases.
37(q) Recently issued United States accounting standards
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109 (FIN 48),
which clarifies the accounting for uncertainty in income
taxes recognised in an enterprises financial statements
in accordance with FASB Statement No. 109, Accounting
for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial
statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in
interim periods, disclosure, and transition requirements.
The Company is currently evaluating the impact of this
new Interpretation.
In April 2006, the FASB issued FASB Staff Position FIN
46(R)-6, Determining the Variability to Be Considered
in Applying FASB Interpretation No. 46(R) (FSP
46(R)-6), which provides additional guidance to
consider when determining:
|
|
whether an entity is a variable interest entity; |
|
|
which interests are considered to be variable interests in the entity; and |
|
|
which party, if any, is the primary beneficiary of a variable interest entity. |
The Company is currently evaluating the impact of
this new interpretation.
201
418
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
37. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
37(q) Recently issued United States accounting
standards (continued)
In March 2006, the FASB issued Statement No. 156,
Accounting for Servicing of Financial Assets (SFAS
156), which amends SFAS 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS 156 requires recognition of a
servicing asset or liability at fair value each time an
obligation is undertaken to service a financial asset by
entering into a servicing contract. SFAS 156 also
provides guidance on subsequent measurement methods for
each class of servicing assets and liabilities and
specifies financial statement presentation and
disclosure requirements. SFAS 156 is effective for
fiscal years beginning after September 15, 2006 and is
required to be adopted by us in the first quarter of
fiscal year 2008. The Company is currently evaluating
the impact this new Standard but believes that it will
not have a material impact on the Companys balance
sheet, income statement or cash flows.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments
(SFAS No. 155), which amends SFAS No. 133, Accounting
for Derivatives Instruments and Hedging Activities and
SFAS No. 140, SFAS No.155 amends SFAS No. 133 to narrow
the scope exception for interest-only and principal-only
strips on debt instruments to include only such strips
representing rights to receive a specified portion of
the contractual interest or principle cash flows. SFAS
No. 155 also amends SFAS No.140 to allow qualifying
special-purpose entities to hold a passive derivative
financial instrument pertaining to beneficial interests
that itself is a derivative instrument. SFAS No. 155 is
effective for fiscal years beginning after 15 September
2006. The Company is currently evaluating the impact
this new Standard but believes that it will not have a
material impact on the Companys balance sheet, income
statement or cash flows.
In November 2005, the FASB issued FASB Staff Position
SFAS 123(R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment
Awards (FSP 123(R)-3). FSP 123(R)-3 provides an
elective alternative method that establishes a
computational component to arrive at the beginning
balance of the accumulated paid-in capital pool related
to employee compensation and a simplified method to
determine the subsequent impact on the accumulated
paid-in capital pool of employee awards that are fully
vested and outstanding upon the adoption of SFAS 123(R).
The Company does not believe that this FSP will have a
material impact on the income statement or balance
sheet.
In November 2005, the Financial Accounting Standards
Board (FASB) issued FASB Staff Position (FSP) Nos.
SFAS 115-1 and SFAS 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to
Certain Investments. This FSP addresses the
determination as to when an investment is considered
impaired, whether that impairment is other than
temporary and the measurement of an impairment loss.
This FSP also includes accounting considerations
subsequent to the recognition of other-than-temporary
impairments. The adoption of the FSP did not have a
material impact on the income statement and balance
sheet.
In October 2005, the FASB issued FASB Staff Position
SFAS 123(R)-2, Practical Accommodation to the
Application of Grant Date as Defined in SFAS 123(R)
(FSP 123(R)-2). FSP 123(R)-2 provides guidance on the
application of grant date as defined in SFAS 123(R). In
accordance with this standard a grant date of an award
exists if:
|
|
the award is a unilateral grant; and |
|
|
the key terms and conditions of the award are expected to be communicated to an
individual recipient within a relatively short time period from the date of approval |
The Company does not believe that this FSP will have
a material impact on the income statement or balance
sheet.
In May 2005, the FASB issued FASB Statement No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement No.
3 (SFAS 154). SFAS 154 replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements and changes the requirements for the
accounting for and reporting of a change in accounting
principle. This statement applies to all voluntary
changes in accounting principle. It also applies to
changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement
includes specific transition provisions, those
provisions should be followed. SFAS 154 is effective for
accounting changes and corrections of errors made in
fiscal years beginning after 15 December 2005 and
requires prospective application. The Company is
currently evaluating the impact of this new Standard.
202
419
Telstra Corporation Limited and controlled entities
Directors Declaration
This directors declaration is required by the
Corporations Act 2001 of Australia.
The directors of Telstra Corporation Limited have made
a resolution that declared:
(a) |
|
the financial statements and notes, set out on pages 2 to 202 of Telstra Corporation
Limited and the Telstra Group: |
|
(i) |
|
comply with the Accounting Standards and Corporations
Regulations; |
|
|
(ii) |
|
give a true and fair view of the financial position as at 30 June
2006 and performance, as represented by the results of the operations and cash flows, for
the year ended 30 June 2006; and |
|
|
(iii) |
|
in the directors opinion, have been made out in accordance
with the Corporations Act 2001. |
(b) |
|
they have received declarations as required by S.295A of the Corporations Act 2001; |
(c) |
|
at the date of this declaration, in the directors opinion, there are reasonable
grounds to believe that Telstra Corporation Limited will be able to pay its debts as and
when they become due and payable in Australia; and |
(d) |
|
at the date of this declaration there are reasonable grounds to believe that the
members of the extended closed group identified in note 29(a) to the full financial
statements, as parties to a Deed of Cross Guarantee, will be able to meet any obligations
or liabilities to which they are, or may become subject to, under the Deed of Cross
Guarantee described in note 29(a). |
In accordance with subsection 334(5) of the
Corporations Act 2001, the directors have elected to
adopt the following Australian accounting standards
early for the year ended 30 June 2006:
|
|
AASB 119: Employee Benefits (issued in December 2004); |
|
|
AASB 7: Financial Instruments: Disclosures; |
|
|
AASB 2005-3: Amendments to Australian Accounting Standards; and |
|
|
AASB 2005-10: Amendments to Australian Accounting Standards. |
For and on behalf of the board
|
|
|
|
|
|
Donald G McGauchie
|
|
Solomon D Trujillo |
Chairman
|
|
Chief Executive Officer and |
|
|
Executive Director |
|
|
|
Date: 10 August 2006 |
|
|
Melbourne, Australia |
|
|
203
420
Telstra Corporation Limited and controlled entities
Independent Audit Report to the Members of Telstra Corporation Limited
This report is included solely for the purpose of
incorporation in Telstra Corporation Limiteds Annual
Report 2006 as filed with the Australian Stock Exchange
and the Australian Securities and Investments
Commission.
Scope
The financial report and directors responsibility
The financial report comprises the income statement,
balance sheet, statement of cash flows, and statement of
recognised income and expense, accompanying notes to the
financial statements, and the directors declaration for
Telstra Corporation Limited (the Telstra Entity) and the
consolidated entity, for the year ended 30 June 2006.
The consolidated entity comprises both the Telstra
Entity and the entities it controlled during that year
(the Telstra Group).
The directors of the Telstra Entity are responsible for
preparing a financial report that gives a true and fair
view of the financial position and performance of the
Telstra Entity and the Telstra Group, and that complies
with Accounting Standards in Australia, in accordance
with the Corporations Act 2001. This includes
responsibility for the maintenance of adequate
accounting records and internal controls that are
designed to prevent and detect fraud and error, and for
the accounting policies and accounting estimates
inherent in the financial report.
Audit approach
I have conducted an independent audit of the financial
report in order to express an opinion on it to the
members of the Telstra Entity. My audit was conducted in
accordance with Australian National Audit Office
Auditing Standards, which incorporate the Australian
Auditing and Assurance Standards, in order to provide
reasonable assurance as to whether the financial report
is free of material misstatement. The nature of an audit
is influenced by factors such as the use of professional
judgement, selective testing, the inherent limitations
of internal control, and the availability of persuasive
rather than conclusive evidence. Therefore, an audit
cannot guarantee that all material misstatements have
been detected.
I performed procedures to assess whether in all material
respects the financial report presents fairly, in
accordance with the Corporations Act 2001, including
compliance with Accounting Standards in Australia, and
other mandatory financial reporting requirements in
Australia, a view that is consistent with my
understanding of the Telstra Entitys and the Telstra
Groups financial position, and of their performance as
represented by the results of their operations and cash
flows.
I formed my audit opinion on the basis of these
procedures, which included:
|
|
examining, on a test basis, information to provide evidence supporting the amounts
and disclosures in the financial report, and |
|
|
assessing the appropriateness of the accounting policies and disclosures used and the
reasonableness of significant accounting estimates made by the directors. |
I have also audited the explanation and quantification
of the major differences between Australian Accounting
Standards compared to generally accepted accounting
principles in United States of America, which is
presented in note 37 to the financial statements. I have
audited note 37 in order to form an opinion whether in
all material respects, it presents fairly, in accordance
with Accounting Standards in Australia and other
mandatory financial reporting requirements in Australia
and generally accepted accounting principles in the
United States of America, the major differences between
Australian Accounting Standards and generally accepted
accounting principles in the United States of America.
While I considered the effectiveness of managements
internal controls over financial reporting when
determining the nature and extent of the procedures, my
audit was not designed to provide assurance on internal
controls.
I performed procedures to assess whether the substance
of business transactions was accurately reflected in the
financial report. These and the other procedures did not
include consideration or judgment of the appropriateness
or reasonableness of the business plans or strategies
adopted by the directors and management of the Telstra
Entity.
Independence
I am independent of the Telstra Group, and have met the
independence requirements of Australian professional
ethical pronouncements and the Corporations Act 2001. I
have given to the directors of the Telstra Entity a
written Auditors Independence Declaration a copy of
which is included in the Directors Report. In addition
to the audit of the financial report, additional
services were undertaken as disclosed in the notes to
the financial statements. The provision of these
services has not impaired my independence.
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421
Telstra Corporation Limited and controlled entities
Independent Audit Report to the Members of Telstra Corporation Limited (continued)
Audit opinion
In my opinion, the financial report of the
Telstra Group is in accordance with:
(a) the Corporations Act 2001 including:
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giving a true and fair view of the financial position of the Telstra
Entity and the Telstra Group as at 30 June 2006 and of their performance for the
year ended on that date; and |
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(ii) |
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complying with Accounting Standards in Australia and the Corporations
Regulations 2001; and |
(b) |
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other mandatory professional reporting requirements in Australia. |
Further, in my opinion, note 37 to the financial
statements presents fairly the major differences between
Australian Accounting Standards and generally accepted
accounting principles in the United States of America.
Ian McPhee
Auditor-General
Date: 10 August 2006
Canberra, Australia
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422
SIGNATURE
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The registrant hereby certifies that it meets the requirements for filing on Form 20-F and that it
has duly caused and authorized the undersigned to sign this annual report on its behalf. |
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TELSTRA CORPORATION LIMITED |
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(Registrant)
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By:
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/s/ Douglas Gration
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Name:
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Douglas Gration |
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Title:
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Company Secretary |
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Dated: December 15, 2006
423
Item 19
Exhibit Index
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Telstra Corporation Limited Constitution
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Exhibit 1 |
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List of Subsidiaries
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Exhibit 8 |
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302 Certifications pursuant to Rule 13(a)-14(a)/Rule
15(d)-14(a) of the US Securities Exchange Act
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Exhibit 12 |
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906 Certifications pursuant to 18 U.S.C. Section 1350
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Exhibit 13 |
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Consent of Ernst & Young
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Exhibit 15 |
424