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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þ |
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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, 2005 |
OR
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o |
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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)
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New York Stock Exchange |
American Depositary Shares(2)
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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 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.
Yes þ No o
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 þ
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(1) |
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Not for trading but only in connection with the listing of the American Depositary Shares. |
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(2) |
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Evidenced by American Depositary Receipts, each American Depositary Share representing five
Ordinary Shares. |
Telstra Corporation Limited and controlled entities
Contents
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(1) |
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This document includes the disclosure requirements of the US Securities and Exchange
Commission (SEC) and will be lodged with the SEC as our annual report on Form 20-F for fiscal
2005. This column lists the item numbers of Form 20-F included in this report. |
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The following items are omitted: |
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Items 1, 2, 12 and 16D: omitted as not applicable. |
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Items 13 (Defaults, dividend arrearages and delinquencies): omitted as there have been no
defaults, arrearages or delinquencies. |
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Item 14 (Material modifications to the rights of security
holders and use of proceeds): omitted as there have been no material modifications. |
1
Telstra Corporation Limited and controlled entities
Contents
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(1) |
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This document includes the disclosure requirements of the US Securities and Exchange
Commission (SEC) and will be lodged with the SEC as our annual report on Form 20-F for fiscal
2005. This column lists the item numbers of Form 20-F included in this report. |
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The following Items are omitted: |
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Items 1, 2, 12 and 16D: omitted as not applicable. |
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Items 13 (Defaults, dividend arrearages and delinquencies): omitted as there have been no
defaults, arrearages or delinquencies. |
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Item 14 (Material modifications to the rights of security
holders and use of proceeds): omitted as there have been no material modifications. |
2
Telstra Corporation Limited and controlled entities
Summary Overview
General
We are Australias leading telecommunications and information services company, with one of the
best known brands in the country. We offer a full range of services and compete in all
telecommunications markets throughout Australia and 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; |
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a comprehensive range of data and Internet services (including through Telstra BigPond®, Australias
leading Internet service provider (ISP)); |
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management of business customers IT 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; and |
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cable distribution services for FOXTELs cable subscription television services. |
Our international business includes Hong Kong CSL Limited (CSL), one of Hong Kongs leading mobile
operators, TelstraClear Limited (TelstraClear), the second largest full service carrier in New
Zealand and Reach Ltd (REACH), a provider of international voice and satellite services in Asia.
One of our major strengths in providing integrated telecommunications services is our
extensive geographical coverage through both our fixed and mobile network infrastructure. This
network and systems infrastructure underpins the carriage and termination of the majority of
Australias domestic and international voice and data telephony traffic.
Our vision is to be Australias connection to the future. Our mission is to develop, design and
deliver great communications solutions to all our customers. Our goal is to grow the Company
profitably and provide attractive returns to our shareholders. We will achieve this by employing
terrific people who work together in an operationally excellent way to deliver innovative products
and outstanding service to our customers.
3
Telstra Corporation Limited and controlled entities
Key Information
Selected financial data
We recommend that the following information be read in conjunction with our financial
statements, the accompanying notes to our financial statements and other information included in
this annual report.
Our selected financial data is derived from our audited consolidated financial statements and
accompanying notes to our financial statements, which were prepared in accordance with Australian
GAAP. Where this differs in material respects from USGAAP, these differences are shown in note 30
to the financial statements.
Financial data
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Year ended 30 June |
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2005 |
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2005(1) |
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2004 |
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2003 |
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2002 |
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2001 |
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(in millions, except per share amounts) |
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A$ |
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US$ |
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A$ |
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A$ |
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A$ |
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A$ |
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Statement of Financial Performance Data |
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Amounts in accordance with Australian GAAP: |
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Revenue from ordinary activities(2) |
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22,760 |
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17,338 |
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21,335 |
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21,700 |
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20,928 |
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23,086 |
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Expenses from ordinary activities (excluding
depreciation, amortisation and borrowing
costs)(2)(3) |
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11,886 |
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9,054 |
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11,105 |
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12,446 |
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11,319 |
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13,149 |
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Depreciation and amortisation |
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3,766 |
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2,869 |
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3,615 |
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3,447 |
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3,267 |
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2,871 |
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Borrowing costs |
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839 |
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639 |
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767 |
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879 |
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896 |
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769 |
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Profit before income tax expense |
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6,269 |
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4,776 |
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5,848 |
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4,928 |
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5,446 |
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6,297 |
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Net profit |
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4,447 |
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3,388 |
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4,117 |
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3,394 |
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3,650 |
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4,061 |
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Net profit available to Telstra Entity
shareholders |
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4,447 |
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3,388 |
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4,118 |
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3,429 |
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3,661 |
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4,058 |
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Earnings per share(4) |
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0.36 |
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0.27 |
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0.32 |
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0.27 |
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0.29 |
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0.32 |
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Earnings per American depositary share
(ADS)(4) |
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1.80 |
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1.35 |
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1.60 |
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1.35 |
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1.45 |
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1.60 |
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Dividends paid (5) |
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4,131 |
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3,147 |
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3,186 |
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3,345 |
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2,831 |
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2,316 |
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Dividends declared for the fiscal year |
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4,978 |
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3,792 |
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3,284 |
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3,474 |
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2,830 |
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2,445 |
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Dividends declared per share |
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0.40 |
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0.30 |
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0.26 |
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0.27 |
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0.22 |
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0.19 |
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Dividends per ADS (6) |
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2.00 |
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1.50 |
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1.30 |
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1.35 |
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1.10 |
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0.95 |
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Amounts in accordance with USGAAP: |
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Operating revenue |
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22,167 |
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16,887 |
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20,737 |
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20,495 |
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20,196 |
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19,456 |
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Net income |
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4,172 |
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3,179 |
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1,381 |
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3,450 |
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3,898 |
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3,576 |
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Basic earnings per share(4) |
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0.34 |
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0.26 |
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0.11 |
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0.27 |
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0.31 |
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0.28 |
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Basic earnings per ADS (4) |
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1.70 |
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1.30 |
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0.55 |
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1.35 |
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1.55 |
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1.40 |
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Dividends per ADS (6) |
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US$ |
1.27 |
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US$ |
0.90 |
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US$ |
0.77 |
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US$ |
0.58 |
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US$ |
0.46 |
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Statement of Financial Position Data (at year
end) |
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Amounts in
accordance with Australian GAAP: |
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Total assets |
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36,310 |
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27,660 |
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34,993 |
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35,599 |
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38,219 |
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38,003 |
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Current interest-bearing liabilities |
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1,518 |
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1,156 |
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3,246 |
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1,323 |
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1,896 |
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2,604 |
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Non current interest-bearing liabilities |
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11,816 |
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9,001 |
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9,014 |
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11,232 |
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12,481 |
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11,915 |
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Contributed equity |
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5,793 |
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4,413 |
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6,073 |
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6,433 |
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6,433 |
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6,433 |
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Shareholders equity/net assets |
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14,881 |
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11,336 |
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15,361 |
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15,422 |
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14,106 |
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13,722 |
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4
Telstra Corporation Limited and controlled entities
Key Information
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Year ended 30 June |
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2005 |
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2005(1) |
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2004 |
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2003 |
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2002 |
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2001 |
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(in millions, except per share amounts) |
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A$ |
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US$ |
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A$ |
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A$ |
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A$ |
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A$ |
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Amounts in accordance with USGAAP: |
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Total assets |
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36,966 |
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28,160 |
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35,580 |
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40,422 |
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42,719 |
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42,561 |
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Current borrowings |
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1,524 |
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1,161 |
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3,246 |
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1,323 |
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1,866 |
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2,604 |
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Non current borrowings |
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11,641 |
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8,868 |
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9,095 |
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11,580 |
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12,372 |
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11,943 |
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Share captial |
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5,921 |
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4,511 |
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6,164 |
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6,568 |
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6,536 |
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6,455 |
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Shareholders equity/net assets |
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14,367 |
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10,945 |
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15,291 |
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18,025 |
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18,402 |
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17,795 |
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Revenue from ordinary activities comprises: |
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Sales revenue |
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22,161 |
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16,882 |
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20,737 |
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20,495 |
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20,196 |
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18,679 |
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Interest revenue |
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103 |
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78 |
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55 |
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84 |
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126 |
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103 |
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Revenue from sale of assets and investments |
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226 |
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172 |
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330 |
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859 |
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302 |
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3,303 |
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Dividend revenue |
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1 |
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1 |
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1 |
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16 |
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Miscellaneous revenue |
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270 |
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206 |
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212 |
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261 |
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303 |
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985 |
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22,760 |
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17,338 |
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21,335 |
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21,700 |
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20,928 |
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23,086 |
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(1) |
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Unless otherwise noted, all amounts have been translated at the noon buying rate
on 30 June 2005 of A$1.00 = US$0.7618. |
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(2) |
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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. |
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(3) |
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Includes our share of net (profit)/loss from joint venture entities and associated
entities. |
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(4) |
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Calculated based on the weighted average number of issued ordinary shares that were
outstanding during the fiscal year and, in the case of ADS calculations, based on a ratio of
five shares per ADS. As at 30 June 2005, we had issued ordinary shares of 12,443,074,357 after
completing a share buy-back during fiscal 2005 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. During fiscal 2001 to fiscal 2003, we had
12,866,600,200 issued ordinary shares at the end of each year. Basic earnings per share for
each year were the same as diluted earnings per share. |
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(5) |
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During fiscal 2005, we paid dividends of A$4,131 million, being the previous years final
dividend of A$1,642 million, the fiscal 2005 interim dividend of A$1,742 million and a special
dividend of A$747 million paid with the interim. |
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(6) |
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Calculated based on dividends paid during the year on a ratio of five shares per ADS. |
Exchange rate information
Our consolidated financial statements are shown in Australian dollars (A$) except where
another currency is specified. For convenience, this report has translations of certain A$ into US
dollars (US$) at an exchange rate as at 30 June 2005 of A$1.00 =
US$0.7618. These translations are
indicative only and do not mean that the A$ amounts could be converted to US$ at the rate
indicated.
The tables below show 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:
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at the latest practicable date before the publication of this annual report, being 30 September 2005:
A$1.00 = US$0.7643; |
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the high and low exchange rates for six months preceding the date of this annual report: |
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High |
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Low |
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April 2005 |
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0.7834 |
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0.7658 |
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May 2005 |
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0.7810 |
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0.7550 |
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June 2005 |
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0.7792 |
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0.7498 |
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July 2005 |
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0.7661 |
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0.7403 |
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August 2005 |
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0.7739 |
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0.7469 |
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September 2005 |
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0.7731 |
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0.7537 |
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5
Telstra Corporation Limited and controlled entities
Key Information
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for the five most recent fiscal years: |
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Year ended |
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30 June |
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At period end |
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Average
rate(1) |
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High |
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Low |
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2001 |
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0.5100 |
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0.5372 |
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0.5996 |
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0.4828 |
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2002 |
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0.5628 |
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0.5240 |
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0.5748 |
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0.4841 |
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2003 |
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0.6713 |
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0.5884 |
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0.6729 |
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0.5280 |
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2004 |
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0.6952 |
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0.7155 |
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0.7979 |
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0.6930 |
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2005 |
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0.7618 |
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0.7568 |
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0.7974 |
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0.6880 |
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(1) |
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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:
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the US$ equivalent of the A$ price of our shares on the Australian Stock Exchange (ASX).
Consequently, this is likely to affect the market price of our American depositary shares (ADS) in
the US; and |
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the US$ amounts received by holders of ADS on conversion by the Depositary of cash dividends
paid in A$ on the shares underlying the ADS. |
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. All of these could materially adversely affect our business, profits, assets,
liquidity and capital resources. They should be considered in connection with any forward-looking
statements in this annual report and the warning regarding forward-looking statements in this
section of this annual report.
Strategic review requested by the Board
Telstra is a fully integrated telecommunications company with complex business processes and
systems, which have been developed on the premise of certain strategic objectives and agendas.
On 1 July 2005 Solomon Trujillo commenced as our new CEO, replacing Ziggy Switkowski who had been
CEO for six years. Our new CEO is currently conducting a strategic review of our operations and
strategies under the Boards instructions. There is a risk that as a result of this strategic
review we may implement changes to our previous strategies requiring significant investment in new
technology and systems and the development of new products and services, which may affect our
financial position. For a fuller discussion see Operating and
Financial Review and Prospects
Overview of key factors affecting our business and financial performance.
The further privatisation of Telstra may impact our operations
Legislation to enable the further sale of the Governments remaining interest in us was enacted
in September 2005. In March 2005, the Government appointed external business advisers to undertake
a scoping study to assess the possibility of a sale and to make recommendations to the Government.
The objective of the scoping study was to produce a comprehensive report addressing commercial,
policy, regulatory, financial, industry, project management and other issues relevant to divesting
the Commonwealths remaining interest in us. The scoping study was completed in June 2005 and
advised that the preferred timing for any sale of the Commonwealths remaining interest in us is
late 2006. The Government has stated that it will make a further decision in early 2006 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 in us. Until
this decision is made by the Government and announced, it is unclear how this may affect our
capital structure, operations, organisational structure
6
Telstra Corporation Limited and controlled entities
Key Information
and corporate compliance obligations. Any sale by the Commonwealth of its remaining interest in
us may involve substantial use of management time and resources, as well as expenditure on external
advisers. For further information regarding our shareholders, see Major Shareholders and Related
Parties.
We are subject to extensive regulation that may negatively affect our business and
profitability by constraining our ability to pursue certain business opportunities and activities
affecting the returns we can generate on our assets.
We operate in a heavily regulated environment. Australia has generally applicable and
established competition law. There is further telecommunications-specific legislation that
regulates matters such as carrier and CSP obligations, industry specific competition regulation and
those of our services to which competitors can have access (and the terms and conditions under
which we provide this access). We are also subject to regulations that are specific to us and not
applicable to our competitors. For example, under the Telstra Corporation Act 1991 (Cwth) (Telstra
Act), the Communications Minister may direct us to act in particular ways that benefit the public
interest even though those actions may not be in our best commercial interests.
The current Commonwealth Government has stated that it is considering selling its remaining
interest in us. The sale legislation which forms part of a package of legislation which will give
effect to a number of regulatory reforms including the introduction of an Australian model of
operational separation that will apply to our internal structure was enacted in September 2005.
Under the legislation Telstra will be required to maintain separate retail, wholesale and key
network services business units. We will also be required to prepare and comply with an operational
separation plan drafted by Telstra and approved by the Minister, however the exact details are yet
to be determined. See risk factor regarding further privatisation of Telstra.
Because of these numerous factors, there is a risk that we 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, or defer
or abandon certain capital projects. 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. This may in turn adversely affect our financial performance.
For more information regarding our regulatory environment and our obligations and potential
liabilities under Australian and overseas regulations, see Competition and Regulation -
Regulation.
We are subject to new financial reporting obligations
The Australian Accounting Standards Board (AASB) has adopted International Financial Reporting
Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The
AASB has issued Australian equivalents to IFRS (A-IFRS), which will be reflected in the financial
statements for the first time for the half-year ending 31 December 2005 and the year ending 30 June
2006.
Under A-IFRS, we expect our net profit after tax to be more volatile compared with our existing
Australian reporting requirements. However, we expect that the adoption of A-IFRS will not affect
our net cash flow, our ability to borrow funds or our capacity to pay dividends to our
shareholders.
Refer to note 1.4 to our financial statements for further details regarding our adoption of A-IFRS.
7
Telstra Corporation Limited and controlled entities
Key Information
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 Government 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. 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. We expect that these trends will continue due to competitive
activity, regulation requiring reductions in call prices and regulatory facilitation of access to
our networks, products and services.
We expect competitors to continue to engage in vigorous price competition. We also expect that our
competitors will continue to market aggressively to those of our customers who purchase large
volumes of telecommunications services from us. The continued loss of market share could have an
adverse effect on our financial results in the market or markets in which this type of competition
occurs.
For more information on our competitive environment, see Competition and Regulation -
Competition.
If growth in mobiles and some of our other products continues to slow, our revenues may
not increase as rapidly as in the past and may even decrease, which in turn could adversely
affect our profitability
In recent years, our revenues have increased in a large part because of rapid usage growth in
new services such as mobile communications, data, Internet products as well as advertising and
directories services, whilst revenue for PSTN services declined. Indications are that some of these
product markets are not likely to continue expanding at the same rates, as in recent years, and may
decline. If these markets do not continue to expand, then in the absence of new products and
services our revenue growth may continue to slow just as some revenue growth declined in the second
half of fiscal 2005, which in turn could affect our consolidated financial position and results of
operations.
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.
As traditional telecommunications, data, Internet and media markets converge, it is possible that
further new competitors may enter the markets in which we have traditionally competed and we may
confront established competitors in new markets we seek to enter. This could result in reduced
market share, revenue and profitability in our traditional markets and could adversely affect our
ability to win market share and operate profitably in these new markets.
To address the 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. We have
invested substantial capital and other resources in the development and modernisation of our
networks and systems. However, we may be required to incur significant capital expenditures in
addition to those already planned in order to remain competitive.
8
Telstra Corporation Limited and controlled entities
Key Information
This will also require careful management of the existing asset base, as well as careful
consideration of the appropriate decisions on technology investment. There is a risk that our
ability to respond quickly to technological change may be hampered by the complexity of integrating
our existing systems with new technologies.
Rapid changes in telecommunications and IT could also have an impact on the useful lives of our
communications assets. We assess the appropriateness of the service lives of our communications
assets on an annual basis. This assessment includes a determination of when the assets may be
superseded technologically. We use an end date lifing methodology where we believe that
technologies will be replaced by a certain date. If our assessments of useful lives prove to be
incorrect, we may incur either higher or lower depreciation charges in the future or, in certain
circumstances, be required to write down these assets.
Our ability to develop, build and maintain products to satisfy market demand may not be
realised
In order to meet market demand, we constantly develop, build and maintain our products to
satisfy our customers needs. Due to the multiplicity of products in the market, there is a risk
that we may incorrectly predict future market demand for certain products which we develop and
maintain. There is a risk that the profitability of certain products may decline if customers
choose alternative products. For a detailed description of our products and services see
Information on the Company Products and services.
Innovations in technology may require us to transform our existing organisational structure,
cost structure, people skills, and infrastructure asset values
Our revenues, products and costs are changing as a result of lower technological barriers to
entry, margin pressures and increased regulatory scrutiny. The need to transform the company to new
operational models will become important for profitable growth. The company faces challenges in
transforming into an IP enabled environment and generating efficiencies and profitable growth.
There is a risk that this challenge may require the transformation of our organisational structure,
cost structure, people skills and ongoing asset values for existing infrastructure which could
negatively affect our operating cost structures.
Network and system failures and planning inaccuracies could result in reduced user traffic,
reduced revenue and harm to our reputation
Our technical infrastructure is vulnerable to damage or interruption from floods, wind storms,
fires, power loss, telecommunication failures, cable cuts, intentional wrongdoing and similar
events. The networks and systems that make up our infrastructure require regular maintenance and
upgrade that may cause disruption. The occurrence of a natural 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.
Periodically we also make assessments of our major customers capacity requirements especially
when we move them to new platforms to ensure that their capacity requirements will be satisfied.
There is a risk that our capacity planning may not accurately predict their actual requirements
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 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 revenue.
9
Telstra Corporation Limited and controlled entities
Key Information
Further technological innovations and cost pressures may cause us difficulty in retaining and
attracting skilled and experienced people
As technology evolves further we will need to attract, retain and up-skill our workforce to
keep abreast of technological innovations. The relevant skills may be in short supply worldwide
until the leading edge technology is fully established. There is a risk that an inability to
compete in the global labour market may hinder our ability to retain and attract skilled and
experienced people and hence to embrace new technology and retain our corporate knowledge. For more
information on our workforce, see Directors, Management and Employees.
Our ability to pursue our strategy with respect to some investments in which we share control
or do not own a controlling interest may be limited
Some of our domestic Australian and international activities are conducted through
subsidiaries, joint venture entities and other equity investments. Under the governing documents
for some of these entities, certain key matters such as the approval of business plans and
decisions as to 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.
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 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.
The value of our operations and investments may be adversely affected by political
and economic developments in Australia or other countries
Our business is dependent on general economic conditions in Australia, including levels of GDP,
interest rates and inflation. A significant deterioration in these conditions could adversely
affect our business and results of operations. We may also be adversely affected by developments in
other countries where we have made equity investments or entered into ventures such as Asia,
including Hong Kong, and New Zealand. Important features of the political, economic, regulatory and
legal systems in these countries are different from those in Australia. Other countries in which we
have interests may additionally have less predictable political, economic, regulatory and legal
environments. As a result, our international operations may be subject to numerous unique risks,
including:
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multiple and conflicting regulations regarding communications, use of data and control of Internet
access; |
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changes in regulatory requirements, import and export restrictions and tariffs; |
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changes in the relevant authorities interpretation of what conduct constitutes appropriate
compliance with regulatory requirements, and consequent changes in regulatory enforcement; |
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market changes and competitors initiatives such as bundling of services and deep discounting; |
·
10
Telstra Corporation Limited and controlled entities
Key Information
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the burden of complying with the laws of a variety of jurisdictions; |
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access to additional capital; |
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fluctuations in currency exchange rates and interest rates; |
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the introduction of new restrictions on repatriation of profits and permitted foreign ownership,
or changes to existing restrictions; |
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changes in political and economic stability; |
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potentially adverse tax consequences; and |
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inadequate protection for intellectual property rights and enforcement of those rights in certain
countries. |
These factors could materially and adversely affect our future revenues, operating results and
financial condition.
Fluctuations in currency exchange rates may adversely affect our revenues, operating
results and the translation value of our overseas investments
Because we purchase some materials and supplies with prices dependent on foreign currencies and
have substantial international investments denominated in foreign currencies, movements in the
value of the A$ against other currencies can adversely affect our performance including revenues,
operating results and balance sheet amounts. For the fiscal year ended 30 June 2005, approximately
7% of our revenues, 73% of our underlying borrowings and 8% of our total assets were denominated in
or dependant on currencies other than the A$ prior to hedging.
While the majority of our foreign currency exposures associated with our borrowings is fully hedged
to A$, we partially hedge exposures to purchases and translation risk associated with our core
business activities including investments, generally to around fifty percent of the value. We enter
into hedge transactions of these exposures principally to reduce the volatility of exchange rate
movements on our financial performance and results. Foreign currency exposure associated with the
purchase of materials and the supply of goods and services is also generally hedged to around fifty
per cent of the value, although in certain circumstances, depending on the size and nature of the
exposure, the level of hedging may vary.
Whilst we undertake risk management strategies to mitigate the adverse impact of foreign currency
exposures, there is a risk that currency movements could still negatively affect our operating
results or financial position.
More information on our exposure to risk from foreign currency exchange rate fluctuations is
provided in Quantitative and Qualitative Disclosures about Market Risk.
Cautionary
statement regarding forward-looking statements
Some of the information contained in this annual report may constitute 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 or other similar words. These statements
discuss future expectations concerning results of operations or of financial condition or provide
other forward-looking information. Our actual results, performance or achievements could be
significantly different from the results expressed in, or implied by, those forward-looking
statements. Important factors that could cause our actual results to differ materially from the
forward-looking statements we make in this annual report are set forth above under the caption
Risk factors and elsewhere in this annual report. Given these risks, uncertainties and other
factors, you
11
Telstra Corporation Limited and controlled entities
Key Information
should not place an undue reliance on any forward-looking statement, which speaks only as of
the date made.
12
Telstra Corporation Limited and controlled entities
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 Government to manage all domestic telephone, telegraph and postal services, and to
1946, when the Overseas Telecommunications Commission was established by the Commonwealth
Government to manage international telecommunications services. Since then, we have been
transformed and renamed several times as follows:
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the Australian Telecommunications Commission, trading as Telecom Australia, in July 1975; |
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the Australian Telecommunications Corporation, trading as Telecom Australia, in January 1989; |
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the Australian and Overseas Telecommunications Corporation Limited in February 1992; |
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Telstra Corporation Limited in April 1993, trading internationally as Telstra; and |
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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 Australian Stock Exchange (ASX) and on the
New Zealand Stock Exchange. ADSs, each representing five shares evidenced by American depositary
receipts (ADRs), have been issued by the Bank of New York as depositary (Depositary) and are listed
on the New York Stock Exchange (NYSE).
A further global offering by the Commonwealth of up to 16.6% of our issued shares was launched in
September 1999. The shares sold by the Commonwealth were also listed on the ASX, the New Zealand
Stock Exchange and the NYSE on 18 October 1999. As at 30 June 2005, the Commonwealth owned
approximately 51.8% of our issued shares.
However, legislation to enable the further sale of the Governments remaining interest in us was
enacted in September 2005. In March 2005, the Government appointed external business advisers to
undertake a scoping study to assess the possibility of a sale and to make recommendations to the
Government. The scoping study was completed in June 2005 and advised that the preferred timing for
any sale of the Commonwealths remaining interest in us is late 2006. The Government has stated
that it will make a further decision in early 2006 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 in us.
Organisational structure
Our organisational structure consists of strategic business units and corporate centre business
units as outlined below.
Strategic business units
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Telstra Consumer and Marketing is responsible for serving metropolitan consumer and small
business customers with our full range of products and services including fixed, wireless and data,
the overall management of our brands, advertising and sponsorships, consumer marketing and
implementing our product bundling initiatives. It also has responsibility for Telstras Consumer Call
Centres, licensed shops and dealer network. |
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Telstra Business and Government is responsible for providing innovative and leading edge
communications and ICT solutions to business and Government enterprises in Australia and New
Zealand. It also oversees our investment in TelstraClear. TelstraClear is New Zealands
second largest |
13
Telstra Corporation Limited and controlled entities
Information on the Company
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full service telecommunications company, providing innovative market leading products,
services and customer focus to the business, government, wholesale and residential sectors. |
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Telstra Country Wide® is responsible for sales, service and the management of customer
relationships in outer metropolitan, regional, rural and remote parts of Australia and the
development and delivery of innovative communications solutions to meet the needs of
customers living in these areas. |
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Telstra BigPond® is our retail Internet business and is responsible for providing
broadband and narrowband Internet services for consumer and small and medium business
customers, as well as value added services and content services (including BigPond® Movies,
BigPond® Music, BigPond® Sport, BigPond® Games). |
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Sensis is a wholly owned subsidiary which is responsible for our advertising,
directories and information services. |
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Telstra Media is responsible for our FOXTEL investment. |
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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
offers network design and construction solutions as well as operations and maintenance
services, including management and maintenance of integrated IP networks, mobility
solutions, fixed access, wireless access and transmission solutions. Recently, Telstra
Wholesale has commenced servicing Global Wholesale markets to satisfy growing Internet and
high bandwidth needs. |
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Telstra Asia manages our international interests in Asia, including CSL and our joint
venture REACH in Hong Kong. It also directs our offshore growth 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 in the region, particularly
China and South East Asia. |
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Infrastructure Services builds, operates and maintains our telecommunications
infrastructure and is our primary service delivery manager. It is responsible for the
provisioning, restoration, operation and management of our fixed, mobile, IP and data
networks, as well as the design and construction of network infrastructure. This includes
voice and data, product and application platforms and the online environment. Over the past
year Infrastructure Services capability has been augmented by the 3GIS joint-venture with
Hutchison and the integration of Telstra Business Systems (formerly Damovo (Australia)).
This business unit now forms part of the Chief Operations Officer (COO) group discussed
below. |
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Telstra Technology Innovation and Products is responsible for the management of all
technology, platform and product delivery. It develops and supports products and
technologies specified by our market facing business units. It also undertakes substantial
research and development to ensure that we remain at the forefront of technology in
Australia. This business unit now forms part of the COO group discussed below. |
14
Telstra Corporation Limited and controlled entities
Information on the Company
Corporate centre business units
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Finance & Administration is responsible for corporate policy and support functions including
finance, risk management and assurance, credit management, treasury, company secretary,
investor relations, mergers and acquisitions and other corporate services. It is also responsible for the
financial management of the majority of our fixed assets, including network assets. |
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Legal Services provides operational and strategic legal support and advice across the Company,
with lawyers from Legal Services integrated with the other strategic and corporate centre business
units. |
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Public Policy and Communications is responsible for the management of all our regulatory
issues, including liaison with regulatory bodies, the promotion and protection of our reputation
by facilitating effective engagement of internal and external stakeholders, including the media,
and the management of our interaction with Government at the Commonwealth and State level. |
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Human Relations is responsible for all our human relations matters including health, safety and
the environment, leadership development and training, and all workplace relations matters. |
In August 2005, we announced further changes to our organisational structure. We appointed a Chief
Operations Officer to oversee all functions associated with the operational aspects of the Company.
The new COO group comprises the Infrastructure Services and Telstra Technology, Innovation and
Products business units. It also includes corporate services, credit management, human relations,
the productivity and billing directorates, as well as the teams responsible for technology
solutions, billing and process improvement elsewhere in the Company. In addition, a new program
office was established and reports to the COO. Its mission is to identify and prioritise
opportunities for streamlining, implementing and co-ordinating all aspects of the companys
operations in order to deliver the best possible customer service, at the least cost.
Our organisational structure for financial reporting purposes has evolved over recent years to meet
our business needs and has included the following:
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in fiscal 2005, we restructured our pre-existing business unit known as Telstra
Broadband and Media.
This restructure primarily involved the establishment of Telstra Bigpond®, Telstra Media and Sensis
as separate business units. These business units are not reportable business segments in their own
right and they were included in the Other segment for financial reporting purposes; and |
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in fiscal 2004, we established Telstra Technology Innovation and Products which brought together
product development areas, network technologies, IT systems and Telstra Research
Laboratories.
Previously, network technologies, IT systems and Telstra Research Laboratories were not
managed
as a single business segment. The combination of these business areas has created a business
unit
that is of sufficient size to qualify as a segment in its own right for financial reporting
purposes. |
Those business units not impacted by the above restructure are substantially consistent to their
structure in prior years. See Operating and Financial Review and Prospects Segment information
for a discussion of the financial performance of our reportable segments during the last three
fiscal years. Note 5 to our financial statements also provides detailed financial information on
our business segments.
A list of our controlled entities is provided in note 23 to our financial statements. Our joint
venture entities and associated entities are listed in note 24 to our financial statements.
Marketing and customer service
From supplying Australias largest public and private sector organisations, to supporting
customers using our services at home, we are Australias leading fully-integrated
telecommunications company.
15
Telstra Corporation Limited and controlled entities
Information on the Company
We use sophisticated customer analytics to target services based on customers needs, giving us
a better understanding of their needs and improving relationships to gain a key competitive
advantage.
Residential customers and small businesses
We segment our residential customers based upon their usage and lifestyle patterns. We segment our
small business customers according to the type of business they operate and the way they interact
with their customers. This information on customers by segment is then used to tailor our marketing
campaigns.
We enable customers to interact with us online, through door-to-door sales representatives and
telephone sales channels and face to face via our Telstra Shops, Telstra licensed stores, Telstra
Business Shops and indirectly through approximately 4,000 retail outlets nationwide in conjunction
with our retail partners. This is now managed by our Branded and Indirect Channels Group which was
established on 1 July 2005.
Medium and Large businesses and Governments
We segment our customers based on communications spend, Telstra Share of Wallet, industry sector
and geographic proximity. The three key segments are Government, Industry (our largest corporate
customers) and Business (our medium and smaller business customers). We focus on delivering account
management and communications solutions to all these customers with the aim of improving our
customers financial performance and business efficiency.
Regional, rural and remote customers
Telstra Country Wide® 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. 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 600 customers, including more than 470 ISPs (about 77 of which
offer broadband digital subscriber line (DSL) services).
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 Pty Ltd (Sensis), our wholly owned subsidiary, is a leading Australian advertising, search
and information services provider. Sensis provides innovative advertising and local search
solutions to more than 420,000 customers nationally, including small and medium enterprises (SMEs),
large corporates and Governments through a network of print, online, voice, wireless and in-car
services.
Sensis manages three of Australias leading brands Yellow Pages®, White Pages® and Trading
Post, along with the CitySearch online city guide and the Whereis® mapping
and guidance site. Sensis also manages the Sensis® Search portfolio that encompasses the
sensis.com.au website and the Sensis® 1234 voice service.
Global business solutions
We have 16 offices around the world including Asia Pacific, Europe and USA supporting the global
telecommunications requirements of our multi-national customers and global service providers.
Together with our partners and alliances, we can offer our customers access to more than 230
countries
16
Telstra Corporation Limited and controlled entities
Information on the Company
and territories across the globe. We have an extensive portfolio of network solutions including
dedicated consulting, planning, project management, system integration and customer support seven
days a week.
17
Telstra Corporation Limited and controlled entities
Information on the Company
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 operating revenue by major product and service
category and as a percentage of total operating revenue for the last three fiscal years. See also
Operating and Financial Review and Prospects for a discussion of the revenue performance of our
products and services during the last three fiscal years.
Operating revenue by product and service category, including the percentage of total operating
revenue contributed by each product and service category
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Year ended 30 June |
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total |
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total |
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PSTN products |
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Basic access |
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3,362 |
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15 |
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|
|
3,237 |
|
|
|
15 |
|
|
|
3,083 |
|
|
|
14 |
|
Local calls |
|
|
1,284 |
|
|
|
6 |
|
|
|
1,504 |
|
|
|
7 |
|
|
|
1,567 |
|
|
|
7 |
|
PSTN value added services |
|
|
250 |
|
|
|
1 |
|
|
|
259 |
|
|
|
1 |
|
|
|
280 |
|
|
|
1 |
|
National long distance calls |
|
|
1,013 |
|
|
|
4 |
|
|
|
1,121 |
|
|
|
5 |
|
|
|
1,162 |
|
|
|
6 |
|
Fixed to mobile |
|
|
1,566 |
|
|
|
7 |
|
|
|
1,597 |
|
|
|
8 |
|
|
|
1,517 |
|
|
|
7 |
|
International direct |
|
|
234 |
|
|
|
1 |
|
|
|
266 |
|
|
|
1 |
|
|
|
307 |
|
|
|
2 |
|
|
|
|
|
|
|
7,709 |
|
|
|
34 |
|
|
|
7,984 |
|
|
|
37 |
|
|
|
7,916 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobiles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services |
|
|
3,760 |
|
|
|
17 |
|
|
|
3,470 |
|
|
|
16 |
|
|
|
3,239 |
|
|
|
15 |
|
Mobile handsets |
|
|
381 |
|
|
|
2 |
|
|
|
352 |
|
|
|
2 |
|
|
|
386 |
|
|
|
2 |
|
|
|
|
|
|
|
4,141 |
|
|
|
19 |
|
|
|
3,822 |
|
|
|
18 |
|
|
|
3,625 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and Internet services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP Solutions |
|
|
1,377 |
|
|
|
6 |
|
|
|
1,013 |
|
|
|
5 |
|
|
|
817 |
|
|
|
4 |
|
ISDN products |
|
|
890 |
|
|
|
4 |
|
|
|
927 |
|
|
|
4 |
|
|
|
942 |
|
|
|
4 |
|
Specialised data |
|
|
966 |
|
|
|
4 |
|
|
|
1,035 |
|
|
|
5 |
|
|
|
1,059 |
|
|
|
5 |
|
|
|
|
|
|
|
3,233 |
|
|
|
14 |
|
|
|
2,975 |
|
|
|
14 |
|
|
|
2,818 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and directories |
|
|
1,585 |
|
|
|
7 |
|
|
|
1,341 |
|
|
|
7 |
|
|
|
1,205 |
|
|
|
6 |
|
Intercarrier services |
|
|
1,146 |
|
|
|
5 |
|
|
|
1,103 |
|
|
|
5 |
|
|
|
1,136 |
|
|
|
5 |
|
Inbound calling products |
|
|
449 |
|
|
|
2 |
|
|
|
476 |
|
|
|
2 |
|
|
|
494 |
|
|
|
2 |
|
Solutions management |
|
|
931 |
|
|
|
4 |
|
|
|
508 |
|
|
|
2 |
|
|
|
501 |
|
|
|
2 |
|
Offshore controlled entities |
|
|
1,611 |
|
|
|
7 |
|
|
|
1,431 |
|
|
|
7 |
|
|
|
1,544 |
|
|
|
7 |
|
Other sales and services |
|
|
1,356 |
|
|
|
6 |
|
|
|
1,097 |
|
|
|
5 |
|
|
|
1,256 |
|
|
|
6 |
|
|
|
|
|
|
|
7,078 |
|
|
|
31 |
|
|
|
5,956 |
|
|
|
28 |
|
|
|
6,136 |
|
|
|
28 |
|
|
|
|
Total sales revenue |
|
|
22,161 |
|
|
|
98 |
|
|
|
20,737 |
|
|
|
97 |
|
|
|
20,495 |
|
|
|
95 |
|
|
|
|
Other
revenue(1)(excluding interest revenue) |
|
|
496 |
|
|
|
2 |
|
|
|
543 |
|
|
|
3 |
|
|
|
1,121 |
|
|
|
5 |
|
|
|
|
Total operating revenue (excluding interest revenue) . |
|
|
22,657 |
|
|
|
100 |
|
|
|
21,280 |
|
|
|
100 |
|
|
|
21,616 |
|
|
|
100 |
|
|
|
|
|
|
|
(1) |
|
Other revenue includes miscellaneous revenue and revenue from sale of assets and
investments. Interest revenue is included in net borrowing costs. |
18
Telstra Corporation Limited and controlled entities
Information on the Company
Sales revenues are derived from domestic and international sales as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
|
(in %) |
|
Australia |
|
|
92.3 |
|
|
|
93.1 |
|
|
|
92.5 |
|
Hong Kong |
|
|
3.5 |
|
|
|
3.5 |
|
|
|
4.4 |
|
New Zealand |
|
|
3.0 |
|
|
|
2.8 |
|
|
|
2.7 |
|
Other International |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
0.4 |
|
No individual country makes a material contribution to sales revenue other than Australia,
Hong Kong and New Zealand.
Basic Access
We provide Basic Access services to most homes and businesses in Australia and charge our
customers fees for new line connections and existing line reconnections. Our Basic Access service
includes installing, renting and maintaining connections between customers premises and our Public
Switched Telephone Network (PSTN) and providing basic voice, facsimile (including services marketed
under our FaxStream® brand name) and Internet services. Basic Access does not include enhanced
products like Integrated Services Digital Network (ISDN) access and Asymmetric Digital Subscriber
Line (ADSL) services.
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. 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 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 capped price basis. We also offer options that let customers choose packages to suit
individual needs and offer specials to increase use in low demand periods.
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.
19
Telstra Corporation Limited and controlled entities
Information on the Company
Mobiles
We continue to be the leading provider of mobile telecommunications services in Australia in terms
of mobile revenue and the number of customers. The geographical coverage area of our network is
also very broad. The mobile telecommunications market in Australia is characterised by a
significant degree of penetration and we estimate that market penetration as at 30 June 2005 was
approximately 90%.
We offer a full 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.
During the past year, we have continued to see growth in non-voice services in particular,
reflecting a steady change in mobile usage behaviour with new information and entertainment
content and connectivity services enjoying significant growth.
We have entered into a strategic partnership with NTT DoCoMo, Inc. under which we have launched
i-mode®
in Australia: i-mode® is a mobile Internet like service that provides subscribers with
access to rich content, email, games and other applications and services through their mobile
handsets and has enabled us to take a leading position in the development of a vibrant mobile
content industry in Australia.
In addition we are continuing to develop and expand our content services offering for non-i-mode®
compatible devices, ensuring that, independent of device choice, customers are still able to access
a range of compelling services.
We are also seeing increasing demand for Wireless Connectivity solutions across a range of
technologies including WiFi, 1xRTT and recently launched EVDO technologies delivering ever
improving price and performance for customers requiring broadband connectivity on the move.
During 2005, we will be offering our first services based on the 3GSM suite of technologies,
including WCDMA, delivering both improved performance and new service opportunities such as video
communication.
Our wholly-owned subsidiary CSL is also a leading provider of mobile services in Hong Kong. CSL has
launched a number of Asian and world first services this year which, together with CSLs history of
technical innovation, provides great learning opportunities for us and is anticipated to produce
opportunities in the Australian and international markets. For further information on CSL, see
Information on the Company -International investments.
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 133 countries and 290 networks.
Our 3GSM network, is compatible with our GSM network and will allow additional functionality such
as video calling and higher speed data access within its coverage boundary. Our 3GSM network
sharing arrangement with Hutchinson covers around 46% of the Australian population in a number of
mainland capital cities including Canberra.
CDMA digital service
Our CDMA network provides Australias largest cellular mobile phone coverage, spanning more
than 1.6 million square kilometres and covering more than 98% of the Australian population. CDMA
offers advantages over GSM in applications where users require wider service coverage and faster
data speed than
20
Telstra Corporation Limited and controlled entities
Information on the Company
GSM. Customers are increasingly adopting our CDMA network, which is one of the fastest growing
areas of our mobile business.
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 lridium Low Earth Orbit satellite system which provides global mobile
satellite phone coverage. We have a service partner agreement to sell the lridium
service.
3G wireless service
1XEVDO
In December 2002, we launched Australias first commercial mobile network based on CDMA 1X
(also known as 1xRTT), on our CDMA network. CDMA 1X is an evolution of CDMA technology supporting
high-speed packet-switched data. By the end of 2004 CDMA 1X, also known as Mobile High Speed, was
made available across the entire CDMA network footprint of over 1.6 million square km covering over
98% of the population and over 16% of the Australian landmass.
In November 2004 Telstra launched CDMA 1xEVDO within all Australian capital cities and selected
regional centres. 1xEVDO offers typical user speeds of 300-600kbps with maximum burst speeds of
2.4Mbps. By the end of August 2005 coverage will have been significantly expanded in Newcastle,
Wollongong and the greater Sydney Metropolitan area providing EVDO coverage to over 6 million
Australians. Further expansion is also underway for completion in late 2005 within Melbourne and
the towns of Bendigo and Seymour.
3GSM
We entered into a networksharing agreement with Hutchison 3G Australia (H3GA), a subsidiary of
Hutchison Telecommunications (Australia) Ltd, in August 2004 to establish a 50/50 enterprise to
jointly own and operate H3GAs existing 3G radio access network and fund future network
development. Under the agreement, the H3GA radio access network will become the core asset of the
joint enterprise. In return for the 50 per cent ownership of the asset, we will pay Hutchison A$450
million under a fixed payment schedule in four instalments. The first instalment was paid in 2005
and the balance is due to be paid by 1 July 2006.
We will launch our 3G (GSM/WCDMA) services to customers in 2005, utilising the entire H3GA network
footprint of more than 2,100 base stations covering Sydney, Melbourne, Brisbane, Adelaide, Canberra
and Perth. Telstra and Hutchison expect to significantly increase the size of the network over the
next three years, expanding into regional centres. The joint enterprise will open opportunities for
new revenues for us and H3GA, stimulate growth in 3G service uptake and provide significant savings
in 3G network construction capital expenditure and operating expenses such as site rental and
maintenance. Decisions on network development will be made and funded jointly. The joint enterprise
will utilise the existing spectrum holdings of both partners and will operate until the expiry of
those spectrum licences in 2017 or later.
Telstra and Hutchison will each continue to own separate core networks, application and service
platforms, and will conduct their retail 3G businesses independently and in competition with each
other.
Blackberry
The Blackberry is a wireless service that automatically delivers email to a handheld device via
our GSM network. This integrated device is capable of delivering telephony, email, company data,
Internet browsing, SMS, calendar and personal organiser features. In March 2005 we launched our
Blackberry on CDMA service.
21
Telstra Corporation Limited and controlled entities
Information on the Company
Messaging products
In 2005 we launched Fixed SMS which allows fixed phone users to send text messages from SMS
capable phones. We offer branded SMS capable cordless phones for sale in Telstra Shops and through
Telstra dealers.
We also launched Telstra Online Text Buddy® which allows users to send text messages from computer
desktops. At the same time we also launched Online SMS Desktop which is a business offering that
provides a fully integrated SMS enabled desktop with business customers existing email software.
Data and Internet services
We provide new generation data and Internet services including:
|
|
|
broadband and narrowband services for consumers and small and medium businesses through our
ISP, BigPond® |
|
|
|
|
business grade Internet solutions; |
|
|
|
|
IP Solutions; and |
|
|
|
|
domestic and international frame relay and ATM products. |
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.
In relation to Internet services, one of our key focuses is on broadband. Our goal to provide
broadband through our retail and wholesale channels to one million broadband SIOs by June 2005 was
achieved more than a year ahead of schedule.
We offer a range of Internet products and packages under our BigPond® brand. Telstra BigPond® Home
and Business offer dial-up modem and ISDN Internet services to residential and small and medium
business customers across Australia. Telstra BigPond® Broadband provides broadband Internet
services to consumer and small and medium business customers via hybrid fibre coaxial cable,
satellite, ADSL and from August 2005 wireless technologies.
Telstra Internet Direct also provides business customers with high quality 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
data services
We offer other data services, in some cases with business partners, including:
|
|
|
online games-based entertainment, sports information, video on demand and music services; |
|
|
|
|
collaboration services that provide audio, video and web-based conferencing (including the
Conferlink® product range); |
|
|
|
|
ecommerce solutions including e-trading, e-payments, EFTPOS/ATM network services and straight-
through processing services; |
|
|
|
|
Business DSL, that offers a broadband data service with symmetric data rates and business grade
service levels with competitive pricing and extensive network coverage; |
|
|
|
|
Online Customer Management Facility (OCMF) providing a self-service capability for customers to
manage user access to their IP networks; |
|
|
|
|
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; |
22
Telstra Corporation Limited and controlled entities
Information on the Company
|
|
|
Digital Video Network (DVN) initiative allowing our media customers to share content such as news
or sporting arena access over their DVN networks; |
|
|
|
|
IP Telephony, an open standard IP communications suite, which delivers hosted IP telephony and IP
applications to our corporate customers; and |
|
|
|
|
Managed Wide Area Networks services (WANs) including design, CPE sales and
installation, network
establishment and maintenance. |
Online services
In March 2000, we launched our online communications hub, telstra.com®. Since its creation,
telstra.com® has grown substantially, with more than 1.452 million users as at 30 June 2005
(excluding BigPond®).
telstra.com® links customers with services and features including:
|
|
|
information about our products and services; |
|
|
|
|
current Telstra corporate and investor relations information; |
|
|
|
|
online messaging applications such as web-based email and SMS; |
|
|
|
|
online product and service ordering and accounts viewing and payment; and |
|
|
|
|
a springboard to our ISP, BigPond®. |
Advertising and directories
We are a leading provider of advertising and search services through our advertising business and
wholly owned subsidiary, Sensis. Sensis delivers targeted, multi-channel solutions incorporating
local advertising, classified advertising through our Trading Post Group, multi-channel search and
a growing portfolio of business services to consumers, SMEs, corporations and Government. Although
a mature market, the Yellow Pages® products have continued to deliver solid growth. This has been
complemented by strong growth from White Pages®, non directories products and the successful
integration of acquisitions in Australia.
In fiscal 2005, Sensis launched Sensis® 1234 (a premium operator assisted voice service). In July
2004, Sensis launched a new Internet search engine sensis.com.au and shortly after the BidSmart®
Pay for Performance search engine marketing system.
The Sensis Search portfolio provides an opportunity for our advertising customers to reach a new
generation of search-orientated buyers:
|
|
|
Sensis® 1234 is a voice service which provides a growing depth of business content from
a vast array
of Yellow Pages® and White Pages® products; and |
|
|
|
|
sensis.com.au is a benchmark online search engine which delivers global web content
plus Australian
directories, lifestyle and mapping content fully blended into the results. |
The Business Services portfolio leverages our advertising and content management capabilities to
create specific solutions for SMEs, Government and the corporate sector. Business Services is
made up of three specific service portfolios Business Information Services (incorporating the
Sensis Direct Access contact data solution), Location and Navigation now incorporating Universal
Publishers, (which delivers detailed street directory and geo-mapping functionality via a range
of electronic channels) and our shareholding in Invizage Pty Ltd.
Sensis acquired 100% of the share capital of Universal Publishers Pty Ltd (Universal Publishers) on
20 December, 2004. Universal Publishers is a publisher of mapping and travel related products
including street directories, guides, maps and road atlases through the Gregorys and UBD brands.
23
Telstra Corporation Limited and controlled entities
Information on the Company
In June 2005, Sensis and Morgan and Banks Investments announced the launch of LinkMe®, an
innovative online career networking site. LinkMe^ provides Sensis with an exciting, low risk
opportunity to extend the multi-channel Advertising Network by entering a new classified vertical
in a market-changing way. LinkMe® is Sensis first foray into the online employment market.
Wholesale services (including intercarrier services)
In addition to providing products for resale, we provide a range of other products specifically
tailored for wholesale customers. These include:
|
|
|
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; |
|
|
|
|
domestic and international transmission services; |
|
|
|
|
broadband, IP backbone and traditional data services; |
|
|
|
|
mobile telecommunications services; and |
|
|
|
|
network design, construction, operations and maintenance services. |
Both GSM and CDMA mobile products and services are offered to our wholesale customers.
We also manage and deliver a wide 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 efficient web based business to
business services to our customers.
We categorise revenue from the products and services we sell to wholesale customers according to
the nature of the product or service. For example, we categorise operating revenue from
interconnect charges as intercarrier services revenue. On the other hand, we categorise operating
revenue from other resale services according to the product or service resold. For instance, basic
access and local call revenue is recognised against basic access and local call products.
Inbound calling products
We offer inbound call services including:
|
|
|
Telstra Freecall® 1800, a reverse-charge call service used widely by small and large businesses to
extend market reach and attract sales; |
|
|
|
|
Priority® 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; |
|
|
|
|
Priority® 1300 services, a shared-cost service offering a 10 digit number, similar to
the Priority® One3
service, where a short-number format is not required; |
|
|
|
|
Contact centre enablement services, including network-based speech recognition and interactive
voice response solutions, computer telephony integration, call routing services and speech
recognition; and |
|
|
|
|
InfoCall® 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. |
·
24
Telstra Corporation Limited and controlled entities
Information on the Company
Solutions management
KAZ, our wholly owned subsidiary, currently operates as a standalone business servicing Government
and large and medium sized business customers in Australian and Asia Pacific markets. KAZ combines
with Telstra to service our business customers IT needs, differentiating Telstra as the only
communication company in Australia capable of providing end-to-end information and communications
technology (ICT) services from within our own group of companies.
The business has been repositioned to focus on the ICT services market with Telstra providing the
strong communications expertise, and KAZ to provide the IT expertise. We provide all or part of a
business customers IT and communications solutions and services covering:
|
|
|
managed voice, data and mobility services: network based voice and data switching
products including IP-based networks and IP Telephony as well as fleet management of mobile phone
networks and new wireless based technologies; |
|
|
|
|
managed IT services: managed customer infrastructure (eg desktop and end user devices), and a
range of solutions such as managed storage, security services, hosting and application development
and support; |
|
|
|
|
IT outsourcing: incorporating a range of the above solutions and managing on behalf of the customer
either on the customers or our premises; |
|
|
|
|
business process outsourcing in areas such as superannuation administration, insurance policy
processing and the automotive community; and |
|
|
|
|
solutions consulting, focusing on IP transformation, wireless enterprise and security. |
Other sales and services
The principal components of operating revenue we record in other sales and services relate to
payphones, information and connection services, external construction, customer premises equipment,
bundling subscription television and customnet and spectrum.
We are the leading provider of payphones in Australia. As at 30 June 2005, we operated
approximately 32,500 public payphones. Our Universal Service Obligation requires us to make
payphone services reasonably accessible throughout Australia including in non-metropolitan and
rural areas. Approximately half of our public payphones are in these areas.
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 phone and phone features easier to use. In fiscal 2005 we improved our CPE
offerings to the medium business market with the acquisition of Damovo (Australia) which now trades
as Telstra Business Systems.
We provide information and connection services through a number of call centres in Australia and
through the White Pages® OnLine and Yellow Pages® OnLine sites. In fiscal 2005, we responded to
approximately 200 million calls through our call centres. We also provide voice recognition
technology to allow the automation of approximately 2,500 of the most frequently requested
business listings.
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 made programming commitments to
FOXTEL.
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Telstra Corporation Limited and controlled entities
Information on the Company
FOXTEL continues to be Australias leading provider of subscription television services, with
approximately 1.2 million subscribers (including subscribers resold by us and those receiving
FOXTEL programming through Optus television and TransAct). FOXTEL markets its services to more
than 5 million homes, split reasonably equally between those homes passed by our hybrid fibre
co-axial cable (HFC) and those marketable to via satellite distribution.
FOXTEL provides FOXTEL Digital^, offering customers access to a vastly expanded channel line-up of
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^
(near video on demand).
In March 2005, FOXTEL launched the FOXTEL iQ^, a personal digital recorder (PDR) designed to change
the way viewers watch television. The PDR is a next generation set top unit incorporating a 160Gb
hard drive which enables subscribers to record two programs simultaneously, even while watching a
previously recorded program.
In May 2005 FOXTEL announced an extension to its content wholesale relationship with Optus to
facilitate Optus offering its subscribers access to the FOXTEL Digital^ suite of channels over the
Optus HFC cable. In addition, FOXTEL announced an agency relationship with Optus for the
distribution of FOXTEL in non-Optus HFC areas within the FOXTEL distribution area.
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.
A discussion of competition in the subscription television services market is contained in
Competition and Regulation Subscription television.
International investments
Our major international investments include:
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CSL, our wholly owned subsidiary which is one of Hong Kongs leading mobile operators
with around 1.3 million customers, equating to approximately 32% of the value of Hong
Kongs mobile market. CSL focuses on attracting and retaining high value customers and
through its mobile brands, 1010 and One2Free, CSL continues to offer its customers a highly
targeted range of innovative mobile services; |
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Telstra Corporation Limited and controlled entities
Information on the Company
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TelstraClear, our wholly owned subsidiary, is the second largest full service carrier in New Zealand.
Telstraclear provides innovative voice, data, Internet, mobile resale, managed services and
cable television products and services to the New Zealand market. New Zealand is a strategically
important market for our trans-Tasman customers and this investment enables these important
customers to receive many of the same end-to-end services that we provide in a seamless way;
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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 ten carriers of
international voice traffic. REACH operates and maintains voice and data switching platforms,
satellite earth stations and a network of over fifty submarine cable systems, together with
associated landing rights, backhaul, operating licences and bilateral agreements in most
international markets. |
In April 2005 Telstra and PCCW, announced a number of improvements to the REACH operating model:
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allocation of dedicated components of REACHs international cable capacity to Telstra and PCCW; |
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Telstra and PCCW each paid REACH US$157 million. In Telstras case this was settled by way of a
discharge of certain REACH liabilities under the Capacity Prepayment Agreement. Also, Telstra
and PCCW each committed to fund a half share of REACHs committed capital expenditure (up to
2022), being about US$106 million each; |
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REACH will manage allocated capacity on behalf of Telstra and PCCW and provide Telstra
and PCCW with outsourcing and other services including data and voice; |
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Telstra and PCCW will each pay REACH an outsourcing fee on a cost plus mark up basis,
whilst satellite services will be purchased at market rates; |
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REACH will continue its profitable third party voice and satellite business; and |
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Telstra may fund and acquire further required cable capacity for management by REACH as part of
the outsourcing arrangements. |
We also have a number of smaller offshore investments and joint ventures, which include:
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a 35% equity interest in the satellite communications operator, Xantic B.V. (formerly Station 12 B.V.)
that is headquartered in the Netherlands; and |
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a 39.9% equity interest in Australia-Japan Cable Holdings Limited, a network cable provider
headquartered in Bermuda. |
Capital Expenditures and Divestitures
For a discussion of the significant capital expenditures and divestitures we made in the
preceding three-year period, refer to Operating and Financial Review and Prospects Liquidity and
capital resources.
Networks and systems
One of our major strengths in providing integrated telecommunications services is our extensive
geographical coverage through both our fixed and mobile network infrastructure. This network and
systems infrastructure underpin the carriage and termination of the majority of Australias
domestic and international voice and data telephony traffic.
This large, diverse network is monitored and supported through a largely centralised global
operations centre, which has a fully tested recovery plan that enables network management to be
transferred to an alternate location in the event of an unforeseen disaster. Ongoing substantial
investment of both capital
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Telstra Corporation Limited and controlled entities
Information on the Company
and resources is required to ensure that we maintain this leading position from both a
technology and industry position.
Research and development
Telstra reviews its project expenditure annually to determine its actual spend on research and
development. Our reviews show that we had an estimated spend of A$148 million in fiscal 2005 on
research and development. The expenditure was determined to be A$159 million in fiscal 2004 and
A$240 million in fiscal 2003. For a detailed discussion of our research and development, refer to
Operating and Financial Review and Prospects Research and development.
Innovation Centres
lnnovation@Telstra was launched in October 2004, with the opening of Innovation Centres in North
Ryde, Sydney and Melbournes Docklands. Since then, thousands of people have visited the centres,
gaining hands-on experience with Telstra products and services to make our business and home lives
easier in the 21st Century. The centres are also used as a venue to fast-track innovation projects
for Telstra ensuring that we develop customer-focussed solutions, which get to market in a speedy
manner.
In addition to customer visits, the Innovation Centres have also delivered a number of key projects
via the Innovation PODs - a dedicated project floor focussing on accelerating solutions to market.
Some of these projects include:
The Digital Home: The strategy for home-based IP services delivering communication, entertainment,
information and storage as well as security and automation services.
Community Information Warning System: A proactive community information, communication and
warning system to save lives, reduce losses and speed recovery in the event of natural
disasters, accidents or acts of terrorism.
Remote Working: A comprehensive solution for remote access to corporate customers private
data networks.
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 and more than 2,300 digital radio systems. Our
major transmission routes incorporate Synchronous Digital Hierarchy (SDH) technology.
Throughout the year, work has continued on extending the benefits of self-healing SDH
transmission out to the fringes of the network in metropolitan and regional areas. In total,
approximately 20,000 additional customers now benefit directly from improved transmission
survivability.
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 owns satellite earth stations in Australia and
Hong Kong, including the largest satellite teleport in Asia.
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Public Switched Telephone Network (PSTN)
Australias geographic characteristics provide unique challenges for the provision of nationwide
digital PSTN coverage. These challenges are being overcome by the innovative application of a range
of modern technologies. Over 300 major digital switching nodes are interconnected by
state-of-the-art transmission systems and handle traffic from customers connected to more than
10,000 access sites. A combination of copper, fibre optic, radio and satellite technologies is used
to achieve end-to-end connections. Access to the world is achieved through REACHs international
gateway switches and our intelligent network platforms provide advanced services including
toll-free and calling card products.
We have deployed CDMA-based wireless local loop technology in regional Australia as part of our
contract with the Commonwealth Government to improve communications in extended zones. Further
deployment of this technology is planned as part of the recovery of older radio concentrator
technology. It is also planned for selected use to provide telephony access for customers to whom
traditional copper pair access is inefficient.
The PSTN supports voice, facsimile, Internet and data products. Total call minutes handled by the
PSTN is now showing a slight decline as data traffic moves to broadband access. The combination of
new broadband access services and growth in dial-up Internet usage, messaging services and mobile
telephony is leading to convergence of voice and data in the longer term. This will provide a solid
base for seamless transition to future convergent service provision.
Our network supports a range of switch features which facilitate voice calls. These include
products like Homeline® 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 also supports many operator assisted service products such as directory assistance
and CallConnect. We are seeking to enhance these services by automating them with voice
recognition technology.
Fibre to the Premises (FTTP)
FTTP is a next-generation access infrastructure technology that can deliver telephony, broadband
data, video and digital subscription television services, to customer premises on an optical fibre
platform. Fibre to the Premises is expected to play a pivotal role in Telstras customer access
network, along with copper, wireless and satellite technologies.
In June 2004, Telstra commenced an initial pilot of FTTP in two Queensland sites. The FTTP
pilot is now successfully providing services to a number of residential homes, and continues
to provide Telstra with insight into the ongoing effectiveness of FTTP as an access technology
of choice.
We have also been trialling Voice over Broadband (VoBB). This solution will be provided as a second
line solution offering a range of features and functionality for users with a broadband connection.
During fiscal 2005, a VoBB network trial was completed with 150 of our employees in Melbourne.
Integrated Services Digital Network (ISDN)
ISDN is a flexible, switched digital network. The integrated nature of this network refers to the
fact that ISDN can support many applications at the same time while using a single access point to
the network. The ISDN network supports traditional telephony as well as various data applications
such as videoconferencing, Internet access and EFTPOS.
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Telstra Corporation Limited and controlled entities
Information on the Company
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 advanced services across fixed,
mobile and messaging services including:
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inbound services such as Telstra Freecall® 1800, Priority® One3, Priority® 1300 and InfoCall® 190; |
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Telstra prepaid mobile, Pre-paid Plus; |
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calling cards (Telecard®); |
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prepaid cards (Phoneaway®, Say Gday®); |
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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.
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 730 switches linked to access multiplexers at more than 120 sites
around Australia. The SDN provides:
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public packet switching data services suitable for a wide range of data applications; |
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site-to-site and multi-site WAN connectivity; |
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national coverage for frame-relay data services from 64kbps up to 45Mbps (subject to available
transmission capacity); |
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national coverage for ATM data services, supporting access rates from 2Mbps to 622Mbps (subject
to available transmission capacity); and |
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national coverage for Business DSL data services, supporting access rates from 64kbps to 2Mbps
(subject to available transmission capacity). |
SDN is also 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 a key 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.
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Telstra Corporation Limited and controlled entities
Information on the Company
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. DDN also supports the declared
wholesale product of Data Access Radial, which supplies the access for carriers to enable their
customers to connect to their own retail offerings.
Internet Protocol (IP) networks
We operate a national Internet backbone network. It is a fully IP-routed network, which provides
the backbone for all of our Telstra Internet Direct services and all Telstra BigPond® Internet
offerings, as well as Telstra Wholesales Internet products. Our Internet backbone network connects
to the rest of the Internet via the international links provided by REACH and connects domestically
via peering links with peer ISPs.
We operate two major Internet data centres, one in Melbourne and one in Sydney. The computer server
infrastructure in these centres controls access to the network and provides applications including
email, news, chat, web hosting and games. The server infrastructure supports real time activation
of customers and also provides billing functionality, service monitoring and surveillance. Caching
servers are deployed to store and serve often requested Internet content so that customers receive
faster web page delivery and we are able to contain our Internet traffic costs.
We have one platform that supports wholesale and retail Internet products. This has been used to
provide a Telstra BigPond® Home product with universal local call access across Australia. Telstra
BigPond® Home is now available throughout Australia with dial-up access at the cost of a local
call.
We deliver our IP Metropolitan Area Network (MAN) and Telstra Ethernet MAN services through an MPLS
network that has ethernet switches located in customer buildings and interconnected by a high-speed
network. IP MAN plus IP WAN together form the network to deploy our IP Solutions products. We are
offering a Government IP solution which provides a fibre based IP network for use by Government
agencies in metropolitan and regional locations, as well as accelerating the provision of fibre
based wideband services by non-Government customers.
We have also extended the core, carrier grade IP network known as the Routed Data Network (RDN) to
sites in metropolitan and some regional areas. The RDN supports the delivery of retail and
wholesale ethernet based products nationally.
Broadband network
We deliver broadband capability through a variety of technologies using cable modem, ADSL and
satellite services. Our HFC broadband network passes approximately 2.7 million homes and
approximately 73% of the network is underground. The optic fibre component of this broadband
network consists of two forward and one return path fibres, with the co-axial component serving an
average of 900 customers each.
The cable network is designed to provide two-way transmission for interactive services and
high-speed data transfer up to 10Mbps with an average speed of 6Mbps typical. ADSL is a broadband
access technology using existing PSTN access infrastructure capable of speeds up to 7.8Mbps
depending on distance from exchange and line condition. Current products offer speeds up to
1.5Mbps downstream and up to 256kbps upstream or 512kbps both ways. Although not yet commercially
deployed, ADSL2 + capability has been introduced into 270 exchanges and offers up to 24Mbps
downstream and 1Mbps upstream.
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We have three fast broadband service options available to customers in ADSL enabled areas in Australia:
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an Internet service for residential customers that allows customers to use the Internet through their
existing telephone lines without tying up the phone line or needing an additional line; |
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an Internet service for companies to provide their staff, offices or branches with remote access
capability to the corporate network; and |
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a service for ISPs to provide their customers with ADSL Internet access. |
Since August 2000, we have been rolling out our broadband services and we achieved our target
coverage for fiscal 2005 of approximately 1,700 ADSL enabled exchanges.
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 or ADSL.
We are a registered provider under the Australian Governments Higher Bandwidth Incentive Scheme
(HiBIS). This scheme aims to increase the availability of high bandwidth services throughout rural
and regional Australia at prices that are broadly comparable with metropolitan areas. We have used
the incentive to reduce the threshold levels on its ADSL Demand Register, making it easier for
smaller communities to trigger ADSL investment. Between the period April 2004 when the scheme
commenced, and June 2005, we provided ADSL to almost 600 rural and regional exchanges with the
assistance of HiBIS funds. For more remote customers, we used the HiBIS subsidy to reduce the
prices of BigPond® 2-way Satellite and Broadband Regional Connect, a combination of an ISDN service
and a 1-way satellite uplink.
Mobile telecommunications networks
We own and operate a number of networks for the provision of mobile telephone services that
together cover more than 98% of the Australian population. We serve more than 8 million SIOs with
these networks. Through CSL we also operate mobile services in Hong Kong.
In Australia, our GSM digital network operates in the 900MHz and 1800MHz spectrum bands. As at 30
June 2005, our GSM digital network in Australia had approximately 4,000 base stations nationally.
We are continuing to expand the capacity and coverage of the GSM network, with more than 280 new
base stations established in fiscal 2005.
The GPRS service is available across our GSM network and provides always on data access to
WAP and Internet information services, as well as access to corporate customers LANs and
intranets.
Our 3GSM service operates in the 2100Mhz spectrum band. At launch during 2005 our 3GSM consisted
of approximately 2,100 base stations nationally. Video and higher speed always on packet data
access is available across our 3GSM network footprint.
Our second digital mobile telecommunications network in Australia is based on CDMA technology, with
coverage more than double the area of the GSM network. We are predominantly developing new regional
areas of coverage in this technology. It operates in the 800MHz band that our closed analogue
network used previously. As at 30 June 2005, our CDMA digital network in Australia had
approximately 3,000 base stations nationally. We are continuing to expand the capacity and coverage
of the CDMA network, with more than 230 new base stations established in fiscal 2005.
Enhancement of our CDMA network with 1xRTT commenced in fiscal 2003 and focussed on all capital
cities. The final stage of the transition to 1xRTT began in February 2004 and has now been
completed. A limited rollout of the next generation mobile data utilising EVDO has been completed
in all capital cities and some regional centres. Further expansion of this technology is currently
being built in Sydney and other areas are being scoped.
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Telstra Corporation Limited and controlled entities
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Electromagnetic energy (EME)
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. The 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.
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 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 ensure the health and safety of the community and our employees.
Telstra Research Laboratories ensure that we have accurate and scientifically substantiated
information and contribute to the national and international EME research program. In the last 11
years we have invested more than A$10 million in this program.
An area of industry leadership is the development of base station EME software that calculates
environmental emission levels in a matter of seconds. Our widely acclaimed RF-MAP 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 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.
Australian carriers, through the Mobile Carriers Forum, are developing a site management process to
help ensure compliance with the Australian Communications Authority (ACA) electromagnetic radiation
framework and the Australian Communications Industry Forum (ACIF) code of practice for radio
communications infrastructure deployment. We developed tools such as national site archive and
National Antenna rooftop database which are being adopted by the Mobiles Carrier Forum.
Information processes and systems
We have a range of information processes and systems to support our delivery of products and
services. We intend to increase the benefits of our offerings to customers by:
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introducing new products to the market faster; |
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further integrating our customer access technology and systems across channels; and |
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reducing our overall IT costs. |
We have recently invested and will continue to invest in many new systems and processes in the
following seven principal areas:
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sales and marketing; |
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customer ordering and provisioning; |
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online access for customers; |
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billing and credit management; |
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service assurance; |
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workforce management; and |
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back office processes. |
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Telstra Corporation Limited and controlled entities
Information on the Company
We are focussed on rationalising and simplifying the delivery processes across Telstra.
Together with our IT service providers, we will focus on driving efficiency and adaptability across
our delivery systems.
In April 2005 we established Business Process Owners who have company wide accountability for their
respective processes. We aim to continue significant improvements in our processes which will
contribute to reduced cycle times, increased revenues and importantly, improved customer
experience.
Information technology
In response to increased competitive pressures in Australia and internationally, we source in the
global market innovative, world-class solutions for the provision of application development and
maintenance services. This includes the development of new software programs and the enhancement
and ongoing maintenance of existing software programs.
We are partnering with world class IT providers to deliver:
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improved quality to a globally competitive standard; |
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improved cycle times for new products and services; |
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improved efficiency and lower prices; and |
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access to new technologies. |
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. We own 5,067 freehold sites and occupy 8,305 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 to those inspections, maintenance and installation
activities that will have a low impact on the surrounding environment. 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 construction activities are to occur on
land where native title exists, the native title claimants and holders may also need to be
involved. Obtaining these consents may cause delay to the commencement of construction.
In some circumstances where we rely on the land access powers and immunities conferred by the
Telecommunications Act to carry out construction activities or where native title exists,
compensation may be claimed against us.
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Information on the Company
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
minimise 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. Each decommissioned plant is screened for hazardous substances such as
polychlorinatedbiphenyIs (PCBs) and chloroflurocarbons (CFCs) prior to recycling and hazardous
materials are disposed of in compliance with regulatory requirements. Sites to be divested undergo
environmental assessment and, if appropriate, remediation, prior to sale.
There are no current significant environmental issues that impede the utilisation or integrity of
our network operation.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
Competition
Overview
Competition in Australias telecommunications market began in 1989 when competitors began to
provide a limited number of services. In 1991, competition increased with the decision to establish
a carrier duopoly and open resale of Telstras services, particularly national long distance and
international telephone services. Competition intensified in 1992 when Optus, now SingTel Optus Pty
Limited (Optus), won the second carrier licence enabling it to offer unrestricted local, national
long distance, analogue mobile and international telephone services. We started offering digital
mobile telephone services over our own network in 1993. In the same year, Optus and Vodafone
Holdings (Australia) Pty Limited (Vodafone) began offering those services over their own networks.
On 1 July 1997, the Commonwealth Government introduced the current regulatory regime which provides
for open competition in Australias telecommunications industry. Since then, there has been a
significant increase in the number of CSPs that have entered the Australian telecommunications
market. As at 30 June 2005, we supplied services to more than 600 wholesale customers that compete
in the retail telecommunications market.
From a position of originally being the sole provider of telecommunications products and services
in Australia, inevitably, competition has reduced our market share. However, competition has also
contributed to growth in the overall telecommunication services market. We expect both these trends
to continue but at lower rates.
As at 30 June 2005, we estimate our retail market shares in the products and services we provide to
be as follows: basic access services: 73%; local calls: 73%; domestic long distance minutes: 62%;
international long distance minutes: 51%; mobile services: 45%; Internet services (narrowband):
28%; Internet services (broadband): 41%; data revenue: 62% (excluding ISDN but including some
wholesale revenues); subscription television services (FOXTEL): 60%; and Sensis print advertising
expenditure (main media): 13%.
We are permitted to compete in all telecommunications markets throughout Australia. Our competitors
are also permitted to compete in all of these markets. As convergence becomes more prominent, our
competitors may seek to take advantage of their position in one market to enter or improve their
position in another market.
Access and local calls
We currently face infrastructure competition in basic access and local call services in the central
business districts of the major capital cities and major metropolitan areas. Many
of these infrastructure competitors have access networks which compete directly with us for both
business and residential customers. Our main facilities-based competitors are Optus (fixed and
mobile), Vodafone (mobile), AAPT Limited (AAPT) (fixed) and Primus Telecommunications (Australia)
Pty Limited (Primus) (fixed). These carriers and others have established dedicated connections with
large business customers, mainly in central business districts. Dedicated connections allow a
competitor to direct a business telecommunications traffic to their own networks including local,
long distance and international calls and data transmission. The availability of local number
portability has contributed to the development of facilities-based competition in these markets. We
also face increasing competition from fixed to mobile and Voice over Internet Protocol (VoIP)
calls.
36
Telstra Corporation Limited and controlled entities
Competition and Regulation
National Long Distance and International Telephone Services
Competition has significantly eroded our market share for national long distance and
international telephone services. Our competitors usually own their own switches and acquire the
PSTN originating and terminating access from Telstra. To provide the national long distance and
international telephone services, they also need to own or lease transmission capacity.
We must provide our customers with call-by-call selection or override dialling and default choice
or preselection in respect of national long distance, international calls and fixed-to-mobile
calls, all of which further assist other CSPs to compete. See
Competition and Regulation
Regulation Preselection and override codes for a discussion of regulatory requirements for
preselection.
The PSTN originating and terminating access and the wholesale transmission capacity services are
important for facilities-based provision of national long distance and international telephony
services. The charges of these wholesale products are input costs of the competitors and therefore
have an impact on their retail offerings.
The regulatory processes provide a framework to determine the price terms and conditions of these
services. Competition is strong in the wholesale provision of transmission services. The price is
falling as new competitors enter the wholesale market. The ACCC will review the rest of the
wholesale domestic transmission capacity by March 2009.
Mobile telecommunications services
The mobile telecommunications market is one of the most competitive telecommunications markets in
Australia and we estimate that market penetration as at 30 June 2005 was approximately 90%. As this
level of market saturation increases, we
expect the rate of further market penetration to slow for all carriers.
The composition of new subscribers is also changing as growth in subscriber acquisitions is driven
more by pre-paid services, rather than the traditional post-paid contract customers. Increasingly,
mobile service providers are looking to future growth in revenue from data usage by existing
subscribers. There is evidence of strong growth in data usage which is currently driven by the
popularity of SMS. Agreement between carriers for inter-carrier SMS between GSM and CDMA networks
has facilitated this growth.
Data services
The Australian data market is intensely competitive, with a number of service providers in a range
of categories from network, ISPs, international and Managed Service Providers (MSPs) offering a
range of domestic and international services. Competitors are typically classified as resale or
infrastructure competitors and may provide fixed line and wireless data solutions.
Customers are increasingly taking up new growth data services based on DSL, Ethernet or IP-based
solutions. 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 also offering
Voice over DSL (VoDSL), with a view to offering integrated voice and data bundles.
37
Telstra Corporation Limited and controlled entities
Competition and Regulation
Internet access services
For Internet access services, competition is based on a number of features including quality of
service, price, speed and availability of local call access and associated information or
transaction services. The ISP market in Australia is diverse and highly competitive, with
approximately 680 competing retail service providers.
We provide both dial-up and broadband Internet access services. Broadband services are provided to
end-users by Telstra BigPond® using ADSL, cable, wireless and satellite platforms.
Telstra Wholesale provides industry participants with a variety of broadband offerings including
DSL Layer 3, DSL Layer 2 and Virtual ISP Broadband. We also offer an ISDN Internet access service
as an alternative to standard PSTN dial-up to deliver faster Internet speeds for both retail and
wholesale customers.
Online services
Our online, content and web hosting services are subject to a high level of competition from
domestic and international competitors. We seek to differentiate ourselves through a variety of
factors including brand recognition and the entertainment, educational and
commercial value of our content. We are meeting customer demand by offering our own content and
forging alliances with content providers.
We provide
services under a range of brands including telstra.com
®, BigPond®, Yellow Pages®, White
Pages®, Whereis®,
CitySearch and sensis.com.au.
Wholesale services
Telstra Wholesale has more than 600 customers, including approximately 470 ISPs, and operates in a
market with about 34 wholesale competitors. Telstra Wholesale is focused on the delivery of
communication services to intermediaries operating in Australia and offers around 40 wholesale-only
products for our customers such as PSTN interconnection, data access radial, ViSP and a variety of
ADSL products.
Subscription television
The subscription television services market is competitive. FOXTEL (of which we own 50%) is the
leading subscription television provider in Australia, with in excess of 1 million subscribers
(aggregating FOXTELs direct subscribers and subscribers receiving resold FOXTEL services via
Telstra and others) as at 30 June 2005. In addition, FOXTEL also supplies its programming to Optus
and TransACT on a wholesale basis, with those two companies utilising that programming to supply
subscription television services to more than 155,000 subscribers in aggregate. Collectively,
FOXTEL is now seen in approximately 1.2 million households.
FOXTEL is well positioned to compete on the basis of its brand and diverse program offerings
delivered over both digital and analogue cable (via Telstra) and digital satellite. In fiscal 2005,
FOXTEL grew its subscribers by more than 13%.
FOXTEL and Optus television are the main providers of subscription television services over cable
in largely overlapping areas. Optus is expected to launch a digital subscription television service
during fiscal 2006. FOXTEL also provides digital satellite coverage to approximately 2.5 million
homes not passed by our cable network.
AUSTAR distributes subscription television through digital satellite systems in regional areas and
has similar programming to FOXTEL. FOXTEL and AUSTAR compete only in limited areas. While there are
no restrictions on FOXTEL entering the AUSTAR territory, many of the program rights held by FOXTEL
do not permit it to broadcast that content into the AUSTAR territory. Also, FOXTEL has licensed
some programming to AUSTAR on an exclusive basis in relation to most of the AUSTAR territory. Other
subscription television operators offer limited services.
38
Telstra Corporation Limited and controlled entities
Competition and Regulation
Subscription television providers compete with free-to-air television operators and are
prevented by law from holding exclusive broadcast rights to most major sports programs. Competition
is currently based on a number of factors including breadth of programming, brand, price,
marketing, service support and geographic scope of service delivery.
The obligation to provide a digital cable subscription television access service was subject to
either Telstra launching such a service commercially or the ACCC granting Telstra and FOXTEL
exemptions from the operation of Part XIC of the Trade Practices Act 1974 (Cwth) (TPA) in relation
to that service. The ACCCs decision to grant these exemption orders were taken on appeal to the
Australian Competition Tribunal. The appeal was upheld, and in September 2004 the Tribunal set
aside the ACCCs original decision to grant exemption orders and ruled that no exemption orders
should be granted to Telstra and FOXTEL. Telstra commenced the commercial supply of digital cable
subscription television carriage services to FOXTEL in March 2004. Although there is no exemption
order in Telstras favour, Telstra offers to supply digital cable subscription television carriage
services commercially to access seekers pursuant to the terms of the undertaking accepted by the
ACCC in 2003.
Advertising, Directories and Information Services
Our White Pages® and Yellow Pages® directories, classifieds
business and related products (print,
online, voice and wireless services ) are key advertising and contact information channels for
Governments and businesses, in particular SMEs across Australia. As such, we operate within the
highly competitive Australian advertising market, competing with a range of other domestic and
international advertising businesses, search engines, local newspapers and direct marketing
companies which also target a similar customer base.
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
In our payphones business, we are seeing increasing competition due to new market entrants, calling
card operators and indirect competition from increased mobile telephone use.
Regulation
Overview
Some of the major features of the Australian telecommunications regulatory regime are:
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industry specific competition regulation; |
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any to any connectivity; |
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extensive industry specific consumer protection regulation; |
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industry codes and standards under a self-regulatory regime; |
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no limits on the number of carriers; |
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CSPs with many of the same access rights and obligations as carriers; and |
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limited carrier land access rights and statutory immunities. |
Legislation proposing changes to the regulatory regime of the telecommunications sector ahead of
any further privatisation of Telstra was enacted in September 2005. As part of these changes, the
Government has proposed a form of operational separation for Telstra between our retail, wholesale
and key network services business units.
39
Telstra Corporation Limited and controlled entities
Competition and Regulation
Principal industry regulators
The Communications Minister is primarily responsible for telecommunications industry policy and
legislation. The Communications Minister can make rules in connection with the implementation and
operation of certain aspects of the regulatory regime and, at his or her discretion, impose or vary
the conditions of a carrier licence. In addition, the Communications Minister has the power under
section 159 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cwth)
to give binding directions to us to take specified action towards ensuring that we comply with that
Act. This Ministerial direction power applies in addition to the Ministerial power in Part 3 of the
Telstra Act to give such directions in relation to the exercise of powers by us as appear to the
Minister to be necessary in the public interest.
The ACCC administers the TPA which regulates competition generally and includes specific provisions
governing the telecommunications industry. The ACCC administers the telecommunications access
regime, provisions for controlling anti-competitive conduct and Telstra retail price control
arrangements.
As of 1 July 2005 the ACA and the ABA merged to form the Australian Communications and Media
Authority (ACMA). The Government has decided that there will be no changes to the current functions
carried out by the ACA or the ABA. The ACMA will be responsible for regulating telecommunications,
broadcasting, online content and radiocommunications. From 1 July 2005, all references to the ACA
in this document should be read as referring to the ACMA.
The ACA is responsible for reporting on telecommunications industry performance and regulating the
non-competition aspects of the telecommunications industry under the Telecommunications Act and the
Telecommunications (Consumer Protection and Service Standards) Act including:
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carrier licensing; |
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technical regulation; |
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quality of service; |
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the customer service guarantee; |
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priority assistance; |
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network reliability framework; |
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preselection, numbering and number portability; |
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the universal service obligation; |
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the digital data service obligation; |
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spectrum management; and |
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industry codes and standards. |
The ACA may give written directions to carriers, CSPs and content service providers requiring them
to comply with various provisions of the Telecommunications Act, the Telecommunications (Consumer
Protection and Service Standards) Act, their licence conditions and registered industry codes.
Breach of such a direction is subject to a penalty of up to A$10 million.
The ACCC and the ACA are independent statutory agencies. The ACCC is not generally subject to the
control or direction of the Communications Minister or the Commonwealth. The Communications
Minister has a power of direction in relation to the ACA. However, both the ACCC and the ACA can
take action regarding the regulation of the telecommunications industry without the prior approval
or knowledge of the Communications Minister or the Commonwealth.
The Telecommunications Industry Ombudsman (TIO) 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 unless exempted by
the ACA.
40
Telstra Corporation Limited and controlled entities
Competition and Regulation
The industry also self-regulates through codes and standards
Bodies that represent one or more sections of the industry, such as the ACIF, may develop
industry codes governing activities of carriers, CSPs and other industry participants. These
activities mainly relate to matters affecting:
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consumers; |
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inter-carrier operations; |
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interconnection and performance of networks; |
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radio; |
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environmental issues; and |
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customer equipment and cabling. |
The ACA may register such codes under the Telecommunications Act, direct industry participants to
comply with a registered code and, in the absence of a registered code, set mandatory industry
standards. If a carrier or CSP does not comply, it may be subject to a
penalty of up to A$250,000. The ACIF also has compliance mechanisms for breach by an industry
participant of an ACIF code to which the participant has agreed, which include non-monetary public
censure sanctions.
The codes registered under Part 6 of the Telecommunications Act with the ACA as at 30 September
2005 relate to:
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the handling of life threatening and unwelcome calls; |
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call charging and billing accuracy; |
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end-to-end network performance; |
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preselection; |
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commercial churn; |
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calling number display; |
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complaint handling; |
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customer information on prices, terms and conditions; |
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billing; |
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credit management; |
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customer transfer; |
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local and mobile number portability; |
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unconditioned local loop service network deployment rules; |
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IPND, data provider, data user and IPND manager; |
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emergency call services; |
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deployment of radiocommunications infrastructure; |
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cabling requirements for business; |
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priority assistance for life threatening medical conditions; |
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customer and network fault management; and |
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SMS. |
Carriers, carriage service providers and content service providers
We are a carrier, CSP and a content service provider.
A carrier is any person holding a carrier licence. In general, the owner of network infrastructure
must not use the infrastructure to supply telecommunications services to the public unless it holds
a carrier licence. A CSP is a person who supplies a telecommunications service to the public using
network infrastructure owned by a carrier. A content service provider is a person who uses a
telecommunications service to supply to the public a content service, such as a broadcasting
service or an online information or entertainment service.
41
Telstra Corporation Limited and controlled entities
Competition and Regulation
Competition regulation
Competition rule
In addition to the general requirements of trade practices law, a carrier or CSP must not engage in
anticompetitive conduct in breach of the competition rule. A carrier or CSP 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; 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 if necessary. |
The ACCC can issue a Part A competition notice if it has reason to believe that a carrier or CSP
has contravened the competition rule. A Part A competition notice need not describe conduct in very
specific terms but may instead describe the general kind of conduct which the ACCC believes is in
breach of the competition rule. Any repetition of the conduct while the competition notice is in
force can lead to penalties or damages being awarded against the carrier or CSP.
The ACCC can also issue a Part B competition notice. This Part B notice, which the ACCC may issue
simultaneously with or after a Part A notice, will be more detailed than the Part A notice. The
sole function of a Part B notice is its evidentiary effect. It is presumptive evidence of the
information in it and can be used in court proceedings against the carrier or CSP for penalties or
damages.
To issue a competition notice (Part A or Part B), the ACCC need only have a reason to believe that
there is a breach of the competition rule rather than being affirmatively satisfied of a breach of
the competition rule after full investigation.
Any person (including a carriers or CSPs competitors) may apply at any time to the Federal Court
for an injunction to restrain anti-competitive conduct, whether or not a competition notice has
been issued.
A carrier or CSP may be liable to pay penalties of up to A$10 million plus A$1 million per day of
contravention, and for compensatory damages to affected third parties, if:
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it continues to engage in conduct 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. |
No final decision in relation to a competition notice has yet been handed down by a court.
If the ACCC issues a competition notice, it may also give a carrier or CSP a written notice
advising it of the action the ACCC believes should be taken to ensure that the carrier or CSP does
not continue to engage in the kind of conduct dealt with in a Part A competition notice. An
advisory notice can be issued at any time. While such a written notice from the ACCC is of an
advisory nature only, in practical terms there may be significant pressure on a carrier or CSP to
comply with the notice given the potential
breadth and ambiguity of a Part A competition notice and the ability of the ACCC to revoke a Part A
competition notice if the carrier or CSP complies with the advisory notice. Also, a court may have
regard to the ACCCs opinion in determining whether a carrier or CSP is liable for penalties or
damages if the court finds it to have been in breach of the competition rule.
A competition notice relating to changes to BigPond® Broadband pricing was issued against
Telstra in March 2004. The competition notice was withdrawn following agreement between the ACCC
and Telstra in February 2005.
42
Telstra Corporation Limited and controlled entities
Competition and Regulation
Information gathering powers
The ACCC may seek information from carriers or CSPs with substantial market power in the
telecommunications industry concerning charges for products and services, including in Telstras
case only, charges for basic carriage services, subject to a right of appeal to the Australian
Competition Tribunal. The ACCC may publish information concerning charges and services if it is
satisfied that there would be a net public benefit in doing so and has a further general power to
obtain information in relation to designated telecommunications matters.
Record-keeping rules
The ACCC has in place financial record-keeping rules. These accounting rules require detailed three
or six-monthly reporting to the ACCC of non-public cost and revenue information in relation to our
wholesale and retail services.
The ACCC will be able to refer to this information on our costs and revenues in its market conduct
and access investigations. Similar accounting rules apply to both Optus and Vodafone. AAPT and
Primus are required to comply with the same rules but only in relation to retail services.
Accounting Separation
In April 2002, the Communications Minister announced that the Commonwealth Government required
accounting separation of our wholesale and retail arrangements in order to ensure our wholesale arm
treats all retail providers in an equitable fashion.
On 19 June 2003, the Communications Minister issued the final Accounting Separation Direction to
the ACCC requiring it to issue record keeping rules to Telstra giving effect to that direction. One
requirement of the direction is for Telstra to update its regulatory accounting records to produce
both historic and current cost accounts, which has and continues to impose some resource costs on
us. Preparation of the regulatory accounts for the core PSTN services of PSTN interconnection,
local call resale and the unconditioned
local loop will provide a basis for comparison in relation to any existing regulated prices for
these products. We have already produced two interim reports but we are still working towards
finalising these reports. The interim reports are based on a range of assumptions, hence the
results should be treated with caution.
An additional requirement under the accounting separation rules is for Telstra to prepare and for
the ACCC to publish imputation test results for various PSTN services including basic access,
locals calls, national long distance, international long distance and fixed to mobile services. An
imputation test measures whether an efficient competitor of Telstra can compete against our retail
product offering, based on our retail price and an assessment of the efficient wholesale and retail
costs to the competitor of providing the service. In the context of the accounting separation
obligations, these costs are determined by the information in our regulatory accounts.
The ACCC is also required to publish a series of metrics that compare our performance in terms of
new service connections and fault rectification for both wholesale and retail customers. We are
required by law to provide equivalent service and the metrics published to date demonstrate our
compliance. We believe they will continue to do so. However, because wholesale customers represent
a small and non-random sample of the Telstra customer base, statistical anomalies are possible.
Another requirement relating to the accounting separation obligations is for the ACCC to publish
information about the state of competition in the corporate customer segment of telecommunications
markets. The first report for July December 2003 was published in December 2004 dated June 2004.
The ACCC has also published two discussion papers canvassing record keeping rules to assist the
ACCC to prepare the reports. We are also in discussion with the ACCC in relation to these
foreshadowed rules.
43
Telstra Corporation Limited and controlled entities
Competition and Regulation
The Communications Minister has foreshadowed that the requirement for accounting operation may
change with the introduction of operational separation.
Retail price restrictions
The Commonwealth Government has set retail price controls on some of our services and groups of
services that apply from 1 July 2002 to 30 June 2005, which has been extended to 31 December 2005.
The Communications Minister has announced that from 1 January 2006, a basket of Telstras line
rentals, local, STD, international and fixed to mobile calls will be subject to an overall price
cap of CPI minus CPI. In addition, Telstras basic line rental product will be increased only by
the rate of inflation.
Local call charges
We and other CSPs must offer untimed local calls to:
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residential and charity customers for all local calls; and |
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business customers for local voice calls. |
We are not permitted to charge more than 40 cents (including GST) and after 1 January 2006 50 cents
for a local call from a public payphone. This is the first price rise in ten years. We are not
permitted to charge more than 22 cents (including GST) for a local call from any other service
except where the higher call price is offered as part of a package that offers a lower line rental
than the standard line rental. We offer reduced rates for local calls with some of our service
plans.
We continue to be obliged to ensure that:
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our average price for untimed local calls provided to residential and charity
customers in non-metropolitan areas in a fiscal year does not exceed the average price
charged by us to residential or charity customers in metropolitan areas in the previous
fiscal year; and |
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our average price for untimed local calls provided to business customers in
non-metropolitan areas in a fiscal year does not exceed the average price charged by us to
business customers in metropolitan areas in the previous fiscal year. |
Directory assistance service charges
We cannot impose or alter a charge for our directory assistance services without the approval of
the Communications Minister. In October 1999, we commenced charging business and mobile customers
for national and long distance directory assistance services after approval of the Minister. Our
residential customers continue to receive these directory services without charge via the number
1223.
Access
The ACCC has broad powers to determine those of our services to which competitors will have access
and the terms and conditions under which we provide this access.
Declaration of services
The TPA creates an access regime specific to the telecommunications industry. The ACCC may declare
telecommunications services or other services that facilitate the supply of a telecommunications
service to be declared services. Carriers and CSPs have a qualified right to acquire declared
services from other carriers and CSPs.
Carriers and carriage service providers must comply with standard access obligations
Unless exempted by the ACCC, carriers and CSPs who supply declared services to themselves or anyone
else must comply with standard access obligations. They must provide the declared services to
carriers, CSPs or
44
Telstra Corporation Limited and controlled entities
Competition and Regulation
content service providers who require them in order to provide telecommunications services or
content services to end users.
Services not declared are not subject to regulation under this access regime. Therefore, access to
non-declared services is a commercial matter, subject only to the general trade practices law.
Current declared services
The services which have been listed as declared by the ACCC include:
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originating and terminating access for domestic PSTN and ISDN telecommunications
networks; |
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terminating access for GSM and CDMA mobile telecommunications networks; |
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transmission capacity on all routes (except links between mainland capital cities and
some routes between capital cities and regional centres) on bandwidths of 2, 4, 6, 8,
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digital data access service (domestic carriage of data between exchange or other
network facilities and customer premises). The ACCC has determined that DDAS and ISDN will
expire as declared services in metropolitan areas after June 2006 but will continue to be
declared services in regional areas; |
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an unconditioned local loop service using unconditioned copper wire in our customer
access network; |
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local PSTN originating and terminating services (which in our view is not materially
different from the domestic PSTN originating and terminating access described above); |
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local carriage services (in effect, this is local call resale); |
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analogue cable subscription television broadcast carriage service; and |
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the spectrum sharing service (also known as line sharing). |
Terms and conditions of access
A carrier or CSP may give the ACCC access undertakings which set forth the terms and conditions on
which it will offer to supply declared services. An undertaking only becomes operative if it is
accepted by the ACCC. The terms and conditions (including price) of standard access obligations are
to be resolved by commercial negotiations. If negotiations fail but an access undertaking
(including the relevant terms and conditions) has been provided by the access provider and has been
accepted by the ACCC, the access undertaking will apply. If there is no such undertaking, the ACCC
may arbitrate the terms and conditions on which the standard access obligation will be met.
Access arbitrations
Under the present regulatory regime, the ACCC possesses broad powers to hear access disputes
relating to the supply of a declared service and to make non-appealable decisions regarding those
disputes. At present, there are two access arbitrations in progress involving Telstras supply of a
declared service to an access seeker. Telstra generally attempts to avoid access arbitrations,
preferring instead to resolve matters on the basis of sound commercial agreements, however this is
not always possible.
Access pricing
The Communications Minister may 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 been issued.
The ACCC has published general Access Pricing Principles setting out how the ACCC proposes to
approach price issues when considering access undertakings and determining access disputes. In
general, the ACCC proposes that the prices of declared services should be cost-based. In
particular, it proposes to require access
45
Telstra Corporation Limited and controlled entities
Competition and Regulation
prices for such services to be based on the total service long run incremental cost (TSLRIC)
of providing the service.
Telstra has been successful in having access undertakings accepted for the PSTN Originating and
Terminating Services and the Local Call Service during this financial year. These being the first
of such undertakings accepted by the Commission. During the same period, the ACCC rejected two
other undertakings lodged by Telstra for the supply of the Unconditioned Local Loop Service (ULLS)
and the Spectrum Sharing Service (SSS).
Telstra has revised its original undertakings for both ULLS and SSS, taking into consideration the
ACCCs comments, and relodged the undertakings, together with new undertakings for the connection
and disconnection costs for both services. The ACCC issued a draft decision in August 2005
rejecting our revised undertakings. A final decision is expected during the first half of fiscal
2006.
Local call resale
In April 2005, the ACCC commenced a full review of the regulation of local telecommunications
services. The scope of the review included:
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Should local carriage service continue to be declared after June 2006 (expiry date of
the current declaration)? |
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How should the declared local carriage service be priced? |
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Should basic access be declared? |
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How should a declared basic access service be priced? |
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Should the use of PSTN originating and terminating access (OTA) to provide local
calls be permitted? |
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Should local calls be preselectable? |
The ACCC has indicated its intention to issue a final report on these issues by October 2005.
PSTN originating/terminating access
The ACCC has issued final pricing principles for PSTN originating and terminating services based on
TSLRIC principles. Future pricing of PSTN access is also likely to be determined through the
current access undertakings process and local services review.
Mobile terminating access
On 30 June 2004, the ACCC issued a final report on mobile terminating access services. The report
recommended that the existing declaration should be varied to include voice services terminating on
3G networks. At the same time, the ACCC decided not to extend the expiry date for the declaration
of originating access services. The ACCC also proposed new pricing principles for mobile
terminating access which are aimed at generating a gradual reduction in the price of the mobile
termination access service to a level that the ACCC believes represents a closer association of
price and the best cost measures the ACCC has available to it. The staged adjustment period is
proposed to commence on 1 July 2004 and conclude on 1 January 2007. These pricing principles are
currently subject to an appeal lodged by another carrier. Further, two undertakings with different
prices have been lodged by two other carriers.
PSTN termination to non-dominant carriers
The ACCC has issued final pricing principles for PSTN termination to non-dominant carriers. The
ACCC determined that the charges for termination of the non-dominant PSTN networks should be based
upon our de-averaged TSLRIC and that no access deficit contribution should be included in the
TSLRIC of non-
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Telstra Corporation Limited and controlled entities
Competition and Regulation
dominant networks. The ACCC also found that where a non-dominant PSTN network has costs
significantly lower than those of our TSLRIC, the ACCC may assess whether an argument exists for
looking specifically at the TSLRIC of the particular services of the non-dominant PSTN network.
Unconditioned local loop (ULL)
The ACCC has issued final pricing principles for the declared ULL service based on
TSLRIC principles. Future pricing of ULL services is also likely to be determined through the
current access undertakings process.
Spectrum Sharing Services
The ACCC announced its decision to declare the Spectrum Sharing Service (or line sharing) in
August 2002. The ACCCs stated pricing principles for the declared Spectrum Sharing Service are
based on TSLRIC principles. Future pricing of Spectrum Sharing Services is also likely to be
determined through the current access undertaking process.
Carrier-to-carrier access obligations
Each carrier must provide access on request to other carriers to:
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its customer cabling and customer equipment and facilities (including lines, towers,
ducts and land) in place on 30 June 1991 or installed since that date using statutory
powers, if it is reasonable to do so; |
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information relating to the operation of its networks; and |
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its underground ducts and certain of its towers and sites with the aim of ensuring
that facilities are co-located on towers and in underground ducts, unless the ACA finds
that co-location is not technically feasible. |
Access to these facilities and information is on commercially negotiated or arbitrated terms and
conditions. We have entered into a number of facilities access agreements with other carriers. The
Communications Minister can determine pricing principles for access to customer cabling and
equipment, network infrastructure and information relating to the operation of a network but has
not done so to date.
Carriers must also comply with the Facilities Access Code issued by the ACCC in relation to access
to underground facilities and certain towers and sites.
Carrier licences
Carrier licences are issued by the ACA. The annual charge for a carrier licence was reduced as at 1
July 2004 from A$10,000 to less than A$1,000 plus a pro rata revenue-based contribution to industry
regulatory costs.
All carriers must, as a condition of their carrier licence, comply with the Telecommunications Act,
the Telecommunications (Consumer Protection and Service Standards) Act and the standard access
obligations. Any breach of licence conditions is subject to a penalty of up to A$10 million.
The Communications Minister may impose conditions on any carrier licence. The Communications
Minister must consult with the carrier before doing so. Our carrier licence currently includes
requirements for us to:
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provide operator and directory assistance services; |
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annually produce, publish and provide an alphabetical telephone directory; |
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establish and maintain the IPND and provide access to the IPND to all CSPs; |
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have in place and report against an approved industry development plan and comply
with the plan to the extent it relates to research and development; |
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extend an equivalent mobile service to those areas previously served by the analogue
network (we are providing this through our CDMA network); |
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Telstra Corporation Limited and controlled entities
Competition and Regulation
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develop, implement and maintain a priority assistance policy and have processes, systems
and practices in place to ensure that those customers with a life threatening medical
condition can be identified and provided with priority assistance; |
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monitor and publicly report on the reliability of our network in designated
geographical areas of Australia and, where necessary, take appropriate action to remediate
a customers service; |
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provide mobile coverage in selected population centres and on selected highways; and |
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make available the Internet assistance program. |
Local Presence Licence Condition
On 3 August 2005 the Communications Minister issued a new 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, is not unduly prescriptive and does not
impose undue financial or administrative burdens on us. The licence condition requires us to
prepare a plan setting out the range of activities and strategies that we deploy or will deploy to
fulfill our obligation to maintain a local presence. This plan is subject to approval by the
Communications Minister. Before submitting a draft plan to the Minister for approval, we are
required to publish a preliminary draft of the plan and take submissions from representatives of
various stakeholder groups. This was done in September 2005. Once a plan is approved by the
Communications Minister we are required to take all reasonable steps to ensure that the plan is
complied with. Each plan can run for no more than three years.
Carriage service provider obligations
A CSP that provides certain basic telecommunications services must provide or arrange for the
provision of:
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itemised billing services; |
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operator services; and |
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directory assistance services to end users. |
We must provide operator and directory assistance services to CSPs on request, on terms and
conditions commercially negotiated or arbitrated terms and conditions. A CSP must supply
information for the Integrated Public Number Database (IPND).
Powers and immunities
A carrier may enter onto land and exercise any of the following powers:
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inspect the land to determine whether the land is suitable for the carriers
purposes; |
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install a facility on the land; and |
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maintain a facility that is situated on the land. |
A carrier may only exercise the power to install a facility if:
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the carrier holds a facility installation permit, which the ACA may only issue
subject to stringent conditions; |
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the facility has been determined to be a low impact facility by the Communications
Minister (for example, specified types of underground conduit and cable); or |
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the facility is a temporary defence facility. |
If we engage in these activities, we must take reasonable steps to restore the relevant land and
may be liable to pay compensation to land owners for financial loss or damage suffered by them as a
result of our activities. We are also subject to a Telecommunications Code of Practice providing
for notice and objection mechanisms. The Secretary to the Commonwealth Department of the
Environment may impose conditions on some facilities installation activities.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
Facilities other than those described above may only be installed with the permission of the
relevant landowner and in compliance with all relevant State, Territory and local laws.
No limitation of tort liability
The ACA has power to impose a cap on our liability in tort for damages claims but has decided not
to do so.
Number portability
Number portability allows customers to switch certain services to another CSP but keep the same
telephone number.
The ACA numbering plan mandates number portability for some services
The ACA has put in place a numbering plan for Australia. Pursuant to a direction by the ACCC, the
plan sets out the following rules:
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local number portability was operational on a trial basis from November 1999 and
fully operational by 1 January 2000 as mandated by the ACA. There are a limited number of
specific cases where an exemption has been granted; |
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inbound number portability affecting all 1800, 1300 and One3 numbers became
operational on 30 November 2000; and |
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mobile number portability became available from 25 September 2001. |
In July 2004, the ACCC directed the ACA to implement premium rate number portability. The ACA
issued a discussion paper seeking comments on how to implement PRNP. Only a few submissions were
received by the ACA. Because of the lack of industry interest to port premium numbers, no plan has
been implemented by the ACA.
Terms and conditions of supply are negotiated or arbitrated
The terms and conditions on which CSPs supply number portability are set by commercial negotiation
or arbitration.
The Communications Minister may make a number portability pricing principles determination that
would govern any arbitration. However, no such determination has been made to date. In June 1999,
the ACCC issued a paper setting out the local number portability pricing principles that it would
be inclined to apply if it were required to arbitrate in relation to terms and conditions for the
provision of local number portability. These principles state that each carrier or CSP should bear
the costs it incurs in its own network to meet the obligation under the numbering plan to provide
local number portability.
In June 2005, the ACCC finalised their decision on Digital Data Access Service (DDAS) number
portability. The ACCC was not satisfied that the introduction would be likely to promote both
competition and efficiency. As a result, the ACCC has not issued a direction to the ACA and
disallowed Digital Network Access Service (DNAS) number portability.
Mobile number portability
The ACCCs final report on mobile number portability pricing principles only allows us to recover
from other carriers or CSPs our efficiently incurred transit costs of providing mobile number
portability from other carriers or CSPs.
Preselection and override codes
Preselection allows customers, while connected to a CSP, to specify another CSP to provide some
telecommunications services. Override codes allow a customer to select a different CSP on a
call-by-call basis.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
Currently, CSPs must provide for the preselection of one CSP for the following voice calls:
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national long distance calls; |
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fixed-to-mobile calls; |
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international calls; and |
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some operator services. |
An override function for these voice calls must also be provided. The terms and conditions for
provision of preselection are as agreed between the CSPs. In the absence of agreement, there is
provision for arbitration by an agreed arbitrator or the ACCC.
Interception
Carriers are required by law to help law enforcement agencies in Australia in certain
circumstances. Carriers are not expected to provide help without remuneration but they are to
neither profit from, nor bear the costs of, providing such help. They must also, unless exempted by
the Communications Minister or the agency co-ordinator, ensure that telecommunications services
passing over their networks can be intercepted by agencies that hold an interception warrant. This
requirement can lead to delay in the launch of particular carriage services until the services are
capable of being intercepted.
Universal service and digital data service obligations
As the primary universal service provider, we have an obligation to fulfil the universal service
obligation (USO) throughout the whole of Australia. This means that we must ensure that standard
telephone services, payphones and any prescribed carriage service (of which none have been
prescribed) are reasonably accessible to all people in Australia on an equitable basis, wherever
they reside or carry on business.
As part of this obligation, we must make special customer equipment available to people with
disabilities and offer interim telephone services in certain circumstances where there will be an
extended delay in connecting or repairing a fault with a standard telephone service.
We are also a digital data service provider and have an obligation to fulfil the digital data
service obligation (DDSO) throughout the whole of Australia. This requires us to ensure that all
people in Australia have reasonable access to a digital data service with a data speed broadly
equivalent to 64kbps. We fulfil the DDSO through the supply of ISDN services (a General Digital
Data Service (GDDS)), to which at least 96% of the Australian population have access, and through
the supply of BigPond ® satellite 1 way services (a Special Digital Data Service (SDDS))
for the remainder of the population.
In our roles as the primary universal service provider and digital data service provider, we are
required to submit plans to the ACA and the Communications Minister for their approval which set
out how we will progressively fulfil the USO and DDSO throughout Australia. Our approved USO Policy
Statement, USO Standard Marketing Plan and Digital Data Service Plans are available from our
website at www.telstra.com.au/universalservice and www.telstra.com.au/corporate/ddsp.htm.
The Communications Minister may determine a system to select carriers to be the primary universal
service providers or regional universal service provider for all or some universal services for
particular years.
The net losses that result from supplying loss-making services and from facilitating the satellite
subsidy for SDDSs in the course of fulfilling the USO and DDSO are required to be shared among all
carriers and any CSPs determined by the Communications Minister (none have been determined). The
Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cwth) provides that a
universal service providers net universal service cost, as assessed by the ACA, is to be shared
amongst the universal service provider and other participating carriers on a basis proportional to
the eligible revenue of each carrier. The other
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Telstra Corporation Limited and controlled entities
Competition and Regulation
participating carriers typically pay approximately 30% of the net USO cost determined by the
Communications Minister, with Telstra absorbing the remaining cost.
For this purpose, the ACA assesses levy debits (required contributions to recognised USO costs) of
other participating carriers, thereby requiring them to make payments into a universal service
reserve from which payments are ultimately made to the universal service provider equal to the
amount of its corresponding levy credit.
However, current legislation does not ensure that the costs we incur in providing the USO are fully
recognised and properly funded by all industry participants. In accordance with the current
legislation, the Telecommunications Laws Amendment (Universal Service Cap) Act 1999 (Cwth), the
Communications Minister determines the net USO costs. These amounts are usually significantly less
than our own assessment of the USO costs. The other participating carriers are required to pay us
contributions based on the ACA assessments of their eligible annual revenue. The Communications
Minister has also exercised the power to determine the cost of the USO for up to three years in
advance a previous Communications Minister has determined costs for fiscal 2005 as A$211.3
million. The net USO costs for subsequent years have recently been determined by the Minister,
following advice provided by the ACA. The amounts for the next three fiscal years are $171.4
million, $157.7 million and $145.7 million.
As the primary universal service provider, we receive no contribution from other carriers for any
non-recognised USO costs.
The Commonwealth Department of Communications, Information Technology and the Arts (DCITA) reviewed
the USO and customer service guarantee regime and the Communications Minister tabled a report in
Parliament on 17 June 2004 proposing changes to the USO funding arrangements. The recommendation
for USO funding in the report is for the USO costs to be simplified and for Telstra to meet the USO
legacy costs associated with legacy telephone services. However, the Government announced at the
time of the release of this report that it does not intend to change the broad legislative
framework governing USO costing and funding.
Customer service guarantee (CSG)
At the direction of the Communications Minister, the ACA has made mandatory standards for CSPs
(including Telstra) in relation to the provision and repair of standard telephone services and the
keeping of customer appointments associated with these activities.
These customer service standards have been in effect since 1 January 1998 to eligible customers
with five or less standard telephone services.
In accordance with the CSG Standard:
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we will connect a new standard telephone service within timeframes that range between
two working days (where a telephone service has recently been working at the new premises
and can be automatically re-connected) and a maximum of 20 working days (where new Telstra
network infrastructure has to be provided). The actual timeframe may also be dependant
upon whether the CSG customer is located in an urban, rural or remote location; and |
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we will repair a CSG service in set timeframes according to the customers location,
which is either one, two or three full working days for customers located in urban, rural
and remote areas respectively. |
As from 1 January 2003, we reduced our connection timeframes in minor rural and remote locations
where Telstra infrastructure does not exist from 6 months to 20 working days.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
The damages payable under the CSG Standard include:
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for a missed appointment, A$12 for a residential or charity customer and A$20 for a
business customer; and |
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for a delayed connection or repair, A$12 for a residential customer and A$20 for a
business customer for each working day of delay up to five working days and A$40 per
working day of delay after that. |
Damages cannot exceed A$25,000 per customer for each contravention.
If we have reason to believe that an event has occurred that is reasonably likely to result in us
being liable to pay damages to a customer for a breach of the CSG Standard, we will notify the
customer and pay those damages, whether by account credit or otherwise, within a prescribed period.
This is the case irrespective of whether the customer has claimed those damages.
As part of its review of the regulatory regime ahead of its decision to fully privatise Telstra,
the Government signalled an intention to increase the level of damages payable under the CSG
Standard.
Priority Assistance
The Communications Minister approved our Priority Assistance for Individuals policy on 17 June
2002. The policy aims to provide eligible residential customers, who have a diagnosed
life-threatening medical condition with a high risk of rapid deterioration and whose life may be at
risk without access to a fully operational phone service, with the highest level of service
practicably available at the time on the connection and repair of standard telephone services.
Telstra customers need to substantiate their eligibility or the eligibility of someone else
residing at their premises, with certification from a medical practitioner or an authorised person.
Priority customers are entitled, unless circumstances make it unreasonable, to have a first
standard telephone service connected and a fault with a nominated standard telephone service
repaired within 24 hours in urban and rural areas and within 48 hours in remote areas. In addition,
priority customers receive 24 hours, 7 days a week service for fault management, handling and
repair. Where these timeframes cannot be met, we will offer eligible priority customers the choice
between an interim priority service and an alternative service, for example call diversion to
another telephone number of their choice.
As part of our policy, we must undertake a communications strategy to generate public awareness and
advise customers of priority assistance. As at 30 June 2005, we had approximately 135,000 customers
with priority assistance status.
At the request of the Communications Minister, the ACA conducted a review of our priority
assistance arrangements in late 2004. In its report to the Minister, the ACA concluded that
Telstras priority assistance arrangements are largely meeting the Governments policy objectives
and there appears to be a high level of customer satisfaction with Telstras provision of the
service.
Network Reliability Framework
The Network Reliability Framework (NRF) is an outcome of the Telecommunications
Service Inquiry (Besley Inquiry) which was conducted during 2000.
The NRF was introduced through an amendment to our carrier licence conditions, which took effect
from 1 January 2003, and embraces CSG telephone services only. Generally, those telephone services
that are provided to customers with five or less standard telephone services.
The NRF is a compliance and reporting framework that aims to improve the reliability of our network
at three different levels:
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Telstra Corporation Limited and controlled entities
Competition and Regulation
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Level 1 44 geographical areas throughout Australia, which are based on our work
regions. We are required to provide a monthly report to the ACA on the percentage of CSG
services with no faults and the average percentage of service availability for each
geographical area. This information is also made publicly available on our website at
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Level 2 the exchange service area (ESA) level, of which there are approximately
5,000 throughout Australia. We are required to provide monthly reports to the ACA of those
ESAs where a pre- determined number of CSG services (which is dependent upon the total
number of CSG services in the ESA) have had one or more faults in each of the two
preceding calendar months. The ACA can request further information from us regarding the
performance of a particular ESA and may seek to have remedial action undertaken to reduce
the incidence of faults in a particular ESA; and |
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Level 3 the individual service level. We are required to take reasonable action to
prevent a CSG service from experiencing four or more faults in a rolling 60 day period or
experiencing five or more faults in a year. Where either of these thresholds is breached,
we are required to investigate the reason for the breach, undertake such remediation as is
necessary and report the contravention to the ACA. |
The NRF adds to the range of consumer safeguards already in place, for example the USO, CSG
Standard and priority assistance.
The Australian Communications Authority conducted a review of the NRF during 2004 and provided its
final report to the Minister in June 2005. The report contains a number of recommendations aimed at
improving the operation of the NRF, which are being considered by the Minister.
Supply terms and conditions
Under a determination made by the ACA, since March 2000 CSPs that formulate a standard form of
agreement relating to the supply to an ordinary customer of designated
goods and services have been required to provide customers with concise summaries of the terms and
conditions on which customers acquire their goods and services. We provide these summaries to
existing and new customers.
Hong Kong Telecommunications Regulatory Information
We own 50% of REACH which, through its wholly owned subsidiaries including REACH Networks Hong Kong
Ltd (REACH Networks), conducts a wholesale connectivity business from Hong Kong. REACH Networks
operates a network for the carriage of traffic to and from Hong Kong.
We also own CSL which conducts a cellular mobile business in Hong Kong. CSL holds 2G Public
Radio-communication Service licences that cover the establishment, maintenance and operation of 2G
cellular networks in Hong Kong. CSL also holds a 3G mobile carrier licence.
Below is a brief outline of the Hong Kong telecommunications regulatory regime and the key
regulatory requirements with which REACH Networks and CSL must comply.
Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong)
The legislative framework governing the provision of telecommunication services and facilities in
Hong Kong is principally contained in the Telecommunications Ordinance (Chapter 106 of the Laws of
Hong Kong). The Telecommunications Ordinance regulates the licensing and control of
telecommunications services and telecommunications apparatus and equipment, including fixed
wireline and wireless services, public mobile telephone services and certain aspects of Internet
services.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
The Telecommunications Authority (TA) is the principal telecommunications regulator in Hong
Kong and is responsible for administering the Telecommunications Ordinance. The Office of the
Telecommunications Authority (OFTA) was established in 1993 as an independent Government department
and its key functions are to assist the TA in administering and enforcing the provisions of the
Telecommunications Ordinance. The TAs powers include:
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issuing licences; |
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making rules and determinations in relation to the provision of telecommunications
network services by licensees, including setting interconnection charges on particular
routes; |
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requiring a licensee to comply with the terms of its licence and any applicable
legislation; and |
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suspending or revoking licences as enforcement measures or for the protection of the
public interest. |
Competition provisions
The telecommunications market in Hong Kong is almost fully liberalised and is now one of the most
competitive markets in the world. Unlike many countries, Hong Kong does not have a general
competition law. Anti-competitive behaviour is regulated through industry specific legislation as
well as in various licence conditions.
The Telecommunications (Amendment) Ordinance 2003 and its accompanying guidelines regulates merger
activity in some aspects of the telecommunications industry through empowering the TA to issue
binding directions to carrier licensees when certain changes in the ownership of, or the control
of, a carrier licensee occur which, in the TAs opinion, have or are likely to have the effect of
substantially lessening competition in a telecommunications market.
Second Generation (2G) licence renewal process
The existing 2G mobile licences held by Hong Kongs mobile network operators expire in the period
from July 2005 until September 2006.
Existing GSM and Personal Communication Service (PCS) licensees (of which CSL is one) have a right
of first refusal. The right of first refusal entitles the GSM/PCS licensee, who agrees to the
licence conditions and exercises the right, to a new mobile carrier licence which will attach
special conditions and be granted in respect of its existing 2G frequency spectrum. It is expected
that on this basis CSL will obtain new mobile licences on expiry of its current GSM licence in
January 2006 and similarly for its PCS licence in September 2006. The new licences will have a 15
year term. The Government has deferred a decision on using vacated CDMA spectrum for any new mobile
licence until completion of the Spectrum Policy Review.
Unified licensing
The TA has indicated that differentiation of regulation based on fixed and mobile networks will
not be sustainable going forward, and is considering consolidation of existing mobile and fixed
licensing categories and/or the creation of a new flexible licence category allowing provision of
both mobile and fixed-line service. There is a risk that spectrum utilisation fees (SUF) for new
services provided under this licence, eg. using broadband wireless access, will be preferential as
compared to the existing SUF payable by 3G licensees. On the other hand unified licensing could
have potential significant benefits for mobile operators, such as a recasting of interconnection
charges between mobile and fixed-line operators and access to buildings and land on par with the
rights currently enjoyed by fixed-line carriers. The unified licensing process is in its infancy
and will be complex. More clarity is expected from the TA in 2006.
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Telstra Corporation Limited and controlled entities
Competition and Regulation
New Zealand Telecommunications Regulatory Information
TelstraClear, our wholly owned subsidiary, is the second largest full service carrier in New
Zealand. Below is a brief outline of the New Zealand telecommunications regulatory regime.
Telecommunications Act 2001
Throughout the 1990s, the telecommunications sector in New Zealand was subject to a light-handed
regulatory regime. Unlike most other OECD countries, no industry-specific regulatory authority was
established in New Zealand to regulate and monitor telecommunications competition and to promote
efficient and sustainable entry. This light-handed approach came to an end with the introduction of
the Telecommunications Act 2001.
The Telecommunications Act 2001 provides the principal framework for the regulation of
telecommunications in New Zealand and grants a telecommunications sector-specific regulatory role
to the New Zealand Commerce Commission (Commission). Under the Telecommunications Act 2001, the
Commissions functions are to:
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make determinations on disputes between the access seeker and the access provider
over access obligations of designated and specified services and also on price in the case
of designated services; |
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determine the net cost and apportionment (amongst industry players) of
Telecommunications Service Obligations and monitor the Telecommunications Service
Providers compliance with their Telecommunications Service Obligations (broadly, a USO,
for which Telecom New Zealand is the Service Provider, and a Deaf Relay Service, for which
Sprint International New Zealand is the Service Provider); |
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recommend to the Minister the desirability of regulating additional services where
considered necessary; and |
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propose and approve telecommunications access codes relating to designated and
specified services for the telecommunications industry. |
In August 2005, the New Zealand Minister of Communications announced proposed changes to the
Telecommunications Act 2001 (NZ) which are aimed at enhancing competition in the New Zealand
telecommunications market. The proposed amendments are expected to be introduced to Parliament in
late 2005.
Determinations by the Commission under the Telecommunications Act 2001
The Commission has made determinations under the Telecommunications Act 2001 for TelstraClear in
relation to an interim price for residential resale (made on 14 June 2004) and wholesaling (made on
12 May 2003). The Commission has also made a draft determination in relation to wholesaling for
CallPlus. CallPlus subsequently settled with Telecom.
The Commission has made two interim price determinations for interconnection between Telecom and
TelstraClears PSTN network and for wholesale (resale) of a range of Telecoms business retail
services. Telecom and TelstraClear have both sought final price determinations and these are
proceeding.
The Commission has also issued a final determination on the apportionment of costs in implementing
local and mobile number portability in response to a joint application (from TelstraClear,
WorldxChange, CallPlus, Compass and iHug), and on the functions and standards for number
portability following a joint application from Telecom, TelstraClear and Vodafone.
The Commission made a draft determination in April 2005 on an application by TelstraClear (made in
November 2004) for regulated access to Telecoms unbundled bitstream service (UBS). The
Commissions
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Telstra Corporation Limited and controlled entities
Competition and Regulation
preliminary view is that Telecom should provide TelstraClear with a bitstream access service
available nationally with characteristics which differ from Telecoms commercial bitstream service
currently available to access seekers. A final determination is expected to be made in the second
quarter of fiscal 2006. The Commission also made a draft determination in September 2005 in
relation to the resale of Telecoms Private Office Networking IPVPN products.
In addition, the Commission has recently recommended that the termination of 2G fixed-to-mobile
calls be regulated. In August 2005, the New Zealand Government referred this recommendation back to
the Commission for reconsideration.
Competition Provisions
The Commerce Act 1986 is New Zealands generic competition legislation outlawing anti-competitive
conduct in all industries and is enforceable by the Commission and by market participants.
56
Telstra Corporation Limited and controlled entities
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 financial statements, which are included with this annual report. These financial statements
have been prepared in accordance with Generally Accepted Accounting Principles in Australia
(AGAAP), which differs in certain respects from Generally Accepted Accounting Principles in the United
States (USGAAP). A discussion of the principal differences between AGAAP and USGAAP as they relate
to us and a reconciliation of the net income and shareholders equity to USGAAP, is provided in
note 30 to our consolidated financial statements.
This section 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. A discussion of some of the principal risks that could
affect our business is presented in this annual report under the heading Key information Risk
factors. Also refer to Key information Cautionary statement regarding forward-looking
statements.
In this section, we refer to our fiscal years ended 30 June 2005, 30 June 2004 and 30 June 2003 as
fiscal 2005, fiscal 2004 and fiscal 2003 respectively. We have referred to the three fiscal years
ended 30 June 2005 as the three-year period.
Overview of key factors affecting our business and financial performance
We are Australias largest telecommunications and information services company. We offer a
full range of telecommunications products and services throughout Australia and various
telecommunications services in certain overseas countries. During the three-year period, we have
increased our sales revenue and net profit, maintained a healthy statement of financial position
and continued to generate strong operating cash flows. In addition, we have continued to develop
our core infrastructure network, acquire strategic investments and increase our returns to
shareholders through special dividends and share buy-backs. We have maintained our strong financial
position despite intense competition in the telecommunications market and migration of customers
from traditional to emerging products and services.
To continue as an Australian market leader in the telecommunications industry, our strategy
involves the management of the following:
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migration of customer demand from traditional products and services to the emerging
products and services of the business; |
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cost and productivity improvements; |
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continual improvement of customer service levels; and |
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alignment of investment with revenue growth drivers. |
We consider the effective management of these areas will require a market based management approach
and a change in how the company operates. It also requires a regulatory environment that allows us
to compete on an equal basis.
In addition, we face a series of business operating issues that we expect will impact the future
results of our Company. These issues range from the potential full privatisation of the Company,
regulatory issues including regulated price caps, and establishing the
appropriate business structure to drive future growth.
During the three-year period, our increase in sales revenues was led by revenue growth in mobiles,
Internet and IP solutions, and advertising and directory services. Our challenge moving forward
will be to consolidate the growth in these areas, while managing an accelerating decline in our
PSTN revenues experienced in the second half of fiscal 2005. We have continued to focus on
maximising revenues from our higher margin
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Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
traditional products such as PSTN products, while managing the shift in customer demand to our
lower margin emerging products such as broadband. We have aligned our investment strategies with
our new growth products and continue to focus on identifying cost efficiencies to 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.
Most of our revenues are generated from basic access, fixed and mobile call charges, specialised
data, Internet and IP solutions, advertising and directories services and intercarrier services. We
are focussing on a range of key products and services within these categories as opportunities to
maximise our current revenues. This is further described below:
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PSTN products: Performance in this market has been limited by competition and product
substitution. This market remains a key focal point and a significant part of our Company
in terms of sales revenue. It continues to provide us with strong cash flows enabling us
to invest and develop our business. |
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We continue to focus on maximising returns and improving customer service in this area by
offering a broad range of product packages that include packaging traditional products with
new products, and re-balancing initiatives that have increased our basic access fees while
reducing call charges.
In fiscal 2005, total PSTN revenues are declining at an accelerating rate, led by the
migration of customers to mobiles and other product and services; |
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Mobiles: Growth in this area has been driven by the introduction of low access fee
plans and the increasing popularity of prepaid offerings. We continue to increase revenues
by providing more innovative products on our mobile networks, such as the roll out of
super high speed wireless services, known as evolution data optimised (EVDO), and the
launch of i-mode that gives access to a wide range of Internet products through mobile
handsets. In addition, revenues continue to increase with the higher number of mobile
users; |
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Data and Internet services: Growth in this area is attributable to an increase in
revenue from Internet and IP solutions products, predominantly due to the
increase in both retail and wholesale broadband subscribers. We expect the Internet and IP
solutions portfolio to continue its expansion. This market is in a growth phase and our
strategy to capitalise on this growth involves the provision of high speed, innovative
Internet products to our customers, combined with aggressive pricing strategies. Over the
three-year period, our broadband subscribers (including both retail and wholesale)
increased from 169,000 as at 30 June 2002 to 1,744,000 subscribers as at 30 June 2005; |
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Advertising and directories : Growth in this area has been led by an increase in
revenue from our Yellow Pages® and White Pages® printed publications, predominantly driven
by product innovation and customer demand. In addition, we have continued to grow our
White Pages® and Yellow Pages® OnLine directory businesses. |
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As telecommunications, computing and media technologies converge, we intend to focus on
enhancing our capabilities to provide new and innovative application and content services
and to expand further into these converging markets. In fiscal 2004, we acquired 100% of
the issued share capital of Trading Post (Australia) Holdings Pty Ltd and its controlled
entities (Trading Post), an Australian publishing and Internet classified business; |
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Solutions management: We have continued to strengthen our position in the managed
services and information and communication technology (ICT) market. In fiscal 2005, we
acquired 100% of the issued share capital of KAZ Group Limited and its controlled entities
(KAZ), and Telstra PSINet Limited (formerly PSINet UK Limited) and its controlled entities
(PSINet). KAZ is a provider of business process |
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Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
outsourcing, systems integration, consulting, applications development and IT
management services. PSINet is a provider of e-business infrastructure solutions and
corporate Internet protocol based communication services. These acquisitions have expanded
our IT services capability to both our Australian and international customers,
complementing our core strength in telecommunications. Our recent acquisitions combined
with our pre-existing solutions management business have significantly broadened our
solutions management services, which we believe will assist us achieve our goal of becoming
an Australian leader in the ICT market; and
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International operations: Our offshore controlled entities contributed 7.3% of our
total sales revenue in fiscal 2005, 6.9% in fiscal 2004 and 7.5% in fiscal 2003. This is
primarily attributable to the CSL operations in Hong Kong and the TelstraClear operations
in New Zealand, which generate revenues mainly from the mobiles market and from fixed
network services respectively. We continue our focus on improving returns from our current
international investments in CSL and TelstraClear. |
We have maintained our attention to managing the performance of these individual
product and service categories. However, as a fully integrated telecommunications company, we aim
to build on our existing customer base and capture 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 reflecting this initiative. The prices we
charge our retail customers for most of our fixed telephony products, however, are still subject to
price controls. Refer to Rates we charge our customers are subject to regulated price caps for
further discussion.
During the three-year period, we have focussed on our operating efficiency. Our efforts have
included:
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streamlining our systems and processes, including the consolidation of our
implementation of the Six Sigma process improvement techniques; |
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improving work practices; |
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cross company process reviews, which has involved the appointment of process owners
within the Company with responsibility to review cost structures; and |
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systematically reviewing our cost structures and the way we deliver service to our
customers. |
These initiatives have allowed us to identify cost efficiencies in many areas, while at the same
time improving customer service. They have also resulted in a reduction in the overall number of
full time employees and equivalents from 44,977 as at 30 June 2002 to 42,739 as at 30 June 2005,
excluding the impact of our significant acquired controlled entities during the three-year period.
We are committed to continuing our review of areas of the business where cost efficiencies can be
gained, while improving the customer experience. We believe opportunities to achieve this include:
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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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rationalising our various IT and network platforms; |
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streamlining our business operations; |
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improving network efficiency; and |
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managing total labour costs more efficiently. |
59
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Despite these initiatives, our total expenses grew in fiscal 2005, following the decline in
fiscal 2004 compared with fiscal 2003. In fiscal 2005, the increase in our total expenses was led
by the consolidation of expenses of our recently acquired controlled entities such as KAZ, and the
inclusion of a full year of expenses for Trading Post that was acquired in fiscal 2004. In
addition, we experienced expense growth across various categories to support our emerging business
areas such as broadband and pay television, as well as to
meet our customer service requirements. The increase in expenses was partly offset by our cost
reduction projects.
Our revenue and expense movements are also subject to inflation rate variations. During the
three-year period, the Reserve Bank of Australia has maintained a target inflation rate of between
2% and 3% per annum. As a result, the effects of inflation are not deemed to be significant to our
overall operating performance.
We strive to continually improve our customer service. As evidenced by the quarterly service
reports from the Australian Communications Authority, our customer service results have shown
steady overall improvements over the three-year period. Our focus remains 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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improving the technology of voice recognition and in the direction of customer
assisted calls; |
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enhancing the skills of our staff, enabling them to become specialists in our
emerging business areas such as broadband; |
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ensuring customer appointments are met, as well as reducing our response times and
queue lengths; and |
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further improving our performance under the customer service guarantees. |
The Telstra Country Wide ® 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 universal service obligation (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.
During the three-year period, we have devoted substantial capital 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 our core infrastructure networks to meet customer demands,
particularly for those growth product areas such as broadband. In addition to our ongoing capital
expenditure, we are in the process of a A$210 million deployment of the latest broadband on copper
wire technology, ADSL2+. We are deploying this enhancement to meet customer demand for higher speed
Internet services. In fiscal 2005, we also successfully commissioned and began testing our next
generation Voice over IP (VoIP) platform that we believe will offer value added broadband services
to our residential customers in fiscal 2006.
On 6 December 2004, we signed agreements with Hutchison 3G Australia Pty Ltd (H3GA), a subsidiary
of Hutchison Telecommunications (Australia) Limited, to jointly own and operate H3GAs existing
third generation (3G) radio access network (RAN) and fund future network development. The H3GA RAN
is the core asset of the joint venture. In return for 50% ownership of the asset, we will pay H3GA A$450 million in instalments over 2
years. We anticipate that the H3GA RAN will be operating during fiscal 2006. As a result of this
agreement, we expect to accelerate our customers access to leading mobile services and open
opportunities for new revenues. In addition, our agreement with H3GA is expected to provide
significant
60
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
savings in 3G network construction expenditure and operating expenses, such as site rental and
maintenance, offset by an increase in depreciation and amortisation charges.
During the three-year period, in addition to growth in ordinary dividends, we have also returned
A$2,884 million to shareholders through special dividends and share buy-backs, as part of our
capital management program. In fiscal 2005, we paid a special interim dividend of A$747 million (6
cents per share), and in fiscal 2003 we paid a special interim dividend of A$386 million (3 cents
per share). We have also undertaken two share buy-backs over the three-year period.
In fiscal 2005, we bought back 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 ordinary shares were bought back at A$4.05 per share,
comprising a fully franked dividend of $2.55 per share and a capital component of A$1.50 per share.
In fiscal 2004, we bought back 238,241,174 ordinary shares. In total, 1.85% of our total issued
ordinary shares, or 3.71% of our non-Commonwealth owned ordinary shares, were bought back. The cost
of the share buy-back comprised the purchase consideration of A$1,001 million and associated
transaction costs of A$8 million. The ordinary shares were bought back at A$4.20 per share,
comprising a fully franked dividend of $2.70 per share and a capital component of A$1.50 per share.
The shares bought back from both share buy-backs were subsequently cancelled, reducing the number
of fully paid ordinary shares on issue. The Commonwealth Government did not participate in the
share buy-backs and as a result its shareholding increased from 50.1% before the buy-backs to
51.8%. The share buy-backs have improved our earnings per share as we now have less shares
outstanding and have not hindered the ability of the Company to take advantage of profitable
investment opportunities when they arise.
Our major international investments held during the three-year period were CSL, TelstraClear and
REACH. CSL operating revenues improved in fiscal 2005, following a decrease in fiscal 2004 compared
with fiscal 2003. However, its net profit continued to decrease in the current year as a result of
higher costs associated with the launch of 3G services. TelstraClear recorded sales revenue growth
over the three-year period and is focussed on achieving further revenue growth and operational
efficiencies. REACH has been operating in a difficult environment and the industry is expected to
remain challenging for a period of time, mainly due to aggressive pricing and oversupply of capacity.
In January 2005, REACH announced that its data capacity would be consumed entirely by its
shareholders. PCCW and Telstra have experienced significant traffic growth in recent years, which
will see both companies utilising virtually all of REACHs capacity. REACH has continued to provide
its third party voice and satellite services to customers other than PCCW and us. In April 2005,
the shareholders also announced improvements to the REACH operating model. As part of the
improvements, the shareholders each acquired dedicated components of REACHs international cable
capacity by way of an indefeasible right of use (IRU). The shareholders each paid REACH A$205
million (US$157 million) for the IRU, which in our case was settled by a discharge of REACHs
liabilities under the capacity prepayment agreement. The shareholders have also each committed to
fund a half share of REACHs committed capital expenditure up to fiscal 2022, which is estimated to
amount to US$106 million in total. REACH will manage allocated capacity on behalf of its
shareholders for a fee determined on a cost plus mark up basis. In fiscal 2003, we wrote down our
investment in REACH by A$965 million to a carrying value of nil. Refer to Related party
transactions for further details on our transactions with REACH.
61
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Outlook
We expect our financial results in fiscal 2006 and future years to be impacted by the following key
factors:
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continuing changes to our competitive environment, as
competition intensifies and the Commonwealth Government reviews the applicable laws and regulations to continue changing
the markets in which we compete; |
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actions taken by our regulators and by the Commonwealth Government to control our
prices and mandate services that we are required to provide; |
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the potential full privatisation of Telstra and potential business and structural
changes arising from the privatisation; |
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our ability to capitalise on the growth areas of the business, such as wireless,
broadband, and advertising and directories; |
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our ability to introduce new value added products and services to compensate for
lower prices and volumes in our traditional product lines; |
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the ongoing results of our investments in emerging businesses such as KAZ, PSINet and
Trading Post and our ability to effectively integrate these businesses into our
operations; |
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the intense price competition in the business and government segment; |
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the ability of CSL to maintain and improve its financial position following the
recent market consolidation in Hong Kong and the strong price competition in this market; |
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our ongoing efforts to control our costs and improve productivity; |
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the effectiveness of our customer service initiatives; and |
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economic conditions globally and in Australia. |
Our traditional revenues are continually being substituted by wireless, high bandwidth Internet,
IP telephony, and web and managed services, where the market growth is occurring. We expect to
continue our investment in new platforms and technologies that will align with the growth drivers
of these emerging areas, while optimising the performance and returns from our existing networks
and products.
As a result of the outlined factors impacting our business, we believe:
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the PSTN voice decline will continue to put pressure on our Companys sales revenue and
operating margins. Total PSTN voice revenue is expected to fall in fiscal 2006 at an
accelerating rate; |
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our growth drivers for broadband, and advertising and directories are expected to be
strong in fiscal 2006, however we expect further aggressive pricing from the further
adoption of capped plans in the mobiles market to impact the rate of growth in our mobiles
business; |
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our cash flows will be impacted in fiscal 2006 by the payments to H3GA and higher
capital expenditure to meet broadband demand. In addition, we expect to make certain
investments in a number of business improvement projects, such as the broadband management
system, customer access network rehabilitation and new billing platforms; and |
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margin pressure is expected to continue as our revenue mix changes from traditional
products such as PSTN to emerging areas such as broadband. We believe that our key
management indicators such as earnings before interest, income tax expense, depreciation
and amortisation (EBITDA) and earnings before interest and income tax expense (EBIT) will
decline in fiscal 2006. On 5 September |
62
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
2005 we issued earnings guidance that the Companys EBIT in fiscal 2006 is expected to decline
by 7-10 percent compared with fiscal 2005. Refer to table 1 Results of operations for further
details on our results for EBITDA and EBIT during the three-year period and a detailed
reconciliation of these measures to net profit. We expect EBIT will also be impacted by an increase
in depreciation and amortisation led by the 3G network depreciation and 3G spectrum licence
amortisation.
In addition, a number of our competitors are investing in digital subscriber line access
multiplexors (DSLAMs) and acquiring our unconditioned local loop (ULL) services to create their own
networks. These networks will provide them with efficient voice and data capability. As a result,
the incremental ULL rental revenue recognised by our Telstra Wholesale segment is anticipated to be
significantly less than the expected decline in PSTN revenues across our retail and wholesale
areas. Wholesale broadband sales will also decline. The impact in fiscal 2006 will be offset to
some extent by one-off ULL connection charges.
In this difficult environment, new sources of revenue and further cost reductions will be necessary
for future EBITDA and EBIT growth.
Effective from 1 July 2005, the Board appointed Solomon Trujillo as our new chief executive officer
(CEO) and an executive director, replacing Ziggy Switkowski. The new CEO is undertaking an
operational and strategic review to be completed within 3 to 4 months of his appointment. Our
outlook may change once the review is finalised and the plans are implemented.
Improving the quality of customer service will remain our key priority, as higher levels of
customer service are being demanded by our customers. Understanding our customers by accurate
market segmentation and tailoring services to meet their needs is a core requirement of our future
performance.
We have adopted the following capital management policies from fiscal 2005:
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declaration of ordinary dividends of around 80% of net profit after tax (before any
unusual items such as write downs of assets and investments); and |
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the return of A$1,500 million to shareholders each year until fiscal 2007 through
special dividends and/or share buy-backs, subject to maintaining our target financial
parameters. |
On 11 August 2005, the directors declared a fully franked final dividend of 14 cents per share
(A$1,742 million) and a fully franked special dividend of 6 cents per share (A$747 million). In
addition, we announced our intention to pay a fully franked special dividend of 6 cents per share
(A$747 million) with the interim dividend in fiscal 2006. The dividends are in accordance with our
capital management program and have been disclosed as a post balance date event in our financial
statements for fiscal 2005. The financial effect of these dividends will be recognised in fiscal
2006.
Legislation to enable the further sale of the Governments interest in us was enacted in September
2005. In March 2005, the Government appointed external business advisers to undertake a scoping
study to assess the possibility of a sale and to make recommendations to the Government. The
objective of the scoping study was to produce a comprehensive report addressing commercial, policy,
regulatory, financial, industry, project management and other issues relevant to divesting the
Commonwealths remaining interest. The scoping study was completed in June 2005 and advised that
the preferred timing for any sale of the Commonwealths remaining interest is late 2006. The
Government has stated that it will make a further decision in early 2006 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 in us.
63
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Sale legislation which forms part of a package of legislation, which will give effect to a
number of regulatory reforms including the introduction of an Australian model of operational
separation that will apply to our internal structure was enacted in September 2005. We expect
further regulatory developments to impact our Company as we progress towards full privatisation. We
will continue to assess the impact of these regulatory changes on us as the Government makes
further announcements with greater detail about its proposals for regulatory reform.
We will continue to focus on our existing Australian, New Zealand and Asian operations, and upon
global services to our multinational customers. After appropriate capital expenditure and returns
to shareholders, we expect that we will have sufficient remaining capacity to support well targeted
acquisitions of moderate scale that satisfy our strict financial evaluation criteria.
Competitive and regulatory environment
Refer to the Competition and regulation section of this annual report for information regarding
the competitive and regulatory environments in which we operate.
Management estimates and judgements in the application of our critical accounting policies
Our consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in Australia. Our significant accounting policies are fully described
in note 1 to our financial statements. The preparation of our financial statements requires
management to make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of off balance sheet arrangements, including
contingent liabilities. We continually evaluate our estimates and judgements, including those
related to investments, intangible assets, capitalisation of costs, property plant and equipment,
software assets developed for internal use, receivables and provisions.
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. This forms the basis for making judgements about the carrying values
of assets and liabilities, as well as reported revenues and expenses for the period, that are not
readily apparent from other sources. Actual results may differ from these estimates in the event
that the scenarios on which our assumptions are based prove to be different.
Our accounting policies have been developed over many years as the telecommunications industry and
Generally Accepted Accounting Principles or GAAP have evolved. As our financial statements are
prepared under AGAAP, our accounting policies are necessarily compliant with all aspects of AGAAP.
The future impact of adopting Australian equivalents to International Financial Reporting Standards
(A-IFRS) on our accounting policies has been evaluated as part of our A-IFRS convergence project.
Refer to Changes in accounting policies for further details.
In developing accounting policies, in addition to AGAAP requirements, we also consider
telecommunications industry practice in other countries. Further to this, where there is no
conflict with AGAAP, we also align our accounting policies with USGAAP. This reduces the number of
AGAAP/USGAAP reconciliation differences required to be adjusted in note 30 to our financial
statements.
In all material respects, our accounting policies are applied consistently across the Telstra Group
of companies. To the extent that the accounting policies of entities we account for under the
equity accounting method differ materially from ours, adjustments are made to the results of those
entities to align them with our accounting policies. The critical accounting policies discussed
below apply to all segments of our Company.
64
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
The following are the critical accounting estimates and judgements we have applied in
producing our AGAAP financial statements:
Carrying value of investments, goodwill and other intangibles
We assess the carrying value of our investments in controlled entities, associates, partnerships
and other investments, including acquired goodwill and other intangible assets, for impairment
semi-annually. Our assessments vary depending on the nature of the particular investment concerned
and generally include methodologies such as discounted cash flow analysis, review of comparable
revenue or earnings multiples, or in the case of listed investments, monitoring of market share
prices. These methodologies rely on factors such as forecasts of future operating performance, long
term growth rates in the business, and the selection of appropriate market determined, risk
adjusted discount rates.
If these forecasts and assumptions prove to be incorrect or circumstances change, we may be
required to write down the carrying value of our investments, goodwill and other intangibles. In
applying our assessments, we have not written down significant amounts of these assets during the
three-year period, except for the write down of our joint venture investment, REACH, by A$965
million in fiscal 2003. This investment was written down due to strong competition and excess capacity in the global market
for international data and Internet capacity that adversely impacted the profitability of REACH and
therefore the recoverability of our investment.
The carrying value of our investments in joint venture entities, associated entities and other
listed and unlisted entities was A$49 million as at 30 June 2005, A$120 million as at 30 June 2004
and A$255 million as at 30 June 2003. The carrying amount has reduced over the three-year period
due to the recognition of our share of equity accounted net losses and the disposal of our
interests in certain entities.
The carrying value of goodwill was A$2,287 million as at 30 June 2005, A$2,104 million as at 30
June 2004 and A$2,018 million as at 30 June 2003. On initial acquisition, and at each subsequent
reporting date, we assess the useful life of goodwill and other intangible assets as part of our
assessment of the carrying value of our investments. During the three-year period, the increase in
the carrying value of goodwill was attributable to our investment acquisitions including KAZ,
PSINet and the Trading Post, partially offset by the amortisation of goodwill.
The carrying value of our patents, trademark and licences, brandnames, customer bases and mastheads
was A$1,581 million as at 30 June 2005, A$1,501 million as at 30 June 2004 and A$1,146 million as
at 30 June 2003. The carrying value of these intangible assets is assessed semi-annually and
adjusted down where it exceeds recoverable amount. Recoverable amount is based on estimates of the
discounted value of expected future cash flows to be derived from the assets future use. These
intangible assets, with the exception of the 3G spectrum licence and mastheads, are amortised on a
straight-line basis over the period of expected benefit. The 3G spectrum licence, amounting to
A$302 million, has been held since 22 March 2001 and is not yet being amortised. Amortisation of
this licence will commence in fiscal 2006 in conjunction with the commencement of our 3G service.
The mastheads, amounting to A$448 million, were acquired as part of our acquisition of the Trading
Post during fiscal 2004. The mastheads have been assessed as having an indefinite life and are
therefore not amortised, however the carrying value continues to be re-assessed at each reporting
date.
Based on our most recent assessment of recoverable amount, we believe that as at 30 June 2005 our
investments, goodwill and other intangible assets are recoverable at the amounts at which they are
stated in our financial statements.
65
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Capitalisation of costs
When we incur costs, we classify them as either operating or capital expenditure. We expense
operating expenses to the statement of financial performance as they are incurred. We only
capitalise costs where we consider that they will generate future
economic benefits. Capital costs are recorded as assets and reported in our statement of financial
position 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:
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Deferred expenditure |
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We defer expenditure where it is probable that the future benefits embodied in the
particular asset will eventuate and can be reliably measured. Otherwise the expenditure is
expensed as incurred.
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 in 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 written
off as an expense in the statement of financial performance. A substantial portion of our
deferred expenditure relates to costs deferred under Staff Accounting Bulletin (SAB) 104
Revenue recognition. These costs directly relate to the deferred revenue associated with
basic access installation and connection costs, which are taken to the statement of
financial performance in line with the release of revenue as earned. Installation and
connection fee revenues are deferred and recognised over the average estimated customer
contract life, which for basic access is an average of 5 years. |
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Mobile handsets are sold as part of a service contract and are treated as a subscriber
acquisition cost.
When the mobile handset contract is for at least a period of two years, the cost of any
associated subsidy is deferred and written off over the average contract term, consistent
with the recognition of revenue from the contract. In addition, incentive and
administration fees associated with the acquisition of mobile subscribers in relation to
contracts that are for at least a period of two years are also deferred over the average
contract period. This average period takes into account various factors such as contract
length and early termination, and is reviewed by management each fiscal year to ensure the
amortisation of subscriber acquisition costs remains appropriate. Our deferred expenditure
after amortisation, including deferred mobile handset subsidies, was A$935 million as at 30
June 2005, A$894 million as at 30 June 2004 and A$796 million as at 30 June 2003. |
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Capitalisation of software assets developed for internal use |
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We capitalise costs associated with the development of network and business software for
internal use where we regard the success of a project to be probable. Management applies
judgement to assess this probability, the volume of costs capitalised as part of a project
and the amortisation period applied. |
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Costs within 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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borrowing costs incurred while developing the software. |
66
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Our capitalised software assets developed for internal use, after amortisation, were
A$2,003 million as at 30 June 2005, A$1,923 million as at 30 June 2004 and A$2,001 million
as at 30 June 2003. The recoverability of capitalised software assets is assessed
semi-annually at each reporting date. Where an incorrect assessment has been made about the
probability of the success of a project, we may be required to write down the value of the
software assets we have recorded. In applying our assessment, we have not written down
significant amounts of software assets developed for internal use during the three-year
period.
The service lives of software developed for internal use service lives are reviewed with
reference to global industry practices. As a result, in fiscal 2005 it was judged that for
administrative simplicity, internally developed software would, on average, have a useful
life of 6 years. The average useful life of 6 years has remained unchanged over the
three-year period and continues to be reviewed each year to ensure its appropriateness.
|
Indirect overheads and borrowing costs related to construction activities |
|
|
The cost of our constructed property, plant and equipment includes purchased materials,
direct labour, direct and indirect overheads and borrowing costs. Indirect overhead costs
are generally 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
used in determining this indirect cost pool. |
|
|
Where a part of a business unit consists of a work force whose role is predominantly the
management, design and construction of communication assets, then all indirect overhead
costs associated with the operations and management of that work force are allocated to the
projects undertaken by them. Indirect overheads are allocated monthly on the following
basis: |
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the total indirect overhead pool is determined for the organisational
area; |
|
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|
|
a listing of work in progress is generated by project that includes
all direct costs of that project. These projects are classified as either capital
or operating in nature; |
|
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|
|
the indirect overhead pool is allocated to each open project using
either the project costs or labour hours as the percentage weighting factor. As a
result, those projects that are classified as capital expenditure will be
allocated their proportion of indirect overheads; and |
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|
|
the remaining indirect overheads are then expensed as incurred,
usually representing indirect overheads in relation to operational expenditure
projects. |
Borrowing costs are capitalised on all assets constructed up to the point of
completion of construction. We do not specifically borrow to fund construction of assets
due to the constant nature of our construction process. We therefore maintain an underlying
level of borrowings to fund our construction. The allocation of borrowing costs to these
assets is general and does not reflect funds specifically borrowed for each asset.
Refer to Critical accounting policies applied in our USGAAP reconciliation for discussion
on amounts capitalised under USGAAP that have not been historically capitalised under
AGAAP.
67
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Carrying value and depreciation of property, plant and equipment
Property, plant and equipment assets made up 64% of our total assets in fiscal 2005, 65% in fiscal
2004 and 65% in fiscal 2003. 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 for disclosure purposes at least every three years, except properties that
are on a disposal program, which are subject to valuation every year.
We assess the recoverable amounts of our property, plant and equipment semi-annually, based on
expected future net cash flows discounted to present value. The discount rate used is a market
determined, risk adjusted rate. 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. We have
assessed our Australian telecommunications network to be working together for the purposes of this
assessment with the exception of the broadband network asset, as we do not consider the broadband
HFC network to be integrated with the rest of our telecommunications infrastructure. In addition,
the assessment of the carrying amount of property, plant and equipment for our offshore controlled
entities is also separately undertaken. If our estimates of future cash flows prove to be incorrect
we may be required to write down our assets in the future. In applying our assessments, we have not
written down significant amounts of property, plant and equipment during the three-year period.
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 our service life estimates and
international trends for other telecommunications companies. In relation to communications assets,
this assessment includes a determination of when our asset may be superseded technologically. We
use an 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.
The review of service lives is carried out prior to commencement of each new fiscal year.
The Director, Business and Finance Services approves all management judgments used in assessing
useful lives and changes to service lives. If our assessment of useful lives proves to be incorrect
we may incur either higher or lower depreciation charges in the future or, in certain
circumstances, be required to write down these assets. 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 2005 was a decrease in our depreciation expense by A$60 million, compared
with decreases of A$30 million in fiscal 2004 and A$94 million in fiscal 2003. The reassessment
affects our current year and future reporting periods depreciation expense, and ultimately our net
profit. The reassessment each particular year has reduced depreciation expense in that year, but
increases depreciation expenses recognised in subsequent years through to the end of the reassessed
useful life.
Valuation of receivables
We maintain provisions 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 provisions are based on historical
trends and managements assessment of general economic conditions. A provision 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 provision 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 provisions we raised will not sufficiently cover bad debts arising from the
receivables we currently have on hand.
68
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Our provision for doubtful debts was A$159 million as at 30 June 2005, A$196 million as at 30
June 2004 and A$199 million as at 30 June 2003. Trade debtors before any provision for doubtful
debts was A$2,630 million as at 30 June 2005, A$2,459 million as at 30 June 2004 and A$2,436
million as at 30 June 2003.
Included in our receivables is the loan to REACH of A$232 million as at 30 June 2005, compared with
A$226 million in fiscal 2004. During fiscal 2004, we together with our co-shareholder PCCW, bought
out a loan facility previously owed to a banking syndicate by REACH, and its controlled entity
Reach Finance Ltd. We have provided for this loan to REACH, amounting to A$232 million in fiscal
2005. The original provision of A$226 million was raised in fiscal 2004, significantly affecting
our net profit during fiscal 2004. We believe the amounts owed by REACH of A$232 million as at 30
June 2005 should continue to be fully provided for 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 have used 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 1 year of
balance date at present values of the future amounts expected to be paid. The calculation is
actuarially determined and includes the following factors:
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the estimated projected increases in wage and salary rates over an average of 10
years; |
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|
|
the probability of employees reaching their long service leave entitlement; |
|
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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 1 year
period ended 30 June, rather than the government bond rate as at 30 June. This approach was taken
to limit the impact of volatility in government bond rates experienced in previous years. Our
provision for employee benefits was A$946 million as at 30 June 2005, A$871 million as at 30 June
2004 and A$851 million as at 30 June 2003.
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$214 million as at 30 June 2005, A$216 million as at 30 June 2004
and A$236 million as at 30 June 2003.
In relation to our other provisions, we provide for our future obligations in regards to the
fit-out of our general purpose leased buildings when we have a legal, equitable or constructive
responsibility to do so. These costs include dismantling, removal, remediation and restoration
associated with the fit-outs. The provision for restoration costs is based on our estimate of these
costs, after due consideration of historical information and the appropriate review of lease
contracts and legal agreements. Restoration costs associated with mobile tower communication assets
situated on land held under operating leases are expensed as they become payable as they are not
considered to be significant to our financial results.
69
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Management estimates and judgements applied in our USGAAP reconciliation
We disclose our AGAAP/USGAAP reconciliation differences in detail in note 30 to our financial
statements. The adjustments that we believe have the most significant impact on the USGAAP
reconciliation are as follows:
Capitalisation of indirect overheads and borrowing costs before 1 July 1996 for property, plant and
equipment
Under AGAAP we did not capitalise indirect overheads and borrowing costs prior to 1 July 1996.
However, under USGAAP we were required to retrospectively reflect the policy as if we had always
capitalised indirect overheads and borrowing costs. 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 amortisation expense in our USGAAP reconciliation.
Property, plant and equipment with a net book value of A$493 million as at 30 June 2005, A$567
million as at 30 June 2004 and A$659 million as at 30 June 2003 has been capitalised for USGAAP
purposes, which was not capitalised under AGAAP. Additional depreciation and disposals have also
been recorded of A$74 million in fiscal 2005, A$92 million in fiscal 2004 and A$167 million in
fiscal 2003 as a result of this difference.
Defined benefit plan prepaid pension asset and retirement benefit gain/(loss)
We engage an actuary to assist in the determination of our prepaid pension asset and the retirement
benefit gain/(loss) under USGAAP. There is no requirement under AGAAP to recognise this asset or
the movement in the net pension asset in our statement of financial performance. The following are
the main assumptions used to calculate the adjustment:
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discount rate; |
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|
rate of increase on salary levels; and |
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|
expected long term rate of return on assets. |
These assumptions have a significant impact on the calculations and adjustments made, and are
disclosed in note 30(f) to our financial statements.
As at 30 June 2005, the net pension asset recognised under USGAAP was A$78 million, compared with
A$253 million as at 30 June 2004 and A$4,217 million as at 30 June 2003. The decrease in fiscal
2005 was due to the increase in the fair value of the plan assets being less than the increase in
the actuarially determined projected benefit obligations. The reduction in the net pension asset
recognised in fiscal 2004 compared with fiscal 2003 was mainly due to the settlement of obligations
under the Commonwealth Superannuation Scheme (CSS).
The CSS is a defined benefit scheme for Commonwealth Public Sector employees. Under
the CSS, we were responsible for funding all employer financed benefits that arose from 1 July 1975
for our employees who were members. The settlement of the CSS by the Commonwealth on 17 June 2004
resulted in a total loss of A$3,870 million being recognised in the statement of financial
performance in fiscal 2004 under USGAAP. This loss comprised the recognition of previously
unrecognised actuarial losses of A$2,725 million and a loss on settlement of A$1,145 million. The
unrecognised actuarial losses represented the balance of accumulated losses in relation to the CSS,
which arose as a result of applying the corridor approach permitted by Statement of Financial
Accounting Standards (SFAS) 87: Employers Accounting for Pensions.
70
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
For USGAAP purposes, settlement of the CSS obligations by the Commonwealth has crystallised
the actuarial losses. The loss on settlement of A$1,145 million represents the net pension surplus
of A$765 million in the statement of financial position as at 30 June 2003 under USGAAP and an
increase in the surplus of A$380 million in the period from 30 June 2003 to the settlement date.
These amounts were not recovered as part of the A$3,125 million received from the Commonwealth, as
these amounts were based on an actuarial review obtained at 30 June 2000 as required for USGAAP
reporting. The payment of A$3,125 million was based on a ministerial determination made in June
1997.
Refer to Off balance sheet arrangements for further details on the settlement of the CSS.
Use of Telstra applicable yield curves for the purposes of calculating the fair value of our
derivative financial instruments
We are not currently required to recognise the fair value of our derivative financial instruments
in the statement of financial position for AGAAP. Under USGAAP, we are required to recognise the
fair value of our derivative financial instruments in the statement of financial position. We
calculate fair value using a market adjusted yield curve to take into consideration the cost of
funding for Telstra. We adjust the base curves to reflect our borrowing margin. Our borrowing
margin for each currency and maturity are derived from secondary market trading levels of our bonds
issued in domestic and offshore markets. Where our bonds are not widely traded, the borrowing
margin is derived using advice from market dealers who are close to the market and can estimate the
level at which we could borrow. If market yield curves were applied which did not adjust for our
borrowing margin, this would result in different fair values being recognised.
The adjustment to the statement of financial position under USGAAP to recognise the fair value of
our forward foreign currency contracts, interest rate swaps and cross currency interest rate swaps
(along with the foreign currency borrowing) was a decrease to net assets in fiscal 2005 of A$95
million, an increase to net assets in fiscal 2004 of
A$269 million and a decrease to net assets in fiscal 2003 of A$405 million. Refer to note 30(l) to
our financial statements for further information.
Changes in accounting policies
Australian entities reporting under the Corporations Act 2001 must prepare their financial
statements for financial years commencing on or after 1 January 2005 under A-IFRS as adopted by the
Australian Accounting Standards Board (AASB). This will involve preparing our first full year set
of 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 statements using A-IFRS, except for AASB 132: Financial Instruments: Disclosure and
Presentation (AASB 132) and AASB 139: Financial Instruments: Recognition and Measurement (AASB
139) where comparative information is not required to be restated.
For reporting in the 2006 financial year, comparatives will be remeasured and restated for the
financial year ended 30 June 2005. Most of the adjustments on transition are required to be made to
opening retained profits at the beginning of the first comparative period (ie. at 1 July 2004).
We have a formal IFRS project team to manage the transition to A-IFRS and enable us to be prepared
to report for the first time in accordance with the timetable outlined above. The project team is
monitored by a governance committee comprising senior members of management, which reports
regularly on progress to the Audit Committee of the Telstra Board of Directors. The governance
committee is monitoring our adoption of A-IFRS in accordance with an established project
implementation plan. The committee has also been following the developments in IFRS and the
potential impact for our transition to A-IFRS.
71
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
The IFRS project is comprised of dedicated workstreams with project teams responsible for
evaluating the impact of a specific group of accounting changes resulting from the adoption of
A-IFRS. The technical evaluation phase of each workstream is substantially complete and the project
is in the implementation and review phases. The project is achieving its scheduled milestones and
we expect to be in a position to fully comply with the requirements of A-IFRS for the 2006
financial year.
Under A-IFRS, we expect our net profit after tax to be more volatile compared with our existing
Australian reporting requirements. However, we expect that the adoption of A-IFRS will not affect
our net cash flow, our ability to borrow funds or our capacity to pay dividends to our
shareholders. In note 1.4 to our financial statements, we have identified
the key differences in accounting policy and our known estimable transitional differences from
application of A-IFRS. In addition we have included the likely impacts on the fiscal 2005 result
and financial position where known, and the transitional adjustments for AASB 132/AASB 139 as at 1
July 2005. The following areas have been identified as significant for our A-IFRS disclosure:
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share based payments; |
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business combinations; |
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income taxes; |
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property, plant and equipment; |
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employee benefits; |
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changes in foreign exchange rates; |
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borrowing costs; |
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investments in associates and joint ventures; |
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impairment of assets; |
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intangible assets; and |
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financial instruments. |
Refer to note 1.4 to our financial statements for further details regarding the explanation of key
differences in accounting policies and the quantitative effects that are expected to arise on the
adoption of A-IFRS.
During fiscal 2005, no significant changes in accounting policies have been required or
implemented. Refer to note 1.2 to our financial statements for details regarding changes in our
accounting policies during the three-year period.
72
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Results of operations
Table 1 Results of operations
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Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in $ millions) |
|
(% change) |
|
|
|
Sales revenue |
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
6.9 |
|
|
|
1.2 |
|
Other revenue (excluding interest revenue) |
|
|
496 |
|
|
|
543 |
|
|
|
1,121 |
|
|
|
(8.7 |
) |
|
|
(51.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue (excluding interest revenue) |
|
|
22,657 |
|
|
|
21,280 |
|
|
|
21,616 |
|
|
|
6.5 |
|
|
|
(1.6 |
) |
Operating expenses (excluding borrowing costs, depreciation
and amortisation) |
|
|
11,895 |
|
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|
11,027 |
|
|
|
11,421 |
|
|
|
7.9 |
|
|
|
(3.4 |
) |
Share of net (profit)/loss from joint venture entities and associated
entities |
|
|
(9 |
) |
|
|
78 |
|
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|
1,025 |
|
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|
(111.5 |
) |
|
|
(92.4 |
) |
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|
|
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|
|
Earnings before interest, income tax expense, depreciation and
amortisation (EBITDA) (1) |
|
|
10,771 |
|
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|
10,175 |
|
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|
9,170 |
|
|
|
5.9 |
|
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|
11.0 |
|
Depreciation and amortisation |
|
|
3,766 |
|
|
|
3,615 |
|
|
|
3,447 |
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4.2 |
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4.9 |
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|
Earnings before interest and income tax expense (EBIT) (1) |
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|
7,005 |
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|
6,560 |
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|
|
5,723 |
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6.8 |
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14.6 |
|
Net borrowing costs |
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|
736 |
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|
|
712 |
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|
|
795 |
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3.4 |
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(10.4 |
) |
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Profit before income tax expense |
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|
6,269 |
|
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|
5,848 |
|
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|
4,928 |
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|
7.2 |
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|
18.7 |
|
Income tax expense |
|
|
1,822 |
|
|
|
1,731 |
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|
1,534 |
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|
5.3 |
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12.8 |
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|
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Net profit |
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|
4,447 |
|
|
|
4,117 |
|
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|
3,394 |
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|
8.0 |
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21.3 |
|
Outside equity interests in net loss |
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|
1 |
|
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|
35 |
|
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(100.0 |
) |
|
|
(97.1 |
) |
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|
Net profit available to Telstra Entity shareholders |
|
|
A$4,447 |
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|
A$4,118 |
|
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|
A$3,429 |
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8.0 |
|
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|
20.1 |
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(1) |
|
EBITDA reflects our net 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 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. EBITDA is not a USGAAP 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. |
During the three-year period, we have increased our sales revenue and net profit. Our operating
performance has been impacted by our recently acquired controlled entities and one-off significant
items.
In fiscal 2005, we acquired KAZ, PSINet and Universal Publishers Pty Ltd (Universal Publishers). In
addition, we acquired ESA Holding Pty Ltd and its controlled entity Damovo (Australia) Pty Ltd (now
known as Telstra Business Systems), and Damovo HK Limited. In fiscal 2004, we acquired Trading Post
and Cable Telecom (GB) Limited (Cable Telecom). As a result, our sales revenue and operating
expenses increased over the three-year period to reflect the consolidation of the trading activity
of these entities from their respective acquisition dates.
During fiscal 2005, we had no significant items that affected our overall movements in net profit,
other than our recent investment acquisitions. However, in fiscal 2004 and fiscal 2003, our
operating results were impacted by a number of one-off significant items, which gave rise to
movements in our overall net profit.
73
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
During fiscal 2004, the following items significantly affected our overall movements in net
profit:
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on 17 June 2004, Telstra and PCCW bought out a loan facility previously
owed to a banking syndicate by REACH and its controlled entity, REACH
Finance Limited. Our share of the payment in relation to this acquisition
amounted to US$155.5 million. At 30 June 2004, we provided for the non
recoverability of the debt, amounting to A$226 million, as we considered
that REACH will not be in a position to repay the amount in the medium term.
Refer to Related party transactions for further details; and |
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|
on 28 August 2003, we sold our 22.6% shareholding in our associated
entity IBM Global Services Australia Limited (IBMGSA). Proceeds from the
sale of this investment amounted to A$154 million, resulting in a profit
before income tax expense of A$149 million. As part of this disposal, we
modified a 10 year IT service contract with IBMGSA that resulted in an
expense of A$130 million being recognised in the statement of financial
performance and the removal of A$1,596 million of expenditure commitments
disclosed as at 30 June 2003. The sale of this investment and the
modification to our IT services contract was completed to enhance the
flexibility of our options in future reporting periods. The net impact on
our profit before income tax expense of this transaction was a profit of
A$19 million (A$58 million after taking into account income tax benefits). |
During fiscal 2003, the following items significantly affected our overall movements in net profit:
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on 21 February 2003, we wrote down our investment in REACH, resulting in
an increase to our share of net loss from joint venture entities and
associated entities of A$965 million. The write down occurred due to the
impact of the competitive environment in which REACH operates, with excess
capacity and falling Internet and data prices. Refer to International
business ventures for more detail; |
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|
on 1 August 2002, we sold a number of office properties which
contributed gross proceeds of A$570 million and resulted in a profit before
income tax expense of A$131 million (A$90 million after income tax expense).
In addition, we entered into operating leases totalling A$518 million in
relation to these properties. See Contractual obligations and commercial
commitments for further detail; and |
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during fiscal 2003, Australian legislation was enacted which enabled the
Telstra Entity and its Australian resident wholly owned entities to be
treated as a single entity for income tax purposes. The Telstra Entity, as
the head entity in this tax consolidated group, adopted this legislation
from 1 July 2002. On formation of the group, the Telstra Entity was able to
elect to reset the tax values of a subsidiary member under certain
allocation rules. The reset of tax values resulted in a tax benefit of A$201
million being recognised in fiscal 2003 and subsequent analysis resulted in
an additional benefit of A$58 million being recognised in fiscal 2004. Refer
to note 4 to our financial statements and the Income tax expense section
for further discussion. |
Excluding these one-off significant items, our net profit before income tax expense was A$6,269
million in fiscal 2005, compared with A$6,055 million in fiscal 2004 and A$5,762 million in fiscal
2003. During the three-year period, our sales revenue has shown steady growth 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 relation to our operating expenses, we continue to focus on our
operating efficiency to improve our cost structure and identify cost reductions. In fiscal 2005,
our expense increase was led by the consolidation of expenses of our recently acquired controlled
entities such as KAZ. In addition, we experienced further expense growth across various categories
to support our growth products such as broadband and pay television, as well as improving our
customer service.
74
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Operating revenue
In the following discussion, we analyse revenue for each of our major products and services.
The principal areas of operating revenue growth over the three-year period were:
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mobiles; |
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|
|
Internet and IP solutions; |
|
|
|
|
advertising and directories; and |
|
|
|
|
Pay television bundling (included within our other sales and services revenue category). |
In fiscal 2005, our sales revenue growth was partially offset by a 3.4% decline in PSTN product
revenues as the market continues to move towards new products and services to satisfy their
requirements. This decline was partly offset by the ongoing impact of price re-balancing
initiatives. In fiscal 2004 compared with fiscal 2003, PSTN product revenues increased by A$68
million or 0.9%.
Over the three-year period, we have continued our program of price re-balancing for our PSTN
products that commenced in fiscal 2000. As part of this program, we have increased basic access
charges and reduced local, national and international long distance call charges. At the same time,
competition has continued to intensify and as a result, we have lost market share in some of our
retail products. Over the three-year period, we have also seen a continued shift in revenue from
our traditional higher margin retail operations (such as our PSTN products) to our emerging lower
margin retail products (such as mobiles, broadband, and application and content services). In
addition to the price re-balancing that has impacted PSTN, we have continued to concentrate on
product bundling initiatives, improving our call completion rates and managing the migration of
customers to other products.
We expect that there will be continued competitive pressure in some of our traditional product
areas, as competition becomes more intense in the future. We expect to continue to lose market
share in some of our retail markets as a result of the increasing competition. However, the volume
of telecommunications services purchased in Australia has increased and the range of products and
services offered continues to expand. Based on the overall growth anticipated in the volume of
telecommunication services, we expect our operating revenue to continue to benefit from this
growth.
Our PSTN products have historically generated most of our sales revenue and continue to be a
significant cash flow generator for the Company, representing 34.0% of our total operating revenue
(excluding interest revenue) in fiscal 2005. While revenue from these products declined in fiscal
2005, we have evidenced continued growth in mobiles, and the other emerging areas of our business
such as broadband.
75
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Table 2 Operating revenue by product and service category, including the percentage of
total operating revenue contributed by each product and service category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
(in
millions, except percentage of revenue) |
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
total |
|
$ |
|
total |
|
$ |
|
total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSTN products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access |
|
|
3,362 |
|
|
|
15 |
|
|
|
3,237 |
|
|
|
15 |
|
|
|
3,083 |
|
|
|
14 |
|
Local calls |
|
|
1,284 |
|
|
|
6 |
|
|
|
1,504 |
|
|
|
7 |
|
|
|
1,567 |
|
|
|
7 |
|
PSTN value added services |
|
|
250 |
|
|
|
1 |
|
|
|
259 |
|
|
|
1 |
|
|
|
280 |
|
|
|
1 |
|
National long distance calls |
|
|
1,013 |
|
|
|
4 |
|
|
|
1,121 |
|
|
|
5 |
|
|
|
1,162 |
|
|
|
6 |
|
Fixed to mobile |
|
|
1,566 |
|
|
|
7 |
|
|
|
1,597 |
|
|
|
8 |
|
|
|
1,517 |
|
|
|
7 |
|
International direct |
|
|
234 |
|
|
|
1 |
|
|
|
266 |
|
|
|
1 |
|
|
|
307 |
|
|
|
2 |
|
|
|
|
|
|
|
7,709 |
|
|
|
34 |
|
|
|
7,984 |
|
|
|
37 |
|
|
|
7,916 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobiles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services |
|
|
3,760 |
|
|
|
17 |
|
|
|
3,470 |
|
|
|
16 |
|
|
|
3,239 |
|
|
|
15 |
|
Mobile handsets |
|
|
381 |
|
|
|
2 |
|
|
|
352 |
|
|
|
2 |
|
|
|
386 |
|
|
|
2 |
|
|
|
|
|
|
|
4,141 |
|
|
|
19 |
|
|
|
3,822 |
|
|
|
18 |
|
|
|
3,625 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and Internet services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP solutions |
|
|
1,377 |
|
|
|
6 |
|
|
|
1,013 |
|
|
|
5 |
|
|
|
817 |
|
|
|
4 |
|
ISDN products |
|
|
890 |
|
|
|
4 |
|
|
|
927 |
|
|
|
4 |
|
|
|
942 |
|
|
|
4 |
|
Specialised data |
|
|
966 |
|
|
|
4 |
|
|
|
1,035 |
|
|
|
5 |
|
|
|
1,059 |
|
|
|
5 |
|
|
|
|
|
|
|
3,233 |
|
|
|
14 |
|
|
|
2,975 |
|
|
|
14 |
|
|
|
2,818 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products and services
Advertising and directories |
|
|
1,585 |
|
|
|
7 |
|
|
|
1,341 |
|
|
|
7 |
|
|
|
1,205 |
|
|
|
6 |
|
Intercarrier services |
|
|
1,146 |
|
|
|
5 |
|
|
|
1,103 |
|
|
|
5 |
|
|
|
1,136 |
|
|
|
5 |
|
Inbound calling products |
|
|
449 |
|
|
|
2 |
|
|
|
476 |
|
|
|
2 |
|
|
|
494 |
|
|
|
2 |
|
Solutions management |
|
|
931 |
|
|
|
4 |
|
|
|
508 |
|
|
|
2 |
|
|
|
501 |
|
|
|
2 |
|
Offshore controlled entities |
|
|
1,611 |
|
|
|
7 |
|
|
|
1,431 |
|
|
|
7 |
|
|
|
1,544 |
|
|
|
7 |
|
Other sales and services |
|
|
1,356 |
|
|
|
6 |
|
|
|
1,097 |
|
|
|
5 |
|
|
|
1,256 |
|
|
|
6 |
|
|
|
|
|
|
|
7,078 |
|
|
|
31 |
|
|
|
5,956 |
|
|
|
28 |
|
|
|
6,136 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales revenue |
|
|
22,161 |
|
|
|
98 |
|
|
|
20,737 |
|
|
|
97 |
|
|
|
20,495 |
|
|
|
95 |
|
|
|
|
Other revenue (excluding interest revenue) |
|
|
496 |
|
|
|
2 |
|
|
|
543 |
|
|
|
3 |
|
|
|
1,121 |
|
|
|
5 |
|
|
|
|
Total operating revenue (excluding interest revenue) |
|
|
A$22,657 |
|
|
|
100 |
|
|
A$ |
21,280 |
|
|
|
100 |
|
|
|
A$21,616 |
|
|
|
100 |
|
|
|
|
|
|
|
(1) |
|
Other revenue includes miscellaneous revenue and revenue from sale of assets and
investments. Refer table 18. Interest revenue is included in net borrowing costs. Refer table 25. |
76
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Categorisation of our operating revenue
We categorise revenue from the products and services we sell to wholesale customers according
to the nature of the product or service. For example, we categorise operating revenue from
interconnect charges as intercarrier services revenue. On the other hand, we categorise operating
revenue from other resale services according to the product or service resold. For instance, basic
access and local call revenue is recognised against basic access and local call products.
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 customers are subject to regulated price caps
The rates we charge our retail customers for some telephony products are subject to price
controls. These controls impose caps based on annual increases in the consumer price index (CPI)
for the previous year adjusted, in some cases, by a specified percentage. The retail price controls
that applied from fiscal 2003 to fiscal 2005 include a cap of CPI plus 4% for line rental and CPI
less 4.5% on a calls basket comprising local calls, long distance calls, international calls and
fixed to mobile calls. We are required to ensure that the average price for local calls in non
metropolitan areas does not exceed the average price for local calls in metropolitan areas from the
prior year. In addition, our local call prices in all areas of Australia must not exceed the
current A$0.22 (GST included) per call, except for calls from payphones which are capped at A$0.40
(GST included) per call, or calls in a plan for which the line rental is lower than standard.
In recent years we have reduced prices for a number of our products and services ahead of the rate
of reduction required under the regulations in order to be competitive.
Amendments to the price control regulations in fiscal 2000 allowed us to re-balance line rental and
calling charges, which we have been implementing since then. We have continued the introduction of
a number of calling plan options during the three-year period aimed at creating options to suit
different customer segments.
The Commonwealth Government has extended its existing price control arrangements for a further six
months from 30 June 2005 to 31 December 2005. In August 2005, the Commonwealth Government announced
new retail price controls for Telstra that will apply from 1 January 2006 once the required
legislation has passed through Australian parliament. These new price controls will require us to:
|
|
|
maintain the A$0.22 cap (GST included) on untimed local calls; |
|
|
|
|
ensure parity in the local call prices offered to regional and metropolitan customers; |
|
|
|
|
cap increases in the charges for fixed line connections to the inflation rate; |
|
|
|
|
ensure that on average, a basket of line rental, local calls, long distance calls, international calls and
fixed to mobile calls will not increase in price; and |
|
|
|
|
ensure we have a package of services targeted specially to low income customers. |
The new price controls will no longer cover services provided to large businesses.
77
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
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. It
excludes our internal charges to calling products for the use of our network. Basic access revenues
are affected by:
|
|
|
housing growth; |
|
|
|
|
competition; |
|
|
|
|
demand for telephone services and additional lines; |
|
|
|
|
customers moving to our other higher value access services, such as ISDN, ADSL and mobiles; |
|
|
|
|
pricing changes; and |
|
|
|
|
general economic conditions. |
Table
3 Basic access
}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
Retail |
|
|
2,725 |
|
|
|
2,717 |
|
|
|
2,669 |
|
|
|
0.3 |
|
|
|
1.8 |
|
Domestic wholesale |
|
|
637 |
|
|
|
520 |
|
|
|
414 |
|
|
|
22.5 |
|
|
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic access revenue |
|
|
A$3,362 |
|
|
|
A$3,237 |
|
|
|
A$3,083 |
|
|
|
3.9 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access lines in service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (1) |
|
|
5.60 |
|
|
|
5.87 |
|
|
|
6.10 |
|
|
|
(4.6 |
) |
|
|
(3.8 |
) |
Business |
|
|
2.45 |
|
|
|
2.57 |
|
|
|
2.71 |
|
|
|
(4.7 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
8.05 |
|
|
|
8.44 |
|
|
|
8.81 |
|
|
|
(4.6 |
) |
|
|
(4.2 |
) |
Domestic wholesale |
|
|
2.07 |
|
|
|
1.84 |
|
|
|
1.55 |
|
|
|
12.5 |
|
|
|
18.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total access lines in service |
|
|
10.12 |
|
|
|
10.28 |
|
|
|
10.36 |
|
|
|
(1.6 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates.
(1) Excludes incontact services (a free service with restrictive calling access) and advanced
access services such as ISDN services. Comparatives have been restated to reflect the exclusion of
incontact services. |
Our operating revenue from basic access services increased in both the retail and domestic
wholesale markets over the three-year period, primarily as a result of access price re-balancing
first introduced in fiscal 2000, which more than offset decreasing total services in operation
(SIOs). Price re-balancing relates to our initiative of increasing basic access charges within our
regulatory allowances to counteract the price reductions in local, national long distance and
international calls.
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. At different times, a variety of promotions and different pricing options are also
offered to encourage our customers to connect additional lines. 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 the
three-year period. These competitive forces have resulted in a shift from retail to wholesale
access lines. Over the three-year period, the number of residential and business basic access lines
decreased due to strong competition
78
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
and migration to alternative products such as ISDN, broadband and mobiles. Domestic wholesale
basic access lines in service grew, reflecting the increased penetration of our competitors into
the basic access market.
During the three-year period, basic access revenue for retail operations grew primarily due to
increases in basic access prices, partly offset by a decrease in retail SIOs and the inclusion of
pensioner discounts. From March 2003, the pensioner discounts were removed from PSTN calling
products and applied to basic access charges. Our domestic wholesale revenue also increased over
the three-year period, reflecting a rise in the number of wholesale access lines in service,
competition and price increases as part of our re-balancing initiatives.
During the three-year period, we introduced various basic access packages, which had a positive
effect on revenue growth in this area, despite an overall decrease in basic access lines in
service. Some of these significant price initiatives included:
|
|
|
a range of fixed line price changes from June 2004, which included a rise in basic access
prices for residential plans, an increase in concessions for pensioners, the introduction of fees
for credit card payments and a new rewards program for customers with multiple eligible services;
and
|
|
|
|
|
increases in certain residential and business basic access prices from July 2003. |
We believe our focus on bundling of products encourages customers to stay with us as their sole
service provider. In fiscal 2004, we introduced our rewards program, known as the T-time Reward
Options. This program provides customer rewards such as free local calls and free text messages for
those customers with multiple eligible services. |
Local calls (including PSTN value added services)
Our local call revenue comes from our local call charges and from value added services such as
voicemail, call waiting, call forwarding, call conferencing and our call return feature. For the
most part we charge for local calls without a time limit.
Our local calls revenue are affected by:
|
|
|
the number of basic access lines in service and customers moving from our basic access service
to our enhanced access services, such as ISDN and broadband; |
|
|
|
|
competition; |
|
|
|
|
customers migrating to mobile and fixed to mobile calling; |
|
|
|
|
pricing changes; and |
|
|
|
|
general economic conditions. |
79
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Table
4 Local calls (including PSTN value added services) }
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
Local call revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
1,032 |
|
|
|
1,263 |
|
|
|
1,348 |
|
|
|
(18.3 |
) |
|
|
(6.3 |
) |
Domestic wholesale |
|
|
252 |
|
|
|
241 |
|
|
|
219 |
|
|
|
4.6 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284 |
|
|
|
1,504 |
|
|
|
1,567 |
|
|
|
(14.6 |
) |
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSTN value added services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
200 |
|
|
|
221 |
|
|
|
247 |
|
|
|
(9.5 |
) |
|
|
(10.5 |
) |
Domestic wholesale |
|
|
50 |
|
|
|
38 |
|
|
|
33 |
|
|
|
31.6 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
259 |
|
|
|
280 |
|
|
|
(3.5 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total local call revenue |
|
|
A$1,534 |
|
|
|
A$l,763 |
|
|
A$1.847 |
|
|
(13.0 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Number of local calls |
|
|
8,469 |
|
|
|
9,397 |
|
|
|
9.794 |
|
|
|
(9.9 | ) |
|
|
(4.1 |
) |
|
Note: statistical data represents managements best estimates. |
During the three-year period, local call revenue decreased to A$1,284 million in fiscal 2005
mainly due to the decline in retail local call revenue, partly offset by growth in wholesale local
call revenue. Retail revenue for local calls has been negatively affected by price decreases,
primarily as a result of price re-balancing between our basic access charges and calling products.
In addition, intense price competition has adversely affected our retail local call revenue. This
competition resulted in our wholesale local call revenue increasing due to a higher number of
wholesale access lines in service. In fiscal 2005, the yield in the wholesale market also declined
as a result of a rise in volume discounts. Overall call usage declined due to the migration to
mobile usage as a substitute.
During the three-year period, we decreased local call prices as an offset to higher basic access
fees. We continue to offer a certain number of free local calls to eligible customers as part of
our T-time Reward Options program, which was first introduced in fiscal 2004. We also accelerated
our package and volume discounts (including various free calling offers) during the second half of
fiscal 2005. In fiscal 2004 compared with fiscal 2003, our price reductions were partly offset by
the transfer of pensioner discounts to basic access in March 2003, and the removal of reduced rate
neighbourhood calls for certain customers on various plans.
Generally, call volumes have continued to fall over the three-year period, reflecting the impact of
customers migrating to other products, such as mobiles, fixed to mobile, Internet and ISDN
products. This is highlighted by the fact that SIOs decreased by only 1.6% over fiscal 2005 and
0.8% over fiscal 2004, while the number of local calls reduced by 9.9% over fiscal 2005 and 4.1%
over fiscal 2004.
Our revenue from PSTN value added services declined over the three-year period. This decrease was
driven by a reduction in revenue from MessageBank® (our voicemail service), reflecting the
continual migration to our free product offering Telstra Home Message 101, discounts offered as
part of bundling offers and a price reduction in May 2003. In addition, in fiscal 2005 certain
products neared the end of their product lifecycle such as PABX indial, resulting in customer
migration to other product offerings such as ISDN and other premium voice communication
applications.
Call Return (*10#) revenue also steadily declined over the three-year period. In fiscal 2005, the
reduction was led by an increase in our calling number display subscriptions and higher call
completion rates. In fiscal 2004 compared with fiscal 2003, the decrease was due to advertising
campaigns focused on alternative product offerings such as Call 1# Feature Assistant and Telstra
Home Message 101.
80
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
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. 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 also impacted by customers migrating to mobile and fixed to mobile calling.
Table
5 National long distance calls
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 July |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
National long distance call revenue |
|
|
A$1,013 |
|
|
|
A$1,121 |
|
|
|
A$1,162 |
|
|
|
(9.6 |
) |
|
|
(3.5 |
) |
National
long distance minutes1 |
|
|
7,743 |
|
|
|
8,520 |
|
|
|
9,161 |
|
|
|
(9.1 |
) |
|
|
(7.0 |
) |
|
Note: statistical data represents managements best estimates.
(1) Includes national long distance minutes from PSTN and independently operated payphones to
Australian fixed telephones. Excludes minutes related to calls from non PSTN networks, such as ISDN
and virtual private networks. |
Our operating revenue from national long distance calls declined during the three-year period
to A$l,013 million in fiscal 2005, primarily due to:
|
|
|
capping of prices for some national long distance calls due to the competitive pricing
environment in which we operate, partially offset by increases in call connection costs; |
|
|
|
|
increased take up of re-balanced packages with capped calls by customers; |
|
|
|
|
loss of customers through increased competition in the local call market, as customers who
change their provider for local call services tend to select the same provider for long distance
services; and |
|
|
|
|
customers using alternative products, such as mobiles and Internet products. |
Over the three-year period, the decline in minutes in use was also attributable to the shorter call
durations. In addition, in fiscal 2004 compared with fiscal 2003, we were impacted by the transfer
of pensioner discounts to basic access charges and the cessation of the 1c Saturday promotion,
where calls to long distance locations were capped at 1 cent per minute. This promotion had
increased minutes of use in fiscal 2003.
81
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
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 customer migration to fixed to
mobile, mobiles and Internet products.
Fixed to mobile
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 between business and residential
customers. The growth of the Australian mobile telecommunications market has driven revenue
expansion in this product category.
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 became
the customers provider for fixed to mobile calls.
Table
6 Fixed to mobile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
Fixed to mobile revenue |
|
|
A$1,566 |
|
|
|
A$1,597 |
|
|
|
A$1,517 |
|
|
|
(1.9 |
) |
|
|
5.3 |
|
Fixed to
mobile minutes |
|
|
4,375 |
|
|
|
4,226 |
|
|
|
3,944 |
|
|
|
(3.5 |
) |
|
|
7.2 |
|
|
|
|
|
|
Note: statistical data represents managements best estimates. |
Over the three-year period, we experienced strong growth in call volumes mainly due to the
continued expansion of mobile services in the Australian market.
In fiscal 2005, our fixed to mobile revenue decreased by 1.9% to A$1,566 million due to increased
competitive pricing pressures in the business sector, partly offset by growth in call minutes and a
rise in call connection rates. Our fixed to mobile revenue increased by 5.3% to A$l,597 million in
fiscal 2004 compared with fiscal 2003 due to the rise in minutes of use and higher call connection
rates. This growth was partly offset by reduced per minute prices for fixed to mobile calls and
lower capped calling.
Fixed to mobile revenue may be negatively affected in future reporting periods if we lose market
share in local calls. This is because customers will generally choose the same carriage service
provider for fixed to mobile and national long distance calls as they do for local calls.
International direct
Our operating revenue from international direct relates to revenue we generate from
international calls made from Australia to a destination outside Australia (outbound).
Our operating revenue from
international outgoing calls is largely driven by general economic
conditions, customer perceptions about the cost and value of our service, competition, and promotion
and advertising.
82
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
Table
7 International direct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June | |
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
International direct revenue |
|
|
A$234 |
|
|
|
A$266 |
|
|
|
A$307 |
|
|
|
(12.0 |
) |
|
|
(13.4 |
) |
International direct minutes |
|
|
580 |
|
|
|
651 |
|
|
|
740 |
|
|
|
(10.9 |
) |
|
|
(12.0 |
) |
|
Note: statistical data represents managements best estimates. |
Our international direct revenue continued to decline over the three-year period to A$234
million in fiscal 2005 primarily due to the reduction in call minutes. The decrease reflects the
continued impact of aggressively priced prepaid calling cards by our competitors and the migration
of customers to other products such as email and Internet chat facilities. In fiscal 2004 compared
with fiscal 2003, the yield also declined as a result of an increase in capped call usage and
discount plan offerings, offset by the removal of pensioner discounts from calling products to
basic access and a call connection rate increase.
Various packages, such as HomeLine Plus, were introduced as part of our price re-balancing
strategy and to address competitive pressures. These packages encourage customer loyalty and
provide them with options to select pricing structures that suit their telephony spending patterns.
These packages have significantly reduced the calling rates we charge for some international
countries, and consequently our outbound international revenue also decreased over the three-year
period.
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® and mobile data. We
operate two primary mobile networks, GSM and CDMA. The CDMA provides extensive coverage and high
speed wireless data services. As a result, new customers are increasingly connecting to our CDMA
network and it continues to be one of the fastest growing areas of our mobiles business.
In fiscal 2003, we launched high speed data services into selected areas of our CDMA network that
was based on the 1 times radio transmission technique (IxRTT). We also launched Telstra Mobile
Loop® on IxRTT to our customers, featuring downloadable games and ringtones, email access and
picture messaging. In fiscal 2004, we commenced the rollout of 1xRTT across the balance of the
CDMA1x network, providing high speed wireless data services across the complete CDMA coverage
footprint. In fiscal 2005, we continued the technological improvements including the roll out of
super high speed wireless services, known as EVDO, and further improvements in our Blackberry
products. These product enhancements have contributed to the strong growth in the number of our
mobile customers, as evidenced by us exceeding 8 million mobile customers, including 1 million CDMA
mobile customers, during fiscal 2005.
The mobile telecommunications market has continued its strong growth during the three-year period,
stimulated by the introduction of low access fee plans and the increasing popularity of prepaid
offerings. While voice continues to be the largest contributor to mobiles revenue, value added
services is also expanding, representing 25.8% of mobile services revenue in fiscal 2005. With
competition intensifying,
83
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
technology continues to be a source of differentiation and competitive advantage. Further
improvement is expected in value added services, particularly data revenues through the
introduction of our 3G offerings and improvements in customer retention.
Table 8 Mobiles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
in millions) |
|
(% change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access fees and call charges |
|
|
2,765 |
|
|
|
2,649 |
|
|
|
2,570 |
|
|
|
4.4 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value added services: |
|
|
243 |
|
|
|
174 |
|
|
|
153 |
|
|
|
39.7 |
|
|
|
13.7 |
|
Mobile MessageBank® |
|
|
187 |
|
|
|
178 |
|
|
|
166 |
|
|
|
5.1 |
|
|
|
7.2 |
|
Mobile data |
|
|
541 |
|
|
|
454 |
|
|
|
338 |
|
|
|
19.2 |
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total value added services |
|
|
971 |
|
|
|
806 |
|
|
|
657 |
|
|
|
20.5 |
|
|
|
22.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services revenue retail |
|
|
3,736 |
|
|
|
3,455 |
|
|
|
3,228 |
|
|
|
8.1 |
|
|
|
7.0 |
|
Mobile services revenue wholesale |
|
|
24 |
|
|
|
15 |
|
|
|
11 |
|
|
|
60.0 |
|
|
|
36.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,760 |
|
|
|
3,470 |
|
|
|
3,239 |
|
|
|
8.4 |
|
|
|
7.1 |
|
Mobile handset sales |
|
|
381 |
|
|
|
352 |
|
|
|
386 |
|
|
|
8.2 |
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Mobiles
revenue(1) |
|
|
A$4,141 |
|
|
|
A$3,822 |
|
|
|
A$3,625 |
|
|
|
8.3 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile retail voice telephone minutes (2) |
|
|
6,746 |
|
|
|
6 145 |
|
|
|
5 255 |
|
|
|
9.8 |
|
|
|
16 9 |
|
Number of SMS sent (3) |
|
|
2,289 |
|
|
|
1,944 |
|
|
|
1,426 |
|
|
|
17.7 |
|
|
|
36.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile SIO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSM |
|
|
6,894 |
|
|
|
6,653 |
|
|
|
5 812 |
|
|
|
3.6 |
|
|
|
14.5 |
|
CDMA |
|
|
1,333 |
|
|
|
951 |
|
|
|
757 |
|
|
|
40.2 |
|
|
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile SIO (4) |
|
|
8,227 |
|
|
|
7,604 |
|
|
|
6,569 |
|
|
|
8.2 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile SIO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid |
|
|
3,570 |
|
|
|
3,102 |
|
|
|
2,288 |
|
|
|
15.1 |
|
|
|
35.6 |
|
Postpaid |
|
|
4,657 |
|
|
|
4 502 |
|
|
|
4 281 |
|
|
|
3.4 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile
SIO (4) |
|
|
8,227 |
|
|
|
7,604 |
|
|
|
6,569 |
|
|
|
8.2 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deactivation
rate (4) |
|
|
19.2 |
% |
|
|
17.1 |
% |
|
|
18.4 |
% |
|
|
2.1 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in A$per SIO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
retail revenue per user per month(5) |
|
|
39.33 |
|
|
|
40.62 |
|
|
|
42.99 |
|
|
|
(3.2 |
) |
|
|
(5.5 |
) |
Average
retail prepaid revenue per user per month(5) |
|
|
12.24 |
|
|
|
13.84 |
|
|
|
13.78 |
|
|
|
(11.6 |
) |
|
|
0.4 |
|
Average
retail postpaid revenue per user per month(5) |
|
|
59.06 |
|
|
|
57.05 |
|
|
|
57.59 |
|
|
|
3.5 |
|
|
|
(0.9 |
) |
Average mobile data revenue per user per month |
|
|
5.70 |
|
|
|
5.34 |
|
|
|
4.51 |
|
|
|
6.7 |
|
|
|
18.4 |
|
84
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
Table 8 Mobiles (continued)
|
|
|
|
|
Note: statistical data represents managements best estimates. |
|
(1} |
|
Mobile revenue excludesrevenue from:
call termination charges, including calls from our fixed network which we categorise as
fixed to mobile; and
CSL, which we recognise within our offshore controlled entities revenue category. See table
16.
|
(2) |
|
Includes all calls made from mobile telephones including long distance and international
calls. Excludes international roaming, MessageBank®, mobile data and CSL.
|
|
(3) |
|
Comparatives have been restated to reflect business access manager and online SMS previously
excluded in error.
|
|
(4) |
|
Excludes CSL SIOs and includes the impact of the deactivation policy change to the standard
recharge period. Deactivations have been impacted by the recharge period for prepaid services being
extended to six months during fiscal 2004 in line with the general market position. The
deactivation rate excludes transfers of account names, services between Telstras GSM and CDMA
networks, and services between prepaid and postpaid categories.
|
|
(5) |
|
Average retail revenue per user per month is calculated using average SIOs and includes
international roaming, MessageBank® and mobile data revenues. |
During the three-year period, mobile service revenue increased mainly due to the continued
strong growth in the number of mobile telephone customers and expanding minutes of use. In
addition, we experienced further growth in our value added services revenue.
Access fees and call charges grew over the three-year period to A$2,765 million in fiscal 2005
reflecting the increase in prepaid and postpaid SIOs in conjunction with an increase in retail
voice telephone minutes. In fiscal 2005, the growth was partly offset by yield reductions from
various special offers such as the 1 cent per minute and double recharge offers on our prepaid
services, and the Bonus Options, Telstra Rewards and T-time Rewards options on our postpaid
services. In fiscal 2004 compared with fiscal 2003, our growth was partly offset by a rise in
loyalty bonuses and discounting provided due to customers receiving various benefits on Telstra
Rewards offers such as free family call credits. Wholesale mobile service revenue increased over
the three-year period due to a rise in the resale of services and minutes of use.
Over the three-year period, volumes and SIOs accelerated, however there has been a continual change
in customer mix with new customers preferring to connect to prepaid services. As at 30 June 2005,
prepaid SIOs comprised 43.4% of total SIOs, up from 40.8% as at 30 June 2004 and 34.8% as at 30
June 2003. Prepaid customers generally have lower usage patterns than postpaid customers and the
myriad of discounting initiatives on offer led to a decline in the average retail prepaid revenue
per user per month to A$12.24 in fiscal 2005 compared with A$13.84 in fiscal 2004 and A$13.78 in
fiscal 2003. The market trend to prepaid services also contributed to the average retail revenue
per user per month decreasing over the three-year period to A$39.33 in fiscal 2005 compared with
A$40.62 in fiscal 2004 and A$42.99 in fiscal 2003.
Revenue from international roaming grew over the three-year period to A$243 million in fiscal 2005.
The rise in fiscal 2005 was primarily due to an increase in outbound roaming minutes in line with
the continued growth in international travel. In addition, inbound roaming prices charged to
wholesale partners grew, reflecting our alignment to international standards. In fiscal 2004
compared with fiscal 2003, revenue was higher mainly due to increased volumes coinciding with the
Rugby World Cup and the recovery in international travel after various world events such as the
SARS virus outbreak.
Revenue from MessageBank® increased over the three-year period to A$187 million in fiscal 2005
primarily due to growth in MessageBank® minutes resulting from higher mobile usage. In fiscal 2005,
the growth was partly offset by discounting initiatives. In fiscal 2004 compared with fiscal 2003,
the growth in minutes was partially offset by lower retrieval charges.
85
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
Mobile data revenue increased over the three-year period to A$541 million in fiscal 2005 led by
growth in the total subscriber base and SMS usage. The growth was partially offset by a rise in the
availability and use of discounting initiatives such as Telstra Rewards and Bonus Options, which
provides various free and discounted text and picture messaging services. In addition, mobile data
growth was also experienced in the corporate segment through the accelerated usage of General
Packet Radio Service (GPRS) products, including Blackberry and Telstra Mobile Broadband products
on the CDMA network. This is reflected in the average mobile data revenue per user per month
increasing over the three-year period.
Revenue from handset sales increased by 8.2% to A$381 million in fiscal 2005 primarily due to
growth in the number of CDMA prepaid customers taking advantage of the CDMA double recharge offers,
which increased the number of prepaid phones sold. In fiscal 2004, revenue from handset sales
decreased by 8.8% compared with fiscal 2003 due to the higher number of mobile users moving to
lower cost prepaid handsets and higher volumes of subsidised handsets expensed.
Our deactivation rate has remained fairly stable over the three-year period. Our deactivation rate
is influenced by a number of factors, the most significant of which is competition from other
carriers. In fiscal 2004 the recharge only period for prepaid services was extended to six months
in line with our competitors. This change resulted in the continuation of approximately 202,000
prepaid services as at 30 June 2004 that would have been deactivated in previous periods. Other
factors influencing the deactivation rate included customer payment defaults and short term
disconnections.
Data and Internet services
Our operating revenue from data and Internet services is driven primarily by:
|
|
|
demand for capacity to support business networking; |
|
|
|
|
the increased use of data services by small to medium enterprises (SMEs); |
|
|
|
|
the introduction of new products to meet customer needs; |
|
|
|
|
the increased use of the Internet by businesses and consumers; |
|
|
|
|
the movement of our customers from basic access and associated calling products to other
access services, such as ISDN and ADSL; and |
|
|
|
|
demand for greater bandwidth services such as broadband. |
While the data and Internet markets have been experiencing growth, competition has put pressure on
our prices. We expect that these trends will continue.
Tables 9,10 and 11 show information about our various data and Internet services.
86
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
Table 9 Internet and IP solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
in millions, except subscriber numbers in |
|
|
|
|
|
|
thousands) |
|
(% change) |
|
|
|
BigPond® narrowband |
|
|
275 |
|
|
|
295 |
|
|
|
297 |
|
|
|
(6.8 |
) |
|
|
(0 7 |
) |
BigPond® broadband (1) |
|
|
463 |
|
|
|
274 |
|
|
|
212 |
|
|
|
69.0 |
|
|
|
29.2 |
|
Wholesale broadband |
|
|
261 |
|
|
|
143 |
|
|
|
49 |
|
|
|
825 |
|
|
|
191.8 |
|
Wholesale Internet direct |
|
|
31 |
|
|
|
16 |
|
|
|
20 |
|
|
|
93.8 |
|
|
|
(20.0 |
) |
Internet direct |
|
|
123 |
|
|
|
117 |
|
|
|
111 |
|
|
|
5.1 |
|
|
|
5.4 |
|
IP solutions |
|
|
207 |
|
|
|
160 |
|
|
|
120 |
|
|
|
29.4 |
|
|
|
33.3 |
|
Other |
|
|
17 |
|
|
|
8 |
|
|
|
8 |
|
|
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
internet and IP solutions revenue |
|
|
A$l,377 |
|
|
|
A$l,013 |
|
|
|
A$817 |
|
|
|
35.9 |
|
|
|
24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrowband subscribers retail |
|
|
1,205 |
|
|
|
1,194 |
|
|
|
1,158 |
|
|
|
0.9 |
|
|
|
3.1 |
|
Broadband
subscribers retail (2) |
|
|
856 |
|
|
|
427 |
|
|
|
240 |
|
|
|
100.5 |
|
|
|
77.9 |
|
Broadband subscribers -wholesale 2) |
|
|
888 |
|
|
|
379 |
|
|
|
121 |
|
|
|
134.3 |
|
|
|
213 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total broadband subscribers |
|
|
1,744 |
|
|
|
806 |
|
|
|
361 |
|
|
|
116.4 |
|
|
|
123.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total online subscribers |
|
|
2,949
|
|
|
|
2,000 |
|
|
|
1,519 |
|
|
|
47.5 |
|
|
|
31.7 |
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates.
(1) Included in this category are revenues derived from Hyperconnect and Business DSL |
|
(2) |
|
Within broadband, retail products include cable, satellite, Hyperconnect, ADSL and Business
DSL, while wholesale products include DSL layer 1, DSL layer 2, DSL layer 3, spectrum sharing and
virtual Internet service provider (VISP) broadband. |
Our narrowband products allow customers to connect to the Internet from any telephone line in
Australia. These products are often an entry point for new customers to the Internet. Our broadband
products allow customers to experience an always on connection to the Internet. In fiscal 2005,
new innovative broadband products combined with aggressive pricing led to customers migrating their
services to this access method. As a result, this trend placed additional price pressure on our
narrowband products.
We offer a range of Internet products and packages under our BigPond® brand. Telstra BigPond® home
and business packages offer dial-up modem services to residential and business customers across
Australia. Telstra BigPond® broadband provides broadband Internet services to consumer and business
customers via HFC cable, ADSL and satellite access technologies.
During the three-year period, our Internet and IP solutions revenue grew strongly, despite our
reduction in prices. The subscriber base for our narrowband and broadband products also expanded
during the three-year period. As at 30 June 2005, we have signed approximately 1.7 million
broadband customers following a significant rise in demand resulting from our aggressive pricing
strategies.
Narrowband revenue decreased over the three-year period to A$275 million in fiscal 2005 even though
we increased the number of our narrowband subscribers. In fiscal 2005, revenue growth from an
increase in subscribers was offset by the migration of high yield users to broadband services, and
price reductions driven by price pressure from high bandwidth products. In fiscal 2004 compared
with fiscal 2003, our revenue was adversely impacted by the two weeks of rebates provided to
customers as a result of performance issues in October 2003.
BigPond® broadband revenue increased over the three-year period to A$463 million in fiscal 2005
mainly due to strong subscriber growth in ADSL and cable subscribers. The rise was driven by an
increase in Internet
87
Telstra Corporation Limited and controlled entities
Operating and Financial Review Prospects
usage, easy to use ADSL self-installation kits, successful broadband marketing campaigns and
competitive pricing plans. In fiscal 2004, we introduced aggressive new pricing plans and a two
month free broadband offer to new subscribers that accelerated market demand for this product. In
addition, Business DSL (launched in August 2003) contributed to the growth in fiscal 2005, with key
customer contracts driving subscriber growth and the migration of customers from premium data
services. In fiscal 2004 compared with fiscal 2003, the revenue growth was partly offset by two
weeks of rebates provided as described above, the introduction of the usage toolbar in May 2003
reducing excess usage billing, and unlimited usage and higher volume capped plans.
During the three-year period, wholesale broadband revenue increased to A$261 million in fiscal 2005
driven by subscriber growth of 134.3%, partially offset by significant price competition. In fiscal
2004 compared with fiscal 2003, the rise in wholesale broadband was also attributable to improved
Wholesale DSL Layer 2 revenue, resulting from the higher take up in the residential and small
business market by on-selling a price competitive broadband DSL service, as provided by our ADSL
network. In fiscal 2003, wholesale DSL was sold only to the business market.
During the three-year period, Internet direct revenue increased to A$123 million in fiscal 2005.
The increase in fiscal 2005 was mainly due to the new VISP product launch that led to an increase
in customers as we satisfied the growing demand for high speed global Internet direct connectivity.
In fiscal 2004 compared with fiscal 2003, the growth was mainly attributable to the continued take
up of our simplified packages, offering customers integrated Internet and connectivity solutions
and flexibility with access to various connection types. In addition, our competitive pricing
continued to encourage our customers to upgrade both access and speed capabilities.
IP solutions revenue increased over the three-year period to A$207 million in fiscal 2005 mainly
due to its respective products being in the growth phase of its lifecycle. Over the three-year
period, increases in IP MAN/Ethernet was primarily due to new major contract wins and the continued
expansion of existing services and applications. IP WAN also continued to rise mainly due to the
introduction of large corporate contracts as customers migrate away from older product technologies
such as frame relay and ISDN. In fiscal 2004 compared with fiscal 2003, growth was also impacted by
aggressive price competition.
Table 10- ISDN products }
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2004 |
|
2005/2004 |
|
2004/2003 |
|
|
in millions, except subscriber numbers in
|
|
|
|
|
|
|
thousands) |
|
(% change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access |
|
|
421 |
|
|
|
401 |
|
|
|
381 |
|
|
|
5.0 |
|
|
|
5.2 |
|
Calls: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data |
|
|
165 |
|
|
|
221 |
|
|
|
282 |
|
|
|
(25.3 |
) |
|
|
(21,6 |
) |
Voice |
|
|
304 |
|
|
|
305 |
|
|
|
279 |
|
|
|
(0.3 |
) |
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469 |
|
|
|
526 |
|
|
|
561 |
|
|
|
(10.8 |
) |
|
|
(6,2 |
) |
|
|
|
|
|
|
|
|
|
|
|
ISDN products revenue |
|
|
A$890 |
|
|
|
A$927 |
|
|
|
A$942 |
|
|
|
(4.0 |
) |
|
|
(1,6 |
) |
|
|
|
|
|
|
|
|
|
|
|
ISDN access lines (basic access line equivalents) (1) |
|
|
1,327 |
|
|
|
1,288 |
|
|
|
1,213 |
|
|
|
3.0 |
|
|
|
6.2 |
|
|
|
|
Note; statistical data represents managements best estimates. |
|
(1) |
|
Expressed in equivalent number of clear voice channels. |
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.
88
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Over the three-year period, ISDN access revenue grew to A$421 million in fiscal 2005 mainly due
to our continued penetration into the SME and consumer market, partly offset by corporate customers
migrating to more advanced data products such as IP solutions. As a result, the number of ISDN
access lines grew by 3.0% in fiscal 2005 and 6.2% in fiscal 2004 compared with fiscal 2003. In
fiscal 2005, ISDN basic access lines also benefited by campaign activity in the SME and consumer
market. The rise in access lines also reflects the continual movement of customers towards using
ISDN for voice instead of data calls.
Call revenues decreased over the three-year period to A$469 million in fiscal 2005 mainly due to
the decrease in data calls. ISDN data calls fell over the three-year period due to changes in our
customer mix, as customers migrate to products that offer higher bandwidth at reduced prices such
as ADSL. In fiscal 2005, ISDN voice call revenue declined slightly due to a reduction in yield as a
result of competitive pricing pressure. In fiscal 2004 compared with fiscal 2003, voice call
revenue increased, driven by the introduction of a significant new pricing structure in January
2003 that included charging customers for 30 minute blocks, rather than charging on a per minute
basis. This pricing structure fuelled our initial revenue expansion and assisted our move into SME
and consumer segments.
Table
11- Specialised data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions, except frame access in thousands) |
|
(% change) |
|
|
|
Frame relay |
|
|
351 |
|
|
|
371 |
|
|
|
354 |
|
|
|
(5.4) |
|
|
|
4.8 |
|
Digital data services |
|
|
226 |
|
|
|
256 |
|
|
|
287 |
|
|
|
(11.7) |
|
|
|
(10.8 |
) |
Leased lines |
|
|
236 |
|
|
|
258 |
|
|
|
271 |
|
|
|
(8.5) |
|
|
|
(4.8 |
) |
Other |
|
|
153 |
|
|
|
150 |
|
|
|
147 |
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Specialised data revenue |
|
|
A$966 |
|
|
|
A$1,035 |
|
|
|
A$1,059 |
|
|
|
(6.7) |
|
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Domestic
frame access ports |
|
|
34 |
|
|
|
30 |
|
|
|
28 |
|
|
|
13.3 |
|
|
|
7.1 |
|
|
|
|
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 1.2Kb to 1,984Kb per second, which may be used for communications 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. They
support customer specific applications that do not yet have viable commercial alternatives.
Over the three-year period, total specialised data revenue decreased to A$966 million, reflecting a
decline in mature products such as digital data and leased line services. This decline has been
driven by product substitutions for technologically advanced IP and DSL based product options,
included within our Internet and IP solutions revenue category.
89
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
In fiscal 2005, frame relay revenue decreased as this product entered the declining stages of
its product lifecycle with customers migrating to new technologies such as Business DSL. In
addition, we introduced price discounts to retain existing customers. In fiscal 2004 compared with
fiscal 2003, frame relay increased primarily due to the strong performance of our IP WAN product
and the migration from previous technologies such as digital data services, leased lines and
international private lines to frame relay.
Digital data services and leased lines are mature products that have declined over the three-year
period due to customers transferring to newer technologies. In relation to digital data services,
revenue also fell in fiscal 2005 due to competitive pricing pressures. In fiscal 2004 compared with
fiscal 2003, customers explored other options such as outsourcing and building their own IP
platforms. In relation to leased lines, revenue reduced in fiscal 2004 compared with fiscal 2003
due to declines in megalink and voice graded dedicated lines revenue.
Other specialised data revenue increased over the three-year period as growth in ATM revenue was
partly offset by a decline in certain older technologies such as international private lines. In
fiscal 2005, growth in ATM revenue was led by new government and ATM contracts and the introduction
of a new Ethernet MAN product. International private line revenue declined due to intense
competition and excess capacity in the market, driving prices down in Asia.
Advertising and directories
Our advertising and directories revenue is predominantly derived from our controlled entity,
Sensis. This wholly owned subsidiary provides innovative advertising and local search solutions
through a network of print, online, voice, wireless and in-car services. Product innovation and
customer demand continue to drive growth in our online and electronic advertising and
non-directories advertising businesses.
Over the three-year period, Sensis continued to focus on product innovation and successfully
delivered new products in print and online directories, enhanced search solutions and launched the
new Accommodation Finder (national accommodation guide containing accommodation advertisements
distributed with the metropolitan Yellow Pages® directories). In fiscal 2005, Sensis launched a new
service, known as Sensis 1234® (a premium operated assisted voice service) and shortly after
launched the BidSmart Pay for Performance search engine marketing system.
On 20 December 2004, we, through Sensis, acquired 100% of the issued share capital of Universal
Publishers for A$46 million, including incidental acquisition costs. Universal Publishers is a
publisher of mapping and travel related products, including street directories, guides, maps and
road atlases. From the acquisition date, we consolidated 100% of the results of Universal
Publishers. Sales revenue from the date of acquisition to the period ended 30 June 2005 was A$14
million and the consolidation of Universal Publishers results for this period had no impact on
profit before income tax expense (including all Telstra consolidation
adjustments).
On 5 March 2004, we, through Sensis, acquired 100% of the issued share capital of the Trading Post.
The Trading Post is an Australian publishing and Internet classified business. We paid A$638
million, including incidental acquisition costs, to acquire this investment. From this date, we
have consolidated 100% of Trading Posts results. This acquisition contributed sales revenue of
A$152 million in fiscal 2005 and A$44 million from the date of acquisition to the period ended 30
June 2004. Profit before income tax expense contributed by Trading Post was A$52 million in fiscal
2005 and A$9 million from the date of acquisition to the period ended 30 June 2004 (including all
Telstra consolidation adjustments).
90
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Table
12 - Advertising and directories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(in millions) |
|
(% change) |
|
|
|
Advertising and directories revenue |
|
|
A$1,585 |
|
|
|
A$1,341 |
|
|
|
A$1,205 |
|
|
|
18.2 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Excluding our revenue from the acquisitions of the Trading Post and Universal Publishers, our
advertising and directories revenue grew by 9.4% in fiscal 2005 compared with fiscal 2004, and 7.6%
in fiscal 2004 compared with fiscal 2003.
Over the three-year period, Yellow pages® revenue increased primarily due to the continued strong
performance from providing full and half page advertising options. In fiscal 2005, we benefited
from the introduction of full page advertising options for additional product categories and guide
panel display enhancements. In fiscal 2004, Yellow pages® revenue also increased compared with
fiscal 2003 due to a rise in non-metro publications and online display advertising options.
Over the three-year period, White pages® revenue grew, reflecting the introduction of new
initiatives such as colour listing options and quarter page listing advertisements. In fiscal 2004
compared with fiscal 2003, White Pages® revenue also benefited from growth in email and web
listings.
Our other directory products also experienced considerable growth over the three-year period
largely driven by new customer take up. In fiscal 2005, we also benefited from a revenue increase
in location and navigation products such as Citysearch, as well as a rise in Yellow pages® online
advertising revenue due to customer and yield growth. In fiscal 2004, revenue growth compared with
fiscal 2003 was also attributable to attractive product enhancements.
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 Internet service providers (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. While volumes for these services are seen to be increasing, ongoing cost
efficiencies and consequent reduction in prices within the regulatory framework means that we do
not expect significant revenue growth from this group of products in future years.
The remaining revenue component in intercarrier services is derived from wholesale specific product
offerings which, while they are subject to significant price pressures resulting from ongoing
capacity over-supply in the market place, are a focus for delivering incremental revenue growth for
us in the coming years.
91
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Table
13 Intercarrier services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
|
|
|
|
Intercarrier service revenue |
|
|
A$1,146 |
|
|
|
A$1,103 |
|
|
|
A$1,136 |
|
|
|
3.9 |
|
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
During the three-year period, our volumes from intercarrier services increased, generally
offset by a decline in prices. Our volumes were affected by:
|
|
|
the impact of competition in the retail market in the provision of basic access, local calls,
national long distance calls and mobile services. These services are also provided by other
carriers, many of which use our networks to deliver their services to their customers; |
|
|
|
|
an increase in the number of carriers in the Australian telecommunications market and
increased demand from other carriers for the use of our facilities. This occurred particularly in: |
|
|
|
mobile towers, where we allow other carriers to install their equipment and share our
transmission facilities; and |
|
|
|
|
our exchanges, where other carriers co-locate their equipment needed for the provision of ULL
and ADSL. |
In fiscal 2005, our growth in intercarrier service revenue was driven by an increase in wholesale
mobile and wholesale transmission solutions. The increase in mobile solutions reflected the rise in
mobile services and continued popularity of text messaging. The increase in transmission solutions
was primarily due to a rise in international revenue, resulting from higher volumes led by special
rate offers on international carriage and the introduction of new product offerings such as Global
Linx Lite (developed to provide calling card services for international destinations at competitive
prices).
Growth in domestic wholesale leased transmission was led by a rise in SIOs due to an expanding
level of services provided, partially offset by lower yields from the oversupply of capacity in the
market. In addition, we experienced growth in facilities access revenues lead by increased demand
for exchange and associated equipment, as well as mobile tower access as other carriers seek to
expand their infrastructure. Partly offsetting the overall increase in intercarrier revenue was the
reduction in PSTN and ISDN interconnect access due to yield reductions arising from regulatory
driven price reductions.
In fiscal 2004, our decline in intercarrier revenue compared with fiscal 2003 was driven by a
reduction in wholesale transmission products. This reduction was due to price pressures from an
oversupply of capacity in the market, including a significant increase in the discount on access
network transmission contracts and the cancellation of the Optus Nullabor service. In addition,
wholesale long distance and international revenue declined due to decreased volumes. The decline
was partly offset by a significant rise in SMS interconnect revenues driven by increases in
volumes.
92
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
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 1800, the cost of the call, charged to the party called, with no cost incurred
by the caller; |
|
|
|
|
for Priority® 1300 and Priority® 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; |
|
|
|
|
the service owner incurs the other components of the call charges as applicable; and |
|
|
|
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, from the caller
(A party) and the lessee of the inbound service (B party). 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.
Table 14 Inbound calling products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Inbound calling products revenue |
|
|
A$449 |
|
|
|
A$476 |
|
|
|
A$494 |
|
|
|
(5.7 |
) |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Party minutes
|
|
|
2,773 |
|
|
|
2,708 |
|
|
|
2,655 |
|
|
|
2.4 |
|
|
|
2.0 |
|
A Party calls |
|
|
940 |
|
|
|
938 |
|
|
|
918 |
|
|
|
0.2 |
|
|
|
2.2 |
|
|
|
|
Note: statistical data represents managements best estimates. |
|
|
Revenue from inbound calling products declined over the three-year period to A$449 million in
fiscal 2005 mainly due to intense price competition leading to reduced yields and a declining
customer base in our Freecall 1800 product.
Our overall revenue from Priority® 1300 and Priority® One3 declined in fiscal 2005 due to
competitive market pressures resulting in lower yields, partially offset by higher call minutes on
our Priority® One3 product. Our overall revenue from Priority® 1300 and Priority® One3 in fiscal
2004 remained fairly consistent with fiscal 2003.
In addition, our other inbound calling products such as Infocall (190) decreased over the
three-year period. In fiscal 2005, this decrease was primarily attributable to product substitution
and lower usage. In fiscal 2004, the decrease compared with fiscal 2003 was mainly due to the exit
of Internet dialler applications in August 2003.
93
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Solutions management
Our operating revenue from solutions management is derived from managing all or part of a
customers IT and communications solutions and services covering:
|
|
|
managed voice, data and mobility services: network based voice and data switching products,
including IP based networks and IP telephony as well as management of customers mobile phone
services, radio networks and new wireless based technologies; |
|
|
|
|
managed IT services: managed customer infrastructure (eg desktop and end user devices),
managed storage and security services, in addition to hosting and application development and
support; |
|
|
|
|
IT outsourcing: incorporating a range of the above solutions and managing these solutions on
behalf of the customers either on the customers premises or on our premises; and |
|
|
|
|
business process outsourcing: leveraging our networks to manage customer business processes
in areas such as superannuation administration, insurance policy processing and the automotive
industry. |
On 19
July 2004, we acquired 100% of the issued share capital of KAZ.
KAZ is a provider of business
process outsourcing, systems integration, consulting, applications development and IT management
services. It operates mainly in Australia, but also conducts business in the United States and
Asia. Combined with our pre-existing solutions management business, we have acquired KAZ with the
goal of becoming an Australian leader in the ICT market. We paid A$340 million, including
incidental acquisition costs, to acquire this investment. From the acquisition date, we have
consolidated 100% of KAZs results. Sales revenue from the date of acquisition to the period ended
30 June 2005 was A$390 million and the consolidation of KAZs results for this period reduced our
profit before income tax expense by A$15 million (including all Telstra consolidation adjustments).
Table
15 Solutions management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Solutions management revenue |
|
|
A$931 |
|
|
|
A$508 |
|
|
|
A$501 |
|
|
|
83.3 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2005, solutions management revenue increased by 83.3% to A$931 million mainly due to
the acquisition of KAZ and Telstra Business Systems (formerly Damovo (Australia) Pty Ltd),
contributing solutions management revenues of A$380 million and A$14 million respectively.
Excluding these recently acquired controlled entities, our solutions management revenue increased
by 5.7% in fiscal 2005 due to the commencement of new business contracts and incremental growth in
existing contracts. In addition, radio services revenue also increased due to the construction of
government radio sites.
In fiscal 2004, solutions management revenue grew by 1.4% compared with fiscal 2003 as we commenced
several new contracts including a whole of business contract with a large banking institution and
experienced incremental growth in existing contracts. In addition, Managed WAN (growth product
offering design, installation and management of a tailored wide area network) increased following a
rise in activity relating to two major corporate contracts. The growth in solutions management
revenue was partly offset by the close out of some contracts. This includes the termination of a
government contract for satellite capacity of approximately A$20 million per annum, which we were
restricted from renewing due to an agreement with our joint venture entity, Xantic B.V. (Xantic).
Radio services revenue declined due to the completion of a major bank and design construction
contract in fiscal 2003.
94
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Offshore controlled entities
Our domestic controlled entities operating revenue is included in the product categories to which
they relate. The offshore controlled entities category of revenue relates to our offshore
subsidiaries, which provides a variety of products and services. Included in this category are the
following significant offshore controlled entities:
|
|
|
CSL, which generates its revenues from the Hong Kong mobiles market; |
|
|
|
|
TelstraClear, which generates its revenues from providing full integrated services to the New
Zealand market; and |
|
|
|
|
other offshore controlled entities predominantly in the Telstra Business 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. |
On 25 August 2004, we acquired 100% of the issued share capital of PSINet for A$124 million. PSINet
is a leading provider of e-business infrastructure solutions and corporate IP based communication
services. This acquisition was to increase our offshore services supporting Australian and
multinational corporations overseas. From the acquisition date, we have consolidated 100% of
PSINets results. Sales revenue from the date of acquisition to the period ended 30 June 2005 was
A$71 million and the consolidation of PSINet results for this period increased our profit before
income tax expense by A$3 million (including all Telstra consolidation adjustments).
Table
16 Offshore controlled entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
CSL |
|
|
734 |
|
|
|
726 |
|
|
|
908 |
|
|
|
1.1 |
|
|
|
(20.0 |
) |
TelstraClear |
|
|
625 |
|
|
|
574 |
|
|
|
548 |
|
|
|
8.9 |
|
|
|
4.7 |
|
Other offshore controlled entities |
|
|
252 |
|
|
|
131 |
|
|
|
88 |
|
|
|
92.4 |
|
|
|
48.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Offshore controlled entities revenue |
|
|
A$1,611 |
|
|
|
A$1,431 |
|
|
|
A$1,544 |
|
|
|
12.6 |
|
|
|
(7.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Our consolidated revenue from offshore controlled entities increased in fiscal 2005 primarily
due to the following factors:
|
|
|
CSL experienced revenue growth across the majority of its revenue streams except for local
voice, which continues to be impacted by price competition. Mobile handset sales grew due to CSLs
entry into new markets such as 3G and the introduction of new models with advanced features. CSL
revenue growth was partly offset by adverse foreign currency movements; |
|
|
|
|
revenue growth in TelstraClear was due to its continued strong retail performance in
conjunction with favourable foreign exchange movements, partly offset by a slight decrease in
wholesale revenue; and |
|
|
|
|
other offshore controlled entities increased due to the inclusion of PSINet and growth
achieved in Telstra Europe Limited following the development of a voice reseller sales channel. In
addition, we benefited from the inclusion of the full 12 months of activity for Cable Telecom and
Powergen. |
Our consolidated revenue from offshore controlled entities decreased in fiscal 2004 compared with
fiscal 2003 primarily due to CSL reporting a decline in revenue due to unfavourable currency
fluctuations and price competition.
95
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
The decrease in revenue in fiscal 2004 was moderated by:
|
|
|
a revenue increase in TelstraClear due to retail revenue growth, partly offset by a decline
in wholesale revenue; and |
|
|
|
|
revenue growth in Telstra Europe Limited due to the inclusion of customers and network base
from Cable Telecom and Powergen, acquired in February 2004 and October 2003 respectively. |
Refer to International business ventures for further discussion on CSL and TelstraClear.
Other sales and services
The principal components of operating revenue we record in other sales and services are:
|
|
|
payphones; |
|
|
|
|
information and connection services; |
|
|
|
|
external construction; |
|
|
|
|
customer premises equipment; |
|
|
|
|
Pay television bundling; and |
|
|
|
|
other minor revenue items, including recorded services, card services, commercial works and
other enhanced calling products. |
On 17 September 2004, we acquired 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 for A$66 million. Telstra Business Systems provides advanced voice and data business
communication solutions and services to large enterprises and government departments. We have
aligned this entity with our pre-existing areas to provide an integrated range of CPE based products
and services to our Telstra Business and Government customers. From the acquisition date, we have
consolidated 100% of Telstra Business Systems results. Sales revenue from the date of acquisition
to the period ended 30 June 2005 was A$71 million, split between customer premises equipment
revenues of A$57 million and solution management revenues of A$14 million. The consolidation of
Telstra Business Systems results for this period reduced our profit before income tax expense by
A$11 million (including all Telstra consolidation adjustments).
96
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Table 17 Other sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
20004/2003 |
|
|
(in millions , except statistical |
|
|
|
|
data in thousands) |
|
(% change) |
|
|
|
Payphones |
|
|
121 |
|
|
|
141 |
|
|
|
148 |
|
|
|
(14.2 |
) |
|
|
(4.7 |
) |
Information and connection services |
|
|
134 |
|
|
|
118 |
|
|
|
139 |
|
|
|
13.6 |
|
|
|
(15.1 |
) |
External construction |
|
|
85 |
|
|
|
70 |
|
|
|
159 |
|
|
|
21.4 |
|
|
|
(56.0 |
) |
Customer premises equipment |
|
|
229 |
|
|
|
184 |
|
|
|
197 |
|
|
|
24.5 |
|
|
|
(6.6 |
) |
Pay television bundling |
|
|
263 |
|
|
|
154 |
|
|
|
23 |
|
|
|
70.8 |
|
|
|
569.6 |
|
Other minor items |
|
|
524 |
|
|
|
430 |
|
|
|
590 |
|
|
|
21.9 |
|
|
|
(27.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other sales and services revenue |
|
|
A$l,356 |
|
|
|
A$1,097 |
|
|
|
A$1,256 |
|
|
|
23.6 |
|
|
|
(12.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payphones |
|
|
61 |
|
|
|
64 |
|
|
|
67 |
|
|
|
(4.7 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Pay television bundling subscribers |
|
|
280 |
|
|
|
235 |
|
|
|
127 |
|
|
|
19.1 |
|
|
|
85.0 |
|
AUSTAR Pay television bundling subscribers |
|
|
55 |
|
|
|
23 |
|
|
|
|
|
|
|
139.1 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
Pay television bundling subscribers |
|
|
335 |
|
|
|
258 |
|
|
|
127 |
|
|
|
29.8 |
|
|
|
103.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: statistical data represents managements best estimates. |
|
|
Over the three-year period, our payphones revenue continued to decline, impacted
by the substitution to other products, particularly mobiles and prepaid calling
cards, and the increased competition from private payphone operators (a
significant contributing factor in the fiscal 2005 movement). The reduction of
payphone SIOs was mainly attributable to the loss of some privately operated
payphones and a fall in the number of Telstra operated payphones reflecting the
gradual removal of low usage and older technology payphones.
In fiscal 2005, our information and connection revenue grew mainly due to the
launch of Sensis 1234® call connection services in April 2004. In fiscal 2004,
our revenue fell compared with fiscal 2003 due to customers moving to online
services rather than using traditional operator assisted directory services.
In fiscal 2005, external construction revenue increased due to new projects and
the commencement of the H3GA asset sharing arrangement relating to the
maintenance and build out of the 3G network. In fiscal 2004, our revenue
declined compared with fiscal 2003 due to lower construction activity
domestically and the closure of our international construction operations. This
decline was also attributable to the break up and re-integration of our former
subsidiary Network Design and Construction Limited (NDC) into Telstra in fiscal
2004.
Customer premises equipment revenue increased in fiscal 2005 due to the
acquisition of Telstra Business Systems (formerly Damovo (Australia) Pty Ltd),
partly offset by product substitution to mobile phones, and continued retail
competition for fixed line handsets. In fiscal 2004, revenue decreased compared
with fiscal 2003 mainly due to retail competition for fixed line handsets.
Over the three-year period, our revenue from pay television bundling services
grew due to the introduction of bundling for FOXTEL and AUSTAR services from
December 2002. This is reflected in our bundled SIOs, which have significantly
expanded over the three-year period to 335,000 subscribers as at 30 June 2005.
In fiscal 2005, growth was also driven by the launch of FOXTEL digital services,
a rise in the number of services provided and free installation/upgrade
campaigns.
97
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
In fiscal
2005, other minor items increased by 21.9% mainly due to increases in overdue account
fees and payment processing fees that were introduced in July 2004. In addition, we have increased
our HFC cable usage and commercial works revenue as a result of higher demand and associated
infrastructure upgrades required to support growth in digital pay television.
In fiscal 2004, our revenue from other minor items declined by 27.1% compared with fiscal 2003
mainly due to lower revenues from card services and the cable recovery and recycling project. Card
services decreased as a result of the migration of customers to other products such as mobiles, and
the migration of customers to cheaper calling cards for international calls. Cable recovery revenue
decreased due to winding down of work to recover and recycle disused copper cable.
In addition, included in other minor items was sales revenue for Telstra Multimedia Pty Ltd that
declined in fiscal 2004 due to customer sales and service centres now being directly operated by
FOXTEL. Our share of FOXTELs cable revenue reduced due to the renegotiation of our revenue share
agreement to include bundling and external subscription television subscribers. This revenue is now
recognised within the pay television bundling revenue category.
Other revenue
Table
18 Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(in millions) |
|
|
Miscellaneous revenue |
|
|
270 |
|
|
|
213 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from the sale of: |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
50 |
|
|
|
102 |
|
|
|
811 |
|
Investments in controlled entities |
|
|
|
|
|
|
|
|
|
|
17 |
|
Investments in joint venture entities |
|
|
30 |
|
|
|
|
|
|
|
3 |
|
Investments in associated entities |
|
|
|
|
|
|
204 |
|
|
|
17 |
|
Investments in listed securities and other investments |
|
|
146 |
|
|
|
24 |
|
|
|
7 |
|
Businesses |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
Total revenue from sale of assets and investments |
|
|
226 |
|
|
|
330 |
|
|
|
859 |
|
|
|
|
Total other
revenue (excluding interest revenue) (1) |
|
|
A$496 |
|
|
|
A$543 |
|
|
|
A$1,121 |
|
|
|
|
|
|
|
(1) |
|
Interest revenue discussion is included in net borrowing costs. Refer table 25. |
In fiscal 2005, the increase in our miscellaneous revenue was mainly due to the redemption of
the converting note issued by PCCW for a cash consideration of A$76 million. In fiscal 2004, the
decline in our miscellaneous revenue compared with fiscal 2003 was due to a decrease in IBMGSA
loyalty receipts and miscellaneous billings. In addition, our miscellaneous revenue decreased due
to the winding down of the rural telecommunications infrastructure fund project. As part of this
project, we received government subsidies for work performed under the extended zone untimed local
call tender.
Over the three-year period, the following gross proceeds received from the sale of assets and
investments significantly impacted our other revenue:
|
|
|
the sale of our investment in Intelsat Limited for A$69 million in fiscal 2005; |
|
|
|
|
the sale of our investment in Infonet Services Corporation for A$65 million in fiscal 2005; |
|
|
|
|
the sale of our shareholding in our associated entity, IBMGSA for A$154 million in fiscal
2004; |
|
|
|
|
the sale of our shareholding in our associated entity, PT Mitra Global Telekomunikasi
Indonesia (MGTI) for A$50 million in fiscal 2004; and |
98
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
|
|
|
the sale of 7 office properties around Australia for A$570 million in fiscal 2003. |
Operating expenses
We categorise our operating expenses into labour, goods and services purchased, other expenses,
and depreciation and amortisation. In addition, we have grouped our share of net (profit)/loss from
joint venture entities and associated entities with our operating expenses. Borrowing costs are not
included in operating expenses. Refer to Net borrowing costs for discussion on this category.
Table
19 Operating expenses including share of net (profit)loss from joint venture entities and associated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Labour |
|
|
3,693 |
|
|
|
3,218 |
|
|
|
3,204 |
|
|
|
14.8 |
|
|
|
0.4 |
|
Goods and
services purchased (1) |
|
|
4,147 |
|
|
|
3,554 |
|
|
|
3,713 |
|
|
|
16.7 |
|
|
|
(4.3 |
) |
Other
expenses (1) |
|
|
4,055 |
|
|
|
4,255 |
|
|
|
4,504 |
|
|
|
(4.7 |
) |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,895 |
|
|
|
11,027 |
|
|
|
11,421 |
|
|
|
7.9 |
|
|
|
(3.4 |
) |
Share of net (profit)/loss from joint venture entities and
associated entities |
|
|
(9 |
) |
|
|
78 |
|
|
|
1,025 |
|
|
|
(111.5 |
) |
|
|
(92.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,886 |
|
|
|
11,105 |
|
|
|
12,446 |
|
|
|
7.0 |
|
|
|
(10.8 |
) |
Depreciation and amortisation |
|
|
3,766 |
|
|
|
3,615 |
|
|
|
3,447 |
|
|
|
4.2 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses including share of net (profit)/loss
from joint venture entities and associated entities |
|
|
A$15,652 |
|
|
|
A$14,720 |
|
|
|
A$15,893 |
|
|
|
6.3 |
|
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In fiscal 2005, we have reassessed our classification of managed service expenses. We
have included in goods and services purchased those expenses that are directly associated with our
managed services customer contracts, as these costs vary according to business activity. Prior year
comparatives have been restated to reflect the transfer of these expenses from the other expenses
category to goods and services purchased in the current year. |
During the three-year period, our operating expenses were affected by a number of significant
items, including:
|
|
|
a A$226 million expense in fiscal 2004 in relation to the provision for non recoverability of
amounts owed by REACH. We consider that REACH will not be able to repay this loan in the medium
term; |
|
|
|
|
a A$130 million expense resulting from a modification to an IT service contract with IBMGSA
upon the sale of our shareholding in this entity in fiscal 2004; |
|
|
|
|
a A$439 million expense reflecting the carrying value of 7 office properties sold in fiscal
2003; and |
|
|
|
|
A$965 million for the write down of our investment in REACH in fiscal 2003, reflected in
Share of net (profit)/loss from joint venture entities and associated entities. |
Excluding these one-off significant items, our total operating expenses (including share of net
(profit)/loss from joint venture entities and associated entities) was A$15,652 million in fiscal
2005, compared with A$14,364 million in fiscal 2004 and A$14,489 million in fiscal 2003.
99
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
In addition to these events, our operating expenses have also been impacted by:
|
|
|
the consolidation of operating expenses of A$666 million in fiscal 2005 from our acquired
controlled entities, including Universal Publishers from December 2004, Telstra Business Systems
(formerly Damovo (Australia) Pty Ltd) from September 2004, PSINet from August 2004, KAZ from July
2004 and the Trading Post from March 2004; |
|
|
|
|
various expense increases in fiscal 2005 arising in a number of expense categories,
attributable to supporting our emerging business areas such as broadband and pay television and
meeting our customer service requirements; |
|
|
|
|
the benefit of ongoing cost control and cost containment programs; and |
|
|
|
|
growth in our communications plant asset base and capitalised software, which subsequently
increased our depreciation and amortisation expense. |
Labour
Labour expense includes:
|
|
|
salary and wages and related on-costs, including superannuation contributions, workers
compensation, leave entitlements and payroll tax; |
|
|
|
|
costs of engaging contractor labour and agency costs; and |
|
|
|
|
restructuring costs, including redundancy. |
Our domestic full time employees include domestic full time staff, domestic fixed term contracted
staff and expatriate staff in overseas controlled entities. Domestic full time employees do not
include employees in our offshore controlled 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 equivalent employees.
Table
20 Labour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
(millions, except staff numbers in whole |
|
|
|
|
numbers) |
|
(% change) |
|
|
|
Labour |
|
|
A$3,693 |
|
|
|
A$3,218 |
|
|
|
A$3,204 |
|
|
|
14.8 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
full time employees (1) |
|
|
39,657 |
|
|
|
36,159 |
|
|
|
37,169 |
|
|
|
9.7 |
|
|
|
(2.7 |
) |
Full time
employees and equivalents (2) |
|
|
46,336 |
|
|
|
41,941 |
|
|
|
42,064 |
|
|
|
10.5 |
|
|
|
(0.3 |
) |
|
|
|
(1) |
|
Excludes offshore, casual and part time employees. |
|
(2) |
|
Includes all domestic and offshore employees, including those of our controlled entities. |
During fiscal 2005, the number of full time employees and equivalents increased predominantly
due to the consolidation of the operations of our recently acquired controlled entities. In fiscal
2004, the number of full time employees and equivalents decreased compared with fiscal 2003 as part
of the review of the appropriateness of employee numbers, within our cost control and cost
containment strategy. We have incurred redundancy expenses of A$91 million in fiscal 2005, A$170
million in fiscal 2004 and A$281 million in fiscal 2003. The higher redundancy expense in prior
years reflects the implementation of cost control initiatives to improve our operational structure.
100
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Our labour expense increased in fiscal 2005 mainly due to the consolidation of labour expense
of A$330 million from our recently acquired controlled entities, including KAZ, Telstra Business
Systems (formerly Damovo (Australia) Pty Ltd), PSINet and Universal Publishers. In addition, our
expense reflected the inclusion of labour costs of the Trading Post for the full financial year. In
fiscal 2004, the Trading Post acquisition resulted in additional labour expense of A$14 million.
These acquisitions resulted in the inclusion of full time employees and equivalents of 3,597 in
fiscal 2005 and 598 in fiscal 2004.
Excluding these entities, our labour expense increased by 5.0% to A$3,363 million in fiscal 2005
due to the following factors:
|
|
|
salary increases of 3.9% due to enterprise agreements and normal annual salary reviews; |
|
|
|
|
an increase in full time employees and equivalents to further improve service and account
management, and meet our customer service demands; |
|
|
|
|
a rise in the use of overtime and contractor and agency payments to improve customer service,
and support the increased field volumes across broadband and pay television; and |
|
|
|
|
a reclassification of NDC capitalised overhead costs, resulting in the reduction to labour
expense for capitalised overhead costs now being included as a reduction in the other expenses
category. |
The above increases in labour expense were partially offset by:
|
|
|
a decrease in redundancy expense of A$79 million; and
|
|
|
|
|
a higher number of employees working on capital projects. |
Excluding our acquisition of the Trading Post, our labour expense in fiscal 2004 remained
consistent compared with fiscal 2003. A rise in labour expense was due to the following factors:
|
|
|
salary increases of 4.0% due to enterprise agreements and normal annual salary reviews; |
|
|
|
|
increased use of casual and part time employees to manage costs more closely, and improve our
utilisation of employees to provide enhanced flexibility to meet our customer requirements; and |
|
|
|
|
a reclassification of NDC labour from goods and services purchased and other expenses to the
labour expense category following the integration of NDC into Telstra in fiscal 2004. |
The above increases in labour expense were offset by:
|
|
|
a reduction in redundancy expense of A$111 million; |
|
|
|
|
lower aggregate labour expense resulting from the decline in the number of full time
employees and equivalents; and |
|
|
|
|
a reduction in CSL labour costs due to favourable exchange rate movements. |
Based on the latest detailed actuarial report provided on the financial position of the Telstra
Super annuation Scheme (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 the three-year period. As at 30 June 2005, the vested benefits index (the ratio of fund
assets to members vested benefits) of the defined benefit divisions of Telstra Super was 111%. 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.
101
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Goods and services purchased
The largest component of our goods and services purchased category is network payments we make
to other carriers to terminate international and domestic outgoing calls and international transit
traffic.
Other significant components of our goods and services purchased category include:
|
|
|
cost of goods sold including items such as mobile handset and Internet modems; |
|
|
|
|
usage commissions; |
|
|
|
|
mobile handset subsidies; |
|
|
|
|
commercial project payments; |
|
|
|
|
service fees predominantly in relation to our pay television services; |
|
|
|
|
managed services costs, including service contracts and agreements, leases and
subcontractors; |
|
|
|
|
dealer bonus incentives; and |
|
|
|
|
paper purchases and printing costs. |
This expense category relates to core costs of our business that vary according to business
activity.
Table
21 Goods and services purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Goods and services purchased |
|
|
A$4,147 |
|
|
|
A$3,554 |
|
|
|
A$3,713 |
|
|
|
16.7 |
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Our goods and services purchased expense category increased in fiscal 2005 mainly due to the
consolidation of the trading activities of our recently acquired controlled entities in addition to
an increase across a number of categories within goods and services purchased. In fiscal 2004, the
decline compared with fiscal 2003 was mainly driven by reduced network and commercial project
payments.
Our goods and services purchased increased by 16.7% to A$4,147 million in fiscal 2005 due to the
following factors:
|
|
|
consolidation of goods and services expense of A$206 million from our recently acquired
controlled entities, including KAZ, Telstra Business Systems (formerly Damovo (Australia) Pty Ltd)
and PSINet, as well as the inclusion of the Trading Post for the full financial year; |
|
|
|
|
growth in network payments, which was attributable to a rise in international payments, driven
by higher international mobile roaming volumes. Our network payments also increased due to the
inclusion of a full 12 months of activity for Cable Telecom and Powergen, acquired in February 2004
and October 2003 respectively. TelstraClear network payments grew due to foreign exchange
variations and growth in retail revenue. In addition, international network payments to REACH
increased as a result of a higher traffic volumes; |
|
|
|
|
an increase in cost of goods sold resulting from strong ADSL demand due to broadband growth, a
rise in CSL handset volumes partially offset by favorable exchange rate movements, and costs
related to the 3G network under our asset sharing arrangement with H3GA. In addition, we have
commenced a two way satellite service for the HiBis scheme, which relates to a four year government
initiative to provide more affordable broadband services to regional, rural and remote Australia; |
102
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
|
|
|
usage commissions grew following a rise in dealer activity, in conjunction with a further
increase in marketing commissions; |
|
|
|
|
an increase in mobile handset subsidies, attributable to an increase in subsidy amortisation
expense following the strong take up of the MRO offer in fiscal 2004. In addition, we have been
impacted by higher handset sales and related subsidies in CSL; and |
|
|
|
|
service fees increased by 73.9% led by the rise in bundling of pay television services fees
due to growth in bundled FOXTEL and AUSTAR subscribers, as well as the higher costs of digital
content paid to FOXTEL. |
These increases were partly offset by a decrease in managed services costs due to the completion of
a defence contract, a reduction in major outsourced contracts, and lower costs required to support
major corporate customer contracts.
Our goods and services purchased decreased by 4.3% to A$3,554 million in fiscal 2004 compared with
fiscal 2003, due to the following factors:
|
|
|
a decrease in network payments driven by a reduction in international call volumes and charges
from REACH for international network connection following the commencement of a new pricing
structure from January 2003. In addition, there was a benefit arising from favourable US$ exchange
rate movements. Our decrease in network payments was partially offset by continuing volume
increases in mobile and SMS terminating traffic; |
|
|
|
|
a decline in cost of goods sold from reduced purchases due to lower handset sales with the
continual take up of the MRO and a shift in product mix towards lower cost prepaid phones; and |
|
|
|
|
reduced expenditure on commercial project payments due to the closure of our international
construction business and a reduction in the domestic construction market. The integration of NDC
into Telstra in fiscal 2004 also resulted in the reclassification of expenses from goods and
services purchased to the other expense category. |
These reductions were partly offset by an increase in pay television bundling service fees due to
the growth in bundled FOXTEL and AUSTAR subscribers.
Other expenses
Our other expenses include such costs as:
|
|
|
rental expense on operating leases; |
|
|
|
|
bad and doubtful debts; |
|
|
|
|
net foreign currency translation losses/(gains); |
|
|
|
|
service contracts and other agreements for activities such as IT, pre-provisioning and
customer installations, maintenance, customer sales support and consultancy; |
|
|
|
|
promotion and advertising; |
|
|
|
|
general and administration expenses including IT costs, printing and postage, accommodation,
travel and rent. In addition this category includes property costs such as maintenance, municipal
rates, land tax and light and power; |
|
|
|
|
the carrying value of assets and investments disposed; |
|
|
|
|
write downs of assets and investments to recoverable amount; and |
103
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
|
|
|
other operating expenses, including material usage, the cost of running motor vehicles,
bank costs, capitalised overhead costs and other miscellaneous costs of the Company. |
Table
22 Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Other expenses |
|
|
A$4,055 |
|
|
|
A$4,255 |
|
|
|
A$4,504 |
|
|
|
(4.7 |
) |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
During the three-year period, the following significant events have impacted our other
expenses:
|
|
|
a A$226 million expense in fiscal 2004 in relation to the provision for non recoverability of
a loan owed by REACH. We consider that REACH will not be able to repay their loan in the medium
term; |
|
|
|
|
a A$130 million expense resulting from a modification to an IT service contract with
IBMGSA upon the sale of our shareholding in this entity in fiscal 2004; and |
|
|
|
|
a A$439 million expense reflecting the carrying value of 7 office properties sold in fiscal
2003. |
Excluding the above significant items, our other expenses were A$4,055 million in fiscal 2005,
A$3,899 million in fiscal 2004 and A$4,065 million in fiscal 2003. Our other expenses in fiscal
2005 also include A$72 million of expenses attributable to our controlled entities acquired
throughout the year. The movement in the significant categories of other expenses is discussed
below.
Rental expenses on operating leases increased by 12.6% to A$597 million in fiscal 2005 mainly due
to a property lease termination payment adversely impacting CSL as well as growth in rental costs
due to general rises in rental rates and property requirements. In fiscal 2004, rental costs
decreased by 9.2% to A$530 million compared with fiscal 2003 following the reclassification of IT
rental costs previously relating to Telstra Enterprise Services Pty Ltd (TES) to general and
administrative costs.
Bad debts and doubtful debts reduced over the three-year period from A$172 million in fiscal 2003
to A$152 million in fiscal 2005 due to improved credit management policies that led to lower
provision requirements and write offs. In fiscal 2005, bad debts and doubtful debts was also
impacted by the proceeds received from the sale of debt.
Net foreign currency conversion costs represents the remaining foreign currency exposure after
taking under account our hedging activities. The movement to a gain of A$9 million in fiscal 2005
compared with a loss of A$17 million in fiscal 2004 and a gain of A$17 million in fiscal 2003
reflects the movement of the Australian dollar against other currencies. In addition, it is also
impacted on occasions by the close out of hedge contracts where the underlying hedged position
changes.
Service
contracts and other agreements decreased over the three-year period from A$1,677 million in
fiscal 2003 to A$1,556 million in fiscal 2005, driven by cost reduction initiatives including the
reduction in IT service costs through the renegotiation of contracts. Partly offsetting the expense
reduction in fiscal 2005 was the growth driven by volume based increases, including activations and
fault rectifications for broadband, digital pay television and the PSTN network, as well as higher
volumes in call centres for broadband and Sensis 1234® services. In addition, we were impacted by
increased network maintenance activations and a significant new contract for the shipment of goods
from our warehouse to dealer and retail shops. In fiscal 2004, the decrease in service contracts
and agreements compared with fiscal 2003 was also attributable to the different accounting on the
integration of NDC into Telstra and the winding down of the cable recovery and recycling project.
The decrease was partly offset by an increase in outsourced field work and
104
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
consultancy costs for special project work, and expenditure growth due to improved customer
service standards and customer retention rates in rural areas.
Promotion and advertising expenses decreased by 1.5% to A$330 million in fiscal 2005 mainly due to
reduced marketing costs resulting from focussed and well managed advertising campaigns. In fiscal
2004, our promotion and advertising expenses increased by 6.0% to A$335 million compared with
fiscal 2003 due to new initiatives and sponsorships, as well as the identification of broadband as
a major growth opportunity, resulting in additional resources being devoted to promote this
product.
General and administration expenses increased over the three-year period from A$702 million in
fiscal 2003 to A$806 million in fiscal 2005. In the current year, our expenses have increased to
reflect the consolidation of operating activities of our recently acquired controlled entities.
This was partially offset by lower IT costs resulting from savings achieved in IT repairs and
maintenance through entering new agreements and lower project costs, offset by an increase in new
licensing arrangements. In addition, we reduced our legal expenses by completing more legal work
internally, and reducing our travelling expenses through the continued focus on managing
discretionary costs. In fiscal 2004, our general and administration expense growth was driven by
increases in light and power, training, postage and travel. In addition, costs relating to TES were
reclassified from rental expenses to this category.
During the three-year period, we did not sell any assets and investments with a significant
carrying value, other than:
|
|
|
the redemption of our PCCW converting note with a carrying value of A$80 million in fiscal
2005; |
|
|
|
|
the sale of investments in listed securities and other investments with a carrying value of
A$79 million in fiscal 2005, predominantly attributable to the sale of our investments in Intelsat
Limited and Infonet Services Corporation; and |
|
|
|
|
the sale of 7 office properties around Australia with a carrying value of A$439 million in
fiscal 2003. |
We assess the recoverable amount of our investments at each reporting date and where we consider
that the recorded amount is not recoverable, we write the investment down to recoverable amount.
For more detail refer to Management estimates and judgements in the application of our critical
accounting policies. During the three-year period, our only significant write down in our assets
and investments included in this category was the A$226 million write down of a loan provided to
REACH as already indicated. In addition, we wrote down our investment in REACH by A$965 million to
nil, which we recorded within our share of net (profit)/loss from joint venture entities and
associates entities.
Other operating expenses decreased by 11.8% to A$380 million in fiscal 2005 mainly due to the
current year reclassification of NDC capitalised overhead costs from labour expense to this
category, as well as a write off of cancelled capital projects. In addition, we have incurred lower
bank costs following a customer preference shift from payment options that incur a merchant service
fee after the introduction of a processing fee on credit card payments in July 2004. In fiscal
2004, our other operating expenses increased by 23.5% to A$431 million compared with fiscal 2003,
driven by various factors including general increases across repairs and maintenance, materials
usage and vehicle operating costs, and a reduction in capitalised overhead costs.
105
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
Share of net (profit)/loss from joint venture entities and associated entities
Table
23 Share of net (profit)/loss from joint venture entities and associated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Share of net (profit)/loss from joint venture entities and
associated entities |
|
|
A$ |
(9) |
|
|
A$78 |
|
|
|
A$1,025 |
|
|
|
(111.5 |
) |
|
|
(92.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Our share of net (profit)/loss from joint venture entities and associated entities includes our
share of both profits and losses from equity accounted investments. Details of our equity accounted
investments are included in note 24 to our financial statements.
In fiscal 2003, the write down of our investment in REACH, amounting to A$965 million, adversely
impacted our net equity accounted results. Excluding this write down, our share of net
(profit)/loss from joint venture entities and associated entities for the three-year period was a
profit of A$9 million in fiscal 2005, compared with losses of A$78 million in fiscal 2004 and A$60
million in fiscal 2003.
In fiscal 2005, our net equity accounted results improved due to:
|
|
|
reduced losses from FOXTEL following the suspension of equity accounting during fiscal 2004,
partly offset by a A$5 million equity injection in the current year; |
|
|
|
|
improved results from Keycorp, resulting in the recommencement of equity accounting for this
investment; and |
|
|
|
|
reduced losses in Xantic, as fiscal 2004 included write offs for restructuring. |
In fiscal 2004, our net equity accounted results compared with fiscal 2003 (excluding the REACH
write down) were impacted by:
|
|
|
reduced losses in Australia-Japan Cable Holdings Limited (AJC) and FOXTEL following the
suspension of equity accounting; |
|
|
|
|
reduced contribution from REACH following the suspension of equity accounting; and |
|
|
|
|
increased losses in Xantic following write offs as a result of restructuring. |
Depreciation and amortisation
Our depreciation and amortisation expense has been and will remain a major component of our cost
structure, reflecting our expenditure on capital items.
Table
24 Depreciation and amortisation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
(in millions) |
|
|
|
(% change) |
|
|
|
Depreciation |
|
|
2,946 |
|
|
|
2,873 |
|
|
|
2,754 |
|
|
|
2.5 |
|
|
|
4.3 |
|
Amortisation (excluding goodwill) |
|
|
675 |
|
|
|
619 |
|
|
|
577 |
|
|
|
9.0 |
|
|
|
7.3 |
|
Amortisation of goodwill |
|
|
145 |
|
|
|
123 |
|
|
|
116 |
|
|
|
17.9 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortisation |
|
|
A$3,766 |
|
|
|
A$3,615 |
|
|
|
A$3,447 |
|
|
|
4.2 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
106
Telstra Corporation Limited and controlled entities
Operating Financial Review and Prospects
During the three-year period, the increase in depreciation and amortisation, excluding
goodwill, was mainly attributable to:
|
|
|
growth in our communications plant asset base and capitalised software, which is consistent
with our level of capital expenditure over recent years. In fiscal 2005, an increase in these
assets was required to support the expanding demand for broadband ADSL services; and
|
|
|
|
|
additional depreciation expense associated with the acquisition and consolidation of various
recently acquired controlled entities including KAZ, PSINet and Trading Post. |
Factors which partially offset these increases were:
|
|
|
reductions in depreciation expense as a result of changes to service lives for communications
assets; and |
|
|
|
|
lower depreciation in fiscal 2004 compared with fiscal 2003 was also driven by the general
downsizing of owned vehicles. |
We capitalise expenditure incurred in the development and enhancement of computer systems as
business software. Software developed for internal use is amortised, on average, over a useful life
of six years. This useful life has remained unchanged over the three-year period.
Over the three-year period, our goodwill amortisation expense increased mainly due to the
additional goodwill arising from our recently acquired controlled entities. In fiscal 2005, we
acquired KAZ, PSINet, Telstra Business Systems (formerly Damovo (Australia) Pty Ltd) and Universal
Publishers, which led to a higher balance of goodwill recognised in our statement of financial
position and an associated rise in the amortisation of goodwill expense during the current year. In
fiscal 2004, we acquired Trading Post and Cable Telecom, and the remaining 41.6% share of
TelstraClear was acquired in fiscal 2003. Amortisation expense also increased in those years due to
the higher goodwill balance carried.
We believe our depreciation and amortisation expense will further increase in fiscal 2006,
reflecting the higher capital expenditure expected in fiscal 2006 and future amortisation of the 3G
network and spectrum licence.
Net borrowing costs
Table 25 Net borrowing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
|
|
|
|
Gross borrowing costs |
|
|
929 |
|
|
|
841 |
|
|
|
984 |
|
|
|
10.5 |
|
|
|
(14.5 |
) |
Less capitalised interest |
|
|
(90 |
) |
|
|
(74 |
) |
|
|
(105 |
) |
|
|
21.6 |
|
|
|
(29.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Borrowing costs |
|
|
839 |
|
|
|
767 |
|
|
|
879 |
|
|
|
9.4 |
|
|
|
(12.7 |
) |
Interest revenue |
|
|
103 |
|
|
|
55 |
|
|
|
84 |
|
|
|
87.3 |
|
|
|
(34.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net borrowing costs |
|
|
A$736 |
|
|
|
A$712 |
|
|
|
A$795 |
|
|
|
3.4 |
|
|
|
(10.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Our borrowing costs are influenced by:
|
|
|
our debt level; |
|
|
|
|
interest rates; |
|
|
|
|
our debt maturity profile; and |
|
|
|
|
our level of cash assets (affects net debt). |
107
Telstra Corporation Limited and controlled entities
Operating Financial Review and Prospects
In fiscal 2005, borrowing costs increased by 9.4% due to an increase in our average borrowings
required to fund our recent share buy-backs, higher dividend payments and various investment
acquisitions including KAZ, Telstra Business Systems (formerly Damovo (Australia) Pty Ltd) and
PSINet. Additional funding was also required to manage the increased levels of capital expenditure
in fiscal 2005. The increase was partially offset by lower interest rates charged on our new and
re-financed long term debt. Capitalised interest increased following the higher work in progress
associated with the increased capital expenditure.
Our borrowing costs decreased by 12.7% to A$767 million in fiscal 2004 compared with fiscal 2003
mainly due to a reduced debt portfolio in fiscal 2004. In addition, in fiscal 2003 we incurred
further interest costs in closing out TelstraClear interest rate swaps early due to the refinancing
of TelstraClear bank loans in September 2002.
In fiscal 2005, interest revenue increased to A$103 million primarily due to our higher level of
short term liquid assets held. In addition, we have recognised interest revenue on the REACH
capacity prepayment and loan facility following the change in REACHs operating model, see Related
party transactions for further detail.
Our interest revenue decreased by 34.5% to A$55 million in fiscal 2004 compared with A$84 million
in fiscal 2003 due to lower interest received on the PCCW converting note after it was partially
redeemed and a lower level of short term liquid assets held. During fiscal 2003, we received
interest on a US$190 million converting note until April 2003 when the note was reduced to US$53
million upon partial redemption as consideration for our entry into a capacity prepayment
arrangement with REACH.
Income tax expense
Table
26 Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2005/2004 |
|
2004/2003 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
(% change) |
|
|
|
Income tax expense |
|
|
A$1,822 |
|
|
|
A$1,731 |
|
|
|
A$1,534 |
|
|
|
5.3 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
29.1 |
|
|
|
29.6 |
|
|
|
31.1 |
|
|
|
(0.5 |
) |
|
|
(1.5 |
) |
In fiscal
2005, our income tax expense increased by 5.3% to A$1,822 million. Income tax expense
in fiscal 2005 was impacted by a 7.2% increase in profit before income tax expense. In fiscal 2005,
the effective tax rate decreased to 29.1% compared with the effective tax rate of 29.6% in fiscal
2004.
The 0.5% decrease in the effective tax rate was driven by a number of different factors led by
adjustments to income tax expense in fiscal 2004 that did not impact our fiscal 2005 income tax
expense. This included the provision for the non recoverability of the loan to REACH and further
benefits arising from our entry into tax consolidation. In addition, our current year income tax
expense has been impacted by the differing treatment of FOXTELs losses for accounting and tax
purposes. For accounting purposes, these losses are no longer being booked due to the suspension of
equity accounting. For tax purposes, these losses continue to be available.
In fiscal
2004, our income tax expense increased by 12.8% to A$1,731 million compared with fiscal
2003. Income tax expense in fiscal 2004 was impacted by an 18.7% increase in profit before income
tax expense. In fiscal 2004, the effective tax rate decreased to 29.6% compared with the effective
tax rate of 31.1% in fiscal 2003.
108
Telstra Corporation Limited and controlled entities
Operating
and Financial Review and Prospects
The 1.5% decrease in effective tax rate was driven by a number of different factors including
the write down of our investment in REACH in fiscal 2003, partly offset by the provision for the
non recoverability of the loan to REACH in fiscal 2004. In addition, in fiscal 2003 a A$201 million
benefit to income tax expense was recorded reflecting an increase in future tax deductions being
recognised in our deferred tax balances as a result of applying tax consolidation legislation.
Further analysis was performed on these future tax deductions, which enabled us to recognise a
subsequent A$58 million benefit in fiscal 2004.
The A$201 million benefit to income tax expense resulted from our election to form a tax
consolidation group from 1 July 2002. On formation of the tax consolidated group, the head entity
was able to elect to reset the tax values of a subsidiary member under certain allocation rules.
The reset of tax values resulted in a benefit to income tax expense reflecting the increase in
future tax deductions available from these reset values.
Refer to note 4 to our financial statements for further details on our election to enter tax
consolidation and its impact on income tax expense.
International business ventures
We continue to focus on improving returns from our current international investments by
consolidating our opportunities in the following ventures in the Asia-Pacific region.
REACH
In February 2001, we sold our global wholesale business, including certain offshore controlled
entities, to REACH in exchange for 50% ownership in REACH and cash of US$375 million (A$680
million). On the sale of our global wholesale business, we recognised 50% of the profit (A$852
million), with the remaining balance deferred and recognised over 20 years.
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, in December 2002
we made a non cash write down of our investment in REACH of A$965 million, 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 is not booked in the Telstra Group results.
Under
AGAAP, REACHs profit in fiscal 2005 was A$328 million, compared with a loss of A$1,418
million in fiscal 2004 and A$47 million in fiscal 2003. In fiscal 2005, the result was primarily
driven by a one-off profit upon entering the IRU agreement. In fiscal 2004, REACH booked an
impairment write down on property, plant and equipment and intangibles of A$1.2 billion as a result
of the continued deterioration in the global wholesale communications industry, as well as other
one-off provisions of A$116 million.
In January 2005, REACH announced that its data capacity would be consumed entirely by its
shareholders. We along with our joint venture partner, PCCW, have experienced significant traffic
growth over recent years. As a result, PCCW and we have provided forecasts for data capacity
requirements, which is expected to absorb virtually all of REACHs existing inventory for the
foreseeable future. REACH has continued its profitable third party voice and satellite business. As
part of the process to gain improved operational and financial efficiencies, we along with PCCW
announced a number of improvements to the REACH operating model to drive the future performance of
this company. Refer to Related party transactions for full discussion regarding our dealings
with REACH and changes to the REACH operating model.
As at 30 June 2005, the operational performance of REACH is tracking satisfactorily against plan,
with a continued focus on core business activities and cost containment. A suite of new IT systems
platforms have
been progressively introduced to enhance operational performance and customer satisfaction.
109
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
CSL
In February 2001, we acquired a 60% ownership interest in CSL. We paid US$1,694 million (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.
CSL operates in the highly competitive Hong Kong mobile market and has delivered a solid revenue
performance in fiscal 2005 despite an adverse operating environment, characterised by significant
market competition and local voice price erosion. CSL remains Hong Kongs premium provider of
mobile voice and data services.
Table
27 CSL financial summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005/2004 |
|
|
2004/2003 |
|
|
|
(in millions) |
|
|
(% change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (1) |
|
HK$4,308 |
|
HK$4,022 |
|
HK$4,224 |
|
|
7.1 |
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (1) |
|
HK$236 |
|
HK$329 |
|
HK$654 |
|
|
(28.3 |
) |
|
|
(49.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts presented in HK$ have been prepared in accordance with AGAAP. |
Until recently, Hong Kong had experienced one of its worst economic downturns in decades with
the situation worsened by the outbreak of the SARS virus in March 2003. Furthermore, the Hong Kong
mobile market continues to remain highly competitive, with CSL impacted by sustained declines in
local voice revenue. In fiscal 2005, CSL revenue increased by 7.1% following a 4.8% decline in
fiscal 2004 compared with fiscal 2003. In fiscal 2005, significant revenue increases were achieved
in data, international voice and prepaid revenues. Mobile handset sales also increased due to the
continued focus on the move into the mass market as well as the launch of new models with advanced
features.
For fiscal 2005, the increase in revenue however has been offset by an increase in total
expenditure. This increase was largely due to the launch of 3G services in October 2004, with
higher handset costs including subsidies and commission expenses, as well as disbursement charges.
In fiscal 2004 and fiscal 2003, CSL was adversely impacted by one of its competitors initiating an
aggressive price reduction to attract new subscribers. CSL elected not to participate in the price
war and instead competed on quality of service, which adversely impacted revenues and net profit in
these years.
CSLs capital expenditure increased over the three-year period to HK$755 million (A$128 million) in
fiscal 2005, compared with HK$524 million (A$94 million) in fiscal 2004 and HK$320 million (A$68
million) in fiscal 2003. This growth was primarily driven by the implementation and rollout of 3G
services.
During fiscal 2005, in addition to launching its integrated 3G network, CSL had a number of other
significant launches including the first Chinese language support for Blackberry services. In the
field of mobile entertainment services and content, CSL launched Hong Kongs first full song
download over 3G, MP3 Ringtones, Interactive Online Gaming and Mobile Drama. Active data users
represent a significant portion of CSLs postpaid customer base.
110
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
TelstraClear
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
for A$25 million and consolidated 100% of TelstraClears results from that date.
Table
28 TelstraClear financial summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005/2004 |
|
|
2004/2003 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
(% change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue(1) |
|
NZ$716 |
|
NZ$692 |
|
NZ$651 |
|
|
3.5 |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prof it/(loss)(1) |
|
NZ$7 |
|
NZ$3 |
|
NZ$(138) |
|
|
133.3 |
|
|
|
102.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts presented in NZ$ have been prepared in accordance with AGAAP. |
During the three-year period, TelstraClear has continued to grow revenue while managing cost
levels, with strong retail revenue growth in the consumer and small business markets resulting from
aggressive marketing strategies, as well as some major corporate customer wins. Growth in the
retail segment has been partly offset by reduced wholesale revenues driven by competition and rate
reductions. Regulatory change in fiscal 2004 allowed TelstraClear the opportunity to resell
residential services to the 90% of New Zealand homes that previously had no choice of service
provider. This was a major strategic focus for TelstraClear in fiscal 2005.
In November 2004, TelstraClear acquired a local ICT player, Sytec Resources Limited and its
controlled entities (Sytec). This investment is an important step to leverage TelstraClears
existing ICT capability and provides future growth opportunities in this segment.
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.
111
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Financial position
Table 29 shows our summarised statement of financial position in accordance with AGAAP as at 30
June 2005.
Table 29 Summarised statement of financial position(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
|
A$ |
|
|
US$(2) |
|
|
A$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
1,540 |
|
|
|
1,174 |
|
|
|
687 |
|
Other current assets |
|
|
4,637 |
|
|
|
3,532 |
|
|
|
4,640 |
|
|
|
|
Total current assets |
|
|
6,177 |
|
|
|
4,706 |
|
|
|
5,327 |
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Property plant and equipment |
|
|
23,351 |
|
|
|
17,789 |
|
|
|
22,863 |
|
Intangibles goodwill |
|
|
2,287 |
|
|
|
1,742 |
|
|
|
2,104 |
|
Intangibles other |
|
|
1,581 |
|
|
|
1,204 |
|
|
|
1,501 |
|
Other non current assets |
|
|
2,914 |
|
|
|
2,219 |
|
|
|
3,198 |
|
|
|
|
Total non current assets |
|
|
30,133 |
|
|
|
22,954 |
|
|
|
29,666 |
|
|
|
|
Total assets |
|
|
36,310 |
|
|
|
27,660 |
|
|
|
34,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities |
|
|
1,518 |
|
|
|
1,156 |
|
|
|
3,246 |
|
Other current liabilities |
|
|
4,864 |
|
|
|
3,705 |
|
|
|
4,330 |
|
|
|
|
Total current liabilities |
|
|
6,382 |
|
|
|
4,861 |
|
|
|
7,576 |
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities |
|
|
11,816 |
|
|
|
9,001 |
|
|
|
9,014 |
|
Other non current liabilities |
|
|
3,231 |
|
|
|
2,462 |
|
|
|
3,042 |
|
|
|
|
Total non current liabilities |
|
|
15,047 |
|
|
|
11,463 |
|
|
|
12,056 |
|
|
|
|
Total liabilities |
|
|
21,429 |
|
|
|
16,324 |
|
|
|
19,632 |
|
|
|
|
Net assets |
|
|
14,881 |
|
|
|
11,336 |
|
|
|
15,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
14,879 |
|
|
|
11,334 |
|
|
|
15,359 |
|
Outside equity interests |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
Total
shareholders
equity(3) |
|
|
14,881 |
|
|
|
11,336 |
|
|
|
15,361 |
|
|
|
|
|
|
|
(1) |
|
Our detailed statement of financial position measured and classified under AGAAP is
included in our financial statements. Refer to note 30 to our financial statements for our statement of financial
position measured and classified under USGAAP. |
|
(2) |
|
Translated at the noon buying rate on 30 June 2005 of A$1.00 = US$0.7618. |
|
(3) |
|
Total shareholders equity under USGAAP is A$14,367 million in fiscal 2005 and A$15,291 million in
fiscal 2004. Outside equity interests are not classified as shareholders equity under USGAAP. |
We continue to maintain a strong financial position with net assets of A$14,881 million,
compared with A$15,361 million as at 30 June 2004. The decrease in net assets by A$480 million
comprised an increase in total liabilities of A$1,797 million, offset by an increase in our
total assets of A$1,317 million.
The
increase in total liabilities of A$1,797 million was primarily driven by a A$1,074 million rise
in total interest-bearing liabilities in order to fund the special dividend and share buy-back
during fiscal 2005. The increase was facilitated by bond issues in Europe, Switzerland, New Zealand
and Australia. A stronger Australian dollar also contributed to increased interest-bearing
liabilities as our cross currency swap position has moved from a net receivable to a net payable.
In addition, our payables increased to reflect the deferred payment settlement terms on our
acquisition of the 3G RAN assets.
112
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
The increase in total assets of A$1,317 million was primarily due to the following movements
during the year:
|
|
|
cash assets grew by A$853 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; |
|
|
|
|
our property, plant and equipment increased by A$488 million, largely due to the recognition of our
share of 3G RAN assets acquired as part of a partnership formation with H3GA; |
|
|
|
|
goodwill and other intangibles grew by A$183 million and A$80 million respectively, mainly due to
intangible assets acquired as part of our investment acquisitions including KAZ, Telstra Business
Systems (formerly Damovo (Australia) Pty Ltd) and PSINet; and |
|
|
|
|
other non current assets decreased by A$284 million mainly due to movement in our cross currency
swaps portfolio to a net payable position as a result of the appreciating Australian dollar.
In addition, we terminated our capacity prepayment with our joint venture entity, REACH, and entered into
an IRU arrangement with REACH with a carrying value of A$216 million as at 30 June 2005. |
We have made a number of significant acquisitions during fiscal 2005 to strengthen our operational
capabilities and provide additional opportunities for growth. These acquisitions include KAZ,
Telstra Business Systems (formerly Damovo (Australia) Pty Ltd) and PSINet. We believe our
acquisitions will enable us to capitalise on the expertise of these entities and provide additional
opportunities for us to compete in emerging strategic markets. The consideration of these
acquisitions amounted to A$530 million, with an equivalent amount recognised across the Telstra
Group financial position on consolidation.
For further details on our financial condition, refer to Overview of key factors affecting our
business and financial performance and Liquidity and capital resources below.
113
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Liquidity and capital resources
Capitalisation
Table 30 shows our capitalisation in accordance with AGAAP as at 30 June 2005.
Table
30 Capitalisation
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2005 |
|
|
|
(in millions) |
|
|
|
A$ |
|
|
US$(1) |
|
|
Cash |
|
|
]1,540 |
|
|
|
1,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt(2)(3)(4) |
|
|
1,514 |
|
|
|
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt |
|
|
|
|
|
|
|
|
Telstra bonds (unsecured) |
|
|
2,608 |
|
|
|
1,987 |
|
Other Loans (unsecured) |
|
|
8,297 |
|
|
|
6,321 |
|
Cross
currency swap hedge
(net)(4) |
|
|
864 |
|
|
|
658 |
|
Finance leases |
|
|
47 |
|
|
|
36 |
|
|
|
|
Total long
term debt
(4) |
|
|
11,816 |
|
|
|
9,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Contributed equity(12,443,074,357 (2004: 12,628,
359,026) fully paid ordinary shares issued)
(5) . |
|
|
5,793 |
|
|
|
4,413 |
|
Reserves |
|
|
(157 |
) |
|
|
(120 |
) |
Retained
profits
(5)(6) |
|
|
9,243 |
|
|
|
7,041 |
|
Outside
equity
interests(7) |
|
|
2 |
|
|
|
2 |
|
|
|
|
Total
shareholders
equity(8) |
|
|
14,881 |
|
|
|
11,336 |
|
|
|
|
Total
capitalisation
(9) |
|
|
28,211 |
|
|
|
21,491 |
|
|
|
|
|
|
|
(1) |
|
Translated at the noon buying rate on 30 June 2005 of A$1.00 = US$0.7618. |
|
(2) |
|
Includes the current portion of long term debt. |
|
(3) |
|
No interest-bearing liabilities are guaranteed by third parties. All of our significiant
interest-bearing liabilities 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) |
|
Both our current and non current cross currency swap hedge receivables and payables are
included in our debt position and classified as short term and long term debt as per their maturity. |
|
(5) |
|
On 15 November 2004, we completed an off-market share buy-back of 185,284,669 ordinary shares
as part of our ongoing capital management program. The ordinary shares were bought back at A$4.05 per share comprising a fully franked
dividend component of A$2.55 per share and a capital component of A$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. |
|
(6) |
|
On 11 August 2005, we declared a fully franked final dividend of A$0.14 and a special
dividend of A$0.06 per ordinary share, payable on 31 October
2005. These dividends were not deducted from retained profits as at 30 June 2005 and are
disclosed as a post balance date event, refer to note 28 to our financial statements for further detail. |
|
(7) |
|
Outside equity interests are not classified as shareholders equity under USGAAP. |
|
(8) |
|
Total shareholders equity under USGAAP is A$14,367 million. Refer to note 30 to our financial
statements. |
|
(9) |
|
Total capitalisation consists of short term debt, long term debt and shareholders equity,
including minority interests. |
Cash
assets as at 30 June 2005 were A$1,540 million, compared with A$687 million as at 30
June 2004 and A$1,300 million as at 30 June 2003. Our cash assets held are predominantly Australian
dollars. As at 30 June 2005, our total interest-bearing liabilities (debt) were A$13,330 million,
net of cross currency swap hedge receivables. After deducting cash assets, net debt as at 30 June
2005 was A$11,790 million, compared with A$11,167 million as at 30 June 2004 and A$10,972 million
as at 30 June 2003.
Approximately 27.2% of our total debt consisted of Australian dollar denominated borrowings,
with the balance sourced from a variety of foreign currency markets. Our current
interest-bearing liabilities that mature in less than 12 months
amount to A$1,514 million
(including current cross currency swap hedge receivables of A$4 million), representing
approximately 11.4% of our total debt. This primarily includes
114
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
commercial paper of A$449 million, loans of A$523 million and Telstra bonds of A$516 million
maturing within the fiscal 2006 year. For a summary of the maturity profile of our debt, see note
16 to our financial statements.
As at 30 June 2005, we had access to A$625 million and US$200 million of committed standby bank
lines. These comprise bilateral arrangements with approximately one year duration with nine 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$0.30 billion (the New Zealand dollar facility is technically unlimited but we estimate a
practical limit of around NZ$0.30 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 2005, we had drawn down US$156 million of our United States dollar facility
and NZ$266 million of our New Zealand dollar facility. We had not drawn down on our Australian
dollar and Euro commercial paper facilities at year end. Generally, our facilities are available
unless we default on any terms applicable under the relevant agreements or we become insolvent.
Our 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 unforseen
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
aligned to meet our cash flow requirements.
Our foreign currency exchange risk refers to the risk that the values of our financial commitments
or investments will fluctuate due to changes in foreign exchange rates. Other than borrowings in
foreign currency specifically held as hedges against foreign currency assets, foreign currency
borrowings are fully hedged at draw down to Australian dollars by applying cross currency swaps
with similar maturities, this effectively provides funding in Australian dollars at draw down.
Foreign currency risk also arises on the translation of the financial results of non-Australian
controlled entities. The foreign exchange exposure on our offshore investments is commonly termed
translation risk. Hedging of this risk is sometimes undertaken using foreign currency borrowings
to provide a natural hedge position. Where this is not an option, we use derivative instruments
such as forward foreign currency contracts to hedge our translation risk.
Our foreign currency exchange risk is managed centrally by our treasury department, which is part
of our Finance and Administration business unit. For additional information regarding our foreign
currency position, the management of our foreign currency exchange risk and interest rate profiles,
see Quantitative and qualitative disclosures about market risk, Key information Risk factors,
and notes 16 and 29 to our financial statements.
Our current liabilities are typically in excess of our current assets, as common with most
international telecommunications companies. We have negative working capital of A$205 million as at
30 June 2005, A$2,249 million as at 30 June 2004 and A$77 million as at 30 June 2003. 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 our 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
provides 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 2005, the improvement in our negative working capital position to A$205 million reflects
the high level of cash assets held at year end, in conjunction with a lower level of short term
debt. The increase in cash assets was driven by the proceeds received from a Eurobond issued in
late June 2005, which was largely undertaken as pre-funding for the fiscal 2006 funding
requirements. In fiscal 2005, we undertook several new
115
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
long term bond issues to manage our working capital requirements and re-finance our maturing
long term debt. In fiscal 2004, the increase in negative working capital compared with fiscal 2003
reflected the reclassification of a portion of long term debt to current debt as an increased
component was due to mature in fiscal 2005.
In fiscal 2005, net cash provided by operating activities amounted to A$8,163 million, compared
with A$7,433 million in fiscal 2004 and A$7,057 million in fiscal 2003. Cash generated from
operations continue to be our primary source of liquidity. Strong operational cash flows continue
to generate funding for capital expenditure, investment acquisitions in accordance with our
strategic objectives, dividend payments to our shareholders and funding of share buy-backs
undertaken.
Over the three-year period, our operating cash flows have remained strong and relatively consistent
each month. The major spikes in cash flows across the Company arise from significant receipts such
as asset and investment sales, and from significant outgoings such as the acquisition of large
assets and investments, capital returns, 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.
The majority of our funding is generated by the operations of Telstra Corporation Limited, the
parent entity in the group. As a result, we do not rely 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 2005, we undertook several new long term borrowings that included:
|
|
|
a EUR500 million 10 year bond that will mature in July 2014; |
|
|
|
|
two A$500 million domestic bonds of 8 and 10 years duration that will mature in November 2014 and
April 2015 respectively; |
|
|
|
|
two NZD$100 million bonds of 7 and 10 years that will mature in November 2011 and
November 2014 respectively; |
|
|
|
|
a CHF300 million 8 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. |
During fiscal 2004, we did not undertake any new significant long term borrowings as existing
maturing long term debt of A$679 million in fiscal 2003 was funded by cash flow from operations and
a reduction in the holdings of liquid assets.
In June 2004, our Board of Directors announced that it had undertaken a review of the Companys
capital management strategy. Based on this review, the Board announced its intention to return an
additional A$1,500 million to shareholders each fiscal year until fiscal 2007 through special
dividends and share buy-backs, subject to us maintaining our target financial parameters. As part
of this capital management program, we completed an off-market share buy-back of A$750 million and
paid a special dividend of 6 cents per share with our interim dividend during fiscal 2005. On 11
August 2005, we declared a fully franked special dividend of 6 cents per share to be paid with the
final dividend during fiscal 2006 and the intention to pay a fully franked special dividend with
the interim dividend during fiscal 2006 of 6 cents per share. Refer to Overview of key factors
affecting our business and financial performance Outlook for further details on our capital
management policies.
In June 2004, immediately following the capital management announcement, our long term credit
rating was lowered by the major rating agencies; Standard and Poors to A+, Moodys Investors
Service to A1 and Fitch Ratings to A+. All three rating agencies assigned a stable outlook on
their ratings. In May 2005,
116
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Standard and Poors and Moodys Investors Service subsequently changed their outlook from stable
to negative. This change was generated by the uncertain environment that we are operating in, as
evidenced by our regulatory setting and also the speculation surrounding the privatisation of our
Company. The privatisation of Telstra is dependent upon many factors including market conditions.
In addition, in September 2005, Moodys Investor Service placed our A1 senior unsecured ratings on
review for possible downgrade. Moodys stated that the review will focus on our strategic review
due in mid November and is unlikely to result in a downgrade of more than one notch. In September
2005, Fitch revised the rating outlook on our long term senior unsecured rating to negative from
stable. At the same time, Fitch affirmed the long term and short term ratings. Notwithstanding
these reviews, our credit rating remains strong within the global telecommunications sector.
Ratings are not a recommendation to purchase, hold or sell securities, and may be changed,
superseded or withdrawn at any time.
We believe capital expenditure will continue to be financed largely from our cash flow from
operations. Maturing long term debt of A$1,055 million in fiscal 2006 is expected to be principally
re-financed by a reduction in liquid assets and an increase in short term debt.
Cash flow information
Table 31
provides information regarding our cash flows and liquidity during
the three-year period.
Table
31 Cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005/2004 |
|
|
2004/2003 |
|
|
|
(in millions) |
|
|
(% change) |
|
|
|
|
Net cash provided by operating activities |
|
|
8,163 |
|
|
|
7,433 |
|
|
|
7,057 |
|
|
|
9.8 |
|
|
|
5.3 |
|
Net cash used in investing activities |
|
|
(3,809 |
) |
|
|
(3,270 |
) |
|
|
(2,492 |
) |
|
|
16.5 |
|
|
|
31.2 |
|
Net cash used in financing activities |
|
|
(3,512 |
) |
|
|
(4,776 |
) |
|
|
(4,317 |
) |
|
|
(26.5 |
) |
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash |
|
|
A$842 |
|
|
|
A$(613 |
) |
|
|
A$248 |
|
|
|
237.4 |
|
|
|
(347.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
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, and payments to suppliers
and employees. In addition, this category includes income tax paid, GST received, paid and remitted
to the Australian Taxation Office (ATO), borrowing costs paid and interest received.
During fiscal 2005, net cash provided by operating activities increased by A$730 million, or 9.8%
to A$8,163 million. The main drivers of this change included growth in receipts from trade and
other receivables of A$1,321 million and payments to suppliers and employees of A$687 million, as
well as a decline in income tax paid by A$138 million. Higher revenue and expenses, led by the
consolidation of the trading activities of our recently acquired controlled entities drove the rise
in receipts and payments. However, this increase was partly offset by a continued focus on working
capital management. Income taxes paid reduced in fiscal 2005 mainly due to a lower final tax
payment in December 2004 relating to the 2004 financial year. The final payment was higher in
fiscal 2004 as the Pay As You Go (PAYG) tax instalment rate set by the ATO for fiscal 2003 was too
low.
During fiscal 2004, net cash provided by operating activities increased by A$376 million, or 5.3%
to A$7,433 million compared with fiscal 2003. The main drivers included growth in receipts from
trade and other receivables of A$443 million, and a decline in payments to suppliers and employees
of A$104 million and borrowing costs paid of A$153 million. The increase was predominantly due to
improvements in working capital and a reduction in interest paid from lower debt levels. Offsetting
this increase to some extent
117
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
was the rise in income tax paid of A$320 million due to differences in the final tax payments
and the PAYG instalment rates as mentioned above.
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. During the three-year
period, we continued to commit a substantial amount of capital and other resources to upgrade and
rationalise our network infrastructure and improve a number of our systems.
Table
32 Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005/2004 |
|
|
2004/2003 |
|
|
|
(in millions) |
|
|
|
|
|
|
(% change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switching |
|
|
344 |
|
|
|
298 |
|
|
|
376 |
|
|
|
15.4 |
|
|
|
(20.7 |
) |
Transmission |
|
|
367 |
|
|
|
378 |
|
|
|
378 |
|
|
|
(2.9 |
) |
|
|
|
|
Customer access |
|
|
887 |
|
|
|
794 |
|
|
|
959 |
|
|
|
11.7 |
|
|
|
(17.2 |
) |
Mobile telecommunications networks |
|
|
511 |
|
|
|
416 |
|
|
|
449 |
|
|
|
22.8 |
|
|
|
(7.3 |
) |
International assets |
|
|
279 |
|
|
|
192 |
|
|
|
193 |
|
|
|
45.3 |
|
|
|
(0.5 |
) |
Capitalised software |
|
|
543 |
|
|
|
452 |
|
|
|
583 |
|
|
|
20.1 |
|
|
|
(22.5 |
) |
Specialised
network
functions(1) |
|
|
307 |
|
|
|
221 |
|
|
|
216 |
|
|
|
38.9 |
|
|
|
2.3 |
|
Other |
|
|
385 |
|
|
|
336 |
|
|
|
210 |
|
|
|
14.6 |
|
|
|
60.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating capital expenditure |
|
|
3,623 |
|
|
|
3,087 |
|
|
|
3,364 |
|
|
|
17.4 |
|
|
|
(8.2 |
) |
Less capitalised interest |
|
|
(90 |
) |
|
|
(74 |
) |
|
|
(105 |
) |
|
|
21.6 |
|
|
|
(29.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure (excluding capitalised interest) |
|
|
3,533 |
|
|
|
3,013 |
|
|
|
3,259 |
|
|
|
17.3 |
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: patents, trademarks and licences (including 3G spectrum) |
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
|
|
200.0 |
|
|
|
|
|
Add: investments |
|
|
590 |
|
|
|
668 |
|
|
|
71 |
|
|
|
(11.7 |
) |
|
|
840.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure (excluding capitalised interest) and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
|
|
4,129 |
|
|
|
3,683 |
|
|
|
3,332 |
|
|
|
12.1 |
|
|
|
10.5 |
|
Sale of capital equipment, investments and other assets |
|
|
(320 |
) |
|
|
(413 |
) |
|
|
(840 |
) |
|
|
(22.5 |
) |
|
|
(50.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
A$3,809 |
|
|
|
A$3,270 |
|
|
|
A$2,492 |
|
|
|
16.5 |
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure (including capitalised interest, and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
patents, trademarks and licences) and investments |
|
|
A$4,219 |
|
|
|
A$3,757 |
|
|
|
A$3,437 |
|
|
|
12.3 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Specialised network functions refer to specialised (Automated Data
Processing (ADP) type) hardware and software dedicated to our telecommunciations
network that performs a network function associated with the provision of products,
services or functionaility. |
In fiscal 2005, our operating capital expenditure increased by 17.4% to A$3,623 million. This
growth was led by the increased demand for broadband ADSL services and the development of our 3G
infrastructure. The increase in our operating capital expenditure was across all capital
expenditure categories, with the exception of a decrease in transmission expenditure reflecting the
prior year acquisition of a significant transmission system. The key areas of expansion in
operating capital expenditure for fiscal 2005 included:
|
|
|
higher domestic switching as a result of increased demand for broadband ADSL and
specialised wideband services driven by new government and large corporate customer contracts; |
|
|
|
|
increased expenditure on the customer access network (CAN) largely due to the significant rise in
broadband ADSL demand; |
|
|
|
|
expenditure on mobile networks grew primarily due to the 3G program of works, as well as
improvements in the depth of coverage in the GSM and CDMA networks. The 3G program includes
the A$22 million cash payment for our new asset sharing arrangement with H3GA. The remaining
consideration of A$428 million under this arrangement was deferred and is not included in
our |
·
118
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
|
|
|
investing cash flows as at 30 June 2005. The deferred consideration will be payable over
the next two financial years, with the last instalment due on 1 July 2006. We have also
capitalised A$26 million of transaction costs paid in relation
to the 3G asset purchase.
Partially offsetting this increase were reductions in the traditional 2G, 1XRTT and untimed
local calls extended zone programs; |
|
|
|
|
growth in international capital expenditure driven by the purchase of dedicated
components of REACHs international cable capacity to satisfy additional demand following the change in the
operating model for REACH, refer to Related party transactions for additional details. In addition,
CSL expenditure increased reflecting the development of their own 3G infrastructure; |
|
|
|
|
increased expenditure in capitalised software resulting from the purchase of a long term Microsoft
desktop licence and enterprise resource planning system
(SAP) licences. We also acquired 3G
software development and other specialised IT programs such as billing rationalisation, privacy
compliance and the next generation cost reduction programs; |
|
|
|
|
growth in specialised network function expenditure relating to the provision of 3G mobile data
solutions for areas such as i-mode content, development of a new
BigPond® system for customer
management and product billing, as well as increased broadband content development; and |
|
|
|
|
a rise in the other capital expenditure category was led by higher expenditure on Internet data
centres to accommodate commercial hosting products, systems and platforms, as well as growth
in telepower programs due to the increased ADSL broadband demand. The increase was partially
offset by a reduction of expenditure on land and buildings following project completions. |
In fiscal 2004, our operating capital expenditure decreased by 8.2% to A$3,087 million compared
with fiscal 2003. Our operating capital expenditure declined in fiscal 2004 predominantly due to
the tight control over our capital expenditure program resulting from process efficiencies. The key
areas of movement in operating capital expenditure for fiscal 2004 compared with fiscal 2003
include:
|
|
|
lower domestic switching expenditure due to reduced demand for traditional wideband
technology services and a more efficient utilisation of existing infrastructure to support high speed products and
capacity to meet customer demand. Underpinning the reduction is the continued trend in delivering
services utilising broadband technology alternatives; |
|
|
|
|
decreased expenditure on the CAN mainly due to the increased efficiency of our network resulting
from the combined broadband and narrowband program. We improved our focus on pro-active work
programs and other processes resulting in lower unit costs and reduced held orders, as well as a more
targeted technology deployment. Offsetting this reduction to some extent was the increase in
demand for new estates and redevelopment programs, particularly in regional areas and the
increased demand for ADSL broadband technology; |
|
|
|
|
decreased expenditure in mobile networks was driven by the CDMA 1xRTT deployment program
and government sponsored works nearing completion. In fiscal 2004, we also completed the majority
of customer demand capacity and core installation requirements for mobile data bearer networks.
Offsetting this reduction was the one-off purchase of EVDO equipment. This broadband-like wireless
service creates Hot Regions of high speed data in capital cities, key regional cities and all major
airports; and |
|
|
|
|
expenditure on capitalised software reduced primarily due to the reclassification of fiscal 2003
expenditure to other items and improvements in productivity, as well as reduced cycle
times. In addition, expenditure in fiscal 2003 included the rollout of some significant projects
such as an amalgamation of the field workforce systems. |
119
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Our expenditure on investments amounted to A$590 million in fiscal 2005, compared with A$668
million in fiscal 2004 and A$71 million in fiscal 2003. This expenditure was significantly higher
in both fiscal 2005 and fiscal 2004 compared with fiscal 2003, predominantly due to our
acquisitions of KAZ and PSINet during fiscal 2005, and the Trading Post during fiscal 2004. Over
the three-year period, our cash investment acquisitions resulted from the following significant
items:
|
|
|
A$340 million for the acquisition of 100% of the issued share capital of KAZ in fiscal 2005; |
|
|
|
|
A$124 million for the acquisition of 100% of the issued share capital of PSINet in fiscal 2005; |
|
|
|
|
A$66 million for the acquisition of 100% 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 for A$66 million in fiscal 2005; |
|
|
|
|
A$46 million for the acquisition of 100% of the issued share capital of Universal Publishers in fiscal
2005; |
|
|
|
|
A$638 million for the acquisition of 100% of the issued share capital of Trading Post in fiscal 2004; |
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A$38 million for the acquisition of 100% of the issued share capital of Cable Telecom in fiscal 2004; |
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additional investments in FOXTEL of A$5 million in fiscal 2005 and A$50 million in fiscal 2003; and |
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A$25 million for the acquisition of the remaining 41.6% shareholding in TelstraClear in fiscal 2003. |
As part of our investment acquisitions, we have acquired cash assets of A$13 million in fiscal
2005, A$7 million in fiscal 2004 and nil in fiscal 2003.
Our sale of capital equipment, investments and other assets amounted to A$320 million in fiscal
2005, compared with A$413 million in fiscal 2004 and A$840 million in fiscal 2003. Over the
three-year period, our cash proceeds resulted from the following significant items:
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the redemption of the converting note issued by PCCW with a cash consideration of A$76 million in
fiscal 2005; |
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the sale of our 1.7% shareholding in Intelsat Limited for A$69 million in fiscal 2005; |
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the sale of our 5.3% shareholding in Infonet Services Corporation for A$65 million in fiscal 2005; |
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the sale of our 22.6% shareholding in IBMGSA for A$154 million in fiscal 2004; |
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the sale of our 20.4% shareholding in MGTI for A$50 million in fiscal 2004; and |
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the sale of 7 office properties around Australia for A$570 million in fiscal 2003. |
We expect to incur future capital expenditure in the following areas:
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meeting ongoing customer demand for existing products and services, while ensuring service levels
are improved; |
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developing new products and services to meet the changing needs of our customers; |
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asset lifecycle management; |
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providing additional coverage and depth on our digital GSM and CDMA mobile networks; |
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upgrading our customer access network; |
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further development of our broadband and online infrastructure to meet future growth; |
·
120
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
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providing telecommunications services to rural and remote areas; |
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internal business support infrastructure to ensure continued productivity improvements,
operational efficiencies and customer relationship process improvements; and |
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|
further investment to complement and fit with our existing strategies including the joint operation
and continued development of the 3G RAN. |
We believe our total capital expenditure will increase in fiscal 2006 to meet our 3G
commitments, the broadband demand and investment in a number of business improvement projects,
such as the broadband management system, customer access network rehabilitation and new
billing platforms.
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 flow used in financing activities decreased by A$1,264 million to A$3,512 million in
fiscal 2005. The difference was mainly attributable to a movement of A$1,775 million on our net
proceeds/repayments on our borrowings. In fiscal 2005, we received
net proceeds of A$1,409 million
(compared with net repayments of A$366 million in fiscal 2004) resulting from the re-financing of
debt which matured during fiscal 2005. Other contributing factors include the rise in dividend
payments due to the higher level of dividends (including special dividends) paid in the current
year. In addition, an off-market share buy-back involving 185,284,669 shares in fiscal 2005 was
A$253 million lower than the share buy-back undertaken in prior year. The prior year also included
funding to acquire REACHS loan facility, amounting to A$226 million.
Our net cash flow used in financing activities increased by A$459 million to A$4,776 million in
fiscal 2004 compared with fiscal 2003. This increase was mainly due to the share buy-back
undertaken and funding provided to acquire REACHS loan facility. In fiscal 2004, we completed an
off-market share buy-back of 238,241,174 ordinary shares. The cost of the share buy-back comprised
purchased consideration of A$1,001 million and associated transaction costs of A$8 million. No
share buy-back was undertaken in fiscal 2003. In addition, we bought out, with our co-shareholder
PCCW, a loan facility owed by REACH and its controlled entity, Reach Finance Limited as mentioned
above. Our share of the payment amounted to A$226 million. These increases were partly offset by a
reduction in the net repayments of borrowings. In fiscal 2004, we made net repayments of A$366
million compared with A$983 million in fiscal 2003. The higher net repayment in fiscal 2003 was
mainly due to the timing of our borrowing maturity.
Refer to Liquidity and capital resources for details of our financing arrangements and
debt balances.
Contractual obligations and commercial commitments
In the ordinary course of business we enter into long term 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.
121
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Table 33 Contractual obligations and commercial commitments as at 30 June 2005
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|
Amount
of expiration per period |
|
|
|
Total |
|
|
Within |
|
|
Within |
|
|
Within |
|
|
Within |
|
|
Within |
|
|
After |
|
|
|
amounts |
|
|
1 year |
|
|
1-2 years |
|
|
2-3 years |
|
|
3-4 years |
|
|
4-5 years |
|
|
5 years |
|
|
|
committed |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Expenditure
commitments in relation to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure(1) |
|
|
677 |
|
|
|
537 |
|
|
|
27 |
|
|
|
10 |
|
|
|
11 |
|
|
|
13 |
|
|
|
79 |
|
Non-cancellable operating leases |
|
|
1,523 |
|
|
|
380 |
|
|
|
260 |
|
|
|
209 |
|
|
|
149 |
|
|
|
128 |
|
|
|
397 |
|
Finance leases |
|
|
52 |
|
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
|
|
4 |
|
|
|
2 |
|
|
|
27 |
|
FOXTEL other commitments |
|
|
1,689 |
|
|
|
144 |
|
|
|
144 |
|
|
|
118 |
|
|
|
93 |
|
|
|
80 |
|
|
|
1,110 |
|
Other expenditure commitments |
|
|
1,013 |
|
|
|
494 |
|
|
|
181 |
|
|
|
96 |
|
|
|
69 |
|
|
|
33 |
|
|
|
140 |
|
|
|
|
Total contractual obligations and commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commitments |
|
|
4,829 |
|
|
|
1,554 |
|
|
|
610 |
|
|
|
430 |
|
|
|
316 |
|
|
|
245 |
|
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
debt obligations: |
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|
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|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
Long term debt obligations (including current
obligations of long term
debt)(2) |
|
|
12,028 |
|
|
|
1,013 |
|
|
|
890 |
|
|
|
1,297 |
|
|
|
583 |
|
|
|
792 |
|
|
|
7,453 |
|
Unamortised
discount(2) |
|
|
(84 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
11,944 |
|
|
|
1,012 |
|
|
|
887 |
|
|
|
1,295 |
|
|
|
581 |
|
|
|
787 |
|
|
|
7,382 |
|
|
|
|
Total
contractual obligations and |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commercial
commitments |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
(including
long term debt obligations) |
|
|
A$16,773 |
|
|
|
A$2,566 |
|
|
|
A$l,497 |
|
|
|
A$l,725 |
|
|
|
A$897 |
|
|
|
A$l,032 |
|
|
|
A$9,056 |
|
|
|
|
|
|
|
(1) |
|
Included in our capital expenditure commitments is our share of FOXTEL capital
commitments. Our share amounted to A$133 million, which relates to the purchase of digital set
top box units. The presentation of our commitments is consistent with note 20 to our financial
statements. |
|
(2) |
|
Our long term debt obligations (including the current portion of long term debt) exclude
our cross currency swap hedge position. In addition, it excludes our finance leases as these
commitments are included separately in the above table. Additional details regarding the split
of our long term debt obligations is provided in note 16 to our financial statements. Refer to
Liquidity and capital resources for further discussion regarding our debt obligations. |
Our capital expenditure commitments predominantly relate to expenditure to which we have
committed with external parties to build and improve our networks, enhance our network software and
meet our software and hardware requirements. In addition, we have a share of commitments relating
to FOXTEL for the purchase of digital set top box units.
Our non-cancellable operating lease commitments relate to lease agreements we have entered into for
the following purposes:
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|
rental of land and buildings, over an average term of 7 years, including the
operating leases entered into regarding the 7 office properties sold as part of our sale and leaseback transaction in fiscal 2003; |
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|
rental of motor vehicles, caravan huts, trailers and mechanical aids over an average term of between
2 and 12 years, depending on the type of vehicle; and |
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rental of personal computers and related equipment over an average term of 3 years. |
In addition to our non-cancellable operating leases, we have commitments under cancellable
operating leases amounting to A$343 million. These commitments include leases of IT equipment and
motor vehicles. It also includes commitments for leased assets used in the supply of desktop
services to our customers.
Our finance lease commitments of A$52 million relate to capitalised property leases and leases for
IT equipment to support our client requirements for managed service solutions. In addition, we have
previously entered into US finance leases with several entities incorporated in the Cayman Islands
relating to communications exchange equipment, with an average term of 11 years. We have provided
guarantees
122
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
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
20 to our 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. During fiscal 2005, FOXTEL reviewed and reassessed the applicable
commitment period for the minimum subscriber guarantee contracts. As a result, our share of the
commitment was adjusted down from those commitments previously expected to eventuate. 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 these commitments should FOXTEL and/or the other FOXTEL
partners default on their payment obligations under these agreements.
Our other expenditure commitments include the following items:
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|
|
commitments relating to service contracts for maintenance and support of our software
and hardware, amounting to A$308 million; |
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|
|
|
expenditure commitments of A$191 million over the next 12 years in relation to CSLs
acquisition of a 3G spectrum licence in October 2001; |
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|
|
commitments for general maintenance and other expenditure in our voice and mobility
area, amounting to A$166 million; and |
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|
|
commitments for general maintenance and other expenditure in our data and online
area, amounting to A$169 million. |
Until 1 March 2005, we were committed to an International Services Agreement Australia (AISA)
agreement with our joint venture entity, REACH, which required us to purchase from REACH a certain
percentage of our annual capacity requirements of switched voice, international transmission and
global Internet access services. Our commitment was terminated as part of the lead up to the
restructure of our arrangements with REACH and as a result, we have no further commitments under
this arrangement, refer to Related party transactions for further details.
Off balance sheet arrangements
Indemnities, performance guarantees and financial support
As at 30 June 2005, we had provided indemnities, performance guarantees and financial support to
various entities. This includes arrangements with our joint venture entities such as REACH, FOXTEL
and the 3GIS Partnership. The features and counterparties involved in these contingent liabilities
are disclosed in detail in note 21 to our financial statements.
Derivative contracts
We maintain a portfolio of derivative contracts to enable us to manage risks of the business, the
nature of which are forward foreign currency contracts, interest rate swaps and cross currency
swaps.
The principal and net market value of our interest rate swaps and cross currency swaps are not
consolidated in our statement of financial position under AGAAP. The net notional principal amount
and net fair value of our outstanding interest rate swaps was A$2,027 million and A$379 million
respectively as at 30 June 2005. The net fair value represents the market value of both the fixed
and floating components of our interest rate swaps. Our accrued interest payable on the interest
rate swaps is included within current payables in our statement of financial position and amount to
A$41 million. Our interest rate swap position as at 30 June
123
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
2005 reflected that on a net basis, we pay interest on the interest rate swaps at variable
rates and receive interest on the interest rate swaps at fixed rates.
The net notional principal amount of the payable leg of our outstanding cross currency swaps was
A$9,259 million and the net fair value was a negative A$864 million as at 30 June 2005. The net
fair value represents the market value of our outstanding cross currency swaps. The hedge
receivables and hedge payables arising from our cross currency swaps entered to hedge our foreign
currency borrowings amounts to a net borrowing (including accrued interest) of A$871 million. This
carrying amount is recorded in current and non current interest-bearing liabilities, as well as
current receivables in our statement of financial position under AGAAP.
The nature, business purposes and importance of our derivative instruments is discussed in note 29
to our financial statements. Gains and losses arising from our derivative transactions are
recognised in the statement of financial performance in accordance with the accounting policy
detailed in note 1 to our financial statements.
Share trusts
We own 100% of the equity of Telstra ESOP Trustee Pty Ltd and Telstra Growthshare Pty Ltd, the
corporate trustees for the Telstra Employee Share Ownership Plan Trust (TESOP97), the Telstra
Employee Share Ownership Plan Trust II (TESOP99) and the Telstra Growthshare Trust. These trusts
have been established to administer our employee share plans as described in note 19 to our
financial statements.
We incur expenses on behalf of TESOP97 and TESOP99 in relation to administration costs of these
trusts. We also provide all of the funding to the Telstra Growthshare Trust
to enable it to purchase Telstra shares on market to underpin our employee share plan issues. Under
AGAAP, we do not consolidate or equity account these trusts as we do not control or significantly
influence them. Refer to note 1 to our financial statements for further information regarding its
accounting treatment.
TESOP97, TESOP99 and the Telstra Growthshare Trust are considered to be variable interest entities
under FASB Interpretation No. 46 revised December 2003 (FIN 46), Consolidation of Variable
Interest Entities. We are considered to be the primary beneficiary of these trusts under FIN 46
and have consolidated them for USGAAP purposes. Refer to note 30(s) to our financial statements for
further information.
Superannuation commitments
Over the three-year period, we sponsored the following defined benefit schemes:
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CSS, up until settlement on 17 June 2004; |
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|
Telstra Super; and |
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|
the CSL Retirement Scheme. |
Under AGAAP, the financial position of these schemes is not recorded in our statement of financial
position. As at 30 June 2005, the net surplus of our defined benefit schemes measured under AGAAP
was A$1,158 million for Telstra Super and A$5 million for the CSL Retirement Scheme.
On 17 June 2004, the Commonwealth paid Telstra Super A$3,125 million in settlement of obligations
under the CSS. As part of the settlement arrangement, the Commonwealth assumed the present
obligation for past, present and future liabilities in respect of former and current Telstra
employees who remain in the CSS. This money was owed to Telstra Super as a result of the transfer
of our staff from the CSS to Telstra Super, either when the fund started in 1990, or when a
subsequent opportunity to transfer arose in 1992. When the fund started in 1990, an agreement was
struck whereby the money owed to Telstra Super would be paid to them over an extended period. The
settlement of these payments in June 2004 was taxed at the rate of 15%.
124
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Please refer to note 22 to our financial statements for details on our commitments and
exposures in regard to superannuation schemes held for our employees in Australia and
internationally.
Property leases
During fiscal 2005 and fiscal 2004, we have had no significant sale and leaseback transactions. In
fiscal 2003, we entered into a sale and leaseback transaction on a portfolio of 7 office properties
for sales proceeds of A$570 million. Operating leases
totalling A$518 million at that time were taken out over these properties. The non-cancellable
operating leases for these 7 office properties are included within table 33 Contractual
obligations and commercial commitments.
Related party transactions
The following discussion summarises our significant transactions with related parties, other
than our controlled entities. For discussion on all our related party transactions including
transactions with directors and specified executives, refer to note 27 to our financial statements.
REACH
In fiscal 2001, we formed REACH, a 50/50 joint venture with PCCW, which merged our respective
international infrastructure assets. REACH is a major carrier of international voice traffic. It
provides outsourcing services in support of Telstra 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 joint venture company for the provision of voice, data and Internet
connectivity services. We use these services primarily in connection with our retail international
telecommunications business.
During the three-year period, our purchases from REACH were A$226 million in fiscal 2005, A$231
million in fiscal 2004 and A$506 million in fiscal 2003. These amounts were for both the purchase
of, and entitlement to, capacity and connectivity services. The purchases were made in line with
market prices. The significant decrease in fiscal 2004 compared with fiscal 2003 resulted from
reduced demand and falling prices for capacity services. We made sales to REACH for international
inbound call termination services, construction and consultancy of A$71 million in fiscal 2005,
A$89 million in fiscal 2004 and A$109 million in fiscal 2003.
In January 2005, REACH announced that its data capacity would be consumed entirely by its
shareholders. PCCW and Telstra have experienced significant traffic growth in recent years, which
will see both companies utilising virtually all of REACHs capacity. REACH has continued to provide
its third party voice and satellite services to consumers other than PCCW and us.
In April 2005, we along with PCCW, announced further improvements to REACHs operating model. As
part of these changes, REACH allocated its international cable capacity between PCCW and us, via an
IRU agreement. As consideration for the IRU, we discharged our rights under the capacity prepayment
with REACH of A$187 million (US$143 million), the accrued interest on the prepayment of A$16
million (US$12 million), and the accrued interest on the REACH loan facility of A$2 million (US$2
million). As a result, total consideration amounted to A$205 million (US$157 million). The IRU is
included in the other assets category in our statement of financial position. The carrying value of
the IRU is amortised over the contract periods for the capacity on
the various international cable systems, which range from 5 to 22 years. Over the period of the
IRU, we will pay REACH an outsourcing fee for managing our cable usage on a cost plus mark up
basis, which is recorded as an expense as incurred.
As part of the acquisition of the IRU, we have agreed to fund half of the committed capital
expenditure that REACH is contractually obliged to pay to its capacity providers. Our commitment is
for the period until 2022 and is estimated to be up to US$106 million in total. PCCW has also made
the same commitment to fund the
125
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
other half of REACHs capital expenditure. In the event that PCCW fails to make payments under
the commitment, we have no obligation to fund PCCWs share of the commitment. Any capital
expenditure we incur will be added to the value of the IRU and amortised over its remaining life.
Since we acquired the IRU, REACH has drawn down A$14 million from us to fund its capital
expenditure commitments. We have disclosed this funding arrangement as a contingent liability in
our financial report, refer to note 21 to our financial statements for further details.
In fiscal 2004, we together with PCCW, bought out a loan facility previously owed to a banking
syndicate by REACH and its controlled entity, Reach Finance Ltd. The original value of the
syndicate bank facility was US$1,200 million and it was acquired for US$311 million by the REACH
shareholders. Our share of the acquisition cost was US$155.5 million, which was recognised as a
receivable. We have provided for the non recoverability of the loan as we do not consider that
REACH is in a position to repay the loan in the medium term. No interest accrued or was payable on
the loan until after 17 December 2004. The loan earned interest equivalent to the 3 month US LIBOR
rate plus an additional 2.5% from 17 December 2004 until 16 April 2005, the date on which we
entered the IRU. We waived our right to receive further interest under the loan facility as part of
the termination of the capacity prepayment and acquisition of the IRU. The interest accrued through
to the date of waiver was A$2 million. Other than the interest rate, the terms of the loan remained
the same as that of the original loan facility provided by REACHs banking syndicate with full
repayment of the principal due on 31 December 2010. As part of entering the IRU agreement, the
terms of maturity of the loan facility were altered such that the facility is now due to be repaid
on or after 31 December 2010 upon the giving of 6 months notice by both PCCW and us.
In addition, during fiscal 2004 we agreed with PCCW to provide a US$50 million revolving working
capital facility to REACH to assist them 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 2005, 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 loan facility and working capital
arrangement provides
REACH with greater flexibility and a more viable capital structure. It also certifies our ongoing
ownership of this core infrastructure, ensuring that we have the continued capacity to meet our
international carriage service requirements.
In fiscal 2003, we agreed with PCCW to enter into a capacity prepayment arrangement with REACH and
some of its subsidiaries, whereby each joint venture partner contributed A$230 million (US$143
million) for the prepayment of capacity to be used in the future. The payments (which were
compounded to reflect the time value of money) were to be applied against the cost of the services
and capacity supplied to the joint venture parties by REACH, as and when REACH had available
surplus cash in accordance with a prescribed formula. Until REACH had such available surplus cash,
we purchased capacity from REACH as required for continued operations. REACHs prices under these
arrangements were adjusted to levels we believe were in line with market prices. The arrangements
had regard to our future capacity needs and opportunities for growth. As previously detailed, on 16
April 2005 we discharged our rights under the capacity prepayment arrangement and entered into an
IRU agreement with REACH. The carrying value of the REACH capacity prepayment amounted to A$208
million as at 30 June 2004 and A$214 million as at 30 June 2003, and was recognised as a receivable
in our statement of financial position. We classified the capacity prepayment as non current as no
draw down was expected in the following 12 months. Recoverability of this receivable revolved
around REACHs credit risk and the ability of REACH to provide future services to us.
To fund the capacity prepayment arrangement with REACH, we partially redeemed a US$190 million
(A$337 million) mandatorily converting secured note issued by PCCW. After partial redemption, the
converting note had a face value of US$54 million. The remaining obligations of PCCW under the note
were secured by an equitable mortgage of shares over all of PCCWs 50% shareholding in REACH. This
note had a three-year term and an interest coupon compounding at a rate of 5% per annum. On 30 June
2005, we redeemed the
126
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
converting note for a cash consideration of A$76 million. The note had a carrying value of
A$80 million, which resulted in us realising a loss of A$4 million. This loss represented a 5%
discount, which was negotiated for the redemption of the note in cash. The carrying value of the
converting note was A$85 million as at 30 June 2004 and A$83 million as at 30 June 2003.
In fiscal 2003, we wrote down our investment in REACH by A$965 million to a carrying value of nil
and suspended equity accounting. The write down occurred due to depressed conditions in the global
market for international data and Internet capacity resulting in high levels of excess capacity,
intense price competition and lower than expected revenues. Equity accounting for this investment
remained suspended as at 30 June 2005
and 30 June 2004.
FOXTEL
FOXTEL, our 50% owned subscription television joint venture, uses capacity on our HFC cable
network. As part of the partnership arrangements, 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
section of this annual report.
We have also entered into arrangements with FOXTEL, whereby we are able to bundle and resell FOXTEL
services to our customers. During the three-year period, our purchases from FOXTEL of pay
television services were A$218 million in fiscal 2005, compared with A$134 million in fiscal 2004
and A$25 million in fiscal 2003. The increase was primarily driven by higher service fees as a
result of growth in bundled FOXTEL subscribers. The purchases enabled us to resell FOXTEL services
to our customers and facilitate product bundling initiatives. These purchases were made on normal
commercial terms and conditions.
FOXTEL has other commitments amounting to A$3,377 million as at 30 June 2005 of which we have a 50%
share amounting to A$1,689 million. The majority of these commitments relate to minimum subscriber
guarantees for pay television programming agreements. 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 these commitments should FOXTEL and/or the other FOXTEL partners default on
their payment obligations under these agreements. Refer to Contractual obligations and commercial
commitments and note 21 to our financial statements for further information.
In fiscal 2004, 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. The ECD expires on 30 April 2009. We have no joint and several liabilities relating to our
partners obligations under the ECD. Refer to note 21 to our financial statements for further
information.
3GIS Partnership
During fiscal 2005, we established a joint venture partnership with H3GA to jointly own and operate
H3GAs existing 3G RAN and fund network development. In establishing the joint venture, known as
the 3GIS Partnership, we have agreed to supply the use of our spectrum licences, operating and
maintenance services, transmission capacity services and construction services. In fiscal 2005, we
have received an insignificant amount for these transactions. All the services we provide are on
normal terms and conditions.
127
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
As at 30 June 2005, we had provided the use of our 3G property, plant and equipment to the
partnership. We anticipate that in future reporting periods, we will receive a fee for the use of
these assets. As at balance date, the amount received was insignificant. In addition, during fiscal
2005 we provided funding to the partnership for operational expenditure purposes. The balance owing
as at 30 June 2005 of A$32 million will be settled within twelve months and has been provided
interest free.
IBMGSA
In fiscal 2004, we sold our 22.6% interest in our associated entity IBMGSA. Proceeds from the sale
of our investment amounted to A$154 million resulting in a profit before income tax expense of
A$149 million recognised in fiscal 2004. As part of the disposal, we also modified a 10 year
contract with IBMGSA to provide IT services. The modification to our service contract resulted in
an expense of A$130 million being recognised in fiscal 2004 and the removal of A$1,596 million of
expenditure commitments reported as at 30 June 2003.
During the period of ownership, our purchases from IBMGSA were A$73 million in fiscal 2004 and
A$413 million in fiscal 2003. These amounts were for IT services resulting from the now modified 10
year service contract that commenced in July 1997. For the period of ownership, we outsourced our
data centre operations and a proportion of our applications maintenance and enhancement activities
to IBMGSA in accordance with this service contract.
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. |
Licensed telecommunications carriers in Australia have a responsibility for maintaining and
implementing plans for the development of the Australian telecommunications supply and information
industries, in addition to meeting our commercial objectives. This annual plan is referred to as
the Industry Development Plan and includes our planned research and development activities. Each
year, the amount we report to the Government under our Industry Development Plan includes amounts
expensed in the statement of financial performance and amounts capitalised into software and
infrastructure assets.
Items reported 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 annual report, we estimate the amount of research and development
expenditure incurred over the past year. The amount of the actual expenditure is not determined
until the following December of each fiscal year. For fiscal 2003 expenditure based on the above
classification was estimated to be A$187 million, which was later determined to be A$240 million.
For fiscal 2004, we estimated expenditure of A$165 million, which later was determined to be A$159
million. For fiscal 2005, we estimate that we have spent A$148 million.
128
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
We included research and development operational expenses in our statement of financial
performance of A$29 million in fiscal 2005, A$26 million in fiscal 2004 and A$41 million in fiscal
2003. These amounts do not include items we capitalise to software developed for internal use or
our infrastructure assets and include only expensed amounts.
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
Our business is organised and managed by business unit, as described under Information on the
Company Organisational structure. 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
type and location of customers for our key products and services delivered.
The main adjustment from our internal management reporting structure to our reported business
segments is that TelstraClear and Telstra Asia are reported as part of a segment
we have called Telstra International for segment reporting purposes. For internal management
reporting purposes, TelstraClear is included within Telstra Business and Government and Telstra
Asia is a business unit in its own right. In accordance with the applicable accounting standard, we
consider that the risks and returns of TelstraClear differ from those of our local operations, and
as a result, we have grouped these operations with our other like international businesses.
Our reportable business segments as at 30 June 2005 were:
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Telstra Consumer and Marketing; |
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Telstra Country Wide®; |
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Telstra Business and Government; |
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Telstra International; |
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Infrastructure Services; |
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Telstra Wholesale; and |
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Telstra Technology, Innovation and Products. |
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 the Telstra BigPond®,Telstra Media and Sensis business units as well as our
corporate areas. Please refer to note 5 to our financial statements for details of the major
products and services provided by each of our business segments.
129
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Effective from 1 July 2005, the Board appointed Solomon Trujillo as our new CEO and executive
director, replacing Ziggy Switkowski. The new CEO is undertaking an operational and strategic
review to be completed within 3 to 4 months of his appointment. As a result, our reportable
business segments may change in fiscal 2006.
During fiscal 2005, we restructured our pre-existing business unit, known as the BigPond, Media and
Sensis group. This restructure resulted in the establishment of Telstra BigPond, Telstra Media and
Sensis as separate business units. During fiscal 2004, we formed a new group being Telstra
Technology, Innovation and Products. This business segment brought together product development
areas, network technologies, IT systems and the Telstra Research Laboratories. Those business
segments not impacted by these restructures were substantially consistent to their structure in
prior years.
Analysis of segment results
We have discussed the segment results of each reportable segment separately over the three-year
period. A detailed discussion and analysis of the changes in the operating revenue in each of our
major product groups and our principal operating expense categories is provided in Operating
revenue and Operating expenses respectively.
Table 34 provides a summary of our sales 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 financial statements.
During fiscal 2005, we changed our segment accounting policy regarding the allocation of SME
revenue. In previous financial years, our segment accounting policy was to recognise sales revenue
relating to our SMEs below a certain limit in the Telstra Consumer and Marketing segment. In
fiscal 2005, the revenue earned from our SMEs was allocated to Telstra Business and Government in
accordance with a revised threshold. In addition, the related expenses of these customers have also
been allocated to Telstra Business and Government.
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 those prior years.
Our segment sales revenue and EBIT do not reflect actual operating results achieved for our
business segments in certain circumstances. We are unable to reallocate some individual items to
their appropriate business segment in accordance with the applicable accounting standard due to
there being no reasonable allocation basis for this adjustment. As a result, for financial
reporting purposes these items are reported within the same business segment as for internal
management reporting purposes.
Currently, sales revenue associated with mobile handsets for Telstra Consumer and Marketing,
Telstra Business and Government and Telstra Country Wide®are allocated totally to the
Telstra Consumer and Marketing segment with the exception of products sold in relation to SMEs
which are allocated to Telstra Business and Government. Ongoing prepaid and postpaid mobile
revenues derived from our mobile usage is recorded in each of our customer facing business units
depending on the type and location of customer serviced. However, the majority of goods and
services purchased associated with our mobile revenues are also allocated to Telstra Consumer and
Marketing. These allocations reflect managements accountability framework and internal reporting
system and accordingly no reasonable basis for reallocation to the respective business segments in
accordance with the applicable accounting standard exists.
130
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
In addition, revenue derived from our BigPond Internet products are recorded in the customer
facing business units of Telstra Consumer and Marketing, Telstra Business and Government and
Telstra Country Wide®.Certain distribution costs in relation to these products are also
recognised in these business segments. The Infrastructure Services and the Telstra Technology,
Innovation and Products segments, recognise expenses in relation to the installation and running of
the broadband 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 business segment.
Table 34 Segment summary results
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Year ended 30 June |
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2005 |
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2004 |
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2003 |
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2005/2004 |
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2004/2003 |
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(in millions) |
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(% change) |
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Sales revenue from external customers |
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Telstra Consumer and Marketing |
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5,030 |
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4,956 |
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4,908 |
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1.5 |
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1.0 |
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Telstra Country Wide® |
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5,751 |
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5,508 |
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5,281 |
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4.4 |
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4.3 |
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Telstra Business and Government |
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5,214 |
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4,786 |
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4,764 |
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8.9 |
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0.5 |
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Telstra International |
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1,359 |
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1,301 |
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1,471 |
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4.5 |
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(11.6 |
) |
Infrastructure Services |
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67 |
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60 |
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138 |
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11.7 |
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(56.5 |
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Telstra Wholesale |
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2,940 |
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2,631 |
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2,519 |
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11.7 |
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4.4 |
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Telstra Technology, Innovation and Products |
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1 |
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1 |
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1 |
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Other(1) |
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1,799 |
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1,494 |
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1,413 |
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20.4 |
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5.7 |
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Total sales revenue |
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A$22,161 |
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A$20,737 |
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A$20,495 |
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6.9 |
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1.2 |
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Earnings (loss) before interest and income tax expense (EBIT)(2) |
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Telstra Consumer and Marketing |
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2,493 |
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2,551 |
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2,551 |
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(2.3 |
) |
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Telstra Country Wide® |
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4,944 |
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4,784 |
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4,601 |
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3.3 |
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4.0 |
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Telstra Business and Government |
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3,263 |
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3,614 |
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3,528 |
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(9.7 |
) |
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2.4 |
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Telstra International |
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(18 |
) |
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(34 |
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(954 |
) |
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47.1 |
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96.4 |
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Infrastructure Services |
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(1,702 |
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(1,625 |
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(1,457 |
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(4.7 |
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(11.5 |
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Telstra Wholesale |
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2,973 |
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2,709 |
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2,573 |
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9.7 |
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5.3 |
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Telstra Technology, Innovation and Products |
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(1,374 |
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(1,557 |
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(1,444 |
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11.8 |
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(7.8 |
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Other(1) |
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(3,577 |
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(3,900 |
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(3,493 |
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8.3 |
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(11.7 |
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Eliminations |
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3 |
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18 |
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(182 |
) |
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(83.3 |
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109.9 |
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Total EBIT |
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A$7,005 |
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A$6,560 |
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A$5,723 |
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6.8 |
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14.6 |
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(1) |
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Sales revenue for our Other segment primarily relates to our advertising and
directories revenue earned by Sensis. 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. In fiscal 2004, EBIT for the Other segment was
adversely impacted by the provision for the non recoverability of the loan to REACH of
A$226 million. In fiscal 2003, EBIT included proceeds from the sale of 7 office properties
totalling A$570 million and the associated cost of A$439 million, resulting in a net
profit before income tax expense of A$131 million. |
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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 the Company.
EBIT reflects our intercompany and external charges . |
131
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Telstra Consumer and Marketing
Telstra Consumer and Marketing sales revenue increased over the three-year period to A$5,030
million in fiscal 2005 compared with A$4,956 million in fiscal
2004 and A$4,908 million in fiscal 2003. This increase was driven by the continued strong performance in
mobile services, led by growth in international roaming, mobile data usage and handset sales. In
addition, continued strong growth in BigPond broadband and pay television services was also
experienced due to the rise in marketing activities and the improved retention of existing
customers through bundling initiatives. Bundled pay television revenue has increased significantly
over the three-year period off a low base in fiscal 2003. Offsetting this growth in sales revenue
was a decline in total PSTN revenue over the three-year period as a result of competition, product
substitution and decreased consumer usage.
Telstra Consumer and Marketing EBIT decreased by 2.3% to A$2,493 million in fiscal 2005
predominantly led by expense growth in dealer remuneration negotiation costs, the resolution of
historical issues including dealer claims, inventory write downs and increased labour costs in line
with this segments customer focus priority. In addition, all business expenditure associated with
mobile services for our Company are incurred by Telstra Consumer and Marketing. This expenditure
includes subsidies and dealer commissions. In fiscal 2005, A$205 million of our subsidy expense
related to the amortisation of activities that commenced in fiscal 2004 across the business.
Telstra Consumer and Marketing EBIT remained unchanged in fiscal 2004 compared with fiscal 2003 as
the revenue growth experienced was offset by the growth in expenses. Expense growth was largely
driven by increases in bundled pay television services, offset by reduced domestic and
international network payments due to lower termination rates and the stronger Australian dollar.
Telstra Country Wide®
Telstra Country Wide® sales revenue increased over the three-year period to A$5,751
million in fiscal 2005 compared with A$5,508 million in fiscal 2004 and A$5,281 million in fiscal
2003. This increase was primarily due to continued strong growth in SIOs for broadband, ISDN, CDMA
mobiles and bundled pay television. This segment has also experienced increased volumes for fixed
to mobile calling and various mobile products such as mobile calls, mobile data and international
roaming. The growth was partially offset by reductions in local and international direct revenues
as a result of product substitution and competitor activity. In addition, basic access and national
long distance revenues increased in fiscal 2005, following a decline in fiscal 2004 compared with
fiscal 2003. The decline in fiscal 2004 was also driven by product substitution and competitor
activity, with basic access revenue increasing in fiscal 2005 mainly as a result of a price
increase in June 2004.
Telstra Country Wide® EBIT increased by 3.3% to A$4,944 million in fiscal 2005
predominantly due to the continued strong growth in sales revenue, which was partially offset by an
increase in expenses. The expense growth was attributable to higher cost of goods sold and service
fees driven by the growth in broadband and bundled pay television revenue.
Telstra Country Wide® EBIT increased 4.0% to A$4,784 million in fiscal 2004
compared with fiscal 2003 with the solid rise in revenue also being partially offset by an increase
in expenses. The main contributing factors to the higher expenses in fiscal 2004 were the increased
volumes for calls terminating on other carriers networks, as well as increased costs associated
with bundled pay television revenue streams.
132
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Telstra Business and Government
Telstra Business and Government sales revenue increased by 8.9% to A$5,214 million in fiscal
2005 predominantly due to additional revenues from the acquisition of KAZ, Telstra Business Systems
(formerly Damovo (Australia) Pty Ltd) and PSINet. This increase was partially offset by a reduction
in sales revenue from the underlying business, mainly due to the decline in traditional PSTN and
certain specialised data revenues. Price re-balancing initiatives continued in fiscal 2005 with
basic access revenues increasing. This segment continues to see changes in usage patterns with
traditional product usage migrating to alternative offerings such as mobiles, broadband and other
IP product offerings.
Telstra Business and Government sales revenue totalled A$4,786 million in fiscal 2004, an increase
of 0.5% compared with fiscal 2003. This slight increase was mainly due to an environment of
continuing price re-balancing initiatives and tough competition in the SME customer segment. Solid
growth in fixed to mobile revenue in fiscal 2004 was achieved due to an increase in call volumes
and growth in the number of mobile phone users in the Australian market, as well as continued
growth in Internet and IP solutions related revenue. Basic access revenue increased in fiscal 2004
as a result of higher rental and subscription charges, however local call, national long distance
and international direct revenue decreased due to the migration of customers to other
telecommunication solutions. In fiscal 2004, further contributions to sales revenue arose from the
acquisition of the United Kingdom based Cable Telecom in February 2004 and the business assets of
Powergen in October 2003.
Telstra Business and Government EBIT decreased by 9.7% to A$3,263 million in fiscal 2005
predominantly due to the reduction in PSTN revenue and from the inclusion in fiscal 2004 of the
profit arising from the sale of our investment in IBMGSA and Commander Communications Limited. In
fiscal 2005, this segment had no significant asset and investment sales.
Telstra Business and Government EBIT grew by 2.4% to A$3,614 million in fiscal 2004 compared with
fiscal 2003. This growth was driven by profits made on the disposal of our investments in IBMGSA
and Commander Communications Limited as described above.
Telstra International
The Telstra International segment is the combination of our Telstra Asia business unit and
TelstraClear. Telstra Asia is responsible for our Asia-Pacific investments. In particular this
includes our operations in Hong Kong that mainly generate revenues from the mobiles market.
TelstraClear is our New Zealand subsidiary that provides full integrated services to the New
Zealand market.
Telstra International sales revenue increased by 4.5% to A$1,359 million in fiscal 2005 due to an
increase in revenues from both CSL and TelstraClear. CSL revenues increased across most revenue
streams including international voice, data and prepaid revenues, as well as growth in mobile
handsets due to CSLs move into new markets and the launch of new models with advanced features.
This growth was partly offset by a decline in local voice revenues that continues to be impacted by
price competition. In addition, CSLs contribution to our revenues continue to be impacted by
adverse foreign exchange movements. TelstraClear achieved solid revenue rises due to its continued
strong retail performance in conjunction with favourable foreign exchange movements. The increase
in retail revenue was led by further growth in the SME market and the recent acquisition of Sytec.
Telstra International sales revenue declined by 11.6% to A$1,301 million in fiscal 2004 compared
with fiscal 2003 driven by the decline in revenues from CSL partly offset by revenue growth in
TelstraClear. CSL revenues decreased due to the continued impact of aggressive pricing in the Hong
Kong mobiles market and adverse foreign currency movements. TelstraClear has experienced revenue
growth from significant new corporate customers and aggressive marketing in the SME and consumer
markets.
133
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Telstra International EBIT improved by 47.1% to an EBIT loss of A$18 million in fiscal 2005
following the enhanced result for the Telstra Asia business unit. EBIT increased for Telstra Asia
following the divesting of non core investments and the improved equity accounting results for our
joint venture entity Xantic. This was partially offset by the decline in CSL resulting from higher
handset costs involved with the launch of 3G. TelstraClears EBIT remained fairly consistent as the
growth in revenue was offset by the increase in expenses. The expense growth was driven by the
acquisition of Sytec, with additional staff numbers increasing its labour expense.
Telstra International EBIT improved in fiscal 2004 compared with fiscal 2003 mainly due to the
write down of the carrying value of our investment in REACH and AJC to nil being included in fiscal
2003. As a result, we suspended equity accounting for both of these entities. These write downs
resulted in negative impacts to the fiscal 2003 segment result of A$965 million and A$24 million
respectively.
Excluding
our write downs in REACH and AJC, EBIT remained consistent with fiscal
2003. A decline in CSL as a result of price competition in the Hong Kong mobiles market
(particularly in the local voice segment) and adverse foreign currency movements has been offset by
the improved TelstraClear result as it continues to focus on increasing revenue, driving expense
efficiencies and investing capital expenditure wisely.
Infrastructure Services
Infrastructure Services sales revenue increased in fiscal 2005 following a decline in fiscal 2004.
The increase in fiscal 2005 was primarily driven by higher commercial works activity. The decline
in fiscal 2004 compared with fiscal 2003 was driven by lower offshore construction revenue
following the wind down of our international construction operations. In addition, the cable
recovery and recycling project that was implemented in fiscal 2003 ceased in fiscal 2004 following
its scheduled completion.
Infrastructure Services EBIT is negative as this segment does not recover all the costs it incurs
on behalf of the other segments. EBIT loss declined over the three-year period mainly due to the
wind down of our offshore construction revenue and the completion of the cable recovery and
recycling project as mentioned. In addition, expenses grew due to the increased sales activity of
our emerging products such as broadband, where Infrastructure Services incurs the installation and
maintenance expense and the customer facing business segments recognise the related revenue. The
expense increase was partly offset by managements continued focus on lower discretionary spending
and cost reduction initiatives.
Telstra Wholesale
Telstra Wholesale sales revenue increased over the three-year period to A$2,940 million in fiscal
2005 compared with A$2,631 million in fiscal 2004 and A$2,519 million in fiscal 2003. The increase
was driven by the growth in the number of local service customers and the demand for broadband
services. During the three-year period, Telstra Wholsesale experienced a continuation of
re-balancing initiatives and commercial negotiations, which generally reduced prices across
wholesale PSTN call revenue categories, while increasing basic access revenues. Over the three-year
period, intercarrier service revenue was impacted by continued growth in SMS interconnect revenue
and mobile interconnection volumes, driven by mobile substitution and growth in the overall mobile
market. However this growth was offset by reduced yields for these products. In addition, in fiscal
2004, revenue streams from a number of other transmission products were significantly impacted by
aggressive price competition from various alternative suppliers. Over the three-year period, data
and Internet service revenues showed solid growth, which was mainly driven by wholesale broadband
offerings that led to a significant increase in the number of wholesale broadband subscribers.
134
Telstra Corporation Limited and controlled entities
Operating and Financial Review and Prospects
Telstra Wholesale EBIT increased over the three-year period to A$2,973 million in fiscal 2005
compared with A$2,709 million in fiscal 2004 and A$2,573 million in fiscal 2003. The increase in
EBIT over the three-year period was driven by sales and inter-segment revenue growth, partly offset
by an increase in expenses. The expense growth consisted of increases in Telstra Wholesales
allocated share of domestic outpayments, offset by a significant reduction in volumes and costs for
international voice traffic, which was also assisted by an appreciating Australian dollar.
Increases in labour expense were attributable to the increase in staff numbers required to support
the significantly higher than planned volumes of access and broadband customers, as well as further
development in, and the expansion of, the wholesale market. In addition, total IT professional
services costs grew due to the revised contract conditions for system support and increased program
of work to support the revenue growth and operational efficiency.
Telstra Technology, Innovation and Products
Telstra Technology, Innovation and Products EBIT is negative as this segment does not recover all
the costs it incurs on behalf of the other segments, similar to Infrastructure Services. In fiscal
2004, EBIT was significantly impacted by the cost associated with the modification of a 10 year IT
service contract with IBMGSA that resulted in an expense of A$130 million being recognised.
Excluding this significant item, EBIT improved over the three-year period with a negative EBIT of
A$1,374 million in fiscal 2005, compared with A$1,427 million in fiscal 2004 and A$1,444 million in
fiscal 2003.
The EBIT improvement in fiscal 2005 was driven by an increase in total revenues and a reduction in
expenses. In fiscal 2005, total revenues included proceeds from the debt forgiveness on the wind up
of our wholly owned subsidiary, Telstra New Wave Pty Ltd. In relation to expenses, significant
savings were achieved in contract renegotiations with vendors. These improvements were partly
offset by an increase in adjustments for inventory to its net realisable value, and project write
offs due to the cancellation of some capital program initiatives.
The EBIT improvement in fiscal 2004 compared with fiscal 2003, excluding the IT service contract
expense with IBMGSA, was driven by a decline in expenses reflecting the significant restructuring
of the segment to better align skills and capabilities to customer needs, as well as the
renegotiation of important supplier contracts. This was partially offset by increases in general
and administrative costs which reflect leasing charges arising from the sale and leaseback of
certain server assets as well as some increases in light, power and accommodation costs.
135
Telstra Corporation Limited and controlled entities
Directors, Management and Employees
Directors
As at 30 September 2005, our directors were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of initial |
|
|
Year last |
|
Name |
|
Age |
|
|
Position |
|
|
appointment |
|
|
re-elected(1) |
|
|
Donald G McGauchie |
|
|
55 |
|
|
Chairman |
|
|
1998 |
|
|
|
2003 |
|
Sol Trujillo(2) |
|
|
53 |
|
|
Chief Executive Officer |
|
|
2005 |
|
|
|
|
|
John E Fletcher |
|
|
54 |
|
|
Director |
|
|
2000 |
|
|
|
2003 |
|
Belinda J Hutchinson |
|
|
52 |
|
|
Director |
|
|
2001 |
|
|
|
2004 |
|
Catherine B Livingstone |
|
|
49 |
|
|
Director |
|
|
2000 |
|
|
|
2002 |
|
Charles Macek |
|
|
58 |
|
|
Director |
|
|
2001 |
|
|
|
2004 |
|
John W Stocker |
|
|
60 |
|
|
Director |
|
|
1996 |
|
|
|
2003 |
|
|
|
|
(1) |
|
Other than the CEO, one third of directors are subject to re-election by rotation each year. |
|
(2) |
|
Sol Trujillo was appointed Chief Executive Officer 1 July 2005. |
A brief biography for each of the directors and the company secretary as at 30 September 2005
is contained in the Directors Report.
Senior executives
As at 30 September 2005, the senior executives who are not directors are:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
appointed |
|
|
Year |
|
|
|
|
|
|
|
to a GMD |
|
|
appointed |
|
Name |
|
|
Position |
|
position |
|
|
to Telstra |
|
|
Bruce Akhurst |
|
CEO, Sensis |
|
|
1999 |
|
|
|
1996 |
|
Phil Burgess |
|
Group Managing Director, Public Policy and Communications |
|
|
2005 |
|
|
|
2005 |
|
Douglas Campbell |
|
Group Managing Director, Telstra Country Wide® |
|
|
1992 |
|
|
|
1989 |
|
David Moffatt |
|
Group Managing Director, Telstra Consumer and Marketing |
|
|
2001 |
|
|
|
2001 |
|
Michael Rocca |
|
Group Managing Director, Infrastructure Services |
|
|
2002 |
|
|
|
1968 |
|
Deena Shiff |
|
Group Managing Director, Telstra Wholesale |
|
|
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 Business and Government |
|
|
2001 |
|
|
|
2001 |
|
Greg Winn |
|
Chief Operations Officer |
|
|
2005 |
|
|
|
2005 |
|
A brief biography of each of the senior executives who are not directors as at 19 August 2005
is as follows:
Bruce J Akhurst - LLB, BEc (Hons)
Bruce Akhurst is the Chief Executive Officer of Sensis. Within Telstra, he has management
responsibility for our digital media strategy, which includes our 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 ®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 the Company, he was the Managing Partner at a national law firm.
136
Telstra Corporation Limited and controlled entities
Directors, Management and Employees
Phil Burgess - PHD
Phil Burgess was appointed Group Managing Director, Public Policy and 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 U.S.
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.
Douglas C Campbell - BEng, FAICD
Doug Campbell was appointed Group Managing Director, Telstra Country Wide®on 4 June
2000, and has over 30 years experience in the telecommunications industry both in Australia and
Canada. Between August 2002 and October 2003, Mr Campbell, combined his Group Managing Director of
Telstra Country Wide®role with management responsibility for the Telstra Technology
unit. Prior to his appointment with Telstra Country Wide®, Doug held the positions of Group
Managing Director, Telstra Wholesale and International, and Group Managing Director, Carrier
Services Business. He has also held the position of Group Managing Director, Network and
Technology, and Group Managing Director, Consumer and Commercial. Before the merger of Telecom
Australia and Overseas Telecommunications Commission in March 1992, Doug was Deputy Managing
Director of Telecom Australia. Originally from Canada, Doug was the President of Canadian National
Communications.
David Moffatt - BBus (Mgt), FCPA
David Moffatt was appointed Group Managing Director, Telstra Consumer and Marketing from 1 October
2003. The groups activities encompass the sales and marketing of fixed and mobile communications,
broadband and entertainment services to the Australian consumer and small business customers, the
management of the Telstra brand, advertising and sponsorships and implementing product bundling
initiatives. The group also manages the Telstra Shop chain and our extensive national network of
mobile phone dealers as well as our payphone services. David is a Director and Chair of the Finance
Committee at FOXTEL. David was previously Telstra Chief Financial Officer and Group Managing
Director, Finance & Administration, a role he assumed in February 2001. Prior to joining the
Company, David was Chief Executive Officer, General Electric
- Australia and New Zealand.
Ted N Pretty - BA, LLB (Hons)
Ted Pretty was appointed Group Managing Director of the Telstra Technology, Innovation and Products
group effective from 1 October 2003 and has accountability for the design, development and
evolution of our fixed, wireless and data networks, products and services. The group also
encompasses all IT services and Telstras Research Laboratories. Ted is also on the boards of
TelstraClear and KAZ Group Limited. Previously, Ted was Group Managing Director of the Telstra
Consumer and Marketing group. Prior to this, Ted was the Group Managing Director, Telstra Retail.
Ted has also held positions as Group Managing Director, Convergent Business and Managing Director,
Telstra International. Before joining the Company in 1997, Ted gained extensive experience as a
representative, director and key advisor to a number of international telecommunications companies.
Ted ceased with the Company effective 19 August 2005.
137
Telstra Corporation Limited and controlled entities
Directors, Management and Employees
Michael Rocca MBA, DipEng, GAICD
Michael Rocca was appointed Group Managing Director of Infrastructure Services in August 2002. This
unit of about 18,000 Telstra staff as well as an extensive contract workforce, has the
responsibility for providing design, installation and maintenance services to Telstras 11 million
customers. Prior to his current assignment, Michael held a range of posts during his career
including Managing Director of a number of engineering and service organisations within Telstra.
Michael Rocca is credited with dramatic improvements in regulated levels of customer service,
greater customer engagement, network management, cost reduction, innovative workforce modelling and
technology transformation. Michael holds a Master of Business Administration and post-graduate qualifications in Engineering
and Management. Michael also has qualifications from INSEAD, Global Management, and is a graduate
of the Australian Institute of Company Directors.
Deena Shiff - B.Sc (Econ) Hons; B.A. (Law) Hons
Deena has over fifteen years experience in the telecommunications industry. She held a number of
positions in OTC Limited and, after the merger of AOTC and Telstra, in the companys International
business unit. Between 1995 and 1998 Deena was a partner of the law firm Mallesons Stephen Jacques.
Deena rejoined Telstra in 1998 as Director of Regulatory, and in November 2001 was appointed to the
Wholesale business unit. In December 2004 she was appointed Group Managing Director, Telstra
Wholesale. Deena has held a number of non-executive directorships in both the telecommunications
industry and other sectors. She was a Director of the government owned rail operator, Freightcorp,
from 1995 until it was privatised in 2002. During that time she chaired the Compliance Committee
and later the Privatisation Committee of the Freightcorp Board. Deena was educated at the London
School of Economics and Cambridge University, and 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 services, corporate development, 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. 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 TelstraClear, Hong Kong CSL, Sensis, Telstra Super
and is chairman of REACH.
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.
138
Telstra Corporation Limited and controlled entities
Directors, Management and Employees
David Thodey - BA
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 Business and Government in December
2002 and is now responsible for the Companys industry, government and business customers. David is
the Chairman of TelstraClear and KAZ Group. Before joining the Company, David was Chief Executive
Officer of IBM Australia/ New Zealand and previously held several senior executive marketing and
sales positions within IBM.
Greg Winn
Greg Winn was appointed Telstras Chief Operations Officer (COO) on 11 August 2005. His
responsibilities include Infrastructure Services, Telstra Technology,
Innovation and Products, Human Resources, Corporate Services, Credit Management, the newly formed Program Office
and the Productivity and Billing directorates. Greg Winn has more than 30 years experience in the
telecommunications industry, with more than 10 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 systems
improvement. Greg began his career in US West as a lineman and subsequently held positions in
network services, corporate finance, small business services, product management, and sales. In
1994, he became Vice President, Consumer Sales and Customer service.
For a full discussion of the remuneration and benefits paid by the Company to the directors and
officers see the Remuneration Report in the Directors Report of this annual report.
Business address
The business address for the Company and each of the above directors and officers is:
c/- the Company Secretary
Telstra Corporation Limited
Level 41, 242 Exhibition Street
Melbourne Vic 3000
Australia
Ph: +61(3) 9634 6400 or +61(8) 8308 1721 (Telstra Switchboard)
139
Telstra
Corporation Limited and controlled entities
Directors, Management and Employees
Directors and senior executives shareholdings in Telstra
As at 30 September 2005, the directors and senior executives shareholdings in Telstra are:
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares held |
|
|
Direct |
|
Indirect |
|
|
|
|
interest |
|
interest (1) |
|
Total |
|
Donald G McGauchie |
|
|
|
|
|
|
47,887 |
|
|
|
47,887 |
|
Sol Trujillo |
|
|
|
|
|
|
|
|
|
|
|
|
John E Fletcher |
|
|
|
|
|
|
57,117 |
|
|
|
57,117 |
|
Belinda J Hutchinson |
|
|
37,111 |
|
|
|
32,289 |
|
|
|
69,400 |
|
Catherine B Livingstone |
|
|
10,400 |
|
|
|
20,557 |
|
|
|
30,957 |
|
Charles Macek |
|
|
|
|
|
|
44,538 |
|
|
|
44,538 |
|
John W Stocker |
|
|
800 |
|
|
|
91,942 |
|
|
|
92,747 |
|
|
|
|
(1) |
|
Shares in which the director does not have a relevant interest, including
shares held by director related entities, are excluded from indirect interests. |
Senior executives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares held |
|
|
Direct |
|
Indirect |
|
|
|
|
interest |
|
interest |
|
Total |
|
Bruce Akhurst |
|
|
7,780 |
|
|
|
34,711 |
|
|
|
42,491 |
|
Phil Burgess |
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Campbell |
|
|
68,700 |
|
|
|
27,500 |
|
|
|
96,200 |
|
David Moffatt |
|
|
71,600 |
|
|
|
3,100 |
|
|
|
74,700 |
|
Michael Rocca |
|
|
12,000 |
|
|
|
|
|
|
|
12,000 |
|
Deena Shiff |
|
|
5,680 |
|
|
|
8,800 |
|
|
|
14,480 |
|
John Stanhope |
|
|
53,780 |
|
|
|
3,960 |
|
|
|
57,740 |
|
William Stewart |
|
|
|
|
|
|
|
|
|
|
|
|
David Thodey |
|
|
12,462 |
|
|
|
5,800 |
|
|
|
18,262 |
|
Greg Winn |
|
|
|
|
|
|
|
|
|
|
|
|
Employees
We are one of Australias largest employers. As at 30 June 2005, the Telstra Group employed
42,523 full-time employees. Telstra also engages employees under flexible work arrangements
including casual, supplementary and part-time employees. As at 30 June 2005, the Telstra Group had
engaged the equivalent of 3,813 full-time employees under these flexible arrangements. In total, as
at 30 June 2005, the Telstra Groups full-time equivalent (FTE) employee total was 46,336 which is
4,395 more than at the same time in 2004, where the equivalent FTE employee number totalled 41,941.
We saw an increase in Australian based full-time employee numbers during fiscal 2005 from 36,159 to
39,657 mainly due to the acquisition of:
|
|
|
KAZ 2,284; |
|
|
|
|
DAMOVO (Australia) 304; and |
|
|
|
|
Universal Publishers 120. |
140
Telstra
Corporation Limited and controlled entities
Directors, Management and Employees
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 2005 |
|
As at 30 June 2004 |
|
New Zealand |
|
|
1,508 |
|
|
|
1,302 |
|
Asia |
|
|
1,060 |
|
|
|
981 |
|
Other |
|
|
298 |
|
|
|
122 |
|
The following table summarises full-time employees and equivalents in Australia and overseas
for the past five financial years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
Full-time Australian based employees of the Telstra Group |
|
|
39,657 |
|
|
|
36,159 |
|
|
|
37,169 |
|
|
|
40,427 |
|
|
|
44,874 |
|
Full-time equivalent total for the Telstra Group |
|
|
46,336 |
|
|
|
41,941 |
|
|
|
42,064 |
|
|
|
44,977 |
|
|
|
48,317 |
|
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 or, in the case of some employees who were employed prior to 1990, the
Commonwealth Superannuation Scheme.
In fiscal 2005 the Federal Government introduced legislation, which came into effect in July 2005,
which allows employees the choice of where their employer superannuation contributions can be made.
The legislation allows for certain categories of our employees to be exempted. However, we have
decided to extend this flexibility to as many employees as possible, subject to other legislative
restrictions.
Labour relations
The nominal expiry date of the six major business unit Enterprise Agreements was 22 June 2005 and
provided employees covered by these agreements with an increase of 2% in January 2005. In June 2005
we reached in-principle agreement with the relevant unions to enter into a new Enterprise
Agreement (EA) to replace the six expired agreements. For the new EA to take effect it will need to
be approved by a majority of voting employees and certified by the Australian Industrial Relations
Commission (AIRC).
Under the proposed EA, employees will receive pay increases of 2.5% each year over a three year
period. There are minimal changes to other existing terms and conditions of employment. It is
proposed that the first increase will be paid from the first pay period on or after certification
of the EA by the AIRC.
141
Telstra
Corporation Limited and controlled entities
Major Shareholders and Related Parties
Major shareholders
The following table shows the number of unlisted and listed shares on issue at 30 September
2005. 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 |
|
|
6,446,207,123 |
(1) |
|
|
51.8 |
|
Shares |
|
Listed shareholders |
|
|
5,996,867,234 |
|
|
|
48.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,443,074,357 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Directors and officers as a group |
|
|
489,364 |
(2) |
|
|
|
|
|
(1)
All shares held by the Commonwealth
are unlisted, except for 211,629 listed shares. |
|
(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 30 September 2005, is shown in the table
titled Twenty largest shareholders as at
30 September 2005. As
at 30 September 2005, we are not aware of any individual shareholder, other than the Commonwealth,
whose shares represent more than 5% of the issued and outstanding shares. The Commonwealth has
equal voting rights with all other shareholders.
Distribution of shares
The following table summarises the distribution of our public listed shares as at 30 September
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
shareholders(1) |
|
Shares
(2) |
Size of holding |
|
Number |
|
% |
|
Number |
|
% |
|
1-1,000 |
|
|
948,386 |
|
|
|
58.35 |
|
|
|
588,811,994 |
|
|
|
9.82 |
|
1,001-2,000 |
|
|
305,304 |
|
|
|
18.79 |
|
|
|
482,042,780 |
|
|
|
8.04 |
|
2,001-5,000 |
|
|
251,647 |
|
|
|
15.48 |
|
|
|
804,729,086 |
|
|
|
13.42 |
|
5,001-10,000 |
|
|
76,207 |
|
|
|
4.69 |
|
|
|
548,696,259 |
|
|
|
9.15 |
|
10,001-100,000 |
|
|
42,510 |
|
|
|
2.62 |
|
|
|
854,382,416 |
|
|
|
14.25 |
|
100,001 and over |
|
|
1,195 |
|
|
|
0.07 |
|
|
|
2,718,416,328 |
|
|
|
45.33 |
|
|
|
|
Total |
|
|
1,625,249 |
|
|
|
100.00 |
|
|
|
5,997,078,863 |
|
|
|
100.00 |
|
|
|
|
|
|
|
(1) |
|
Number of shareholders holding less than a marketable parcel of
shares was 9,479 shareholders who held 790,200 shares. |
|
(2) |
|
Not including
those shares held by the Commonwealth, except for 211,629 listed shares which are
held by the Commonwealth. |
As at 30 September 2005, we had 1,346 shareholders who were resident in the US. This does not
include ADS holders.
142
Telstra
Corporation Limited and controlled entities
Major Shareholders and Related Parties
Twenty Largest shareholders as at 30 September 2005
The following table sets out the top 20 shareholders other than the Commonwealth when multiple
holdings are grouped together:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Shareholders |
|
|
|
of shares |
|
% of issued shares (1) |
|
|
|
|
|
1 |
|
National Nominees Limited |
|
|
421,853,899 |
|
|
|
7.03 |
|
|
|
|
|
2 |
|
JP Morgan Nominees Australia Limited |
|
|
407,960,258 |
|
|
|
6.80 |
|
|
|
|
|
3 |
|
Westpac Custodian Nominees Limited |
|
|
344,865,710 |
|
|
|
5.75 |
|
|
|
|
|
4 |
|
CitiCorp Nominees Pty Ltd |
|
|
162,539,706 |
|
|
|
2.71 |
|
|
|
|
|
5 |
|
RBC Global Services Australia Nominees Pty Ltd |
|
|
140,901,221 |
|
|
|
2.35 |
|
|
|
|
|
6 |
|
Cogent Nominees Pty Ltd |
|
|
98,646,935 |
|
|
|
1.64 |
|
|
|
|
|
7 |
|
ANZ Nominees Limited |
|
|
96,268,526 |
|
|
|
1.61 |
|
|
|
|
|
8 |
|
Queensland Investment Corporation |
|
|
81,869,332 |
|
|
|
1.37 |
|
|
|
|
|
9 |
|
HSBC Custody Nominees (Australia) Limited |
|
|
69,585,885 |
|
|
|
1.16 |
|
|
|
|
|
10 |
|
AMP Life Limited |
|
|
59,547,443 |
|
|
|
0.99 |
|
|
|
|
|
11 |
|
UBS Nominees Pty Ltd |
|
|
41,765,063 |
|
|
|
0.70 |
|
|
|
|
|
12 |
|
Australian Foundation Investment Company Limited |
|
|
31,928,338 |
|
|
|
0.53 |
|
|
|
|
|
13 |
|
Merrill Lynch (Australia) Nominees Pty Ltd |
|
|
22,886,282 |
|
|
|
0.38 |
|
|
|
|
|
14 |
|
Belike Nominees Pty Limited |
|
|
20,799,284 |
|
|
|
0.35 |
|
|
|
|
|
15 |
|
Government Superannuation Office |
|
|
19,147,682 |
|
|
|
0.32 |
|
|
|
|
|
16 |
|
Argo Investments Limited |
|
|
18,535,962 |
|
|
|
0.31 |
|
|
|
|
|
17 |
|
Telstra Growthshare Pty Ltd |
|
|
18,301,831 |
|
|
|
0.31 |
|
|
|
|
|
18 |
|
PSS Board |
|
|
18,050,630 |
|
|
|
0.30 |
|
|
|
|
|
19 |
|
Victorian Workcover Authority |
|
|
13,942,104 |
|
|
|
0.23 |
|
|
|
|
|
20 |
|
Westpac Financial Services Ltd |
|
|
13,892,594 |
|
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,103,288,685 |
|
|
|
35.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Not including those shares held by the Commonwealth |
Substantial shareholders
As at 30 September 2005, other than the Commonwealth of Australia, we did not have any substantial
shareholders.
Relationship with the Commonwealth of Australia
We have a number of distinct relationships with the Commonwealth, including as shareholder,
regulator and customer. The Commonwealth is our controlling shareholder and has special rights and
privileges under the Telstra Act. 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 Telstra in particular under the Telstra
Act, the TPA, the Telecommunications Act and the Telecommunications (Consumer Protection and
Service Standards) Act.
The Commonwealth as shareholder
At the end of fiscal 2005, the Commonwealth owned approximately 51.8% of our shares. The Telstra
Act requires us, while the Commonwealth holds 15% or more of our shares, to give the Minister for
Finance and Administration at least 30 days notice before we:
|
|
|
engage in any conduct likely to result in a dilution of the Commonwealths equity in
Telstra (other than under a Telstra sale scheme run by the Commonwealth); or |
|
|
|
|
issue any security or financial product (both terms are broadly defined). |
The Minister for Finance and Administration may direct us not to engage in that conduct.
143
Telstra
Corporation Limited and controlled entities
Major Shareholders and related Parties
The Commonwealth is able to sell its remaining equity interest in us. The Australian Government
has announced its intention to prepare for the proposed sale of all or part of its remaining
interest in us, and that its preferred timing is late 2006, but has said it will not decide whether
or not to proceed with the sale until early 2006.
In March 2005 the Government appointed external business advisers to undertake a scoping study to
assess the possibility of a sale of the Commonwealths remaining interest in us and to make
recommendations to the Government. The scoping study was completed in June 2005 and advised that
the preferred timing for any sale of the Commonwealths remaining interest in us is late 2006. The
Government has stated that it will make a further decision in early 2006 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 in us. The Telstra Act has
been amended to enable the Commonwealth to proceed with a sale of its remaining interest in us (in
full or in part).
We are required under the Telstra Act to provide the Commonwealth with certain information that we
would not generally be required to disclose concurrently, if at all, to other shareholders. This
information includes:
|
|
|
annual provision of our three-year corporate plan; |
|
|
|
|
interim financial statements, if requested by the Communications Minister; and |
|
|
|
|
reports regarding significant proposed events, including corporate restructurings, acquisitions and
divestitures or joint venture and partnership activities. |
We are also required to keep the Communications Minister and the Minister for Finance and
Administration generally informed about our operations and to give them such information about our
operations as they require. Our management is required to appear before and, with limited
exceptions, provide information to Parliamentary committees.
The Communications Minister has the power under the Telstra Act to give us, after consultation with
our Board, such written directions as appear to the Communications Minister to be necessary in the
public interest. To date, no directions have been issued under this power. Our Board must ensure
that we comply with any such direction. The Communications Minister may not give such directions in
relation to the amounts to be charged for work done, or services, goods or information supplied by
us. The Communications Minister, however, has some discretionary powers in relation to charges. The
Communications Minister also has the power to direct us under the Telecommunications (Consumer
Protection and Service Standards) Act. The Telstra Act deems the Commonwealth Auditor-General to
have been appointed as our auditor for the purposes of the Corporations Act. The Auditor-General
cannot be removed without legislative amendment.
The Telstra Act also requires us, while the Commonwealth holds 15% or more of our shares, to
give the Minister for Finance and Administration at least 30 days notice before we:
|
|
|
engage in any conduct likely to result in a dilution of the Commonwealths equity in us
(other than under a Telstra sale scheme run by the Commonwealth); or |
|
|
|
|
issue any security or financial product (both terms are broadly defined). |
The Minister for Finance and Administration may direct us not to engage in that conduct.
The Commonwealth has the ability to control us. This includes the power to pass any resolution at a
shareholders meeting requiring a simple majority, which includes the appointment and removal of
directors, with the exception of matters upon which the Commonwealth is not permitted to vote under
the Corporations Act or applicable listing rules.
144
Telstra
Corporation Limited and controlled entities
Major Shareholders and Related Parties
The Commonwealth has a set of general policies which apply to partially owned Government
business enterprises, which provide significant commercial freedoms in the conduct of their
business, subject to the oversight of appropriate Ministers. These general policies are applied
principally through the Telstra Act, the Commonwealth Authorities and Companies Act 1997 (Cwth) and
our constitution.
The Commonwealth as regulator
We are currently regulated by the Commonwealth and its departments and independent agencies under a
number of statutes including:
|
|
|
the Telstra Act; |
|
|
|
|
the Telecommunications (Consumer Protection and Service Standards) Act 1999; |
|
|
|
|
the TPA; and |
|
|
|
|
the Telecommunications Act. |
The Commonwealths role as regulator is independent and distinct from its role as shareholder. Like
other regulatory regimes, it is unlikely that the current regime will remain static. It will change
over time in light of experience and new developments in the industry, and the possible sale of the
Commonwealths remaining interest in us.
We are also subject to a range of other Commonwealth legislation, some of which does not apply to
our competitors. This legislation covers a wide range of areas including administrative law,
environmental law and employment related law.
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.
145
Telstra
Corporation Limited and controlled entities
Listing Information
Markets in which our shares are traded
We are listed, and those of our shares that are not held by the Commonwealth are quoted, on the
ASX and on the New Zealand Stock Exchange (NZSE). ADSs, each representing five shares, have been
issued by the Depositary and are listed on the NYSE.
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 Standard Summer 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$1 million or more. Transactions on the ASX are settled on the third business day following the
trade date.
Our securities were initially listed on 17 November 1997. This followed the sale by the
Commonwealth of 33.3% of its shares in the Company. Subsequently on 18 October 1999, the
Commonwealth sold an additional 16.6% of the shares in the Company.
Markets on which our debt securities are listed
We alo have debt securities listed on:
|
|
|
the ASX; |
|
|
|
|
the London Stock Exchange; |
|
|
|
|
the Paris Stock Exchange; and |
|
|
|
|
the Swiss Stock Exchange.
·
|
146
Telstra
Corporation Limited and controlled entities
Listing Information
Price
history of our securities
The following tables give the price history of our securities.
Table A shows the high and low closing prices for shares and ADSs:
|
|
|
highest and lowest closing sale prices for shares as derived from the daily official list of the ASX; and |
|
|
|
|
highest and lowest closing sale prices of ADSs quoted on the NYSE. |
Table A High and low closing price for shares and ADSs on an annual basis for a period of
five years or time of trading if less than five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ per |
|
|
A$ per share |
|
ADS(1) |
Period |
|
High |
|
Low |
|
High |
|
Low |
|
Fiscal 2001 |
|
|
7.44 |
|
|
|
5.31 |
|
|
|
22.00 |
|
|
|
13.85 |
|
|
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 |
|
|
(1)
Each ADS represents 5 ordinary shares. |
Table
A High and low closing price for shares and ADSs - on a quarterly basis for the two most recent
full financial years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ per |
|
|
A$ per share |
|
ADS(1) |
Period |
|
High |
|
Low |
|
High |
|
Low |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July-30 September |
|
|
5.15 |
|
|
|
4.45 |
|
|
|
17.07 |
|
|
|
14.87 |
|
1
October-31 December |
|
|
4.99 |
|
|
|
4.71 |
|
|
|
18.32 |
|
|
|
16.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 January-31 March |
|
|
5.01 |
|
|
|
4.52 |
|
|
|
19.71 |
|
|
|
17.05 |
|
1 April-30 June |
|
|
5.06 |
|
|
|
4.50 |
|
|
|
17.72 |
|
|
|
15.80 |
|
1 July-30 September |
|
|
5.49 |
|
|
|
4.79 |
|
|
|
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) Each ADS represents 5 ordinary shares. |
147
Telstra Corporation Limited and controlled entities
Listing Information
Table B shows for the most recent six months, the high and low market prices for each month.
Table B High and low closing prices for the most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ per |
|
|
A$ per share |
|
ADS(1) |
Period |
|
High |
|
Low |
|
High |
|
Low |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April |
|
|
5.10 |
|
|
|
4.83 |
|
|
|
19.85 |
|
|
|
18.87 |
|
May |
|
|
5.06 |
|
|
|
4.79 |
|
|
|
19.19 |
|
|
|
18.37 |
|
June |
|
|
5.17 |
|
|
|
5.05 |
|
|
|
20.01 |
|
|
|
19.05 |
|
July |
|
|
5.14 |
|
|
|
4.93 |
|
|
|
19.62 |
|
|
|
18.24 |
|
August |
|
|
5.05 |
|
|
|
4.68 |
|
|
|
19.41 |
|
|
|
17.64 |
|
September |
|
|
4.67 |
|
|
|
4.04 |
|
|
|
17.80 |
|
|
|
15.36 |
|
|
(1) Each ADS represents 5 ordinary shares. |
There were 5,997,078,863 shares issued and available for trading on the market as at 30 June
2005. This includes 211,629 shares held by the Commonwealth and listed for trading. At that date,
13,940,172 ADSs (equivalent to 69,700,860 shares) were held by 34 record holders and 2,312,630
ordinary shares were held by 1,320 US record holders.
Purchases of equity securities by us
The following table shows the number of our shares purchased by us in fiscal 2005 pursuant to
our off-market share buy-back tender. We also successfully completed a A$1 billion off-market share
buy-back in November 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
|
Total number of |
|
|
Average price paid |
|
|
Total number of shares |
|
|
Maximum number (or |
|
|
|
shares purchased |
|
|
per share |
|
|
purchased as part of |
|
|
approximate dollar |
|
|
|
|
|
|
|
|
|
|
|
publicly announced |
|
|
value) of shares that |
|
|
|
|
|
|
|
|
|
|
|
plans or programs |
|
|
may yet be purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under the plans or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
programs |
|
1 November 2004
to 30 November
2004 |
|
|
185,284,669 |
(1) |
|
$ |
4.05 |
|
|
|
185,284,669 |
|
|
$ |
0.00 |
(2) |
Total |
|
|
185,284,669 |
|
|
$ |
4.05 |
|
|
|
185,284,669 |
|
|
$ |
0.00 |
|
|
|
|
(1) |
|
On 27 September 2004, we announced our plan to
invite all shareholders to
participate in a $750 million off-market share buy-back tender. Under the
tender process, shareholders were able to tender any number of their shares to
us at specified prices from $4.05 to $4.65. This tender range was approved by
our Board. The buy-back tender expired on 12 November 2004 and
on 15 November
2004 we announced the successful completion of our buy-back. A total of
185,284,669 shares were bought back at $4.05 per share, representing 3 per cent
of our non-Commonwealth owned issued capital. The A$4.05 per share buy-back
price comprised a fully franked dividend of A$2.55 per share and a capital
component of A$1.50 per share bought back. |
|
(2) |
|
Our off-market share buy-back tender expired on 12 November 2004.
We have not announced any further plans or programs pursuant to which we
may effect the repurchase of our shares in the future. |
148
Telstra Corporation Limited and controlled entities
Listing Information
Before the buy-backs, the Company 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 has reduced to 1.634 million. The Commonwealth did not participate
in the buy-backs.
The closing price for our shares on the ASX on 30 September 2005 was $4.07 and the closing price
for our ADSs on the NYSE was US$15.57.
149
Telstra Corporation Limited and controlled entities
Legal Proceedings
In November 2002, Seven Network Limited and C7 Pty Limited (Seven) commenced litigation against
us and various other parties 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 broadband HFC cable services
(the Broadband Co-operation Agreement) and other matters. Seven seeks damages and other relief,
including that these contracts and arrangements are void. Expert reports filed by Seven have been
used to suggest that Sevens damages are around $1.1 billion, although this involves significant
double-counting and therefore a more realistic upper limit may be around $480 million. Expert
reports filed by the respondents put the upper limit of the damages at significantly less than this
amount. Also, these amounts are the total damages claimed from all respondents, and an
apportionment of the damages to particular respondents has not yet been made. Seven also seeks
orders which would, in effect, require a significant restructure of the subscription
television/sports rights markets in Australia. The hearing commenced on 12 September 2005 but is
unlikely to have any material effect on our overall business or financial position.
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.
150
Telstra Corporation Limited and controlled entities
Constitution
and Documents on Display
Our constitution
The following provides information on the material provisions of our constitution. Our
constitution describes many of the rights of a shareholder.
We may issue further shares and our directors may exercise all of our borrowing powers but the
Commonwealth may stop us from doing so
The directors may issue shares at their discretion. They must, however, act in accordance with our
constitution, the Corporations Act, the Telstra Act, ASX Listing Rules, any special rights
conferred on holders of any shares and any direction from the Company in general meeting where
shareholders have been requested to authorise an issue of shares. However, under the Telstra Act,
we must, while the Commonwealth holds 15% or more of our shares, give the Minister for Finance and
Administration at least 30 days notice before we:
|
|
|
engage in any conduct likely to result in a dilution of the Commonwealths equity in us
(other than under a Telstra sale scheme run by the Commonwealth); or |
|
|
|
|
issue any security or financial product (both terms are broadly defined). |
The Minister for Finance and Administration may direct us not to engage in that conduct. To ensure
that our normal course of business operations are not affected the Minister for Finance has issued
a notice to us enabling us to enter into various transactions (including any arrangements which
will not in any way result or be likely to result in a dilution of the Commonwealths equity in us)
without having to give him further notice.
The notice from the Minister does not permit (without further notice being given by us to the
Minister in accordance with section 8AYA of the Telstra Act) certain types of equity or
convertible capital raising by us, or the raising of subordinated or perpetual debt. We do not
presently have on issue either subordinated debt or perpetual debt.
The Commonwealth is able to sell its remaining equity interest in us. The Australian Government has
announced its intention to prepare for the proposed sale of all or part of its remaining interest
in us, and that its preferred timing is late 2006, but has said it will not decide whether or not
to proceed with the sale until early 2006.
Calls
Our directors may only make calls on shareholders in respect of money unpaid on their
shares. Our shareholders have no other liability to further capital calls. All shares
currently on issue are fully paid.
Restrictions on foreign ownership
Our constitution contains provisions designed to enable us to monitor and enforce the foreign
ownership restrictions contained in the Telstra Act. We have adopted rules to implement these
provisions which bind all shareholders. These are outlined in the Exchange Controls and Foreign
Ownership section in this annual report.
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.
Currently, we have only one class of ordinary shares.
151
Telstra Corporation Limited and controlled entities
Constitution
and Documents on Display
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. As the Commonwealth holds at least
50.1% of our issued shares, it has the power to control most decisions made by shareholders.
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:
|
|
|
shareholders who hold at least 5% of the votes that may be cast at the general meeting; or |
|
|
|
|
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.
Voting rights
Shareholders (whether residents or non-residents of Australia) may vote at a meeting of
shareholders in person, by proxy, attorney, or representative, depending on whether the
shareholder is an individual or a company.
Three shareholders (one of whom must be the Commonwealth) must be present in person or by proxy,
attorney or representative to form a quorum. If there is no quorum present at a meeting 15 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 is adjourned to
the same day, time and place in the next week or to such other day, time and place as the
shareholder or shareholders who called the meeting appoint by notice to shareholders and
others entitled to notice of the meeting; 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 appoint by notice to
shareholders and others entitled to notice of the meeting. |
At the adjourned meeting, the quorum is two shareholders present in person or by proxy, attorney or
representative. One shareholder must be the Commonwealth, unless the Commonwealth received written
notice of the original meeting and did not attend that meeting. The adjourned meeting is dissolved
if this quorum is not present within 15 minutes after the time specified for the meeting.
Shareholders 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.
152
Telstra Corporation Limited and controlled entities
Constitution and Documents on Display
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 shares are not fully paid, the
number of votes attaching to the shares is pro-rated accordingly.
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.
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 and 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
When the Company is being wound up, if the assets available for distribution among shareholders are
insufficient to repay the whole of the paid up capital (including credited as paid), the surplus
assets must be applied first in repayment of paid up capital (including credited as paid). Any
remaining surplus assets will then be applied in repayment of the capital paid up (including
credited as paid) on all shares that are restricted securities.
If in a winding-up the assets available for distribution among shareholders are more than
sufficient to repay the whole of the paid up capital (including credited as paid), the excess must
be distributed among shareholders in proportion to the capital paid up (including credited as paid)
or which ought to have been paid up (including credited as paid) at the commencement of the
winding-up on their shares.
153
Telstra Corporation Limited and controlled entities
Constitution
and Documents on Display
Number of directors
At all times, we must have between 3 and 13 directors on the Board of directors. Shareholders
may vote to increase the maximum number of directors.
Directors share qualification
Our directors do not require a share qualification.
Retirement of directors
Our directors (other than the CEO) may not retain office for more than three years without offering
themselves for re-election. At the annual general meeting (AGM) in each year, at least one third of
our directors (other than the CEO) must retire from office. The directors to retire by rotation at
each AGM are those who have 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 the 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 compensation to themselves in the absence of an independent quorum is
limited. If there are not enough directors to form a quorum because interested directors are
disqualified, the directors may:
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call a general meeting to consider a resolution to deal with the matter; or |
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seek a declaration from ASIC allowing the interested director to vote and be included
in the quorum (ASIC will only exercise this power when the matter needs to be dealt with
urgently and cannot be dealt with in a general meeting). |
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.
154
Telstra Corporation Limited and controlled entities
Constitution
and Documents on Display
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.
Dividend policy and capital management
It is our current policy to declare ordinary dividends of around 80% of normal profits
(excluding the impact of writedowns in assets and investments or other similar unusual items)
after tax. The Board also expects to return A$1.5 billion to shareholders each year for the next two
years through special dividends and/or share buy-backs, subject to maintaining the Boards target
balance sheet ratios. 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.
Documents on display
It is possible to read and copy documents referred to in this annual report that have been
filed with the SEC at the SECs public reference room located at 450 Fifth Street, NW, Washington
DC 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.
155
Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
Absence of exchange controls
We will remit dividends, interest or other payments to holders of our securities, unless we are
prohibited from doing so.
There are no general restrictions on moving money in or out of Australia. However, Australian
foreign exchange and other controls are implemented from time to time against certain countries,
entities and persons. Without prior approval of the Reserve Bank of Australia, we are currently
prohibited from making payments to (or relating to) specified supporters of the former Milosevic
regime of the Federal Republic of Yugoslavia and specified ministers and senior officials of the
Government of Zimbabwe. Further, we are currently restricted from giving assets to the Taliban,
Osama bin Laden, the Al-Qaida organisation and other persons and entities identified as terrorists
or sponsors of terrorism without the permission of the Australian Government. We are also currently
prohibited from transferring the assets of the previous Government of Iraq, Saddam Hussein, other
senior officials of his regime and their immediate families other than to a development fund
established to aid Iraqs reconstruction and rehabilitation.
Restrictions on foreign ownership
Telstra Act
The Telstra Act provides that an unacceptable foreign-ownership situation will exist in
relation to Telstra if all 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
(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 (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 already 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.
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 contains provisions to enable us to monitor and enforce the foreign ownership
restrictions. These provisions are binding on all shareholders. Our Board of directors has adopted
rules to implement these provisions. The rules are outlined below. They may be amended at any time
by resolution of our Board.
156
Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
On or after registration of a transfer or transmission application for a share, when the
acquirer first becomes a shareholder, the acquirer must generally notify us whether it is either:
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a person with an interest in a share who is either a foreign person or an associate of
a foreign person; or |
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a person who holds a share in which a foreign person or an associate of a foreign
person has an interest (foreign holder). |
The information derived from these notifications is reflected in a register by means of a foreign
coding.
Systems have been established for shares traded on the ASX so that notifications are given by
brokers as part of routine provision of ASX settlement information (ASX systems). The ADR custodian
under the ADR facilities is automatically treated as a foreign holder for the purposes of the
constitution, 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 held by foreign holders will be treated as foreign unless the holder notifies that some
of its shares are ones in which a foreign person or associate of a foreign person has an interest
(foreign shares) 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, one for foreign shares and one for shares
which are not foreign; or |
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provides bi-monthly notices indicating the breakdown of its holding into foreign and
non-foreign shares. |
The constitution and rules also contain provisions permitting us to 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.
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, there is power under our constitution to require divestment of shares to remedy this situation.
In exercising this divestment power, we are entitled to rely on foreign codings in the relevant
register and upon the notifications and responses to notices referred to above. We will notify the
ASX, NZSE and NYSE if the level of foreign codings 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 and our directors are not liable to shareholders for the manner of their exercise.
If we believe that the Individual Limit has been breached, we may require that any shareholder
whose shares are believed to form part of the contravening stake be divested within 30 days of
the date a notice requiring divestment (disposal notice) is given.
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 and on each succeeding day whilst the limit is exceeded.
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Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
The recipient of a disposal notice is required to divest the shares 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 next following 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.
No divestment will be required on a divestment date if foreign shares, as shown on the relevant
register on that date, do not exceed the Aggregate Limit. If a disposal notice is not complied
with, the constitution contains provisions empowering us to sell the relevant shares on behalf of
the holder on or after the relevant divestment date. The holder will lose the ability to transfer
the shares itself after that date.
Transfers among foreign holders and ADR 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 acquired from the international underwriters on closing of the
international offerings in 1997 and 1999; |
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foreign shares acquired under a particular form of ASX special crossing for transfers
among foreign holders. Shares 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 registered on the New Zealand branch share register or deposited in the ADR
facility, though shares may only be transferred onto the New Zealand branch share register
or ADR facility if they are not, and are not liable to become, the subject of a disposal
notice. |
NZSE trading is only in shares registered on the New Zealand branch register.
All shares deposited in the ADR facility will be treated as foreign. Holders of ADRs are subject to
the Individual Limit and must notify the Depositary, as applicable, if any of the ADRs they hold
form part of a stake which breaches the Individual Limit. Where the Individual Limit is breached,
the Depositary may be required to divest the relevant shares and the corresponding ADRs may be
cancelled. The deposit agreement contains provisions permitting the Depositary to obtain and supply
to us information relevant in monitoring and enforcing the foreign ownership limits.
The above summary is not complete and is subject to, and qualified by, reference to the
constitution and current rules and procedures that have been adopted by us for the administration
of the foreign ownership provisions in the Telstra Act. Copies of the constitution, the rules and
the Telstra Act, are available for inspection through the Company Secretary, Telstra Corporation
Limited, 242 Exhibition Street, Melbourne, Victoria 3000, Australia during normal working hours.
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; |
158
Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
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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 the 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; |
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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; and |
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traced interests held via interposed entities. |
159
Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
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; |
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interests of a trustee or manager of, or a custodian for, a unit trust or certain
Australian complying or exempt superannuation funds, if such trustee, manager or custodian
reasonably believes that foreign persons hold beneficial interests in less than 40% of the
capital and income in the trust or fund; |
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interests held by an Australian registered life insurance company or a custodian for
it, in respect of a statutory fund, if the company reasonably believes that less than 40%
of policy holder liabilities of the fund are owed to foreign persons; |
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interests held by nominees, custodians or depositaries, or brokers acting on clients
instructions in the ordinary course of business, provided in each case the holder has no
beneficial interest or discretionary voting authority in respect of the underlying shares; |
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certain interests held by the international underwriters and their related corporations; |
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shareholder interests in companies other than us, which are not foreign persons under
the Foreign Acquisitions and Takeovers Act 1975 (Cwth); |
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interests held by persons who are not foreign persons and do not have any substantive
foreign associates (that is, persons who directly or indirectly control them, with whom
they act in concert or in accordance with whose wishes, instructions or directions they are
obliged or accustomed to act); |
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interests held by any person to the extent that, after such interests have been
included in the stake of that person and any of its substantive foreign associates, such
interests would also be included in the stake of a non-substantive associate of the person;
and |
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interests held by any person who is not a foreign person to the extent that, in
determining the total of the stakes of a group of foreign persons, such interests would be
counted more than once for that purpose. |
References to interests in shares exclude disregarded interests.
160
Telstra Corporation Limited and controlled entities
Exchange Controls and Foreign Ownership
Foreign Acquisitions and Takeovers Act 1975 (Cwth)
The Foreign Acquisitions and Takeovers Act 1975 (Cwth) (FATA) applies to an acquisition by a
foreign person of an interest in the shares of an Australian company with total assets of A$50
million or more which results in the acquisition of or addition to a substantial interest in the
Australian company.
With effect from 1 January 2005 the Australia United States Free Trade Agreement increased this
threshold to $800 million for investors from the United States. However the increase does not
apply to investments in prescribed sensitive sectors such as telecommunications. Therefore, the
$50 million threshold continues to apply to investors in Telstra shares.
A substantial interest is defined to be any single foreign person and its associates controlling
15% or more, or two or more foreign persons and their associates in aggregate controlling 40% or
more, of shares or voting power. Any proposed acquisition which would result in these thresholds
being exceeded should be notified to the Federal Treasurer and a statement of no objection issued
(with or without conditions) in advance of completion of the acquisition.
When assessing the proposed acquisition, the Federal Treasurer will have regard to the limits
prescribed by the Telstra Act which are also reflected in Australias Foreign Investment Policy.
Under the Foreign Acquisitions and Takeovers Regulations, a foreign person that is a foreign
custodian may be certified by the Treasurer as exempt from the operation of the FATA in respect of
interests held by the foreign custodian on behalf of Australians (or other expressly limited
classes of investor). This regulation has the same effect as the regulations under the Telstra Act,
which provide that certain interests in shares are disregarded including interests held by
custodians in the ordinary course of business, provided the custodian has no beneficial interest or
discretionary voting authority in respect of the underlying shares.
Foreign ownership status
At 30 September 2005, the number of Telstra shares recorded as foreign on our register was
5.2423% of the total number of issued Telstra shares.
161
Telstra Corporation Limited and controlled entities
Taxation
Australian taxation
The Australian Taxation Office (ATO) has provided advice confirming the Australian income
taxation implications of investment in shares and ADSs as summarised in the following discussion.
This discussion is based on the law in force at the date of this annual report.
The tax profile of each investor will determine the applicable Australian income taxation
implications for that investor. For example, some investors (such as financial institutions) may
hold their investments on income account rather than on capital account, in which case the comments
below concerning capital gains implications will not be applicable. Certain tax non-residents may,
irrespective of whether the assets they dispose of are capital gains tax assets that have the
necessary connection with Australia (for the purpose of these discussions, these assets are
referred to as taxable Australian assets), be liable to tax in respect of a profit on a dealing
in the asset as ordinary income.
Pursuant to taxation reforms enacted by the Commonwealth Government during fiscal 2003, the Telstra
Entity and its Australian resident wholly owned entities elected, from 1 July 2002, to be treated
as a single entity for income tax purposes.
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 which is currently 30%. The payment of Australian income
tax by Australian companies generates a franking credit which, when the Company pays a dividend to
shareholders, generally flows through to Australian resident shareholders.
At present, it is expected that we will be able to fully frank declared ordinary dividends out of
fiscal 2006 earnings. However, no assurance can be given as to the level of franking of ordinary
dividends in the future. This is because it depends upon, amongst other factors, our earnings,
Government legislation and our taxation position.
A tax off set equivalent to the franking credit (known as a franking rebate) may be available to
certain Australian resident shareholders. Under certain rules, there are circumstances where an
investor may not be entitled to the benefit of franking credits. The application of these rules
depends on the investors own circumstances including the period for which the shares are held and
the extent to which the investor, if a resident, is at risk in relation to their investment.
Fully franked dividends paid to non-resident shareholders are not subject to 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 by a double tax treaty). In the case of US tax residents who
hold less than 10% of the voting power in Telstra, provided that the shares are not effectively
connected with a permanent establishment or a fixed base of a tax non-resident in Australia through
which the tax non-resident carries on business in Australia or provides independent personal
services, the rate is reduced under the double tax treaty to 15%.
Accordingly, dividends paid by us to tax non-residents to the extent to which they are franked will
not be subject to DWHT. The unfranked part of any dividends paid by us to tax non-residents will be
subject to DWHT. We deduct DWHT and the tax non-resident receives dividends on the shares net of
DWHT.
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.
162
Telstra Corporation Limited and controlled entities
Taxation
Taxation of capital gains
Tax non-residents will be liable for income tax under the capital gains provisions on the gains (in
certain circumstances after an allowance for inflation in Australia or a capital gains tax
discount) realised on the disposal of certain assets which are taxable Australian assets. Taxable
Australian assets include a share (or interest in a share) in a public company where at any time in
the preceding five years the non-residents holding (together with the holding of associates) in
the public company is 10% or more.
Tax non-residents who, together with their associates, hold less than 10% of our shares (or an
interest in a share) will, on disposal of the shares, not be subject to any Australian income tax
on capital gains. Restrictions on the extent of foreign ownership in Telstra should ensure that tax
non-resident investors qualify for this exemption.
Certain tax non-residents may, irrespective of whether the assets they dispose of are taxable
Australian assets, be liable to tax in respect of a profit on a dealing in the assets, as ordinary
income. A double tax treaty between Australia and the country of residence of the investor may give
relief from liability to pay the Australian income tax on ordinary income.
Generally, the business profits articles of Australias double tax treaties provide that a
resident of a treaty country 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
residents of the US, Article 7 (1) of the Convention between Australia and the US for the Avoidance
of Double Taxation (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. In the view of the ATO, capital gains realised on the disposal of shares would not
be business profits and the domestic capital gains tax provisions would apply. Investors 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.
Investors 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.
Taxation of distributions
The Depositary 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 investor will constitute a disposal by the investor of
the Telstra shares represented by the ADS evidenced by that ADR. Tax non-residents who, together
with their associates, hold less than 10% of the shares or interests in our shares (including
through ADSs) will, on disposal of ADRs, not be subject to any Australian income tax on capital
gains. Restrictions on the extent of foreign ownership in Telstra should ensure that tax
non-resident investors qualify for this exemption.
163
Telstra Corporation Limited and controlled entities
Taxation
Certain tax non-residents may, irrespective of whether the assets they dispose of are taxable
Australian assets, be liable to tax in respect of a profit on a dealing in the assets as ordinary
income. A double tax treaty between Australia and the country of residence of the investor may give
relief from liability to pay the Australian income tax on ordinary income.
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 view of the ATO, capital
gains realised on the disposal of ADRs would not be business profits and the domestic capital
gains tax provisions would apply. Investors 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 or ADR.
Australian stamp duty
As we are incorporated in the Australian Capital Territory (ACT), the stamp duty treatment of the
transfer of Telstra shares is determined by reference to the ACTs stamp duty regime.
From 1 July 2001, stamp duty on the transfer of shares which are quoted on a recognised stock
exchange was abolished in the ACT. This covers both the situation where the transfer of such shares
is affected by way of an on-market transfer (ie. through a broker) or by way of an off-market
transfer.
This abolition also applies to the transfer of ADRs because ADRs are treated in the same way as
shares for stamp duty purposes. Accordingly, from 1 July 2001 the transfer of ADRs is also not
subject to stamp duty in the ACT.
United States taxation
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.
164
Telstra Corporation Limited and controlled entities
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. |
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 distributions 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 holder, dividends paid to them in taxable years beginning before 1 January 2009
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, 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.
165
Telstra Corporation Limited and controlled entities
Taxation
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$, in its
shares or ADSs. Capital gain of a noncorporate US holder that is recognized before 1 January 2009
is generally taxed at a maximum rate of 15% where the holder has a holding period of greater than
one year. The deduction of capital losses is subject to certain limitations. The gain or loss will
generally be income or loss from sources within the US for foreign tax credit limitation purposes.
166
Telstra Corporation Limited and controlled entities
Quantitative and Qualitative Disclosures about Market Risk
The potential for change in the market value of our financial assets and liabilities is
referred to as financial market risk. We sometimes enter into financial instruments to manage our
exposure to financial market risk such as interest rates and foreign currency rates that arise as
part of our normal business operations.
Derivatives are financial instruments such as interest rate swaps, futures, foreign exchange
forwards and cross currency swaps that derive their value from specified assets, indices, reference
rates or a combination of these factors. We use derivative financial instruments, in accordance
with Board approved policies, to hedge the market risks and volatility of financial outcomes
arising from the underlying physical business or balance sheet exposure.
We are exposed to interest rate risk due to our borrowings
Our borrowings are generally for maturities of up to ten years and we manage our debt in
accordance with targeted, currency, interest rate and debt portfolio maturity profiles.
Our target currency is principally A$ 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$ 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 profile differs substantially from our
desired target, we use derivatives, principally interest rate swaps, to adjust the net positions
towards the target net debt profile. Our net debt portfolio therefore 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 calculated as the net of the interest rate exposure on our total net
debt portfolio, after applying related derivatives and after offsetting any holdings of financial
assets whose value is sensitive to interest rates.
The
interest rate on a proportion (of face value approximately A$2.94 billion) of our borrowings is
subject to the possibility of a limited increase through coupon step-up clauses that would be
triggered by credit ratings downgrades from Standard & Poors and/or Moodys Investor Service. The
interest rates on this debt will increase by 0.25% up to a maximum of 0.50% pa if our minimum
credit rating falls to A- (S&P) / A3 (Moodys) or below depending on the particular trigger points
of each borrowing and the extent of the rating change. The interest rate increase will step-down
again for some borrowings if the minimum credit rating was to subsequently increase above the
previously mentioned trigger points. Our current ratings are A+ Negative Outlook (S&P) and A1
Negative Outlook (Moodys).
We have exposure to foreign currency risk due to our normal business operations and borrowings
Foreign currency exchange risk arises from:
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firm or anticipated transactions for receipts and payments for international
telecommunications services settled in or dependant on foreign currencies; |
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investments (both business and financial) denominated in foreign currencies; |
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purchase commitments for material and supplies with prices dependent on foreign currencies; and |
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borrowings that are denominated in foreign currencies. |
167
Telstra Corporation Limited and controlled entities
Quantitative and Qualitative Disclosures about Market Risk
We manage the foreign exchange risk on the major part of our foreign currency denominated
borrowings by effectively converting them to A$ 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$ (eg. 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.
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 fair 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 fair 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 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 is 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 be a concurrent
adverse movement across all factors in the future.
The numbers in the following tables represent fair value movement in the areas concerned after
all underlying exposures and related hedges are taken into account. Fair 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 |
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2005 |
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2004 |
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Fair Value Risk |
|
(A$m approximate) |
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Risk
Categories |
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|
|
|
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Interest rates |
|
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286 |
|
|
|
210 |
|
Foreign currency rates |
|
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118 |
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80 |
|
|
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|
|
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Total |
|
|
404 |
|
|
|
290 |
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|
|
|
|
|
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|
168
Telstra Corporation Limited and controlled entities
Quantitative
and Qualitative Disclosures about Market Risk
The foreign currency rate numbers include the translation exposure movements generated
from our overseas investments in CSL and TelstraClear. A proportion of both these exposures
is hedged using a combination of foreign currency borrowings and foreign currency
derivatives.
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.
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 is appropriate as 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. For example, the VaR monthly result for
foreign exchange of $32 million converts to an annual equivalent of approximately $112 million. We
derive the potential fair value impact by applying historical volatility measures to the identified
current market risk.
Unlike the sensitivity analysis, our overall VaR analysis takes into account the diversified nature
of our net debt and net foreign exchange exposure portfolios and incorporates historical
correlation between the markets. This projection based on historical volatility is, however, only
an estimation of future volatility. The actual future volatility could be substantially different.
We arrived at the VaR numbers by using a Monte Carlo simulation model developed by our consulting
actuaries, Mercer Finance & Risk Consulting which is part of Mercer Human Resources Consulting Pty
Ltd, which uses recognised market wide based data sets and volatility calculation methodology. The
data sets comprise:
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interest rate and foreign exchange rate volatilities; and |
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correlations between and within interest rates and foreign exchange rates. |
The simulation model determines the distribution of the fair value of our debt portfolio and
foreign exchange portfolio plus hedges at future rates. This is undertaken by simulating
interest and foreign exchange movements against our actual transaction portfolio. In deriving
the VaR numbers, 50,000 simulations have been undertaken to ensure the production of stable,
robust results.
The VaR is the difference between the median expected value of the portfolio and the value at the
99% confidence level assuming an adverse movement (ie. there is a 1% chance that the result arising
from an adverse movement will be more adverse than the VaR).
169
Telstra Corporation Limited and controlled entities
Quantitative and Qualitative Disclosures about Market Risk
VaR (1)
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|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
Fair Value Risk (One month holding period) |
|
(A$m) |
|
|
Risk categories |
|
|
|
|
|
|
|
|
|
Interest rates |
|
|
175 |
|
|
|
164 |
|
Foreign currency rates |
|
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32 |
|
|
|
46 |
|
|
|
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Sub-total |
|
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207 |
|
|
|
210 |
|
Diversification effect (2) |
|
|
(17 |
) |
|
|
(41 |
) |
|
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Total |
|
|
190 |
|
|
|
169 |
|
|
|
|
|
|
|
(1) |
|
For approximate conversions from monthly VaR cost
multiply by 0.22 to give daily VaR and 3.5 to give twelve monthly VaR.
These conversion factors assume that the portfolios continue with the same basis profiles, such as maturity and debt mix. |
|
(2) |
|
Equals the difference between the total monthly VaR and the sum of the monthly VaRs
for the two risk categories. This effect arises because the volatility of diversified risks (ie not
the same) is less than the volatility of undiversified risks. If both risks are the same the VaR of
the combined risks would simply be the sum of the VaRs. |
VaR calculations were undertaken for portfolio balances at the end of each quarter during
fiscal 2005. The following table shows the high, low and average amounts of the portfolio VaR based
on these quarterly results. It should be noted that the portfolio composition changes each quarter
and the high and low quarters are selected based on the then existing portfolio values. These
quarters may therefore not represent the high or low for each particular component of interest rate
and foreign exchange rate movements and inter quarter exposures can change significantly
VaR (1) analysis
|
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|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2005 |
|
|
|
High |
|
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Low |
|
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Average |
|
Fair Value Risk - (One month holding period) |
|
(A$m) |
|
|
Risk categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates |
|
|
175 |
|
|
|
135 |
|
|
|
158 |
|
Foreign currency rates |
|
|
32 |
|
|
|
39 |
|
|
|
41 |
|
|
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Sub-total |
|
|
207 |
|
|
|
174 |
|
|
|
199 |
|
Diversification
effect
(2) |
|
|
(17 |
) |
|
|
(29 |
) |
|
|
(27 |
) |
|
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Total |
|
|
190 |
|
|
|
145 |
|
|
|
172 |
|
|
|
|
|
|
|
(1) |
|
For approximate conversions from monthly VaR cost multiply by 0.22 to give daily
VaR and 3.5 to give twelve monthly VaR. These conversion factors assume that the portfolios
continue with the same basis profiles, such as maturity and debt mix. |
|
(2) |
|
Equals the difference between the total monthly VaR and the sum of the monthly VaRs
for the two risk categories. This effect arises because the volatility of diversified risks (ie not
the same) is less than the volatility of undiversified risks. If both risks are the same the VaR of
the combined risks would simply be the sum of the VaRs. |
Additional information regarding our market risks is provided in note 29 to our financial
statements.
170
Telstra Corporation Limited and controlled entities
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 2005 are described in this section and, where appropriate,
elsewhere in our annual report, as indicated. Further information regarding our corporate
governance and board practices (including copies of key policies and charters) can also be found on
our website, www.telstra.com.au/abouttelstra/corp/governance.cfm.
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, the New York Stock Exchange, the US
Securities and Exchange Commission and other regulators.
We comply with the ASX Corporate Governance Councils Principles of Good Corporate Governance and
Best Practice Recommendations released in March 2003.
The Board of Directors
Role and responsibilities of the Board
The directors are accountable to shareholders for the management of our business and affairs and
the Board is responsible to shareholders for our overall strategy, governance and performance. The
Boards role includes:
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providing strategic direction to the Company by working with management to establish, monitor,
develop and modify our strategy and performance objectives; |
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approving significant business decisions; |
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approving the annual corporate plan; |
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establishing, overseeing and reviewing procedures for best practice corporate governance; |
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appointing and assessing the performance of the CEO and approving succession plans and senior management remuneration policies and practices; |
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overseeing shareholder reporting and communications; |
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ensuring appropriate compliance frameworks and controls are 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 statutory accounts and overseeing our financial position; |
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approving decisions concerning our capital, including capital restructures and dividend policy; and |
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complying with the reporting and other requirements of the Telstra Corporation Act. |
The Board has adopted a charter that details the role and responsibilities of the Board and its
members.
The Board delegates responsibility for day-to-day management of the Company 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
The maximum number of directors provided for by our constitution is 13 and we currently have 7
directors on the Board. A casual vacancy to the Board may be filled or an additional director
appointed, up to the maximum number of directors, either by:
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the directors after consulting with the Communications Minister; or |
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an ordinary resolution of shareholders. |
171
Telstra Corporation Limited and controlled entities
Corporate Governance and Board Practices
The tenure of the CEO is linked to his executive office, while one third of all other
directors are subject to retirement by rotation each year. Directors who retire by rotation may be
re-elected by shareholders. A director appointed by the directors is subject to election at the
next annual general meeting. 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 (ie. 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 the Directors report of this annual report.
Role of the Chairman
The Chairman is appointed by the Board. The Chairmans responsibilities include:
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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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providing the appropriate leadership to us and the Board; |
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facilitating Board discussions with the aim of ensuring that: |
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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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maintaining a regular dialogue and mentoring relationship with the CEO and Group Managing Directors, serving as a primary link between the Board and management; |
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guiding and promoting the on-going effectiveness and development of the Board and individual directors; |
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representing the views of the Board to shareholders including the Commonwealth and the public; and |
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ensuring the meetings of shareholders are conducted in an open and proper manner with appropriate
opportunity to ask questions. |
Director Independence
With the exception of the CEO, all directors are non-executive directors and each non-executive
director is considered by the Board to be independent.
Generally speaking, an independent director is a director who is independent of management and free
of any business or other relationship that could materially interfere with, 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 considers the effect of a directors business and other relationships and interests
annually from both our perspective and that of the director and has regard to a specific set of
criteria set out in the Boards 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.
172
Telstra Corporation Limited and controlled entities
Corporate Governance and Board Practices
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.
Details of the number of meetings held by the Board during fiscal 2005 and attendance by Board
members are set out in the Directors report.
Performance Evaluation
The Board regularly reviews its performance and the performance of its committees and the
individual directors. In fiscal 2005, the Board engaged an external consultant to facilitate a
review of the Boards processes.
The Board makes recommendations to shareholders regarding 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 to generally 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.
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 the Board and
Board committee meetings, directors may seek briefings from senior management on specific issues.
Directors and Board committees are also able to obtain independent professional advice at our cost,
in accordance with company policy.
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 committee meetings held in fiscal 2005 and the attendance of each committee member
is set out in the Directors report. Following each committee meeting, the Board receives a report
from the committee on the activities and performance of the relevant committee.
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Each committee operates in accordance with a written charter. 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 and 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, new charters for the Board and each committee were
approved by the Board in March 2005.
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 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 specified by the Board; |
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the effectiveness of our financial internal controls and control environment; |
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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. |
Subject to the role of the Auditor-General (as explained below), the Audit Committee is directly
responsible for approving all audit engagement fees and programs, as well as the provision of all
non-audit services by our external auditors . This is set out in greater detail in the Directors
report.
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Composition and membership of the Audit Committee
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 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 such director serves on the audit
committee of more than two other public companies.
Details of the members of the Audit Committee during fiscal 2005 and their qualifications are set
out in the Directors report of this annual report.
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 six times each year. Additional meetings are held as
required.
Board members 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.
Details of the number of meetings held by the Audit Committee during fiscal 2005 and attendance by
the committee members are set out in the Directors report.
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Audit Governance and Financial Reporting
Relationship with external auditor
In accordance with section 36 of the Telstra Act, it is a legislative requirement that the
Auditor-General of Australia is our auditor for the purposes of the Australian Corporations Act.
The Auditor-General has appointed an agent, Ernst & Young, to assist in performing independent
external audit duties.
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
For a summary of the restrictions placed on our auditors providing non-audit services and a summary
of the auditors independence, see the Directors report.
Auditor Fees
A description of the fees charged by our Australian statutory auditor, the Australian National
Audit Office, and Ernst & Young is located in note 3(b) to our financial statements.
External Auditor Rotation
As it is a legislative requirement that the Auditor-General is our auditor for the purposes of the
Australian Corporations Act, the Auditor-General is 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. We also have a practice of 5-yearly rotation of the lead audit
partner of our audit. The last rotation 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.
Audit Committee Processes
The Audit Committee:
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on an annual basis meets separately with the internal auditor, the Auditor-General and Ernst
& Young, with and without management, to discuss the results of their audits; |
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considers key elements of reports and regulatory filings, including the Directors report section of this annual
report, prior to their release and discusses them with the Auditor-General and Ernst & Young, as appropriate; and |
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reviews with management, the Auditor-General and Ernst & Young, the financial report to be included in the annual report, including the Auditor-Generals and Ernst & Youngs
responsibilities |
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under the Corporations Act, generally accepted auditing standards, significant accounting
policies, management judgments and accounting estimates and adjustments arising from the audit, and
discusses the Auditor General and Ernst & Youngs judgments about the quality, not just the
acceptability, of accounting principles as applied in the financial report.
Adoption of International Financial Reporting Standards
We will be required to comply with the Australian equivalents of the International Financial
Reporting Standards (A-IFRS), as issued by the Australian Accounting Standards Board, when we
report for the half-year ending 31 December 2005 and the year ending 30 June 2006. Further
information regarding A-IFRS can be found in note 1.4 to our financial statements.
Nomination Committee
In March 2005 we separated our Nominations & Remuneration Committee into the Nomination Committee
and the Remuneration Committee. Details of the members and their attendance at meetings are
outlined in the Directors report.
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 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 committee meetings. |
Meetings of the Nomination Committee
Meetings are held no less than twice each year on pre-arranged dates.
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 the Group Managing Directors; |
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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 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 committee meetings. |
Meetings of the Remuneration Committee
Meetings are held no less than twice each year on pre-arranged dates scheduled to correspond with
our remuneration review cycle.
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.
Telstras Remuneration Framework
Information in relation to our remuneration framework (including information regarding our
remuneration strategy and policies and their relationship to Company performance), together with
details of the remuneration paid to Board members and senior executives during fiscal 2005, can be
found in the Remuneration Report included in the Directors report.
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 the
same exercise in relation to the GMDs. The results of the CEOs annual performance review of each
GMD 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. Details of the
members and their attendance at meetings are outlined in the Directors report.
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
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effectiveness of the controls in place surrounding the management of risk. Some of the
significant risks that could affect us are described in the Key Information Risk factors
section of this annual report. Additionally, some risks may be unknown to us and other risks,
currently believed to be immaterial, could turn out to be material.
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, developing and promoting a common language and approach to be
used by business units to enable them to proactively identify, manage and control their risks and
transferring risk management expertise to them. 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 also use insurance to transfer significant risk exposures arising in the key areas of property,
public and product liability, and directors and officers liability. However, 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.
Risk Management, internal compliance, control systems and our financial reports
The CEO and CFO have provided the Board with the certifications required by the Corporations Act
and those recommended by the ASX Corporate Governance Council Recommendations in relation to our
risk management and internal compliance and control systems and our financial reports.
The CEO and CFO have confirmed to the Board that the Companys risk management and internal
compliance and control systems to the extent they relate to financial reporting are operating
efficiently and effectively in all material respects based on the risk management model adopted by
the Company. The CEO and CFO have also provided the Board with confirmation that, in all material
respects, the Companys financial reports for the year ended 30 June 2005 present a true and fair
view of the Companys financial position and performance.
The CEO took office on 1 July 2005 and provided these confirmations based on his observations after
taking office and representations by management as to the practices of the Company before 1 July
2005.
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.
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In fiscal 2005, 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 incumbent 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.
Our management, including the CEO and CFO, have reviewed and evaluated the effectiveness of these
disclosure controls and procedures as of the end of fiscal 2005. 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 Securities Exchange Act of 1934, on a timely basis.
Our CEO took office on 1 July 2005 and conducted his review and evaluation after taking office,
including review and evaluation of the above procedures which were in place before he took office
and remain in place at the date of this annual report. He signed the s 302 and s 906 certificates
on this basis.
Telstra Values, Telstra Business Principles, Code of Conduct and other company policies
We have a number of internal operating policies and principles which promote ethical and
responsible decision making and timely and balanced disclosure.
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). Through the Telstra Business
Principles, the Code of Conduct and other company policies we reinforce the standards of
appropriate business and ethical behaviour we expect from all employees, which are aimed at
understanding and complying with the spirit and letter of legal and regulatory standards. We have a
mandatory ethics training program for all employees to reinforce these standards. We also provide
assistance to employees on the application and interpretation of the Telstra Values, Telstra
Business Principles, Code of Conduct and other company policies through employee help lines.
This year we amended our Code of Conduct to specifically provide that it is unlawful to deal in our
shares while in the possession of price sensitive information about the Telstra Group that is not
generally available to the public and that it is also unlawful to pass the information on to
someone else who may use the information to deal in our shares.
Our code of conduct and guidelines for expected behaviour are available on our website,
www.telstra.com.au/abouttelstra/investor/docs/pers_responsibility.pdf
Whistleblowers
We have in place a Telstra Whistleblowing Service and whistleblowing policy which gives our staff
the opportunity to raise concerns they might have with respect to actual or suspected illegal,
unethical or improper business behaviour within Telstra. The service is operated by an independent
third party and matters may be notified to the service confidentially and, if the employee wishes,
anonymously. This service and policy provide protection for people who make disclosures, as well as
the rights of anyone who may be named or affected by a report. They are also designed to complement
existing policies and procedures such as our Code of Conduct and the fair treatment and equal
employment opportunity procedures.
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Share Trading
We have in place a share trading policy that prohibits directors, 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, 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, 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 the company 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.
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. Our procedure runs as follows:
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ultimate management responsibility for continuous disclosure rests with the CEO and the Chief
Financial Officer (CFO); |
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our Continuous Disclosure Committee (Committee), chaired by the Company
Secretary, advises the CEO and the CFO on disclosure matters. The Committee is responsible for an
internal disclosure system which aims to ensure that information that might be disclosable is
identified and reviewed quickly. The Committees membership includes the Company Secretary, the
Managing Director Corporate Affairs, the General Counsel Finance & Administration, the Director
Business and Finance Services and the General Manager Investor Relations (or their delegates); |
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specified members of senior management (including the CEO, the CFO, all other Group Managing
Directors and their direct reports, the Group General Counsel and all Business Unit General
Counsel) (Respondents) must immediately inform the Committee of any potentially price-sensitive
information or proposal as soon as they become aware of it; and |
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the Committees view is then presented to the CEO and the CFO. If the matter is disclosable, an announcement is prepared and
immediately sent via the Company Secretarys office electronically to all relevant stock exchanges. |
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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
Respondent 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 Respondents 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 monitors issues which, although not yet disclosable, may
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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the Compliance Report prepared for the Audit Committee every quarter includes
reporting on continuous disclosure; 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, analysts and financial media. The
aim of this policy is to ensure that we provide investors and the financial community with
appropriate and timely information whilst at the same time ensuring that we fulfil our statutory
reporting obligations under the Corporations Act and the ASX Listing Rules.
Legal and Regulatory Compliance
Telstra is committed to conducting its businesses in compliance with its legal and regulatory
obligations. Compliance with these obligations is not just a legal requirement but is integral to
Telstras commitment to its employees, customers, shareholders and the community.
The Board is responsible for requiring appropriate compliance frameworks and controls to be in
place and operating effectively for compliance with relevant laws, regulations and industry codes.
The Audit Committee has been delegated specific responsibility for reviewing our approach to
achieving compliance with laws, regulations and associated industry codes in Australia and overseas
and the oversight of compliance issues. This oversight is facilitated by the preparation of a
quarterly compliance report summarising our compliance initiatives and issues.
We have a number of compliance programs in place to address specific legal and regulatory
obligations. These include programs directed to health, safety and environment, equal employment
opportunity, privacy, trade practices and industry regulation.
The principles of the Australian Standard on Compliance Programs, AS 3806, have been incorporated
into these programs and a number of programs, including the privacy compliance program, are subject
to periodic, independent external audits which are intended to ensure that our approach is
comprehensive, robust and rigorous.
This program based approach at a corporate level is supported by a network of managers and other
personnel at the business unit level with specific responsibility for the implementation of the
compliance programs within the business units. This structure has been designed with the aim of
ensuring that each business units operations are conducted in accordance with our obligations.
This is achieved through a
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focus on policies, procedures and work instructions that is intended to ensure that we,
together with our employees, achieve transparent compliance with these obligations. There is a
complementary focus on training, dissemination of information and monitoring of compliance
outcomes.
These initiatives reflect our commitment to maintaining a strong compliance record and reducing the
risk of future legal and regulatory compliance issues.
Corporate Social Responsibility
We have a values-based approach to how we do business, leading us beyond legal compliance to make a
positive contribution to the industries and communities in which we participate. Being a successful
company is not just about financial performance, it is also about being a good corporate citizen,
living our Telstra Values in every decision we make, every day. Further information regarding
corporate social responsibility can be found in the Corporate Social Responsibility section of
this annual report.
Political and Other Donations
We do not make political donations. However, in line with other major publicly listed companies, we
do pay fees to attend a range of functions organised by major political parties where those
functions allow for discussion on major policy issues with key opinion leaders and policy makers.
We make donations and contribute funds to community and other organisations as part of our approach
to corporate social responsibility.
Shareholder Communications Strategy
We have implemented a number of initiatives to promote effective communication with our
shareholders. These include:
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maintaining an investor relations website; |
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placing all relevant announcements made to the market and related information on our website; |
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webcasting certain events such as briefings and our annual general meeting; and |
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using electronic communications to advise investors, who have provided us with their email address, of significant
matters that may be of interest to them. |
We are also seeking to encourage our shareholders to receive their communications from us
electronically through our participation in the eTree program, of which we are a foundation member.
Through the eTree program, we currently donate to Landcare Australia:
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$2 for every shareholder who chooses to receive all of their communications from us
electronically; and |
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$1 for those shareholders who choose just to receive electronic shareholder reports and notices of meetings from us. |
During fiscal 2005, we donated over $93,000 to Landcare Australia through this initiative.
Other Considerations
We are, and while the Commonwealth owns more than 50% of the shares in Telstra, we expect to
remain subject to various ministerial and other controls to which other publicly listed companies
are not subject. This includes a ministerial power to give us written directions that the
Communications Minister believes are in the public interest (section 9 of the Telstra Corporation
Act). The Board continues to strive to achieve best corporate governance practice, in the context
of this shareholding structure.
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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.
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 the
company. 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 Australian
Stock Exchange 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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Directors report
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 2005.
Principal activity
Telstras principal activity during the financial year was to provide telecommunications 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 net profit for the year was A$4,447 million (2004: A$4,118 million). This result was
after deducting:
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net borrowing costs of A$736 million (2004: A$712 million); and |
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income tax expense of A$1,822 million (2004: A$1,731 million). |
Earnings before interest and income tax expense was A$7,005 million, representing an increase of
A$445 million or 6.8% on the prior years result of A$6,560 million.
Review of operations
Financial performance
Our total revenue (excluding interest revenue) increased by 6.5% or A$1,377 million to A$22,657
million. This included total revenues of A$548 million generated by controlled entities we acquired
during the year. These entities acquired include the KAZ Group, the Damovo Group (now trading as
Telstra Business Systems) and the PSINet Group.
Total operating expenses (before borrowing costs and income tax expense) increased by 6.3% or A$932
million to A$15,652 million. Operating expenses for the year ended 30 June 2005 included expenses
of the controlled entities we acquired during the year of A$566 million.
Total revenue (excluding interest revenue) growth was attributable to:
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mobile goods and services A$319 million or 8.3%; |
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internet and IP solutions revenue A$364 million or 35.9%; |
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advertising and directories revenue A$244 million or 18.2%; and |
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pay television bundling A$109 million or 70.8%. |
Mobile goods and services revenue increased largely due to the performance of mobiles data revenue
and international roaming. We continue to experience growth in the number of mobiles in operation
as well as increased revenue from mobile handset sales.
Mobile revenues were boosted during the year by a number of new initiatives, which included:
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the roll out of high speed wireless services (EVDO); |
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the i-mode alliance with more than 200 content sites; and |
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the growth in the use of mobile data products, including Blackberrys. |
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Internet and IP solutions revenue increased during the year due to:
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growth in the number of subscribers to our Bigpond® broadband product; and |
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growth in our wholesale broadband revenues. |
Our advertising and directories revenue increased over the prior year due to the inclusion of a
full year of trading activity for the Trading Post Group in fiscal 2005. In addition, further
growth was experienced due to the continued take up of our new advertising offerings.
Pay television bundling increased due to the launch of FOXTEL digital, an increase in the number of
services provided and the average spend per subscriber.
In addition to the above drivers of revenue growth, we also strengthened our position in the
managed services and information and communication technology market during fiscal 2005, through a
number of significant acquisitions. On 19 July 2004, we acquired 100% of the share capital of KAZ
Group Limited and its controlled entities (KAZ Group). This acquisition expands our IT services
capability, complementing our core strength in telecommunications. Our acquisition of PSINet UK
Limited and its controlled entities (PSINet Group) facilitates seamless, converged information
communication and technology services internationally. ESA Holding Pty Ltd and its controlled
entity, Damovo (Australia) Pty Ltd and related entity, Damovo HK Limited (Damovo Group), were
acquired to enable us to provide advanced voice and data communication solutions.
Partially offsetting the sales growth was a decline in PSTN product revenues of A$275 million or
3.4% as the market continues to move towards new products and services to satisfy requirements.
Total operating expense (before borrowing and income tax expense) growth of A$932 million was
mainly attributable to:
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labour A$475 million or 14.8%; and |
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goods and services purchased A$593 million or 16.7%. |
Labour costs increased in fiscal 2005 mainly due to the following:
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staff taken on as a result of our newly acquired controlled entities; |
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annual salary increases due to enterprise agreements and annual salary reviews; |
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increased use of casual staff to improve customer service and account management; and |
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an increase in the use of overtime and contract and agency payments to improve front of house service and meet growth in
field volumes across broadband and pay television in particular. |
Goods and services purchased increased due to the following:
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purchases of pay television services to enable us to provide bundled products; |
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higher cost of goods sold due to increased handset sales volumes and growth in broadband modem
sales; |
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higher handset subsidies due to the promotions offered in prior periods; and |
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increased usage commissions due to higher prepaid mobile recharge commissions. |
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Depreciation and amortisation costs grew by 4.2% to A$3,766 million in fiscal 2005, primarily
due to the growth in communications plant and software asset additions required to support the
increasing demand for broadband ADSL services. In addition, depreciation and amortisation increased
as a result of our recently acquired controlled entities.
The prior year other expenses included IBMGSA contract exit costs of A$130 million, recognised on
sale of our investment in this entity, and a provision raised against the REACH loan of A$226
million, which partially reduced the reported growth in expenses in fiscal 2005.
We will focus on reducing costs throughout the group. As part of our focus on cost reduction we
established process owners who are reviewing end-to-end processes. This program has identified cost
reductions through a range of Company wide productivity initiatives and significant process
improvements. In conjunction with our focus on operating cost efficiencies and other cost
initiatives, an operational and strategic review is underway by the newly appointed CEO.
Net borrowing costs increased by 3.4% to A$736 million in fiscal 2005, primarily due to increased
borrowings to fund the purchase of our recently acquired entities, increased levels of capital
expenditure, the payment of dividends and the share buy-back. This has been offset by increased
interest received as a result of larger holdings of short term liquid assets. There has also been a
benefit from lower interest rates on new and refinanced long term debt.
Income tax expense increased by 5.3% to A$1,822 million in fiscal 2005, primarily due to higher
reported profit and the impact in the prior year of a A$58 million tax benefit arising from the
initial adoption of the tax consolidation legislation. Other items that have impacted the year on
year comparison include the tax effect of the non deductible provision against the REACH loan in
the prior year and increased differences for partnership losses in the current year, resulting in
an overall effective tax rate of 29.1% for fiscal 2005.
Financial condition
We continued to maintain a strong financial position, as well as generating growth in total
operating and investing activities cash flows (free cash flow) of 4.6% or A$191 million. We have
continued to develop our core infrastructure network, acquire strategic investments and increase
our returns to shareholders through the special dividend and share buy-back in fiscal 2005.
We have made a number of significant acquisitions during the year to strengthen our operational
capabilities and provide additional opportunities for growth. These acquisitions were the KAZ
Group, PSINet Group and the Damovo Group. The acquisitions will enable us to capitalise on the
expertise of these entities and provide additional opportunities for us to compete in emerging
markets. The consideration for these acquisitions amounted to A$530 million, with an equivalent
amount recognised within the net assets of the group statement of financial position on
consolidation.
During fiscal 2005, we formed a 3G joint venture with a major competitor. This arrangement with
Hutchison 3G Australia Pty Ltd (H3GA), a subsidiary of Hutchison Telecommunications (Australia)
Limited, is to jointly own and operate H3GAs existing third generation radio access network (RAN)
and fund future development. The partnership will fund future construction of 3G RAN assets in
proportion to the ownership interest of each joint venture party. The agreements entered into with
H3GA create an asset sharing arrangement. As part of this agreement, Telstra purchased a 50% share
of H3GAs existing third generation (3G) radio access network assets. Based on the deferred payment
terms, our property, plant and equipment increased by A$428 million, representing the present value
of the purchase price of A$450 million. On acquisition we paid A$22 million and recognised A$406
million in deferred liabilities, which will be paid in three instalments with the last due 1 July
2006. The joint enterprise will provide opportunities for new revenues for Telstra and
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H3GA, stimulate growth in 3G service uptake and provide significant savings in 3G network
construction capital expenditure and operating expenses, such as site rental and maintenance.
As part of a restructure of REACH in fiscal 2005, Telstra and its joint venture partner, PCCW Ltd
(PCCW), entered into an indefeasible right of use (IRU) agreement with REACH. Under this agreement,
we, along with PCCW, each paid A$205 million (US$157 million) to REACH as consideration for the
IRU, whereby REACH allocated its international cable capacity between the two shareholders. As
consideration for the IRU, we discharged our capacity prepayment asset in the amount of A$187
million (US $143 million), accrued interest on the capacity prepayment of A$16 million and accrued
interest on the REACH loan of A$2 million.
During the year, we completed bond issues in Europe (EUR1,500 million), Switzerland (CHF300
million), Australia (A$1,000 million) and New Zealand (NZ$200 million). The proceeds of our bond
issues were used to fund our recently acquired acquisitions, refinance our maturing debt and for
other working capital purposes.
During the financial year our credit rating outlook was adjusted by Standard & Poors from stable
to negative. This change was generated by the uncertain environment in which we are operating in.
This is evidenced by the regulatory environment and also the speculation surrounding the
privatisation of our company. As a result of this and our debt management, our current credit
ratings are as follows:
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Long term |
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Short term |
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Outlook |
Standard & Poors |
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A+ |
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A1 |
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negative |
Moodys
(*1) |
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A1 |
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P1 |
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negative |
Fitch (*2) |
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A+ |
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F1 |
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stable |
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(*1) |
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In an announcement on 6 September 2005 Moodys placed our A1 senior unsecured ratings on review
for possible downgrade. Moodys stated that the review will focus on our strategic review due in
mid November and is unlikely to result in a downgrade of more than one notch. |
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In an announcement on 21 September 2005 Fitch revised the rating outlook on our long term senior
unsecured rating to negative from stable. At the same time Fitch affirmed the long term and short
term ratings. |
A security rating is not a recommendation to buy, sell or hold securities. It may be subject
to revision or withdrawal at any time by the assigning rating organisation and each rating should
be evaluated independently of any other rating.
As described in our strategy section following, we have previously announced a capital management
strategy whereby we have committed to providing certain returns to shareholders.
Our financial condition has enabled us to execute our capital management program. During fiscal
2005, we returned A$1,497 million to shareholders via a special dividend and a share buy-back. In
fiscal 2005, we paid a special dividend of 6 cents per share (A$747 million) with our interim
dividend and bought back 185,284,669 ordinary shares. 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 the purchase consideration of A$750 million and associated transaction
costs of A$6 million. The ordinary shares were bought back at A$4.05 per share, comprising a fully
franked dividend of A$2.55 per share and a capital component of A$1.50 per share.
We reported a strong free cash flow position, which enabled the company to pay increased dividends,
fund the acquisition of a number of new entities and complete the off market share buy-back as
described. We have sourced cash through ongoing operating activities and through careful capital
and cash management.
We continued to increase cash flow from operating activities to A$8,163 million for the current
year compared with A$7,433 million in fiscal 2004. This position was the result of higher sales
revenue and continued tight control of expenditure and working capital management.
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Cash used in investing activities was A$3,809 million, representing an increase of A$539
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. Investment expenditure in fiscal 2005 totalled A$590 million
compared with the prior year of A$668 million, which was mainly for the acquisition of the KAZ
Group, the Damovo Group, and the PSINet Group. Total free cash flow before financing activities
(free cash flow) increased to A$4,354 million compared with A$4,163 million in fiscal 2004.
Our cash used in financing activities was A$3,512 million, resulting from the funding of dividend
payments and the share buy-back, offset by net proceeds from borrowings received from a number of
our bond issues.
Investor return and other key ratios
Our earnings per share increased to 35.5 cents per share in fiscal 2005 from 32.4 cents per share
in the prior year. This increase is due to improved earnings and a reduction in the number of
shares on issue as a result of the off market share buy-back completed during fiscal 2005.
We have declared a final fully franked dividend of 14 cents per ordinary share (A$1,742 million)
and a fully franked special dividend of 6 cents per ordinary share (A$747 million) to be paid with
the final dividend, bringing declared dividends per share for fiscal 2005 to 40 cents per share.
The prior year declared dividends amounted to 26 cents per share. The dividends paid in fiscal 2005
were 33 cents per share compared with dividends paid in fiscal 2004 of 25 cents per share. We also
returned A$750 million to shareholders through an off market share buy-back. Other relevant
measures of return include the following:
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Return on average assets 2005: 20.4% (2004: 19.4%) |
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Return on average equity 2005: 29.4% (2004: 26.8%) |
Return on average assets is higher in fiscal 2005 primarily due to the increased profit previously
discussed. Return on average equity is also attributable to higher profits and to the reduced
shareholders equity resulting from the share buy-back and increased dividend payments in fiscal
2005.
Strategy
We offer a full range of telecommunications products and services throughout Australia and various
telecommunications services in certain overseas countries. Our strategy to move forward as the
Australian market leader in the industry, involves the management of the following:
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migration of customer demand from traditional products and services, particularly PSTN, to the
emerging products and services of the business, in particular mobiles and broadband Internet
services; |
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cost and productivity improvements; |
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continual improvement of customer service levels; and |
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alignment of investment with revenue growth drivers. |
The effective management of these business areas will require a market based management approach
and a change in how the company operates. It also requires a regulatory environment that allows us
to compete on an equal basis.
We do face a series of business operating issues that will impact the future results of our
Company. These issues range from the potential full privatisation of the Company, regulatory
issues, including regulated price caps, and establishing the appropriate business structure to
drive future growth.
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Growth in sales revenues was led by mobiles, Internet and IP Solutions, solutions management,
and advertising and directory services. We continue to focus on maximising revenues from our higher
margin traditional products such as PSTN, while managing the shift in customer demand to our lower
margin emerging products such as broadband. We have aligned our investment strategies with the new
growth areas and continue to focus on identifying cost efficiencies to protect operating margins as
far as possible, whilst at the same time improving our customer service levels.
We continue to increase ordinary dividends to our shareholders. In addition, we have improved
returns to our shareholders through special dividends and share buy-backs as part of our capital
management strategy. Since fiscal 2004, we have adopted the following capital management policies:
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declaration of ordinary dividends of around 80% of net profit after tax (before any unusual items
such as write downs of assets and investments); and |
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the return of A$1,500 million to shareholders
each year until fiscal 2007 through special dividends and/or share buy-backs, subject to
maintaining our target financial parameters. |
Industry dynamics
The Australian telecommunications industry is continually changing. In recent times, 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.
The broadband sector is in a significant growth phase as the demand for high speed Internet access
accelerates. We have seen large increases in broadband subscribers in the last two to three years
and a steady fall in prices as providers compete for market share.
Advances in technology continue to underline 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, third generation (3G) mobile services and other mobile offerings such
as i-mode. Voice services over IP (VoIP) is another area of change for which the industry is
preparing. We have recently successfully commissioned and commenced testing our next generation
VoIP platform that we believe will offer value added broadband services to our customers in the
future. We continue to be at the forefront of these, and other, technology advancements as we have
devoted substantial capital to upgrade our telecommunications networks to meet customer demand,
particularly for the new product and growth areas.
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
The Commonwealth Government has reiterated its commitment to the sale of the Commonwealths
remaining shares in us. Telstras Board and management support the sale by the Commonwealth of the
remaining shares in Telstra to complete the privatisation process, but recognise that the decision
is one for the Commonwealth to make. The full privatisation of the Company will depend upon a
number of factors, including the passing of appropriate legislation through Parliament and market
conditions (*3).
(*3) Parliament enacted legislation to enable the sale of the Commonwealths remaining interest in
us in September 2005.
Dividends
The directors have declared a fully franked final dividend of 14 cents per share (A$1,742 million)
and a fully franked special dividend of 6 cents per share (A$747 million). The dividends will be
franked at a tax rate of
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Directors report
30%. The record date for the final and special dividends will be 30 September 2005 with
payment being made on 31 October 2005. Shares will trade excluding entitlement to the dividend on
26 September 2005 (*4).
(*4)
The record date of 30 September 2005 has passed and our shares traded excluding the dividend
entitlement on 26 September 2005.
On 11 August 2005, we also disclosed the intention to pay a fully franked special dividend of
6 cents per share as part of the interim dividend in fiscal 2006. The proposed special dividend is
part of the execution of our capital management program. The financial effect of the special
dividend will be reflected in the fiscal 2006 financial statements.
During fiscal 2005, the following dividends were paid:
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Dividend |
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Date declared |
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Date paid |
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Dividend per share |
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Total dividend |
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Final dividend for the year ended
30 June 2004 |
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12 August 2004 |
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29 October 2004 |
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13 cents franked to 100% |
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A$1,642 million |
Interim dividend for the year ended
30 June 2005 |
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10 February 2005 |
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29 April 2005 |
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14 cents franked to 100% |
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A$1,742 million |
Special dividend for the year ended
30 June 2005 |
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10 February 2005 |
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29 April 2005 |
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6 cents franked to 100% |
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A$747 million |
At present, it is expected that we will be able to fully frank declared dividends out of
fiscal 2006 earnings. However, the Directors can give no assurance as to the future level of
dividends, if any, or of franking of dividends. This is because our ability to frank dividends
depends upon, among other factors, our earnings, Government legislation and our tax position.
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 2005.
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 (*5) other than:
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On 28 June, we announced the acquisition of 100% of the issued share capital of Keycorp
Solutions Limited for a cash consideration of A$55 million plus transaction costs. This
acquisition is subject to approval by the shareholders of Keycorp Solutions Limiteds parent
company, Keycorp Limited, and if approved, will be effective from 1 July 2005. |
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In conjunction with and conditional upon our purchase of Keycorp Solutions Limited, Keycorp
Limited announced, subject to shareholder approval, it would use the proceeds from the sale to
enable a pro-rata return of capital to shareholders of 41 cents per share. As a shareholder of
Keycorp Limited, we are expecting to receive approximately A$16 million in returned capital. |
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Keycorp Solutions Limited is a subsidiary of Keycorp Limited, an associated entity of ours, in
which we hold 47.8% of the issued share capital. Keycorp Solutions Limited has previously
partnered with |
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Directors report
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us to provide payment transaction network carriage services to customers. In acquiring
this entity, we will now provide the services in our own right. |
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Neither the acquisition nor the return of capital have been recognised in our financial
statements as at 30 June 2005. |
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We have appointed Sol Trujillo as our new Chief Executive Officer, effective 1 July 2005. The
new CEO is undertaking an operational and strategic review to be completed within 3 to 4
months of his appointment. |
(*5) |
On 5 September 2005, we announced that our earnings before interest and tax in
2005/2006 are expected to decline by 7-10 percent compared to 2004/2005. |
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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On 20 July 2004, Donald G McGauchie was appointed Chairman of the Board of Directors. On
appointment, he replaced John T Ralph who was acting Interim Chairman for the period 14 April
2004 to 20 July 2004; |
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Samuel H Chisholm resigned as Director on 28 October 2004; |
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Zygmunt E Switkowski resigned as CEO and Managing Director on 1 July 2005; and |
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Solomon D Trujillo was appointed CEO and Executive Director on 1 July 2005. |
In addition, Anthony J Clark and John T Ralph retired as Directors effective 11 August 2005.
Information about directors and senior executives is provided as follows and forms part of this
directors report:
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names of directors and details of their qualifications, experience and special
responsibilities are given on pages 198 to 203; |
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details of the directorships of other listed
companies held by each director in the past 3 years is provided on pages 198 to 203; |
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number of Board and Committee meetings and attendance by directors at these meetings is provided on page 204; |
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details of directors and senior executive shareholdings in Telstra are shown on page 205; and |
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details of directors and senior executive emoluments is detailed in the Remuneration report on
pages 206 to 226 (*6). |
(*6) Where relevant, the information provided on the pages referenced above has been updated as at
30 September 2005. |
Company secretary
The qualifications, experience and responsibilities of our company secretary are provided at page
201 and forms part of this report.
Equity based compensation
Over time, Telstra has provided equity based remuneration through our short term and long term
incentive plans and our deferred remuneration plan. Instruments issued under these plans are
performance rights, restricted shares, options, deferred shares and incentive shares.
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Performance rights, restricted shares, and options have performance hurdles in place which
must be achieved for them to vest. If the performance hurdle is not achieved, they will have nil
value and will lapse. Generally, deferred shares will only vest when a specified service period is
completed. Half of certain employees short term incentive is allocated by way of incentive shares.
Generally these instruments will vest progressively over a specified service period from the date
of allocation.
For our reporting under Australian generally accepted accounting principles (AGAAP), we recognise
an expense for instruments issued when it is certain that there is an actual cost that will be
realised by Telstra. The exercise price for performance rights, restricted shares, deferred shares
and incentives shares is nominal and we recognise an expense when the funding is provided to
purchase shares on market to underpin the instruments. When an employee exercises options, they are
required to pay the option exercise price. As a result, when shares are purchased to underpin
options, we recognise a receivable in Telstras statement of financial position.
For our reporting under United States generally accepted accounting principles (USGAAP), we expense
the fair value of all instruments issued at the time of grant. When the Australian equivalent of
International Financial Reporting Standard IFRS 2: Share based payment is adopted as AGAAP, we
will apply this standard to the accounting for our option and employee share plans.
In fiscal 2005, we have recognised an expense of A$17 million (2004: A$19 million) relating to
instruments issued during the year for AGAAP and an expense of A$15 million (2004: A$19 million)
under USGAAP.
Refer to note 19 of the financial statements for a detailed explanation of all employee share plans
and the accounting treatment applied to each.
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 chief executive officer. 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); |
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employees of Telstra appointed to the boards of other companies as our nominees; and |
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employees (including executive officers other than directors ) involved in the formulation, entering into or carrying out, of a Telstra Sale Scheme
(as defined in the Telstra Corporation Act 1991 (Cwth)). |
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.
The indemnity in favour of employees relating to Telstra Sale Schemes is confined to liabilities
incurred as an employee in connection with the formulation, entering into or carrying out, of 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
Performance in relation to particular and significant environmental legislation
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.
Legal and Regulatory Compliance
Telstra is committed to conducting its businesses in compliance with all of its legal and
regulatory obligations. Compliance with these obligations is not just a legal requirement but is
integral to Telstras commitment to its employees, customers, shareholders and the community.
The Board is responsible for requiring appropriate compliance frameworks and controls to be in
place and operating effectively for compliance with relevant laws, regulations and industry codes.
The Audit Committee has been delegated specific responsibility for reviewing Telstras approach to
achieving compliance with laws, regulations and associated industry codes in Australia and overseas
and the
194
Telstra Corporation Limited and controlled entities
Directors report
oversight of compliance issues. This oversight is facilitated by the preparation of a
quarterly compliance report summarising significant compliance initiatives and issues across the
Company.
Telstra has a number of compliance programs in place to address specific legal and regulatory
obligations. These include programs directed to health, safety and environment, equal employment
opportunity, privacy, trade practices and industry regulation.
The principles of the Australian Standard on Compliance Programs, AS 3806, have been incorporated
into these programs and a number of programs, including the privacy compliance program, are subject
to periodic, independent external audits which are intended to ensure that the Companys approach
is comprehensive, robust and rigorous.
This program based approach at a corporate level is supported by a network of managers and other
personnel at the business unit level with specific responsibility for the implementation of the
compliance programs within the business units. This structure has been designed with the aim of
ensuring that each business units operations are conducted in accordance with Telstras
obligations. This is achieved through a focus on policies, procedures and work instructions that is
intended to ensure that Telstra and its employees achieve transparent compliance with these
obligations. There is a complementary focus on training, dissemination of information and
monitoring of compliance outcomes.
These initiatives reflect the Companys commitment to maintaining a strong compliance record and
reducing the risk of future legal and regulatory compliance issues.
Audit and non-audit services
The Auditor-General and Ernst & Young are authorised to perform all audit services, being 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 audit services as part of the annual
approval of the audit plan. Where additional audit services not contemplated in the annual audit
plan are subsequently deemed to be necessary during the course of the year, the provision of these
services is separately approved by the Audit Committee prior to commencement of the services.
The Auditor-General does not provide non-audit services. Telstra does not engage Ernst & Young to
perform any of the following non-audit services:
|
|
|
bookkeeping services and other services related to preparing Telstras accounting records of
financial statements; |
|
|
|
|
financial information system design and implementation services; |
|
|
|
|
appraisal or valuation services, fairness opinions, or contribution in kind reports; |
|
|
|
|
actuarial services; |
|
|
|
|
internal audit services; |
|
|
|
|
management function or human resources; |
|
|
|
|
broker or dealer, investment adviser, or investment banking services; and |
|
|
|
|
legal services or expert services unrelated to the audit. |
In addition, Ernst & Young does not provide taxation advice of a strategic or tax planning nature.
All other non-audit services may only be provided by Ernst & Young if the Audit Committee and the
Auditor-General have expressly approved the provision of the non-audit service prior to
commencement of the work,
195
Telstra Corporation Limited and controlled entities
Directors report
and 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 Audit Committee expects the Auditor-General and requires Ernst & Young to submit annually to
the Audit Committee a formal written statement delineating all relationships between the
Auditor-General, Ernst & Young and Telstra and its controlled entities. The statement includes a
report of all audit and non-audit fees billed by the Auditor-General and Ernst & Young in the most
recent fiscal year, a statement of 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 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 197 and forms part of this
report. The Audit Committee considers whether Ernst & Youngs provision of non-audit services to
the company is compatible with maintaining the independence of Ernst & Young. The Audit Committee
also submits annually to the Board a formal written report describing any non-audit services
rendered by Ernst & Young during the most recent fiscal year, the fees paid for those non-audit
services and explaining 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 3(b) 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 2005 is compatible with the general standard
of independence for auditors imposed by the Corporations Act 2001.
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
11 August 2005
Our Directors report for the year ended 30 June 2005 was prepared as at 11 August 2005 in
accordance with the requirements of the Australian Corporations Act 2001 and a resolution of the
Board. Accordingly, no changes have been made to the report for the purposes of this filing except
that, where appropriate, we have indicated by way of a footnote marked with an asterisk where
information in the Directors report is not current at the latest practicable date of 30 September
2005 and have provided the current information in that footnote.
196
Telstra Corporation Limited and controlled entities
Directors report
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 year ended 30 June 2005, 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
11 August 2005
Canberra, Australia
197
Telstra Corporation Limited and controlled entities
Additional Information on Directors
Directors profiles
As at 30 September 2005, our directors were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of initial |
|
Year last |
Name |
|
Age |
|
Position |
|
appointment |
|
re-elected(1) |
|
Donald G McGauchie |
|
55 |
|
Chairman |
|
1998 |
|
2003 |
Solomon D Trujillo(2) |
|
53 |
|
CEO and Executive Director |
|
2005 |
|
|
John E Fletcher |
|
54 |
|
Director |
|
2000 |
|
2003 |
Belinda J Hutchinson |
|
52 |
|
Director |
|
2001 |
|
2004 |
Catherine B Livingstone |
|
49 |
|
Director |
|
2000 |
|
2002 |
Charles Macek |
|
58 |
|
Director |
|
2001 |
|
2004 |
John W Stocker |
|
60 |
|
Director |
|
1996 |
|
2003 |
|
|
|
(1) Other than the Chief Executive Officer, one third of
directors are subject to re-election by rotation each year. |
|
(2) Solomon D Trujillo was appointed as Chief Executive Officer
and Executive Director on 1 July 2005. |
A brief biography for each of the directors as at 30 September 2005 is
presented below:
Donald G McGauchie AO
Age 55
Donald 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 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 2002).
Other: Director, Reserve Bank of Australia; Partner, C&E McGauchie -Terrick West Estate; President
of the National Farmers Federation (1994 1998); and Chairman,
Rural Finance Corporation (2003
2004). Awarded the Centenary Medal for service to Australian society through agriculture and
business in 2003.
198
Telstra Corporation Limited and controlled entities
Additional Information on Directors
John E Fletcher FCPA
Age 54
John Fletcher joined Telstra as a non-executive Director in November 2000. He is a member
of the Nomination Committee and the Remuneration Committee.
Experience:
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.
Directorships of other listed companies current:
Chief
Executive Officer and Director, Coles Myer Ltd (2001- ).
Directorships of listed companies past three years:
Nil
Other: Nil
Belinda J Hutchinson BEc, FCA
Age 52
Belinda 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 1993 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:
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 - ).
Director, Energy Australia Limited (1997 September 2005).
199
Telstra Corporation Limited and controlled entities
Additional information on Directors
Catherine B Livingstone BA(Hons), FCA, FTSE
Age 49
Catherine Livingstone joined Telstra as a 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:
Chairman, CSIRO (2001 - ) and Australian Business Foundation
(2000 - ); Director, Sydney
Institute (1998 - ); Member, Department of Accounting and Finance Advisory Board Macquarie University
and Business/Industry/Higher Education Collaboration Committee (BIHECC).
Charles Macek-BEc, MAdmin, FSIA, FAICD, FCPA, FAIM, FCA
Age 58
Charles 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 - ).
Directorships of listed companies past three years:
Chairman and Director, IOOF Holdings Ltd (2002 - 2003).
Other:
Chairman, Sustainable Investment Research Institute Pty Ltd (2002 - ) and Financial Reporting
Council (FRC); Director, Williamson Community Leadership Program
Limited (2004 - ) and Vertex
Capital Pty Ltd (2004 - ); Victorian Councillor, Australian Institute of Company Directors; and
Member, New Zealand Accounting Standards Review Board and Investment Committee of Unisuper Ltd;
Chairman, Centre for Eye Research Australia Ltd (1996 - 2003); and Director of Famoice Technology
Pty Ltd. (2001 - 2004).
200
Telstra Corporation Limited and controlled entities
Additional Information on Directors
John W
Stacker AO, MB, BSc, BMedSc, PhD, FRACP, FTSE
Age 60
John Stacker joined Telstra as a non-executive Director in October 1996. He is Chairman of the
Audit Committee and Technology Committee.
Experience:
Dr Stacker has had a distinguished career in pharmaceutical research and extensive experience in
management of research and development, and its commercialisation included in his role as Chief
Scientist for the Commonwealth of Australia (1996 - 1999).
Directorships of other Listed companies current:
Chairman,
Sigma Company Ltd (1998 - ); Director, Cambridge Antibody Technology
Group plc (1995 - );
Circadian Technologies Ltd (1996 - ); and Nufarm Limited (1998 - ).
Directorships of listed companies past three years:
Nil
Other:
Principal, Foursight Associates Ply Ltd; and Chairman, Grape and Wine Research and
Development Corporation (1997 - 2004).
On 1 July 2005 we appointed a new CEO and executive director. Our new CEOs qualifications and
experience are set out below.
Solomon
D Trujillo BSc, BBus, MBA, Hon Doctor of Law Degrees (University of Wyoming, University of
Colorado)
Age 53
Sol Trujillo joined Telstra as Chief Executive Officer and executive Director 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 served as CEO of London-based Orange, one of Europes largest mobile companies and
CEO of Graviton, a San Diego-based hi-tech company producing telesensors. Mr. Trujillo spent 26
years with US West Inc. where, for five years, he served as Chairman, CEO and President of the
Denver-based communications giant.
Directorships of other listed companies current:
Director,
Target Corporation (September 1994 - ); Gannett Co Inc.
(May 2002 - ); PepsiCo Inc (January
2000 - September 2005); and Electronic Data Systems Corporation (EDS) (January 2005 - October 2005).
Directorships of listed companies past three years:
Director,
Orange SA (2001 - 2005).
Other:
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.
201
Telstra Corporation Limited and controlled entities
Additional Information on Directors
During the year and through to the date of the report, the following directors resigned:
|
|
|
Samuel H Chisholm resigned as a director on 28 October 2004; |
|
|
|
|
Zygmunt E Switkowski resigned as a director on 1 July 2005; |
|
|
|
|
John T Ralph retired as a director on 11 August 2005; and |
|
|
|
|
Anthony J Clark retired as a director on 11 August 2005. |
A brief biography for each of the former directors is presented below:
Samuel H Chisholm
Age 64
Director since November 2000. Resigned on 28 October 2004.
Director, Australian Wool Services Ltd and Victor Chang Cardiac Research Institute. Mr Chisholm was
the Chief Executive and Managing Director of British Sky Broadcasting and Executive Director of The
News Corporation (1990 - 1997). For 17 years previously he was Chief Executive and Managing Director
of the Nine Network Australia Limited.
Zygmunt E Switkowski - BSc (Hons), PhD, FAICD
Age 56
Chief Executive Officer (CEO) and Managing Director
CEO and Managing Director since March 1999. Resigned as CEO and Managing Director on 1 July 2005.
Formerly Chief Executive Officer of Optus Communications Ltd and Chairman and Managing Director of
Kodak (Australasia) Pty Ltd and the Business Council of Australia.
John T Ralph-AC, FCPA, FTSE, LFAICD, FAIM, FAusIMM, Hon LLD (Melbourne & Queensland), DUniv(ACU)
Age 72
John Ralph joined Telstra as non-executive director and Deputy Chairman in October 1996. He is a
member of the Audit Committee, Nomination Committee and Remuneration Committee.
Experience:
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.
Directorships of other listed companies current:
Nil
Directorships of listed companies past three years:
Chairman,
Commonwealth Bank of Australia (1999 - 2004, Director from 1985); and Director, BHP
Billiton Ltd (1997 - 2002) and BHP Billiton pic (2002).
202
Telstra Corporation Limited and controlled entities
Additional information on Directors
Other:
Chairman, Australian Farm Institute (2004 - ) and Chairman, Australian Foundation
for Science (1994 - ); Member, Board of Melbourne Business School
(1989 - ); President, Scouts
Australia, Victorian Branch (2003 - ); Patron of St Vincents
Institute Foundation (2004 - );
and Director, The Constitutional Centenary Foundation incorporated (1994 2002).
Mr Ralph retired as a Director on 11 August 2005.
Anthony J Clark AM, FCA, FAICD
Age 66
Tony Clark joined Telstra as a non-executive Director in October 1996. He served on the Audit
Committee until February 2005.
Experience:
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.
Directorships of other Listed companies current:
Chairman,
Cumnock Coal Limited (2001 - ); Director, Amalgamated Holdings
Limited (1998 - ); Ramsay
Health Care Limited (1998 - ); and Carlton Investments Limited (2000
- ).
Directorships of Listed companies past three years:
Nil
Other:
Chairman, Maritime Industry Finance Company Ltd (1998 - ); Deputy Chairman, Tourism Australia
(2004 - ) and Australian Tourist Commission (1996 2004).
Mr Clark retired as a Director on 11 August 2005.
Qualifications and experience of each person who is a company secretary of the company
Douglas C Gration - FCIS, BSc, LLB (Hons), GDip AppFin,
Age 39
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 Telstra privatisations. Mr Gration also
advised on telecommunication regulatory matters. Other roles previously held in Telstra include
Deputy Group General Counsel and Infrastructure Services & Wholesale General Counsel of Telstra.
203
Telstra Corporation Limited and controlled entities
Additional Information on Directors
Directors meetings
Each director attended the following Board and committee meetings during the year as a
member of the Board or relevant committee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board |
|
|
|
|
|
|
Committees(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominations and |
|
|
|
|
|
|
|
|
|
|
Audit |
|
Remuneration(7) |
|
Technology |
|
|
a |
|
b |
|
|
a |
|
b |
|
a |
|
b |
|
a |
|
b |
|
|
|
|
D G
McGauchie(1) |
|
13 |
|
13 |
|
|
|
|
|
|
9 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J T Ralph (4) |
|
13 |
|
12 |
|
|
5 |
|
4 |
|
9 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Z E Switkowski (5). |
|
11 |
|
11 |
|
|
|
|
|
|
|
|
|
|
3 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S H Chisholm (2) |
|
6 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A J CIark(3) |
|
13 |
|
10 |
|
|
2 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J E Fletcher(9) |
|
13 |
|
12 |
|
|
|
|
|
|
8 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B J Hutchinson (6). |
|
13 |
|
13 |
|
|
2 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C B Livingstone |
|
13 |
|
13 |
|
|
5 |
|
5 |
|
|
|
|
|
3 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C Macek(10) |
|
13 |
|
12 |
|
|
5 |
|
5 |
|
9 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J W Stocker(8) |
|
13 |
|
13 |
|
|
5 |
|
5 |
|
1 |
|
1 |
|
3 |
|
3 |
Column a: number of meetings
held while a member.
Column b:
number of meetings attended.
|
|
|
(1) |
|
Appointed as Chairman of the Board on 20 July 2004. Served as Chairman of
Nominations and Remuneration Committee from 3 December 2003 to 23 March 2005. Appointed
Chairman of Nomination Committee on 23 March 2005 following the division of the
Nominations and Remuneration Committee. |
|
(2) |
|
Retired as a Director on 28 October 2004. |
|
(3) |
|
Resigned from the Audit Committee on 7 February 2005. |
|
(4) |
|
Resumed as a member of the Audit Committee from 20 July 2004 after completing
role as interim Chairman. |
|
(5) |
|
Two board meetings throughout the year were held for non-executive directors
only - Dr Switkowski was therefore not required to attend these meetings. Resigned as
Chief Executive Officer and Managing Director on 1 July 2005. |
|
(6) |
|
Appointed as a member of the Audit Committee on 10 February 2005. |
|
(7) |
|
The Nominations and Remuneration Committee divided into two committees
(Nomination Committee and Remuneration Committee) on 23 March 2005. Subsequent to
this date there was one meeting held by each of the Nomination Committee and the
Remuneration Committee. D G McGauchie, C Macek and J E Fletcher attended each of these
meetings, J Ralph was an apology at both meetings. |
|
(8) |
|
Resigned from the Nominations and Remuneration
Committee on 11 August 2004. |
|
(9) |
|
Appointed to the Nominations and Remuneration
Committee on 11 August 2004. |
|
(10) |
|
Appointed Chairman of Remuneration Committee on 23 March 2005 following the
division of the Nominations and Remuneration Committee. |
|
(11) |
|
Committee meetings are open to all Directors to attend in
an ex officio
capacity. |
204
Telstra Corporation Limited and controlled entities
Additional information on Directors
Directors and senior executives shareholdings in Telstra
As at 30 September 2005:
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares held |
|
|
|
Direct |
|
|
Indirect |
|
|
|
|
|
|
Interest |
|
|
Interest(1) |
|
|
Total |
|
|
Donald G
McGauchie |
|
|
|
|
|
|
41,445 |
|
|
|
41,445 |
|
Solomon D
Trujillo |
|
|
|
|
|
|
|
|
|
|
|
|
John E
Fletcher |
|
|
|
|
|
|
52,934 |
|
|
|
52,934 |
|
Belinda J
Hutchinson |
|
|
37,111 |
|
|
|
29,996 |
|
|
|
67,107 |
|
Catherine B
Livingstone |
|
|
10,400 |
|
|
|
18,184 |
|
|
|
28,584 |
|
Charles Macek
|
|
|
|
|
|
|
42,005 |
|
|
|
42,005 |
|
John W
Stacker |
|
|
800 |
|
|
|
89,067 |
|
|
|
89,867 |
|
|
|
|
(1) |
|
Shares in which the director does not have a relevant interest, including
shares held by director related entities, are excluded from indirect interests. |
Senior executives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares held |
|
|
|
Direct |
|
|
Indirect |
|
|
|
|
|
|
Interest |
|
|
Interest(1) |
|
|
Total |
|
|
Bruce Akhurst |
|
|
7,780 |
|
|
|
34,711 |
|
|
|
42,491 |
|
Phil Burgess |
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Campbell |
|
|
68,700 |
|
|
|
27,500 |
|
|
|
96,200 |
|
David Moffatt |
|
|
71,600 |
|
|
|
3,100 |
|
|
|
74,700 |
|
Michael Rocca |
|
|
12,000 |
|
|
|
|
|
|
|
12,000 |
|
Deena Shiff |
|
|
5,680 |
|
|
|
8,800 |
|
|
|
14,480 |
|
John Stanhope |
|
|
53,780 |
|
|
|
3,960 |
|
|
|
57,740 |
|
William Stewart |
|
|
|
|
|
|
|
|
|
|
|
|
David Thodey |
|
|
12,462 |
|
|
|
5,800 |
|
|
|
18,262 |
|
GregWinn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares in which the executive does not have a relevant interest, including
shares held by director related entities, are excluded from indirect interests. |
205
Telstra Corporation Limited and controlled entities
Remuneration report
The directors present the remuneration report prepared in accordance with Section 300A of the
Corporations Act 2001 for the Telstra Group for the financial year ended 30 June
2005(*1).
|
|
|
|
|
(*1) Our remuneration report for the year ended 30 June 2005 was prepared as at 11 August
2005 in accordance with the Corporations Act 2001. No changes have been made to the report for
the purposes of this filing except that, where appropriate, we have indicated by way of a
footnote marked with an asterisk where information in the remuneration report is not current
at the latest practicable date of 30 September 2005 and have provided the current information
in that footnote. |
Introduction
Our remuneration policy is designed to link the remuneration of the CEO and senior executives with
our performance.
The CEO and senior executives remuneration is linked to both our short and long-term
performance through:
|
|
|
the short-term incentive (STI) plan, where individuals are assessed against a
combination of
quantitative and qualitative measures of performance over the past year; and |
|
|
|
|
the long term incentive (LTI) plan through the use of performance rights, all of which have long-term
performance measures which ensure the rights can only be exercised when the Company achieves
previously set targets. |
The non-executive directors remuneration is not linked to short-term performance, as the focus of
the Board is on governance and the longer-term strategic direction of the Company. As such, part of
their remuneration is delivered as shares, through Telstras Directshare plan.
In this report we explain the policy and structure of the remuneration of:
|
|
|
non-executive directors; and |
|
|
|
|
the CEO and senior executives. |
Each section includes an explanation of how the remuneration is calculated as well as a table
showing actual figures. For the purpose of this report the senior executives are the Group Managing
Directors reporting to the CEO.
Non-executive directors
Remuneration policy
Non-executive directors are remunerated with fees which are not linked to performance
to preserve their independence. 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. |
·
206
Telstra Corporation Limited and controlled entities
Remuneration report
The current fee pool of A$l,320,000 was approved by shareholders at the November
2003 annual general meeting, and remains unchanged
(*2). Since
2003, there has been a significant shift in director fees in the Australian market due
to the increased time and responsibility required of non-executive directors. Based on
independent remuneration advice, these market changes have resulted in a decline in the
competitiveness of our current fee pool over this period.
|
|
|
(*2) |
|
We have asked our shareholders to consider increasing the fee
pool from A$l,320,000 to A$12,000,000 at our annual general meeting to be held on 25
October 2005. |
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.
In
determining the fee pool and individual director fee levels, the Remuneration
Committee makes recommendations to the Board, and in the case of the fee pool, the Board
recommends to shareholders taking into account:
|
|
|
the Companys existing remuneration policies; |
|
|
|
|
independent professional advice; |
|
|
|
|
the fee pool of other comparable companies; |
|
|
|
|
fees paid to individual directors by comparable companies; |
|
|
|
|
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. |
Remuneration structure 2004/2005
Non-executive directors receive a total remuneration package based on their role on
the Board and 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.
The Board determines the non-executive directors annual fees (total remuneration
package or TRP). The TRP paid to each director is determined according to their role
on the Board and committee memberships, as set out below.
Board fees
Board members are paid the following fees.
|
|
|
|
|
|
|
· |
|
Chairman |
|
|
A$308,000 |
|
· |
|
Deputy Chairman |
|
|
A$154,000 |
|
· |
|
Director |
|
|
A$88,000 |
|
These
amounts were approved by the Board effective 1 July 2004.
Committee fees
Board members, excluding the Chairman and Deputy Chairman, are paid the following
additional fees for service on Board committees.
|
|
|
|
|
|
|
· |
|
Audit Committee Chairman |
|
|
A$50,000 |
|
207
Telstra Corporation Limited and controlled entities
Remuneration report
|
|
|
|
|
|
|
· |
|
Audit Committee member |
|
|
A$25,000 |
|
· |
|
Remuneration Committee Chairman |
|
|
A$10,000 |
|
· |
|
Remuneration Committee member |
|
|
A$5,000 |
|
· |
|
Nomination Committee member |
|
|
A$5,000 |
|
· |
|
Technology Committee Chairman and member |
|
|
A$5,000 |
|
These amounts were approved by the Board effective 1 April 2005. The Board considers
these fees appropriate given the additional time requirements of committee members, the
complex matters before these committees and, in the case of the Audit Committee, an increased
number of committee meetings and governance requirements.
The total of all fees paid to non-executive directors in fiscal 2005 remains within the
current fee pool approved by shareholders.
Components of the total remuneration package
The
Board has determined that a non-executive directors TRP will consist of three components:
cash, shares (through the Directshare plan) and superannuation. Each year directors are asked
to specify the allocation of their TRP between these three components, subject to the
following thresholds:
|
|
|
at least 30% must be taken as cash; |
|
|
|
|
at least 20% must be taken as Directshares; and |
|
|
|
|
the minimum superannuation guarantee, where applicable. |
The Board will continue periodically to 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 forms part of our overall remuneration strategy and 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 five years unless the
participating director ceases to be a director of Telstra.
Non-executive directors may state a preference to increase their participation in the
Directshare plan. Where this occurs, the non-executive director takes a greater percentage of
TRP in Telstra shares, and the cash component is reduced to the same extent. 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 security holdings in shares 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 TRP and
directors may state a preference to increase the proportion of their TRP taken as
superannuation subject to legislative requirements.
208
Telstra Corporation Limited and controlled entities
Remuneration report
Other benefits
In accordance with Board policy, and as permitted under Rule 16.4 of our
Constitution, 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 the business of the Company. 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 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 1.
Details of non-executive directors remuneration
The following table provides the details of all remuneration paid to our
non-executive directors in fiscal 2005.
Figure 1: Non-executive Directors remuneration details
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary benefits |
|
|
|
Employment |
|
|
Equity |
|
|
Other |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary & |
|
|
Non- |
|
|
Superan- |
|
|
|
benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fees(1) |
|
|
monetary(2) |
|
|
nuation |
|
|
|
accrued |
|
|
Directshare |
|
|
Other fees |
|
|
|
|
|
|
|
|
(A$) |
|
|
(A$) |
|
|
(A$) |
|
|
|
(At) |
|
|
(A$) |
|
|
(A$) |
|
|
|
(A$) |
|
|
|
|
|
|
|
|
|
|
|
Donald G McGauchie(3) |
|
|
|
225,503 |
|
|
|
2,317 |
|
|
|
11,484 |
|
|
|
|
195,396 |
|
|
|
60,054 |
|
|
|
2,837 |
(4) |
|
|
|
497,591 |
|
Chairman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T Ralph (5) |
|
|
|
131,559 |
|
|
|
2,253 |
|
|
|
|
(6) |
|
|
|
79,940 |
|
|
|
30,703 |
|
|
|
|
|
|
|
|
244,455 |
|
Deputy Chairman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel H Chisholm (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony J Clark |
|
|
|
69,357 |
|
|
|
2,753 |
|
|
|
8,493 |
|
|
|
|
48,811 |
|
|
|
19,463 |
|
|
|
|
|
|
|
|
148,877 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John E Fletcher |
|
|
|
43,795 |
|
|
|
3,015 |
|
|
|
6,705 |
|
|
|
|
35,603 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
129,118 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belinda J Hutchinson |
|
|
|
70,065 |
|
|
|
2,253 |
|
|
|
6,692 |
|
|
|
|
32,004 |
|
|
|
19,189 |
|
|
|
|
|
|
|
|
130,203 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine B Livingstone |
|
|
|
77,764 |
|
|
|
2,253 |
|
|
|
8,537 |
|
|
|
|
46,216 |
|
|
|
21,575 |
|
|
|
|
|
|
|
|
156,345 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Macek |
|
|
|
79,584 |
|
|
|
2,057 |
|
|
|
8,717 |
|
|
|
|
40,160 |
|
|
|
22,075 |
|
|
|
|
|
|
|
|
152,593 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W Stocker |
|
|
|
71,975 |
|
|
|
2,253 |
|
|
|
6,478 |
|
|
|
|
73,130 |
|
|
|
52,173 |
|
|
|
|
|
|
|
|
206,009 |
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
769,602 |
|
|
|
19,154 |
|
|
|
57,106 |
|
|
|
|
551,260 |
|
|
|
265,232 |
|
|
|
2,837 |
|
|
|
|
1,665,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees for membership on Board committees. Details of committee memberships and meeting attendances is provided on page 203. |
|
(2) |
|
Includes the value of the personal use of products and services. |
|
(3) |
|
Mr McGauchie was appointed Chairman on 20 July 2004. |
|
(4) |
|
This amount was paid to Mr McGauchie for membership of the
Telstra Country
Wide© (TCW) Advisory Board and is for contribution of services in
addition to his Board duties. Payment of fees for membership of the
TCW Advisory Board ceased on Mr McGauchies election as Chairman. |
|
(5) |
|
Mr Ralph was appointed as Interim Chairman from 14
April 2004 to 20 July 2004. |
|
(6) |
|
Under current superannuation legislation Mr Ralph
does not receive superannuation benefits as he has passed his
70th birthday. |
|
(7) |
|
Mr Chisholm declined to receive directors fees. Mr Chisholm resigned from the Telstra Board on 28 October 2004. |
209
Telstra Corporation Limited and controlled entities
Remuneration report
Retirement benefits
We do not provide retirement benefits for new directors appointed to the Board after 30 June
2002. However, non-executive directors appointed before that date remain eligible to receive
retirement benefits on retiring as a director of Telstra (*3).
|
|
(*3) If our shareholders pass the resolution to increase the directors fee pool
A$2,000,000 at our annual general meeting to be held on 25 October 2005 it is the
intention of the Board that directors retirement benefits will cease to accrue from the
date of the meeting. Accrued retirement benefits as at the date of the meeting will be
preserved and transferred to directors on retirement. |
Directors who have served 9 years or more are entitled to receive a maximum amount
equal to their total remuneration in the preceding 3 years. Directors who have served less
than 9 years but more than 2 years are entitled to receive a pro-rated amount based on the
number of months they served as a director.
Figure 2 shows the increase in retirement benefits payable to our non-executive directors
appointed before 30 June 2002 and the value of the payment to the director if he or she had
retired on 30 June 2005.
Figure 2: Non-executive directors increases in retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment to director if they |
|
|
|
Balance as at 2004 |
|
|
Increase during fiscal 2005 |
|
|
had retired on 30 June 2005 |
|
Name |
|
(A$) |
|
|
(A$) |
|
|
(A$) |
|
|
Donald G McGauchie |
|
145,277 |
|
|
|
195,396 |
|
|
|
340,673 |
|
|
John T Ralph |
|
371,735 |
|
|
|
79,940 |
|
|
|
451,675 |
| |
Samuel H Chisholm |
|
|
| |
|
|
|
|
|
|
| |
Anthony J Clark |
|
223,882 |
|
|
|
48,811 |
|
|
|
272,693 |
| |
John E Fletcher |
|
90,535 |
|
|
|
35,603 |
|
|
|
126,138 |
| |
Belinda J Hutchinson |
|
71,790 |
|
|
|
32,004 |
|
|
|
103,794 |
| |
Catherine B Livingstone |
|
96,858 |
|
|
|
46,216 |
|
|
|
143,074 |
| |
Charles Macek |
|
77,789 |
|
|
|
40,160 |
|
|
|
117,949 |
| |
John W Stocker |
|
269,046 |
|
|
|
73,130 |
|
|
|
342,176 |
| |
CEO and senior executives
Remuneration policy
The Remuneration Committee regularly reviews the strategy, structure and policy for CEO
and senior executive remuneration.
Responsibility for reviewing and recommending to the Board the remuneration strategy and
structure for Telstras CEO and senior executives lies with the Remuneration Committee (until
recently known as the Nominations & Remuneration Committee).
The Committees policy is that executive remuneration should:
|
|
|
reflect the size and scope of the role and be market competitive in order to attract and retain talent; |
|
|
|
|
be linked to the financial and operational performance of the Company; |
|
|
|
|
be aligned with the achievement of the Companys long-term business objectives; and |
|
|
|
|
be differentiated based on individual performance. |
The Committee reviews the structure of the remuneration packages of the CEO and senior
executives on a periodic basis and takes into account:
|
|
|
remuneration practices in other major corporations in Australia (both in
terms of salary levels and
the ratio between fixed and at risk components); and |
210
Telstra Corporation Limited and controlled entities
Remuneration report
|
|
|
a range of macro-economic indicators used to determine likely movements in broad salary rates. |
Any decision made by the Remuneration Committee concerning an individual executives
remuneration is made without the executive being present.
In 2004 the Committee engaged an independent consultant to provide advice directly to it on
the remuneration policy and the levels of remuneration for comparable roles in other major
corporations in Australia.
For fiscal 2005, 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.
Remuneration structure 2004/2005
There are three main components to the remuneration structure, some aspects of these have
changed
since last year as a result of the changes to deferred remuneration outlined below; the
apportionment between
fixed and at risk components reflect the role of the individual.
For fiscal 2005, the remuneration structure for the CEO and
senior executives consisted of:
|
|
|
fixed remuneration; |
|
|
|
|
short-term incentive (at risk); and |
|
|
|
|
long-term incentive (at risk). |
How remuneration is apportioned between fixed and at risk remuneration
Figure
3 below shows the maximum level of reward for the CEO, Group Managing Directors and
Corporate Group Managing Directors (being our most senior and highly remunerated
executives) should they achieve the stretch level of performance for the at risk elements
of their remuneration. Actual remuneration received for fiscal 2005 was dependent on the
actual performance of the Company and the individual. Achievement of the stretch level of
performance requires significant high levels of performance of the Company, and them
personally.
The at risk components of an executives remuneration package are calculated by
reference to their fixed remuneration. If no STI or LTI gateway targets are passed, the
executive receives 100% of fixed remuneration and 0% of their at risk remuneration.
Figure 3: Remuneration components of the CEO and senior executives for fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Maximum STI |
|
|
Maximum LTI |
|
|
Maximum Total |
|
Role |
|
Remuneration |
|
|
achievable |
|
|
achievable |
|
|
package |
|
|
|
|
|
|
|
% of fixed remuneration |
|
|
Chief Executive Officer |
|
100 |
% |
|
|
180 |
% |
|
|
120 |
% |
|
|
400 |
% | |
Group Managing Directors |
|
100 |
% |
|
|
126 |
% |
|
|
60 |
% |
|
|
286 |
% | |
Corporate Group Managing Directors (1) |
|
100 |
% |
|
|
72 |
% |
|
|
60 |
% |
|
|
232 |
% | |
|
|
|
(1) |
|
Corporate Group Managing Directors are those responsible for internal
functions of the business, namely finance and administration and regulatory, corporate
and human relations. |
211
Telstra Corporation Limited and controlled entities
Remuneration report
Fixed remuneration
Fixed remuneration is made up of guaranteed salary (including salary sacrifice benefits and any
applicable fringe benefits tax) and superannuation. An individuals fixed remuneration is generally
set once a year as part of the Company-wide remuneration review.
The CEO and senior executives must contribute to superannuation from their fixed remuneration in
accordance with the superannuation guarantee legislation. They may increase the proportion of their
fixed remuneration taken as superannuation, subject to legislative requirements.
As a result of the Remuneration Committees periodic review during the year ended 30 June 2004,
the Board decided to change the remuneration structure and re-balance the arrangements for the
year ended 30 June 2005.
As foreshadowed last year, the practice of providing deferred remuneration, which was regarded as
fixed remuneration generally subject to continued employment with the Company for three years, has
been discontinued. These changes resulted in the value of the fixed deferred remuneration being
distributed into fixed remuneration and the remuneration value of the short term incentive payment.
The Board believes that these changes are in line with contemporary Australian and global market
practice, and strengthen the link between remuneration and our performance. As a result, a greater
proportion of the total package for the CEO and senior executives is at risk. This means that the
CEO and senior executives are able to earn significant rewards only if superior operational and
organisational performance linked to pre-determined company measures and targets are achieved.
Short-term incentive (STI)
The STI plan rewards the CEO and senior executives for meeting or exceeding specific annual
business objectives linked to the annual business plan at the Company, business unit and
individual level.
Measures and targeted achievement levels are reviewed each year to reflect changes in business
priorities for the forthcoming year. Achievement at the stretch targets for Company, business unit
and individual measures will generally result in the maximum STI payment being received. However,
achievement of the maximum STI payment requires significant performance above what would normally
be expected by the individual and the Company. This is discussed in more detail in the section
titled How rewards are linked to performance.
Components of the STI: cash and rights
The value received under the annual STI plan is delivered half in cash and half as rights to
Telstra shares. The rights vest in equal amounts over the following three years at 12 month
intervals.
The Telstra Growthshare Trust (Trust) administers the STI Equity plan. The Trust buys the shares
on-market and holds the shares in trust until they vest. The CEO and senior executives do not hold
any beneficial interest in the shares until they are released by the Trust.
Dividends on the shares are paid to the Trust, not to the CEO or senior executive concerned. When
shares vest the allocation is adjusted to include an additional number of shares to reflect the
dividends forgone. The additional number of shares is calculated by using the full value of the
dividends attributable to the shares from the date of allocation to the vesting date divided by the
volume weighted average share price over the five days prior to the date of vesting.
The Board is of the opinion that the delivery of rights will increase the focus on the Companys
performance and by facilitating share ownership in Telstra by the CEO and senior executives,
better align their interests with those of our shareholders.
212
Telstra Corporation Limited and controlled entities
Remuneration report
How the STI is calculated
The STI plan is based on a range of Company financial, organisational and individual
performance measures and targets and was approved by the Board.
The plan focuses on the Company performance measures of:
|
|
|
EBIT growth; |
|
|
|
|
revenue growth; |
|
|
|
|
customer retention; and |
|
|
|
|
(for the CEO) underlying EBITDA margin. |
These measures were used to calculate 80% of the CEOs maximum achievable STI value
in fiscal 2005 and 41.7% of the senior executives maximum achievable STI value.
The remaining 20% of the CEOs maximum STI value is based on measures of customer service,
employee opinion survey results and individual, measurable key performance indicators in
line with business priorities determined by the Board.
The remaining 58.3% of the senior executives maximum achievable STI value is based on:
|
|
|
achievement of their respective business unit financial performance measures (33.3%); |
|
|
|
|
key business unit customer service measures (12.5%); and |
|
|
|
|
performance against individual, measurable key performance indicators (12.5%) which further
support the improved operation of the business unit, as agreed with the CEO. |
Each of these measures was chosen because the Board considers that it will drive company
performance and shareholder returns.
The company secretarys maximum achievable short term incentive value is based on Company
measures (42.9%) of revenue growth, EBIT growth and customer retention, business unit
measures (31.4%) of EBIT, cashflow and customer service and performance against individual
priorities (25.7%).
Required performance levels
Each measure includes a gateway performance level, a target level, and a stretch
target. This is illustrated in figure 4. The gateway must be reached before any value can
be attributed to each measure. The target level of performance represents challenging but
achievable levels of performance. Achievement of the stretch target requires significant
performance above and beyond normal expectations and will result in significant improvement
in key operational areas.
Figure 4: Performance level and value received
|
|
|
|
|
|
|
|
|
Performance level |
|
% of STI received for financial measure |
|
|
% of STI received for other measure |
|
|
Below target |
|
|
0 |
% |
|
|
0 |
% |
Gateway |
|
|
25 |
% |
|
|
33.3 |
% |
Above gateway |
|
|
50 |
% |
|
|
66.7 |
% |
Stretch target |
|
|
100 |
% |
|
|
100 |
% * |
|
|
|
* |
|
Stretch targets are set at levels requiring a significant increase in
performance which the board believes represent a major improvement for those
performance measures. |
213
Telstra Corporation Limited and controlled entities
Remuneration report
The Boards decision-making process
At the end of the financial year, the Board considers the Companys audited financial results
and the results of the other specific measures set by the Board and then assesses the executives
performance against these measures and determines the amount of the STI payable based on
performance against the plan.
The CEO is not involved in any of the decision-making relating to the STI payment to
him.
Long-term incentive (LTI)
The Board annually invites the CEO and senior executives to participate in the LTI plan, which is
designed to reward the creation of sustainable shareholder wealth over a 3-5 year period.
The equity instrument used to deliver the LTI, the performance measures and allocation levels
are periodically reviewed by the Remuneration Committee and approved by the Board. This review
and approval process is also in place for assessing the achievement against performance
measures and determining whether the LTI equity has vested.
Components of the LTI: performance rights
The equity instrument used for the LTI has changed over time, and in the past has included
options and restricted shares. The equity used in fiscal 2005 was performance rights, which are
the right to acquire a Telstra share for nominal consideration when a specified performance measure
is achieved. The performance rights are administered through the Telstra Growthshare Trust.
How the LTI is calculated at allocation
The number of performance rights allocated each year is based on the value calculated as a
percentage of fixed remuneration as detailed in figure 3 above. To determine the number of
performance rights allocated, the value of the LTI at the stretch performance level for each senior
executive is divided by the volume weighted average price of Telstra shares over the 5 trading days
before allocation.
The full market value of a Telstra share is used when we allocate performance rights. This differs
from the accounting value under the executive remuneration table in figure 12, which reflects the
amortised accounting valuation of these rights and any other LTI equity granted in prior years.
The value of the LTI at vesting
The actual value that an executive will receive will be determined by the number of equity
instruments that vest upon achievement of the applicable performance measure multiplied by the
market value of the shares at that time less any exercise price payable. This value is likely to
be different from the values at allocation and the values disclosed in the remuneration table
under figure 12.
Exercising performance rights
A performance right can only be exercised (that is, a share is delivered to the executive) when
the specified performance measure is achieved. Where a right remains unexercised at the end of 5
years and 3 months from the allocation date, the right will lapse.
In general terms, 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 do not lapse and will be exercisable if the
relevant
performance measure is met; |
214
Telstra Corporation Limited and controlled entities
Remuneration report
|
|
|
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; or |
|
|
|
|
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 hurdle is met. |
Performance measures
The Board approved a change to the LTI plan for fiscal 2005 allocations. Of the allocation, 50% will be subject to a Total Shareholder Return (TSR) performance measure, and 50% will be subject to a new
performance measure based on our Earnings Per Share (EPS) growth. These measures operate independently so that if one measure is achieved only the rights subject to that measure will vest.
The introduction of dual performance measures combines a strong external market-based focus through share price growth and dividends (TSR), and an internal non-market-based measure aimed at driving improved
Company results and the creation of shareholder wealth (EPS). These performance measures are widely accepted as key drivers of sustainable long-term organisational performance.
TSR performance measure
Rights under the TSR performance measure will vest if Telstras 30 day average TSR relative to the 30 day average TSR of the peer group ranks at or above the 50th percentile during the performance
period. The performance period runs between the 3rd and 5th anniversary of allocation. The peer group comprises the companies in the S&P ASX200 index, excluding secondary securities and resource stocks from the
Energy sector and Metal and Mining Industry, as defined under the S&P Global Industry Classification Standard (GICS).
If the 50th percentile is achieved in Quarter 1 of the performance period then vesting occurs on a linear vesting scale with 50% of the allocation vesting at a 50th percentile ranking (target) and 100%
at a 75th percentile ranking (maximum) during the performance period. The 75th percentile represents the stretch target under the LTI plan.
If the 50th percentile is not achieved in Quarter 1 of the performance period then 50% of the allocation will lapse. The remaining 50% will vest if a ranking above the 50th percentile is
subsequently achieved during the
performance period.
Figure 5: Vesting schedule for TSR performance rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR ranking between |
|
TSR ranking at or |
|
|
TSR ranking below |
|
TSR ranking at 50th |
|
50th and 75th |
|
above 75th percentile |
Performance |
|
50th percentile |
|
percentile (gateway) |
|
percentile |
|
(maximum) |
|
Vesting
|
|
Nil
|
|
|
50 |
% |
|
Progressive vesting from 51%
to 99%
|
|
|
100 |
% |
EPS performance measure
For rights under the EPS performance measure in fiscal 2005, 50% of the
allocation will vest if our EPS meets or exceeds the target performance
level of 5% annual compound growth for the 3 years preceding the vesting
date. If our EPS has grown annually by 10% compound for the same period, the
remaining 50% allocation will vest. The 10% annual compound growth
represents the stretch target under the LTI plan. A linear vesting scale
operates for performance between 5% annual compound growth (gateway) and
10%
215
Telstra Corporation Limited and controlled entities
Remuneration report
Relationship between remuneration policy and the performance of Telstra
Telstras remuneration policy aims to achieve a link between the remuneration received by
executives, increased earnings and the creation of shareholder wealth. The STI is focussed on
achieving operational targets and the LTI is focussed on achieving long term growth in
shareholder wealth.
Shareholder wealth
The total return to an investor over a given period consists of the combination of dividends paid,
the movement in the market value of their shares over that period and any return of capital to
shareholders, not including buy-backs. During fiscal 2005 the share price has fluctuated between a
low of A$4.63 and a high of A$5.49.
Over the five years to 30 June 2005 we have increased our return to shareholders through
dividends by 83% including special dividends. Our total dividends paid per share for the last
five years are shown below.
Fiqure 7: Share price at year end and dividends paid per share for the last 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
|
30 June 2005 |
|
|
30 June 2004 |
|
|
30 June 2003 |
|
|
30 June 2002 |
|
|
30 June 2001 |
|
|
Share Price (A$) |
|
|
5.06 |
|
|
|
5.03 |
|
|
|
4.40 |
|
|
|
4.66 |
|
|
|
5.38 |
|
Total dividends paid (A¢) |
|
|
33.0 |
|
|
|
25.0 |
|
|
|
26.0 |
|
|
|
22.0 |
|
|
|
18.0 |
|
Earnings Per Share (A¢) |
|
|
35.5 |
|
|
|
32.4 |
|
|
|
26.6 |
|
|
|
28.5 |
|
|
|
31.5 |
|
As part of our commitment to improve returns for shareholders, in fiscal 2004 we announced a
capital management strategy whereby we will declare ordinary dividends of around 80% of normal
profits after tax and return A$1.5 billion per annum to shareholders through special dividends
and/or share buy-backs each year through to fiscal 2007.
During the five years to 30 June 2005 we undertook two off-market share buy-backs as part of our
capital management strategy, and all ordinary shares bought back were subsequently cancelled.
Figure 8: Share buy-backs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franked |
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Buy-back |
|
|
dividend |
|
|
Capital |
|
|
|
Number of |
|
|
Purchase |
|
|
Transaction |
|
|
price per |
|
|
component |
|
|
component |
|
|
|
ordinary shares |
|
|
consideration |
|
|
costs |
|
|
share |
|
|
per share |
|
|
per share |
|
Date |
|
bought back |
|
|
A$m |
|
|
A$m |
|
|
A$ |
|
|
A$ |
|
|
A$ |
|
|
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 |
|
216
Telstra Corporation Limited and controlled entities
Remuneration report
Earnings
Our companys earnings over the five years to 30 June 2005 are summarised below.
Figure 9: Our five-year earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending |
Year ending |
Year ending |
Year ending |
Year ending |
|
|
30 June 2005 |
30 June 2004 |
30 June 2003 |
30 June 2002 |
30 June 2001 |
|
|
A$m |
A$m |
A$m |
A$m |
A$m |
|
Sales revenue |
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
20,196 |
|
|
|
18,679 |
|
Net profit
available to Telstra
Corporation Limited
shareholders |
|
|
4,447 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
3,661 |
|
|
|
4,058 |
|
EBITDA |
|
|
10,771 |
|
|
|
10,175 |
|
|
|
9,170 |
|
|
|
9,483 |
|
|
|
9,834 |
|
Relationship to executive remuneration
As specified in our remuneration policy, a significant proportion of the CEO and senior executives
total remuneration is dependent on the achievement of specific short and long term measures.
Short term incentive
Financial measures represent 80% of the CEO and 41.7% of the senior executive short-term
incentive plan for fiscal 2005 and therefore our financial performance directly impacts on the
rewards received through the plan. The financial measures:
|
|
|
provide a strong correlation with our ability to increase shareholders returns; |
|
|
|
|
have a direct impact on our bottom line; and |
|
|
|
|
are measures over which the executives can exercise control. |
The average STI received as a percentage of the maximum achievable payment for the CEO and senior
executives for achievement of those short term measures is reflected in the table below.
Figure 10: Average STI payment as a % of maximum payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending |
Year ending |
Year ending |
Year ending |
Year ending |
|
|
|
|
|
30 June 2005 |
30 June 2004 |
30 June 2003 |
30 June 2002 |
30 June 2001 |
|
|
|
|
STI received |
|
|
54.6 |
%(1) |
|
|
31.4 |
% |
|
|
41.1 |
% |
|
|
57.6 |
% |
|
|
31.7 |
% |
|
|
|
|
|
|
|
(1) |
|
This includes both the cash and equity components. While the total
equity component is included in determining the above percentage, the value
of the rights to Telstra shares granted for the year ended 30 June 2005
will be reflected in remuneration over the next three years as the shares
vest over their performance period. |
The above calculation is made by aggregating the actual STI payments made to the CEO and
senior executives for the financial year and dividing that by the aggregated maximum achievable
payments for those same executives. The result is then expressed as a percentage of the maximum
achievable STI payment.
Long term incentive
The actual remuneration value attributed to the CEO and senior executives under the
LTI plans over the previous 5 years is reported applying the relevant accounting standards.
However, as vesting of any equity allocated under the LTI plans is subject to external performance
measures reflecting the dividends returned
217
Telstra Corporation Limited and controlled entities
Remuneration report
to shareholders and the movement in Telstras share price (except for the August 2004 plan which
has an additional measure using EPS), the senior executives may or may not derive any value from
these equity instruments.
As at 30 June 2005, the September 1999 plan did not meet the performance hurdle and all instruments
had lapsed. The September 2000 plan is currently well below the required performance hurdle. If the
performance hurdle is not achieved by 7 September 2005 these instruments will lapse
(*4).
|
|
|
(*4) |
|
These instruments lapsed on 7 September 2005. |
The September 2001 plan did not meet the performance hurdle in the first quarter of the
performance period and as a result half of all allocations lapsed. The performance hurdle for the
2001 plan was subsequently achieved in fiscal 2005 and the remaining half of the allocations
vested.
The LTI plans allocated in fiscal 2003, 2004 and 2005 are yet to enter their respective
performance periods but are also currently below the required performance hurdle.
Figure 11 provides a summary of the rewards received by the CEO and senior executives as a
result of the LTI performance hurdles being achieved.
Figure 11: Instruments that have vested as a % of target
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 |
|
Fiscal 2004 |
|
Fiscal 2003 |
|
Fiscal 2002 |
|
Fiscal 2001 |
% of allocation which has vested |
|
50% of 2001
allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number vested |
|
Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights |
|
|
455,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
4,755,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number lapsed |
|
Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights and Restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
593,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
5,573,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of senior executives remuneration
The total remuneration received by each executive, including an understanding of the various
components of remuneration, is outlined in the tables below.
Figures
12, 13 and 14 detail the remuneration of our senior executives.
Figure 12 sets out the Primary, Post Employment and Equity remuneration received during the year as
calculated under applicable accounting standards. Figure 13 sets out the details of the annual STI
for fiscal 2005 and figure 14 sets out the annualised value of the CEO and senior executive
allocations under the LTI plan.
Remuneration received in fiscal 2005
Telstra has chosen to disclose the remuneration of nine members of the senior leadership team on
the basis that these nine have the greatest management authority within the Company delegated from
the CEO. This also includes the CEO and the 5 highest paid executives in the Telstra Group as
required under section 300A of the Corporations Act 2001.
218
Telstra Corporation Limited and controlled entities
Remuneration report
Figure 12: Senior executives
remuneration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
|
|
|
|
Primary benefits |
|
employment |
|
Equity compensation |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualised |
|
|
|
|
|
|
|
|
|
|
Short term |
|
Non- |
|
|
|
|
|
|
|
|
|
value of |
|
Annualised |
|
|
|
|
Salary & |
|
incentive |
|
monetary |
|
|
|
|
|
Superan- |
|
Deferred |
|
value of LTI |
|
|
|
|
fees (1) |
|
(2) |
|
(3) |
|
Other(4) |
|
nuation (5) |
|
shares(6) |
|
equity(7) |
|
|
|
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
Zygmunt E Switkowski (8)
|
|
|
1,830,900 |
|
|
|
1,961,000 |
|
|
|
24,357 |
|
|
|
|
|
|
|
101,850 |
|
|
|
725,912 |
|
|
|
2,045,313 |
|
|
|
6,689,332 |
|
- Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Akhurst (9)
|
|
|
927,664 |
|
|
|
523,600 |
|
|
|
11,893 |
|
|
|
|
|
|
|
177,086 |
|
|
|
196,141 |
|
|
|
732,594 |
|
|
|
2,568,978 |
|
- Chief Executive Officer, Sensis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Campbell
|
|
|
941,394 |
|
|
|
310,600 |
|
|
|
10,149 |
|
|
|
|
|
|
|
88,356 |
|
|
|
196,141 |
|
|
|
732,354 |
|
|
|
2,278,994 |
|
- Group Managing Director,
Telstra Country Wide |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Moffatt
|
|
|
1,133,165 |
|
|
|
248,300 |
|
|
|
18,781 |
|
|
|
400,000 |
|
|
|
11,585 |
|
|
|
220,968 |
|
|
|
801,183 |
|
|
|
2,833,982 |
|
- Group Managing Director,
Telstra Consumer & Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ted Pretty
|
|
|
1,120,581 |
|
|
|
540,500 |
|
|
|
22,370 |
|
|
|
260,000 |
|
|
|
24,169 |
|
|
|
224,936 |
|
|
|
789,217 |
|
|
|
2,981,773 |
|
- Group Managing Director,
Telstra Technology, Innovation
& Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Rocca
|
|
|
735,791 |
|
|
|
416,600 |
|
|
|
9,817 |
|
|
|
|
|
|
|
140,459 |
|
|
|
145,754 |
|
|
|
401,479 |
|
|
|
1,849,900 |
|
- Group Managing Director,
Infrastructure Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bill Scales (10)
|
|
|
681,167 |
|
|
|
428,700 |
|
|
|
9,635 |
|
|
|
|
|
|
|
117,583 |
|
|
|
121,946 |
|
|
|
326,788 |
|
|
|
1,685,819 |
|
- Group Managing Director,
Regulatory,
Corporate & Human Relations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deena Shiff (11)
|
|
|
277,321 |
|
|
|
295,150 |
|
|
|
1,326 |
|
|
|
|
|
|
|
47,680 |
|
|
|
30,641 |
|
|
|
102,562 |
|
|
|
754,680 |
|
- Group Managing Director,
Telstra Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Stanhope
|
|
|
800,685 |
|
|
|
240,150 |
|
|
|
11,398 |
|
|
|
|
|
|
|
99,065 |
|
|
|
105,628 |
|
|
|
365,338 |
|
|
|
1,622,264 |
|
- CFO and Group Managing Director,
Finance & Administration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Thodey
|
|
|
966,890 |
|
|
|
206,200 |
|
|
|
8,375 |
|
|
|
|
|
|
|
52,360 |
|
|
|
176,235 |
|
|
|
560,447 |
|
|
|
1,970,507 |
|
- Group Managing Director,
Telstra
Business & Government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
9,415,558 |
|
|
|
5,170,800 |
|
|
|
128,101 |
|
|
|
660,000 |
|
|
|
860,193 |
|
|
|
2,144,302 |
|
|
|
6,857,275 |
|
|
|
25,236,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219
Telstra Corporation Limited and controlled entities
Remuneration report
Senior executives remuneration (continued)
|
|
|
(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 the cash component only for performance in fiscal 2005 and is
based on actual performance for Telstra
and the individual. For the executives, other than Dr Switkowski and Mr Scales, the remaining
50% of the STI will be provided in the form of rights
to Telstra shares in accordance with the STI equity plan. The value of the rights to Telstra
shares granted for the year ended 30 June 2005 will be
reflected in remuneration over the next 3 years as the shares vest over their performance
period. STI payments to Dr Switkowski and Mr Scales will
be paid as cash only as their employment relationship with Telstra ceases prior to the
allocation of equity. |
|
(3) |
|
Includes the benefit of interest-free loans
under TESOP97 and TESOP99 and the value of the personal use of products and services related to
Telstra employment |
|
(4) |
|
Includes payments made to executives for continued service with Telstra as part of their
employment contract. |
|
(5) |
|
Represents company contributions to
superannuation as well as any additional superannuation contribution made through salary sacrifice
by executives. |
|
(6) |
|
The value included in deferred shares relates to the
current year amortised value of unvested shares issued in fiscal 2003 and fiscal 2004 under the
Deferred Remuneration Plan. No deferred shares were allocated in fiscal 2005 as the plan was
discontinued. The value of each share is calculated
by applying valuation methodologies as described in note 19 to the financial statements and is
then amortised over three years. |
|
(7) |
|
The value represents the three
different equity instruments detailed in figure 14. The executive only receives value if the
performance hurdles are met. |
|
(8) |
|
Dr Switkowski was also an executive director and ceased
employment with Telstra on 1 July 2005. |
|
(9) |
|
Mr Akhurst was
appointed CEO, Sensis effective 1 January 2005. Prior to that Mr Akhurst was the Group
Managing Director, Wholesale,
Big Pond, Media and Sensis and Group General Counsel. |
|
(10) |
|
Mr Scales
retires on 12 August 2005. |
|
(11) |
|
Ms Shiff was appointed Group Managing
Director, Wholesale effective 1 January 2005. Prior to that, Ms Shiff was the Managing Director,
Wholesale.
In accordance with relevant accounting standards only remuneration from the date of Ms Shiffs
commencement as a Group Managing Director is
included above. |
Short term incentive for 2005
With the exception of Dr Switkowski and Mr Scales, the values of the actual STI payment shown
figure 12 represents the 50% cash component. The remaining 50% of the STI payment will be provided
as rights to Telstra shares through the annual STI equity plan. In accordance with the accounting
standards the value of the STI equity will be amortised over the next three years following
allocation. Figure 13 provides the full value, both cash and equity, which executives received
through the STI plan in fiscal 2005.
Figure 13: STI for fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
potential STI (1) |
|
Actual STI (2) |
|
|
|
|
- both cash and equity |
|
- both cash and equity |
|
|
|
|
components |
|
components |
|
% of the maximum |
Name |
|
(A$) |
|
(A$) |
|
potential (3) |
Zygmunt E Switkowski |
|
|
3,764,000 |
|
|
|
1,961,000 |
|
|
|
52.1 |
% |
Bruce Akhurst (4) |
|
|
1,479,600 |
|
|
|
1,047,200 |
|
|
|
70.8 |
% |
Douglas Campbell |
|
|
1,353,600 |
|
|
|
621,200 |
|
|
|
45.9 |
% |
David Moffatt |
|
|
1,504,800 |
|
|
|
496,600 |
|
|
|
33.0 |
% |
Ted Pretty |
|
|
1,504,800 |
|
|
|
1,081,000 |
|
|
|
71.8 |
% |
Michael Rocca |
|
|
1,177,200 |
|
|
|
833,200 |
|
|
|
70.8 |
% |
Bill Scales |
|
|
622,800 |
|
|
|
428,700 |
|
|
|
68.8 |
% |
Deena Shiff (5) |
|
|
819,000 |
|
|
|
590,300 |
|
|
|
72.1 |
% |
John Stanhope |
|
|
709,200 |
|
|
|
480,300 |
|
|
|
67.7 |
% |
David Thodey |
|
|
1,364,400 |
|
|
|
412,400 |
|
|
|
30.2 |
% |
220
Telstra Corporation Limited and controlled entities
Remuneration report
STI for fiscal 2005 (continued)
|
|
|
(1) |
|
The Board may determine the minimum value of the short term incentive
to be A$nil where the performance fails to meet the
specified threshold levels. |
|
(2) |
|
Short-term incentive
relates to performance for the year ended 30 June 2005 and is based on actual performance
for Telstra and the
individual. Payment is provided in the form of 50% cash and 50% as rights to Telstra shares
in accordance with the 2005 STI Equity
plan. STI payments to Dr Switkowski and Mr Scales will be paid as cash only as their
employment relationship with Telstra will cease
prior to the allocation of equity. |
|
(3) |
|
Where the actual
STI payment is less than the maximum potential, the difference is forfeited and does
not become payable in
subsequent years. |
|
(4) |
|
Mr Akhurst was appointed to the role
of CEO Sensis effective 1 January 2005, but is still regarded as Group Managing Director
level
for remuneration purposes. |
|
(5) |
|
Ms shiff
was appointed to the role of Group Managing Director, Wholesale
effective 1 January 2005. |
Long term incentive valuations
The following table provides the amortised accounting value of all LTI equity instruments. This
includes allocations made in fiscal 2001, 2002, 2003, 2004 and 2005. Although these values appear
in figure 14, apart from the September 2001 plan, the executives have not derived any value from
these instruments as at 30 June 2005.
During fiscal 2005 the restricted shares and options allocated in fiscal 2000 lapsed as the
performance measure was not satisfied during the performance period. As a result, the value
attributed to these instruments only reflects the notional value until 13 September 2004 when
they lapsed.
Half of the performance rights and options allocated under the September 2001 plan lapsed because
the performance measure was not met during the first quarter of the performance period. The minimum
performance measure was achieved in a subsequent quarter and the remaining allocations of
performance rights and options vested to the participants.
Allocations for fiscal 2002, 2003, 2004 and 2005 are also subject to performance measures and
therefore the CEO and senior executives may or may not derive value from the allocations.
Figure 14: Amortised accounting value of all LTI equity for the year ending 30 June 2005
|
|
|
|
|
|
|
|
|
|
|
Amortised value of LTI equity allocations(1) (2) |
|
Total |
|
|
Options (3) (4) |
|
Performance rights(4) |
|
Restricted shares (3) |
|
|
|
|
(A$) |
|
(A$) |
|
(A$) |
|
(A$) |
Zygmunt E Switkowski |
|
772,731 |
|
1,191,643 |
|
80,939 |
|
2,045,313 |
Bruce Akhurst |
|
345,383 |
|
354,173 |
|
33,038 |
|
732,594 |
Douglas Campbell |
|
352,391 |
|
343,609 |
|
36,354 |
|
732,354 |
David Moffatt |
|
380,380 |
|
390,643 |
|
30,160 |
|
801,183 |
Ted Pretty |
|
387,991 |
|
396,424 |
|
4,802 |
|
789,217 |
Michael Rocca |
|
141,424 |
|
248,585 |
|
11,470 |
|
401,479 |
Bill Scales |
|
106,340 |
|
216,828 |
|
3,620 |
|
326,788 |
Deena Shiff |
|
44,076 |
|
56,676 |
|
1,810 |
|
102,562 |
John Stanhope |
|
134,511 |
|
218,175 |
|
12,652 |
|
365,338 |
David Thodey |
|
241,368 |
|
319,079 |
|
|
|
560,447 |
|
|
|
(1) |
|
The value of each instrument is calculated by applying option valuation
methodologies as described in note 19 to the financial statements and is then amortised over
the relevant vesting period. The values included in the table relates to the current year
amortised value of all instruments. The valuations used in current year disclosures are based
on the same underlying assumptions as the prior year. |
|
(2) |
|
Where a vesting scale is used, the table reflects the maximum
achievable allocation. |
|
(3) |
|
The September 1999 plan failed to satisfy the performance measure
during the performance period, and as a result all Restricted Shares and Options lapsed on 13
September 2004. |
|
(4) |
|
The September 2001 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 lapsed on 6 December 2004. The performance measure was
subsequently achieved in the performance period and the remaining performance rights and
options vested. As at 30 June 2005 no performance rights or options had been exercised by any
participants. |
221
Telstra Corporation Limited and controlled entities
Remuneration report
CEO and senior executives 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 2005 is detailed in
figure 15 and 16. As the values shown in figure 15 represent the accounting value, the executive
may not actually receive these amounts.
The value of lapsed instruments in figure 15 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 are subject to external performance hurdles (TSR),
therefore no lapsing value is recorded in the following table in accordance with relevant
accounting standards.
Figure 15: Value of equity-based performance rights granted, exercised and lapsed in
fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
granted, exercised |
|
|
Granted during period(1) |
|
Exercised |
|
Lapsed |
|
and lapsed |
|
|
|
|
% of TotaI |
|
|
|
|
|
|
|
|
(A$) |
|
Remuneration(2) |
|
(A$) |
|
(A$) |
|
(A$) |
Zygmunt E Switkowski |
|
1,747,446 |
|
26.1% |
|
|
|
|
|
|
1,747,446 |
|
Bruce Akhurst |
|
490,320 |
|
19.1% |
|
|
|
|
|
|
490,320 |
|
Doug Campbell |
|
448,098 |
|
19.7% |
|
|
|
|
|
|
448,098 |
|
David Moffatt |
|
498,492 |
|
17.6% |
|
|
|
|
|
|
498,492 |
|
Ted Pretty |
|
498,492 |
|
16.7% |
|
|
|
|
|
|
498,492 |
|
Michael Rocca |
|
391,575 |
|
21.2% |
|
|
|
|
|
|
391,575 |
|
Bill Scales |
|
362,292 |
|
21.5% |
|
|
|
|
|
|
362,292 |
|
Deena Shiff (3) |
|
170,250 |
|
22.6% |
|
|
|
|
|
|
170,250 |
|
John Stanhope |
|
410,643 |
|
25.3% |
|
|
|
|
|
|
410,643 |
|
David Thodey |
|
452,865 |
|
23.0% |
|
|
|
|
|
|
452,865 |
|
|
|
|
(1) |
|
This represents the accounting value at grant date of TSR and
EPS performance rights granted in fiscal 2005. |
|
(2) |
|
Total remuneration is the sum of primary benefits, post
employment benefits and equity compensation as detailed in figure 12. |
|
(3) |
|
Ms Shiffs equity allocation under the annual LTI plan was made
prior to her commencing as GMD Wholesale. |
The actual number of LTI instruments that were granted, exercised and lapsed in fiscal 2005 is
set out below. Of the performance rights allocated in fiscal 2005 100% of the allocations were
granted and none were forfeited, lapsed or vested during fiscal 2005. However, all unvested equity
instruments may lapse in future years if performance hurdles are not met.
222
Telstra Corporation Limited and controlled entities
Remuneration report
Figure 16: Number of equity-based instruments granted, exercised and lapsed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
Vested but |
|
|
|
|
|
|
during |
|
Exercised |
|
Lapsed |
|
Balance at |
|
not exercised |
|
|
|
|
Balance at |
|
period |
|
during |
|
during |
|
30 June |
|
during the |
|
|
Instrument |
|
1 July 2004 |
|
(1) |
|
period |
|
period (2) |
|
2005 (3) |
|
period (4) |
Zygmunt E Switkowski |
|
Performance rights |
|
1,259,400 |
|
513,200 |
|
|
|
129,000 |
|
1,643,600 |
|
129,000 |
|
|
Restricted shares |
|
146,000 |
|
|
|
|
|
50,000 |
|
96,000 |
|
|
|
|
Options |
|
3,456,000 |
|
|
|
|
|
1,646,000 |
|
1,810,000 |
|
1,346,000 |
|
|
Deferred shares |
|
500,700 |
|
|
|
|
|
|
|
500,700 |
|
|
Bruce Akhurst |
|
Performance rights |
|
388,600 |
|
144,000 |
|
|
|
59,000 |
|
473,600 |
|
59,000 |
|
|
Restricted shares |
|
60,000 |
|
|
|
|
|
21,000 |
|
39,000 |
|
|
|
|
Options |
|
1,542,000 |
|
|
|
|
|
737,000 |
|
805,000 |
|
617,000 |
|
|
Deferred shares |
|
135,300 |
|
|
|
|
|
|
|
135,300 |
|
|
Doug Campbell |
|
Performance rights |
|
388,600 |
|
131,600 |
|
|
|
59,000 |
|
461,200 |
|
59,000 |
|
|
Restricted shares |
|
68,000 |
|
|
|
|
|
26,000 |
|
42,000 |
|
|
|
|
Options |
|
1,597,000 |
|
|
|
|
|
777,000 |
|
820,000 |
|
617,000 |
|
|
Deferred shares |
|
135,300 |
|
|
|
|
|
|
|
135,300 |
|
|
David Moffatt |
|
Performance rights |
|
446,200 |
|
146,400 |
|
|
|
71,000 |
|
521,600 |
|
71,000 |
|
|
Restricted shares |
|
40,000 |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
Options |
|
1,630,000 |
|
|
|
|
|
740,000 |
|
890,000 |
|
740,000 |
|
|
Deferred shares |
|
152,400 |
|
|
|
|
|
|
|
152,400 |
|
|
Ted Pretty |
|
Performance rights |
|
446,200 |
|
146,400 |
|
|
|
|
|
592,000 |
|
|
|
|
Restricted shares |
|
21,000 |
|
|
|
|
|
21,000 |
|
|
|
|
|
|
Options |
|
1,722,000 |
|
|
|
|
|
120,000 |
|
1,602,000 |
|
|
|
|
Deferred shares |
|
155,100 |
|
|
|
|
|
|
|
155,100 |
|
|
Michael Rocca |
|
Performance rights |
|
251,200 |
|
115,000 |
|
|
|
25,000 |
|
341,200 |
|
25,000 |
|
|
Restricted shares |
|
22,000 |
|
|
|
|
|
9,000 |
|
13,000 |
|
|
|
|
Options |
|
640,000 |
|
|
|
|
|
315,000 |
|
325,000 |
|
262,000 |
|
|
Deferred shares |
|
100,600 |
|
|
|
|
|
|
|
100,600 |
|
|
Bill Scales |
|
Performance rights |
|
210,400 |
|
106,400 |
|
|
|
21,000 |
|
295,000 |
|
21,000 |
|
|
Restricted shares |
|
5,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
|
Options |
|
465,000 |
|
|
|
|
|
220,000 |
|
245,000 |
|
220,000 |
|
|
Deferred shares |
|
84,200 |
|
|
|
|
|
|
|
84,200 |
|
|
Deena Shiff |
|
Performance rights |
|
118,600 |
|
50,000 |
|
|
|
17,000 |
|
151,600 |
|
17,000 |
|
|
Restricted shares |
|
5,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
|
Options |
|
380,200 |
|
|
|
|
|
178,000 |
|
202,200 |
|
178,000 |
|
|
Deferred shares |
|
42,300 |
|
|
|
|
|
|
|
42,300 |
|
|
John Stanhope |
|
Performance rights |
|
192,400 |
|
120,600 |
|
|
|
23,000 |
|
290,000 |
|
23,000 |
|
|
Restricted shares |
|
25,000 |
|
|
|
|
|
11,000 |
|
14,000 |
|
|
|
|
Options |
|
616,000 |
|
|
|
|
|
306,000 |
|
310,000 |
|
241,000 |
|
|
Deferred shares |
|
73,200 |
|
|
|
|
|
|
|
73,200 |
|
|
David Thodey |
|
Performance rights |
|
345,200 |
|
133,000 |
|
|
|
51,000 |
|
427,200 |
|
51,000 |
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
1,068,000 |
|
|
|
|
|
534,000 |
|
534,000 |
|
534,000 |
|
|
Deferred shares |
|
121,600 |
|
|
|
|
|
|
|
121,600 |
|
|
|
|
|
(1) |
|
Instruments granted during fiscal 2005 relate to the annual LTI plan. |
|
(2) |
|
No equity instruments granted during fiscal 2005 lapsed in fiscal 2005. |
|
(3) |
|
This represents the number of equity instruments which have not been
exercised or lapsed as at 30 June 2005. |
|
(4) |
|
The number of instruments that vested during fiscal 2005 relate to the
September 2001 LTI plan and had not been exercised at 30 June 2005. |
Contractual notice periods
The senior executives are employed under contracts without a fixed duration and may terminate their
employment by agreement or, by providing 6 months notice. If an executives employment is
terminated by Telstra for reasons other than misconduct, they are entitled to 6 months notice or
payment in lieu of notice,
223
Telstra Corporation Limited and controlled entities
Remuneration report
and a termination payment equal to 12 months pay. Both elements are calculated on fixed
remuneration at the time of termination.
Payments made to Dr Switkowski on ceasing employment with us
The CEO, Dr Zygmunt E Switkowski, ceased employment with the Company effective 1 July 2005. Under
the terms of his employment contract Dr Switkowski was entitled to a termination payment of 12
months fixed remuneration which equated to A$2,092,000.
In addition, he received payments for other entitlements and accrued benefits which he would have
received regardless of ceasing employment on 1 July 2005 as follows:
|
|
|
Short-term incentive A$1,961,000, as detailed in figure 12. |
|
|
|
|
Accrued leave A$1,059,526 representing all remaining leave due to him at the time his employment
ceased, calculated at the fixed remuneration rate. |
Dr Switkowski participated in the Deferred Remuneration and Long Term Incentive plans and was
previously allocated equity instruments under these plans. On ceasing employment he retains the
rights to the following instruments:
Deferred remuneration was regarded as an element of fixed remuneration which was deferred. Dr
Switkowski received allocations under this plan in 2002 and 2003. On ceasing with us he retained
the right to his previous allocations which can be exercised at any time. Deferred shares not
exercised before the expiration of the exercise period will lapse.
|
|
|
|
|
|
|
|
|
Number of deferred shares |
Year of Plan |
|
|
|
allocated |
2002 |
|
|
|
249,100 |
2003 |
|
|
|
251,600 |
Total |
|
|
|
500,700 |
Dr Switkowski retained the rights to the following equity instruments allocated during his
employment under the long-term incentive plan.
|
|
|
|
|
|
|
|
|
Year |
|
Instrument type |
|
Allocations |
|
2000 |
|
|
Restricted shares |
|
|
96,000 |
|
|
2000 |
|
|
Options at A$6.28 exercise price |
|
|
464,000 |
|
|
2001 |
|
|
Performance rights |
|
|
129,000 |
|
|
2001 |
|
|
Options at A$4.90 exercise price |
|
|
1,346,000 |
|
|
2002 |
|
|
Performance rights |
|
|
498,200 |
|
|
2003 |
|
|
Performance rights |
|
|
503,200 |
|
|
2004 |
|
|
TSR Performance rights |
|
|
256,600 |
|
|
2004 |
|
|
EPS Performance rights |
|
|
256,600 |
|
Performance rights and Options allocated under the September 2001 plan vested on 28 June 2005
and as a result may be exercised at any time after 1 July 2005. All other allocations are yet to
meet the required performance hurdles and have not vested and as such no value can be derived from
these instruments at this time. Allocations made under the September 2000 plan are currently well
below the required performance hurdle. If the hurdle is not achieved by 7 September 2005 these
instruments will lapse (*5) .
(*5) These instruments lapsed on 7 September 2005.
224
Telstra Corporation Limited and controlled entities
Remuneration report
Appointment of Mr Solomon Trujillo
The Board undertook an international search to identify candidates for the role of CEO. We also
received independent remuneration advice in developing an internationally competitive remuneration
package.
As a result of this search, Mr Solomon D Trujillo was appointed as CEO of Telstra effective 1 July
2005. The terms of his contract, which was disclosed in an ASX announcement on 9 June 2005, are
summarised below.
Mr Trujillo receives:
|
|
|
A fixed remuneration package including salary, superannuation in accordance with legislation,
salary sacrifice benefits and any applicable fringe benefits tax incurred by us to the value of
A$3,000,000 per annum; |
|
|
|
|
a sign-on payment of A$l,000,000 on commencement of his employment with us and pre-payment
of 50% (A$l,500,000) of his potential fiscal 2006 short-term incentive. |
In addition, Mr Trujillo will have a substantial proportion of his potential remuneration
delivered through the STI and the LTI plan.
The fiscal 2006 STI plan provides for rewards up to the value of 100% of his fixed remuneration
(A$3,000,000) subject to the achievement of personal targets set by the Board and incorporating
significant company performance. The value of the fiscal 2006 STI payment will be reduced by
A$l,500,000, reflecting the pre-payment. The balance, if any, will be delivered as 50% cash and
the other 50% will be provided as rights to our shares which will vest in equal amounts over the
following 3 years.
Mr Trujillo will be invited to participate in our LTI plan. The remuneration value attributed to
the LTI plan will be equivalent to 1331/3% of fixed remuneration (A$4,000,000) for
achieving pre-determined maximum hurdles as defined by the Board. Achievement of these targets
will require significant performance by the Company and a gateway target will need to be met in
order to qualify for any equity. Failure to meet the gateway targets will result in no vesting
of the performance rights. However, achievement of the gateway targets for the CEO will qualify
performance rights to the value of 100% of fixed remuneration (A$3,000,000) to vest. A linear
scale exists for performance between the gateway targets and the pre-determined target hurdles.
The weighting for achieving the maximum and gateway hurdles vary from those that applied to the
CEO in 2004/2005 as described earlier in this report.
The above package provides for 30% to be paid as fixed remuneration. The balance is at risk,
with the exception of the 50% pre-payment in the fiscal 2006 STI plan, and requires the
achievement of significant performance milestones in order for Mr Trujillo to receive the
maximum amount under the short-term and long-term incentive plans.
225
Telstra Corporation Limited and controlled entities
Remuneration report
Termination arrangements
Mr Trujillo has been employed by us under a contract without a fixed duration and either party
may terminate his employment by agreement, by providing 30 days
written notice. If Mr Trujillios
employment is terminated by us for reasons other than misconduct, he will receive, in addition to
any payment in lieu of notice:
|
|
|
a termination payment of: |
|
(a) |
|
twenty four months fixed remuneration if the termination occurs within the first
twelve months
of employment; or |
|
(b) |
|
twelve months fixed remuneration if the termination occurs after the first twelve
months of
employment a pro-rata payment in respect of his participation in the STI plan for the year
in
which termination occurs. |
|
|
|
a pro-rata payment in respect of his participation in the STI plan for the year in which termination
occurs; |
|
|
|
|
the rights to equity allocated through the LTI plan prior to termination subject to it achieving the
respective performance hurdles in accordance with the terms of the plan; and |
|
|
|
|
reimbursement of any taxation penalties that may occur in the event of an early return to the United
States (*6). |
|
|
|
(*6) |
|
On 25 September 2005, Mr Trujillo agreed to waive clause 8.8 of
his contract which provided for Mr Trujillo to receive termination benefits (or any increase
in them) if a change occurs in the shareholding or control of us. |
226
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 2005 |
|
|
Number |
|
|
|
|
|
|
|
|
Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
Statement of Financial Performance |
|
|
228 |
|
Statement of Financial Position |
|
|
229 |
|
Statement of Cash Flows |
|
|
230 |
|
|
Statement of Changes in Shareholders Equity |
|
|
235 |
|
|
Notes to the Financial Statements |
|
|
|
|
|
Note 1 |
|
- Summary of accounting policies |
|
|
238 |
|
Note 2 |
|
- Revenue |
|
|
264 |
|
Note 3 |
|
- Profit from ordinary activities |
|
|
265 |
|
Note 4 |
|
- Income tax expense |
|
|
270 |
|
Note 5 |
|
- Segment information |
|
|
272 |
|
Note 6 |
|
- Earnings per share |
|
|
280 |
|
Note 7 |
|
- Dividends |
|
|
281 |
|
Note 8 |
|
- Cash assets |
|
|
283 |
|
Note 9 |
|
- Receivables |
|
|
284 |
|
Note 10 |
|
- Inventories |
|
|
286 |
|
Note 11 |
|
- Investments |
|
|
287 |
|
Note 12 |
|
- Property, plant and equipment |
|
|
289 |
|
Note 13 |
|
- Intangible assets |
|
|
294 |
|
Note 14 |
|
- Other assets |
|
|
296 |
|
Note 15 |
|
- Payables |
|
|
297 |
|
Note 16 |
|
- Interest-bearing liabilities |
|
|
298 |
|
Note 17 |
|
- Provisions |
|
|
302 |
|
Note 18 |
|
- Contributed equity |
|
|
304 |
|
Note 19 |
|
- Employee share plans |
|
|
305 |
|
Note 20 |
|
- Expenditure commitments |
|
|
321 |
|
Note 21 |
|
- Contingent liabilities and contingent assets |
|
|
324 |
|
Note 22 |
|
- Superannuation commitments |
|
|
326 |
|
Note 23 |
|
- Investments in controlled entities |
|
|
328 |
|
Note 24 |
|
- Investments in joint venture entities and associated entities |
|
|
338 |
|
Note 25 |
|
- Directors remuneration - salaries and other benefits |
|
|
346 |
|
Note 26 |
|
- Executives remuneration - salaries and other benefits |
|
|
349 |
|
Note 27 |
|
- Related party, directors and specified executives disclosures |
|
|
352 |
|
Note 28 |
|
- Events after balance date |
|
|
358 |
|
Note 29 |
|
- Additional financial instruments disclosures |
|
|
359 |
|
Note 30 |
|
- United States generally accepted accounting principles disclosures |
|
|
368 |
|
|
|
|
|
|
|
|
Directors Declaration |
|
|
393 |
|
|
|
|
|
|
|
|
This financial report combines the disclosure requirements for both
Australian and United States generally accepted accounting principles. |
|
|
|
|
|
|
|
|
Independent Audit Reports |
|
|
394 |
|
227
Telstra Corporation Limited and controlled entities
Statement of Financial Performance
for the year ended 30 June 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Ordinary activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue |
|
|
2 |
|
|
|
22,161 |
|
|
|
16,882 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
19,587 |
|
|
|
18,996 |
|
Other revenue (excluding interest revenue) |
|
|
2,3 |
|
|
|
496 |
|
|
|
378 |
|
|
|
543 |
|
|
|
1,121 |
|
|
|
357 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,657 |
|
|
|
17,260 |
|
|
|
21,280 |
|
|
|
21,616 |
|
|
|
19,944 |
|
|
|
19,387 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
3 |
|
|
|
3,693 |
|
|
|
2,813 |
|
|
|
3,218 |
|
|
|
3,204 |
|
|
|
2,916 |
|
|
|
2,807 |
|
Goods and services purchased |
|
|
3 |
|
|
|
4,147 |
|
|
|
3,159 |
|
|
|
3,554 |
|
|
|
3,713 |
|
|
|
2,894 |
|
|
|
2,684 |
|
Depreciation and amortisation |
|
|
3 |
|
|
|
3,766 |
|
|
|
2,869 |
|
|
|
3,615 |
|
|
|
3,447 |
|
|
|
3,298 |
|
|
|
3,228 |
|
Other expenses |
|
|
3 |
|
|
|
4,055 |
|
|
|
3,089 |
|
|
|
4,255 |
|
|
|
4,504 |
|
|
|
3,666 |
|
|
|
3,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,661 |
|
|
|
11,930 |
|
|
|
14,642 |
|
|
|
14,868 |
|
|
|
12,774 |
|
|
|
12,563 |
|
|
|
|
|
|
|
|
|
|
Share of net (profit)/loss from joint venture
entities
and associated entities |
|
|
24 |
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
78 |
|
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,652 |
|
|
|
11,923 |
|
|
|
14,720 |
|
|
|
15,893 |
|
|
|
12,774 |
|
|
|
12,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
2 |
|
|
|
103 |
|
|
|
78 |
|
|
|
55 |
|
|
|
84 |
|
|
|
103 |
|
|
|
95 |
|
Borrowing costs |
|
|
3 |
|
|
|
839 |
|
|
|
639 |
|
|
|
767 |
|
|
|
879 |
|
|
|
851 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
Net borrowing costs |
|
|
|
|
|
|
736 |
|
|
|
561 |
|
|
|
712 |
|
|
|
795 |
|
|
|
748 |
|
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
6,269 |
|
|
|
4,776 |
|
|
|
5,848 |
|
|
|
4,928 |
|
|
|
6,422 |
|
|
|
6,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
4 |
|
|
|
1,822 |
|
|
|
1,388 |
|
|
|
1,731 |
|
|
|
1,534 |
|
|
|
1,777 |
|
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
|
|
|
|
|
|
4,447 |
|
|
|
3,388 |
|
|
|
4,117 |
|
|
|
3,394 |
|
|
|
4,645 |
|
|
|
4,379 |
|
Outside equity interests in net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit available to Telstra Entity shareholders |
|
|
|
|
|
|
4,447 |
|
|
|
3,388 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
4,645 |
|
|
|
4,379 |
|
|
|
|
|
|
|
|
|
|
Other valuation adjustments to equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net exchange differences on translation of financial
statements of non-Australian controlled entities |
|
|
|
|
|
|
(43 |
) |
|
|
(33 |
) |
|
|
21 |
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
Reserves recognised on equity accounting our
interest in joint
venture entities and associated entities |
|
|
|
|
|
|
3 |
|
|
|
2 |
|
|
|
(5 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Increase to opening retained earnings on adoption of
new
accounting standard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation adjustments attributable to Telstra Entity
shareholders and recognised directly inequity |
|
|
|
|
|
|
(40 |
) |
|
|
(31 |
) |
|
|
16 |
|
|
|
1,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in equity other than those resulting
from transactions with Telstra
Entity shareholders as owners |
|
|
|
|
|
|
4,407 |
|
|
|
3,357 |
|
|
|
4,134 |
|
|
|
4,665 |
|
|
|
4,645 |
|
|
|
4,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¢ |
|
|
US¢ |
|
|
|
|
¢ |
|
|
|
¢ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share (cents pershare) |
|
|
6 |
|
|
|
35.5 |
|
|
|
27.0 |
|
|
|
32.4 |
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends paid/declared (cents per share) |
|
|
7,28 |
|
|
|
40.0 |
|
|
|
30.0 |
|
|
|
26.0 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
228
Telstra Corporation Limited and controlled entities
Statement of Financial Position
as at 30 June 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash assets |
|
|
8 |
|
|
|
1,540 |
|
|
|
1,174 |
|
|
|
687 |
|
|
|
1,360 |
|
|
|
543 |
|
Receivables |
|
|
9 |
|
|
|
3,609 |
|
|
|
2,749 |
|
|
|
3,608 |
|
|
|
3,566 |
|
|
|
3,258 |
|
Inventories |
|
|
10 |
|
|
|
232 |
|
|
|
177 |
|
|
|
229 |
|
|
|
194 |
|
|
|
206 |
|
Other assets |
|
|
14 |
|
|
|
796 |
|
|
|
606 |
|
|
|
803 |
|
|
|
679 |
|
|
|
687 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
6,177 |
|
|
|
4,706 |
|
|
|
5,327 |
|
|
|
5,799 |
|
|
|
4,694 |
|
|
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
9 |
|
|
|
240 |
|
|
|
183 |
|
|
|
740 |
|
|
|
290 |
|
|
|
1,047 |
|
Inventories |
|
|
10 |
|
|
|
15 |
|
|
|
11 |
|
|
|
10 |
|
|
|
15 |
|
|
|
10 |
|
Investments accounted for using the equity method |
|
|
11 |
|
|
|
49 |
|
|
|
37 |
|
|
|
40 |
|
|
|
44 |
|
|
|
32 |
|
Investments
other |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
6,029 |
|
|
|
5,435 |
|
Property, plant and equipment |
|
|
12 |
|
|
|
23,351 |
|
|
|
17,789 |
|
|
|
22,863 |
|
|
|
21,573 |
|
|
|
21,600 |
|
Intangibles goodwill |
|
|
13 |
|
|
|
2,287 |
|
|
|
1,742 |
|
|
|
2,104 |
|
|
|
12 |
|
|
|
16 |
|
Intangibles other |
|
|
13 |
|
|
|
1,581 |
|
|
|
1,204 |
|
|
|
1,501 |
|
|
|
182 |
|
|
|
220 |
|
Other assets |
|
|
14 |
|
|
|
2,610 |
|
|
|
1,988 |
|
|
|
2,328 |
|
|
|
2,332 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,133 |
|
|
|
22,954 |
|
|
|
29,666 |
|
|
|
30,477 |
|
|
|
30,520 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
36,310 |
|
|
|
27,660 |
|
|
|
34,993 |
|
|
|
36,276 |
|
|
|
35,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
15 |
|
|
|
2,809 |
|
|
|
2,140 |
|
|
|
2,338 |
|
|
|
1,957 |
|
|
|
1,891 |
|
Interest-bearing liabilities |
|
|
16 |
|
|
|
1,518 |
|
|
|
1,156 |
|
|
|
3,246 |
|
|
|
3,903 |
|
|
|
5,527 |
|
Income tax payable |
|
|
|
|
|
|
534 |
|
|
|
407 |
|
|
|
539 |
|
|
|
519 |
|
|
|
512 |
|
Provisions |
|
|
17 |
|
|
|
389 |
|
|
|
296 |
|
|
|
358 |
|
|
|
324 |
|
|
|
331 |
|
Revenue received in advance |
|
|
|
|
|
|
1,132 |
|
|
|
862 |
|
|
|
1,095 |
|
|
|
912 |
|
|
|
885 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
6,382 |
|
|
|
4,861 |
|
|
|
7,576 |
|
|
|
7,615 |
|
|
|
9,146 |
|
|
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
15 |
|
|
|
122 |
|
|
|
93 |
|
|
|
49 |
|
|
|
13 |
|
|
|
46 |
|
Interest-bearing liabilities |
|
|
16 |
|
|
|
11,816 |
|
|
|
9,001 |
|
|
|
9,014 |
|
|
|
11,782 |
|
|
|
9,014 |
|
Provision for deferred income tax |
|
|
|
|
|
|
1,885 |
|
|
|
1,436 |
|
|
|
1,807 |
|
|
|
1,826 |
|
|
|
1,748 |
|
Provisions |
|
|
17 |
|
|
|
836 |
|
|
|
637 |
|
|
|
778 |
|
|
|
779 |
|
|
|
740 |
|
Revenue received in advance |
|
|
|
|
|
|
388 |
|
|
|
296 |
|
|
|
408 |
|
|
|
381 |
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
15,047 |
|
|
|
11,463 |
|
|
|
12,056 |
|
|
|
14,781 |
|
|
|
11,946 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
21,429 |
|
|
|
16,324 |
|
|
|
19,632 |
|
|
|
22,396 |
|
|
|
21,092 |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
14,881 |
|
|
|
11,336 |
|
|
|
15,361 |
|
|
|
13,880 |
|
|
|
14,122 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed equity |
|
|
18 |
|
|
|
5,793 |
|
|
|
4,413 |
|
|
|
6,073 |
|
|
|
5,793 |
|
|
|
6,073 |
|
Reserves |
|
|
|
|
|
|
(157 |
) |
|
|
(120 |
) |
|
|
(105 |
) |
|
|
277 |
|
|
|
277 |
|
Retained profits |
|
|
|
|
|
|
9,243 |
|
|
|
7,041 |
|
|
|
9,391 |
|
|
|
7,810 |
|
|
|
7,772 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity available to Telstra Entity shareholders |
|
|
|
|
|
|
14,879 |
|
|
|
11,334 |
|
|
|
15,359 |
|
|
|
13,880 |
|
|
|
14,122 |
|
Outside equity interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed equity |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outside equity interests |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
14,881 |
|
|
|
11,336 |
|
|
|
15,361 |
|
|
|
13,880 |
|
|
|
14,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure commitments, contingent liabilities and assets |
|
|
20,21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
229
Telstra Corporation Limited and controlled entities
for the year ended 30 June 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipts from trade and other receivables (c) |
|
|
|
|
|
|
24,526 |
|
|
|
18,684 |
|
|
|
23,205 |
|
|
|
22,721 |
|
|
|
21,343 |
|
|
|
20,926 |
|
Payments of accounts payable and to employees (c) |
|
|
|
|
|
|
(12,754 |
) |
|
|
(9,716 |
) |
|
|
(12,067 |
) |
|
|
(12,130 |
) |
|
|
(10,029 |
) |
|
|
(9,862 |
) |
Interest received |
|
|
|
|
|
|
80 |
|
|
|
61 |
|
|
|
51 |
|
|
|
70 |
|
|
|
81 |
|
|
|
92 |
|
Borrowing costs paid |
|
|
|
|
|
|
(879 |
) |
|
|
(670 |
) |
|
|
(846 |
) |
|
|
(999 |
) |
|
|
(892 |
) |
|
|
(922 |
) |
Dividends received |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
7 |
|
|
|
1 |
|
|
|
1 |
|
Income taxes paid |
|
|
|
|
|
|
(1,718 |
) |
|
|
(1,309 |
) |
|
|
(1,856 |
) |
|
|
(1,536 |
) |
|
|
(1,712 |
) |
|
|
(1,804 |
) |
GST remitted to the Australian Taxation Office (ATO) |
|
|
|
|
|
|
(1,094 |
) |
|
|
(833 |
) |
|
|
(1,056 |
) |
|
|
(1,076 |
) |
|
|
(1,050 |
) |
|
|
(1,044 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities (a) |
|
|
|
|
|
|
8,163 |
|
|
|
6,219 |
|
|
|
7,433 |
|
|
|
7,057 |
|
|
|
7,742 |
|
|
|
7,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
|
|
|
|
|
|
(2,995 |
) |
|
|
(2,282 |
) |
|
|
(2,572 |
) |
|
|
(2,704 |
) |
|
|
(2,715 |
) |
|
|
(2,505 |
) |
- internal use software assets |
|
|
|
|
|
|
(523 |
) |
|
|
(398 |
) |
|
|
(435 |
) |
|
|
(555 |
) |
|
|
(446 |
) |
|
|
(385 |
) |
- intangibles |
|
|
|
|
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
- deferred expenditure |
|
|
|
|
|
|
(15 |
) |
|
|
(11 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
Capital expenditure (before investments) |
|
|
|
|
|
|
(3,539 |
) |
|
|
(2,696 |
) |
|
|
(3,015 |
) |
|
|
(3,261 |
) |
|
|
(3,175 |
) |
|
|
(2,896 |
) |
|
|
|
|
|
|
|
|
|
- shares in controlled entities |
|
|
|
|
|
|
(574 |
) |
|
|
(437 |
) |
|
|
(667 |
) |
|
|
(25 |
) |
|
|
(28 |
) |
|
|
(637 |
) |
- investment in joint venture entities |
|
|
|
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(1 |
) |
|
|
(45 |
) |
|
|
(5 |
) |
|
|
|
|
- investment in associated entities (including share buy-back) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
- shares in listed securities and other investments |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Investment expenditure |
|
|
|
|
|
|
(590 |
) |
|
|
(450 |
) |
|
|
(668 |
) |
|
|
(71 |
) |
|
|
(34 |
) |
|
|
(637 |
) |
|
|
|
|
|
|
|
|
|
Total capital expenditure |
|
|
|
|
|
|
(4,129 |
) |
|
|
(3,146 |
) |
|
|
(3,683 |
) |
|
|
(3,332 |
) |
|
|
(3,209 |
) |
|
|
(3,533 |
) |
Proceeds from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- sale of property, plant and equipment |
|
|
|
|
|
|
68 |
|
|
|
52 |
|
|
|
168 |
|
|
|
797 |
|
|
|
79 |
|
|
|
197 |
|
- sale of shares in controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
- sale of joint venture entities and associated entities |
|
|
|
|
|
|
30 |
|
|
|
23 |
|
|
|
221 |
|
|
|
20 |
|
|
|
30 |
|
|
|
|
|
- sale of listed securities and other investments |
|
|
|
|
|
|
146 |
|
|
|
111 |
|
|
|
24 |
|
|
|
7 |
|
|
|
134 |
|
|
|
41 |
|
- sale of business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
- redemption of PCCW converting note |
|
|
|
|
|
|
76 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(3,809 |
) |
|
|
(2,902 |
) |
|
|
(3,270 |
) |
|
|
(2,492 |
) |
|
|
(2,890 |
) |
|
|
(3,295 |
) |
|
|
|
|
|
|
|
|
|
Operating cash flows less investing cash flows |
|
|
|
|
|
|
4,354 |
|
|
|
3,317 |
|
|
|
4,163 |
|
|
|
4,565 |
|
|
|
4,852 |
|
|
|
4,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
|
|
|
|
6,433 |
|
|
|
4,901 |
|
|
|
4,119 |
|
|
|
5,914 |
|
|
|
6,611 |
|
|
|
4,329 |
|
Proceeds from Telstra bonds |
|
|
|
|
|
|
983 |
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
983 |
|
|
|
|
Repayment of borrowings |
|
|
|
|
|
|
(5,735 |
) |
|
|
(4,369 |
) |
|
|
(4,274 |
) |
|
|
(6,315 |
) |
|
|
(6,478 |
) |
|
|
(4,411 |
) |
Repayment of Telstra bonds |
|
|
|
|
|
|
(272 |
) |
|
|
(207 |
) |
|
|
(211 |
) |
|
|
(582 |
) |
|
|
(272 |
) |
|
|
(211 |
) |
Repayment of finance leases principal amount |
|
|
|
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(13 |
) |
|
|
(22 |
) |
|
|
(11 |
) |
|
|
(11 |
) |
Employee share loans |
|
|
|
|
|
|
19 |
|
|
|
14 |
|
|
|
24 |
|
|
|
33 |
|
|
|
19 |
|
|
|
24 |
|
Loan to joint venture entities and associated entities |
|
|
|
|
|
|
(37 |
) |
|
|
(28 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
Dividends paid |
|
|
7 |
|
|
|
(4,131 |
) |
|
|
(3,147 |
) |
|
|
(3,186 |
) |
|
|
(3,345 |
) |
|
|
(4,131 |
) |
|
|
(3,186 |
) |
Share buy-back (d) |
|
|
|
|
|
|
(756 |
) |
|
|
(576 |
) |
|
|
(1,009 |
) |
|
|
|
|
|
|
(756 |
) |
|
|
(1,009 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
|
|
|
|
(3,512 |
) |
|
|
(2,675 |
) |
|
|
(4,776 |
) |
|
|
(4,317 |
) |
|
|
(4,035 |
) |
|
|
(4,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash |
|
|
|
|
|
|
842 |
|
|
|
642 |
|
|
|
(613 |
) |
|
|
248 |
|
|
|
817 |
|
|
|
(609 |
) |
Foreign currency conversion |
|
|
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Cash at the beginning of the year |
|
|
|
|
|
|
687 |
|
|
|
523 |
|
|
|
1,300 |
|
|
|
1,070 |
|
|
|
543 |
|
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year (b) |
|
|
|
|
|
|
1,526 |
|
|
|
1,163 |
|
|
|
687 |
|
|
|
1,300 |
|
|
|
1,360 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
The notes following the financial statements form part of the financial report.
230
Telstra Corporation Limited and controlled entities
Statement of Cash Flows (continued)
for the year ended 30 June 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Cash flow notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Reconciliation of net profit to net
cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
|
|
|
|
|
|
4,447 |
|
|
|
3,388 |
|
|
|
4,117 |
|
|
|
3,394 |
|
|
|
4,645 |
|
|
|
4,379 |
|
Add/(subtract) the following transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
3 |
|
|
|
3,766 |
|
|
|
2,869 |
|
|
|
3,615 |
|
|
|
3,447 |
|
|
|
3,298 |
|
|
|
3,228 |
|
Accrued interest on notes issued by PCCW |
|
|
|
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(15 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Dividends received from related entities |
|
|
24 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
|
|
(142 |
) |
Profit on sale of property, plant and equipment |
|
|
3 |
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(40 |
) |
|
|
(173 |
) |
|
|
(10 |
) |
|
|
(40 |
) |
Profit on sale of controlled entities |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
Profit on sale of joint venture and associated entities |
|
|
3 |
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(170 |
) |
|
|
(12 |
) |
|
|
(27 |
) |
|
|
|
|
Profit on sale of listed securities and other entities |
|
|
3 |
|
|
|
(67 |
) |
|
|
(51 |
) |
|
|
(8 |
) |
|
|
2 |
|
|
|
(63 |
) |
|
|
(8 |
) |
Profit on sale of business |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Loss on redemption of PCCW converting note |
|
|
3 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
Borrowing costs included in the cost of constructed assets |
|
|
3 |
|
|
|
(90 |
) |
|
|
(70 |
) |
|
|
(74 |
) |
|
|
(105 |
) |
|
|
(90 |
) |
|
|
(74 |
) |
Share of joint venture entities net losses |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
Share of associated entities net (profits)/losses |
|
|
24 |
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
Provision for reduction in value of investments |
|
|
3 |
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
26 |
|
|
|
(310 |
) |
|
|
(709 |
) |
Provision for reduction in value of controlled
entity receivables |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
709 |
|
Provision for reduction in amount owed by
joint venture entity |
|
|
3 |
|
|
|
5 |
|
|
|
4 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
226 |
|
Net foreign currency conversion differences |
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
3 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
Decrease in non cash receivable from related entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
32 |
|
|
|
24 |
|
|
|
6 |
|
|
|
47 |
|
|
|
61 |
|
|
|
13 |
|
Movements in operating assets and liabilities
(net of acquisitions of controlled entity balances) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in trade debtors and other debtors |
|
|
|
|
|
|
24 |
|
|
|
18 |
|
|
|
143 |
|
|
|
4 |
|
|
|
47 |
|
|
|
75 |
|
(Increase)/decrease in inventories |
|
|
|
|
|
|
9 |
|
|
|
7 |
|
|
|
35 |
|
|
|
(52 |
) |
|
|
7 |
|
|
|
60 |
|
(Increase)/decrease in deferred expenditure and prepayments |
|
|
|
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
6 |
|
|
|
48 |
|
|
|
(15 |
) |
|
|
3 |
|
(Increase)/decrease in deferred mobile phone handset subsidies |
|
|
|
|
|
|
(75 |
) |
|
|
(57 |
) |
|
|
(104 |
) |
|
|
(42 |
) |
|
|
(75 |
) |
|
|
(104 |
) |
Increase/(decrease) in accounts payable and other creditors |
|
|
|
|
|
|
15 |
|
|
|
11 |
|
|
|
(335 |
) |
|
|
(271 |
) |
|
|
47 |
|
|
|
(166 |
) |
Increase/(decrease) in revenue received in advance |
|
|
|
|
|
|
(13 |
) |
|
|
(10 |
) |
|
|
98 |
|
|
|
(66 |
) |
|
|
10 |
|
|
|
69 |
|
Increase/(decrease) in net taxes payable |
|
|
|
|
|
|
105 |
|
|
|
80 |
|
|
|
(125 |
) |
|
|
9 |
|
|
|
85 |
|
|
|
(107 |
) |
Increase/(decrease) in provisions |
|
|
|
|
|
|
31 |
|
|
|
24 |
|
|
|
(35 |
) |
|
|
(161 |
) |
|
|
32 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
8,163 |
|
|
|
6,219 |
|
|
|
7,433 |
|
|
|
7,057 |
|
|
|
7,742 |
|
|
|
7,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 assets |
|
|
8 |
|
|
|
1,540 |
|
|
|
1,174 |
|
|
|
687 |
|
|
|
1,300 |
|
|
|
1,360 |
|
|
|
543 |
|
Bank overdraft |
|
|
16 |
|
|
|
(14 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,526 |
|
|
|
1,164 |
|
|
|
687 |
|
|
|
1,300 |
|
|
|
1,360 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
231
Telstra Corporation Limited and controlled entities
Statement of Cash Flows (continued)
for the year ended 30 June 2005
Cash flow notes (continued)
(c) Goods and Services Tax (GST)
Our receipts from trade and other receivables includes estimated GST of $2,121 million (2004:
$2,030 million; 2003: $2,072 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 $784 million (2004: $750 million; 2003: $639 million) and GST paid relating
to investing activities amounted to $243 million (2004:
$224 million; 2003: $356 million).
(d) Share buy-back
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 cost of the share buy back comprised purchase
consideration of $750 million and associated transaction costs of $6 million. During fiscal 2004,
we also completed an off-market share buy-back of 238,241,174 ordinary shares. The cost of the 2004
buy-back comprised purchase consideration of $1,001 million and associated transaction costs of $8
million. Refer to note 18 for further information.
(e) Significant financing and investing activities that involve non cash components
Capitalised Interest
Our property, plant and equipment includes borrowing costs of $70 million (2004: $57 million; 2003:
$77 million) which have been included in the cost of constructed assets. Our software assets
include borrowing costs of $20 million (2004: $17 million; 2003: $28 million) which have been
included in the cost of constructed assets. These amounts are included in borrowing costs paid in
our statement of cash flows.
Sale and leaseback transactions
There were no significant sale and leaseback transactions entered into during fiscal 2005 or fiscal
2004.
During fiscal 2003, we entered into a sale and leaseback on a portfolio of seven office properties
for $570 million. We entered into operating leases totalling $518 million in relation to these
properties on normal commercial terms of between five and twelve years. The profit on the sale of
this property, plant and equipment was $131 million before income tax expense. The cash inflow from
this sale is recognised in our proceeds from the sale of property, plant and equipment (refer to
note 3 for further information).
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 $428 million at acquisition date. This
acquisition is not fully reflected in our statement of cash flows as the purchase price is being
paid in instalments through to 1 July 2006. As at 30 June 2005, we have paid $22 million to our
joint venture partner for the acquisition of these assets. The balance is reflected in our deferred
liabilities. Refer to note 15 for further information.
(f) Financing facilities
Details of credit standby arrangements and loan facilities are shown in note 16.
(g) Acquisitions
Fiscal 2005 Telstra Group
During fiscal 2005 we acquired the following controlled entities:
On 19 July 2004, we acquired 100% of the issued share capital of KAZ Group Limited and its
controlled entities for a cash consideration of $340 million, including acquisition costs.
On 25 August 2004, we acquired 100% of the issued share capital of PSINet UK Limited and its
controlled entities for an initial cash consideration of $111 million, including acquisition costs,
and deferred consideration amounting to $13 million.
On 17 September 2004, we acquired 100% of the issued share capital of ESA Holding Pty Ltd, its
controlled entity Damovo (Australia) Pty Ltd, and of Damovo HK
Limited (Damovo Group) for a cash
consideration of $66 million, including acquisition costs.
On 20 December 2004, we acquired 100% of the issued share capital of Universal Publishers Pty Ltd
for a cash consideration of $46 million, including acquisition costs.
In addition to the above, we made a number of other minor acquisitions for a total consideration of
$16 million during the year. Included in these acquisitions was an additional 10% interest in 1300
Australia Pty Ltd, which gave us a controlling interest in this entity.
232
Telstra Corporation Limited and controlled entities
Statement of Cash Flows (continued)
for the year ended 30 June 2005
Cash flow notes (continued)
(g) Acquisitions (continued)
Details
of the acquisitions are as follows:
|
|
|
|
|
|
|
Year ended |
|
|
30 June |
|
|
2005 |
Acquisition of controlled entities |
|
$m |
|
Consideration for acquisitions |
|
|
|
|
Cash |
|
|
565 |
|
Deferred consideration |
|
|
13 |
|
Costs of acquisitions |
|
|
14 |
|
|
|
|
|
|
|
|
|
592 |
|
|
|
|
|
|
Fair value of assets and liabilities acquired by
major class |
|
|
|
|
Cash assets |
|
|
13 |
|
Receivables |
|
|
117 |
|
Inventories |
|
|
17 |
|
Property, plant and equipment |
|
|
77 |
|
Intangibles |
|
|
235 |
|
Software |
|
|
15 |
|
Other assets |
|
|
15 |
|
Deferred tax assets |
|
|
21 |
|
Payables |
|
|
(99 |
) |
Provisions |
|
|
(58 |
) |
Finance lease liability |
|
|
(39 |
) |
Interest-bearing liabilities |
|
|
(8 |
) |
Other liabilities |
|
|
(39 |
) |
|
|
|
|
|
Fair value of net assets on gaining control |
|
|
267 |
|
Adjustment upon increase in ownership interest
from associated entity to controlled entity |
|
|
(2 |
) |
Goodwill on acquisition |
|
|
327 |
|
|
|
|
|
|
|
|
|
592 |
|
|
|
|
|
|
Outflow of cash on acquisitions |
|
|
|
|
Consideration for acquisitions |
|
|
(565 |
) |
Cash balances acquired |
|
|
13 |
|
Costs of acquisitions |
|
|
(14 |
) |
Payments of deferred consideration for prior
years acquisitions |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
(574 |
) |
|
|
|
|
|
Fiscal 2005 Telstra Entity
During fiscal 2005 there were no businesses acquired by the Telstra Entity. However, funding has
been provided by the Telstra Entity to facilitate acquisitions within the Telstra Group and this
has been reflected in investments where additional share capital has been issued by subsidiaries.
Fiscal 2004 Telstra Group
During fiscal 2004 we acquired the following controlled entities:
On 13 February 2004, we acquired 100% of the share capital of Cable Telecom (GB) Limited (Cable
Telecom) for an initial cash consideration of $31 million (GBP 13 million) and deferred
consideration of $7 million (GBP 3 million).
On 5 March 2004, we acquired 100% of the share capital of Trading Post (Australia) Holdings Pty
Ltd and its controlled entities (Trading Post Group) for an initial cash consideration of $636
million and deferred consideration of $2 million.
On 31 March 2004, we acquired 75% of the share capital of Invizage Pty Ltd (Invizage) for an
initial cash consideration of $4 million and deferred consideration of $3 million.
Details of the acquisitions are as follows:
|
|
|
|
|
|
|
Year ended |
|
|
30 June |
|
|
2004 |
Acquisition of controlled entities |
|
$m |
|
Consideration for acquisitions |
|
|
|
|
Cash |
|
|
673 |
|
Deferred consideration |
|
|
11 |
|
Costs of acquisitions |
|
|
1 |
|
|
|
|
|
|
|
|
|
685 |
|
|
|
|
|
|
Fair value of assets and liabilities acquired by
major class |
|
|
|
|
Cash assets |
|
|
7 |
|
Receivables |
|
|
9 |
|
Property, plant and equipment |
|
|
8 |
|
Intangibles |
|
|
477 |
|
Other assets |
|
|
5 |
|
Deferred tax assets |
|
|
2 |
|
Payables |
|
|
(28 |
) |
Provisions |
|
|
(3 |
) |
Finance lease liability |
|
|
(1 |
) |
|
|
|
|
|
Fair value of net assets on gaining control |
|
|
476 |
|
Goodwill on acquisition |
|
|
209 |
|
|
|
|
|
|
|
|
|
685 |
|
|
|
|
|
|
Outflow of cash on acquisitions |
|
|
|
|
Consideration for acquisitions |
|
|
(673 |
) |
Cash balances acquired |
|
|
7 |
|
Costs of acquisitions |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
(667 |
) |
|
|
|
|
|
233
Telstra Corporation Limited and controlled entities
Statement of Cash Flows (continued)
for the year ended 30 June 2005
Cash flow notes (continued)
Fiscal 2004 Telstra Entity
During fiscal 2004, the Telstra Entity acquired the NDC construction business from our wholly owned
subsidiary Network Design and Construction Limited (NDC). This involved the transfer of NDCs
assets, including customer bases and the recognition of $16 million in goodwill, which is
eliminated on consolidation.
The Telstra Entity also acquired the assets of its wholly owned subsidiary Telstra New Wave Pty
Ltd (Telstra New Wave), which involved the acquisition of $14 million in identifiable
intangible assets.
Details of the acquisition are as follows:
|
|
|
|
|
|
|
Year ended |
|
|
30 June |
|
|
2004 |
Acquisition of business |
|
$m |
|
Consideration for acquisition
|
|
|
|
|
Intercompany loan |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets and liabilities
acquired by major class
Construction WIP |
|
|
34 |
|
Inventory |
|
|
3 |
|
Property, plant and equipment |
|
|
49 |
|
Identifiable intangible assets |
|
|
18 |
|
Software |
|
|
6 |
|
Other assets |
|
|
1 |
|
Payables |
|
|
(3 |
) |
Provisions |
|
|
(65 |
) |
Accrued expenses |
|
|
(12 |
) |
Finance lease liability |
|
|
(8 |
) |
|
|
|
|
|
Fair value of net assets on gaining
control |
|
|
23 |
|
Goodwill on acquisition |
|
|
16 |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
There was no cash consideration paid as part of these acquisitions.
Fiscal 2003 Telstra Group
On 9 April 2003, we acquired an additional
41.6% interest in TelstraClear Limited
(TelstraClear) giving us 100% ownership of
this company and its controlled entities.
Cash consideration for this additional
acquisition was $25 million (NZ$26.9
million). As we controlled TelstraClear prior
to this transaction, we were already
consolidating their results, financial
position and cash flows in to the Telstra
Group.
Fiscal 2003 Telstra Entity
There were no significant acquisitions of businesses by the Telstra Entity other than those noted
above during fiscal 2003.
(h) Disposals of entities
There were no significant disposals of controlled entities during fiscal 2005, fiscal 2004 or
fiscal 2003.
234
Telstra Corporation Limited and controlled entities
Statement of Changes in Shareholders Equity
for the year ended 30 June 2005
Telstra Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
Consolid- |
|
|
|
|
|
|
|
|
|
|
Contributed |
|
Asset |
|
currency |
|
|
|
|
|
ation |
|
|
|
|
|
Outside |
|
|
|
|
equity |
|
revaluation |
|
translation |
|
General |
|
fair value |
|
Retained |
|
equity |
|
|
|
|
(i) |
|
(ii) |
|
(iii) |
|
(iv) |
|
(v) |
|
profits |
|
interests |
|
Total |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
Balance at 30 June 2002 |
|
|
6,433 |
|
|
|
32 |
|
|
|
(55 |
) |
|
|
(17 |
) |
|
|
54 |
|
|
|
7,661 |
|
|
|
(2 |
) |
|
|
14,106 |
|
- increase to opening retained profits on
adoption of new accounting standard (vi) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,415 |
|
|
|
|
|
|
|
1,415 |
|
- change in outside equity interests
capital, reserves and accumulated losses (apart
from interests in net loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
39 |
|
|
|
31 |
|
- net profit/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,429 |
|
|
|
(35 |
) |
|
|
3,394 |
|
- reserves recognised on equity accounting
our interest in joint venture entities and
associated entities |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
- adjustment on translation of financial
statements of non-Australian controlled
entities |
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
-fair value adjustment on acquisition of
controlling interest in joint venture entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
-transfer of foreign currency translation
reserve on sale of controlled entities and
associates |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
22 |
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
-dividends (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,345 |
) |
|
|
|
|
|
|
(3,345 |
) |
|
|
|
Balance at 30 June 2003 |
|
|
6,433 |
|
|
|
32 |
|
|
|
(240 |
) |
|
|
8 |
|
|
|
50 |
|
|
|
9,137 |
|
|
|
2 |
|
|
|
15,422 |
|
- change in outside equity interests
capital, reserves and accumulated losses
(apart from interests in net loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
- net profit/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,118 |
|
|
|
(1 |
) |
|
|
4,117 |
|
- reserves recognised on equity accounting
our interest in joint venture entities and
associated entities |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
- adjustment on translation of financial
statements of non-Australian controlled
entities |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
-fair value adjustment on acquisition of
controlling interest in joint venture entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
-transfer of foreign currency translation
reserve and general reserve on sale of controlled
entities and associates |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
(3 |
) |
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
-share buy-back (vii) |
|
|
(360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649 |
) |
|
|
|
|
|
|
(1,009 |
) |
-dividends (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,186 |
) |
|
|
|
|
|
|
(3,186 |
) |
|
|
|
Balance at 30 June 2004 |
|
|
6,073 |
|
|
|
32 |
|
|
|
(186 |
) |
|
|
5 |
|
|
|
44 |
|
|
|
9,391 |
|
|
|
2 |
|
|
|
15,361 |
|
(continued over page)
The notes following the financial statements form part of the financial report.
235
Telstra Corporation Limited and controlled entities
Statement of Changes in Shareholders Equity (continued)
Telstra Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Consolid- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed |
|
|
Asset |
|
|
currency |
|
|
|
|
|
|
ation |
|
|
|
|
|
|
Outside |
|
|
|
|
|
|
equity |
|
|
revaluation |
|
|
translation |
|
|
General |
|
|
fair value |
|
|
Retained |
|
|
equity |
|
|
|
|
|
|
(i) |
|
|
(ii) |
|
|
(iii) |
|
|
(iv) |
|
|
(v) |
|
|
profits |
|
|
interests |
|
|
Total |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Balance at 30 June 2004 |
|
|
6,073 |
|
|
|
32 |
|
|
|
(186 |
) |
|
|
5 |
|
|
|
44 |
|
|
|
9,391 |
|
|
|
2 |
|
|
|
15,361 |
|
-net profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,447 |
|
|
|
|
|
|
|
4,447 |
|
- reserves recognised on equity
accounting
our interest in joint venture entities and
associated entities |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
- adjustment on translation of financial
statements of non-Australian controlled
entities |
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
-fair value adjustment on acquisition
of controlling interest in joint venture
entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
- transfer of general reserve on sale of
associates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
. |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
-share buy-back (vii)
|
|
|
(280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(476 |
) |
|
|
|
|
|
|
(756 |
) |
-dividends (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,131 |
) |
|
|
|
|
|
|
(4,131 |
) |
|
|
|
Balance
at 30 June 2005 |
|
|
5,793 |
|
|
|
32 |
|
|
|
(231 |
) |
|
|
4 |
|
|
|
38 |
|
|
|
9,243 |
|
|
|
2 |
|
|
|
14,881 |
|
|
|
|
Balance
at 30 June 2005 US$m |
|
|
4,413 |
|
|
|
24 |
|
|
|
(176 |
) |
|
|
3 |
|
|
|
29 |
|
|
|
7,041 |
|
|
|
2 |
|
|
|
11,336 |
|
|
|
|
(i) Refer to note 18 for details of our contributed equity.
(ii) The asset revaluation reserve was previously used to record changes in the value of non
current assets. Under AASB 1041: Revaluation of Non-Current Assets, we have previously deemed the
carrying value of our property, plant and equipment assets (refer to note 12) to be cost. As a
result, the asset revaluation reserve may no longer be used to record the writedowns of these
assets to recoverable amount. Any writedowns of these assets to recoverable amount must be made
through the statement of financial performance.
As a consequence of applying the cost method of accounting, we have discontinued our policy of
revaluing property, plant and equipment upwards. The asset revaluation reserve can no longer be
used for distribution to shareholders or for offsetting revaluation decrements due to legal and
accounting restrictions.
(iii) The foreign currency translation reserve is used to record
exchange differences arising from
the conversion of the financial statements of our self sustaining non-Australian operations into
Australian dollars. Conversion of operations where entities operate on their own are taken to the
foreign currency translation reserve, while conversion of those entities that operate with us are
taken to the statement of financial performance.
This reserve is also used to record our percentage share of exchange differences arising from
equity accounting our non-Australian investments in joint venture entities and associated entities.
The foreign currency translation reserve applicable to joint venture entities and associated
entities is shown in note 24.
(iv) The general reserve represents our share of the capital reserve of joint venture entities and
associated entities as a result of equity accounting. The reserves applicable to these investments
is shown in note 24.
(v) The consolidation fair value reserve represents our share of the fair value adjustments to
TelstraClear Limited net assets on acquisition of a controlling interest. The reserve balance is
amortised over the useful life of the underlying revalued assets (average of 18 years).
(vi) Due to the first time application of accounting standard AASB 1044: Provisions, Contingent
Liabilities and Contingent Assets during fiscal 2003, we adjusted the opening balance of retained
profits at 1 July 2002 by the amount of the dividend provided for as at 30 June 2002.
(vii) 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. During fiscal 2004, we also completed an off-market
share buy-back of 238,241,174 ordinary shares. Refer to note 18 for further details.
236
Telstra Corporation Limited and controlled entities
Statement of Changes in Shareholders Equity (continued)
for the year ended 30 June 2005
Telstra Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
|
|
|
Contributed |
|
|
revaluation |
|
|
Retained |
|
|
|
|
|
|
equity |
|
|
reserve |
|
|
profits |
|
|
Total |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Balance at
30 June 2002 |
|
|
6,433 |
|
|
|
277 |
|
|
|
6,907 |
|
|
|
13,617 |
|
-increase to
opening retained
profits on
adoption of new
accounting
standard |
|
|
|
|
|
|
|
|
|
|
1,415 |
|
|
|
1,415 |
|
- net profit
|
|
|
|
|
|
|
|
|
|
|
2,251 |
|
|
|
2,251 |
|
- dividends
(note 7) |
|
|
|
|
|
|
|
|
|
|
(3,345 |
) |
|
|
(3,345 |
) |
|
|
|
Balance at
30 June 2003 |
|
|
6,433 |
|
|
|
277 |
|
|
|
7,228 |
|
|
|
13,938 |
|
- net profit
|
|
|
|
|
|
|
|
|
|
|
4,379 |
|
|
|
4,379 |
|
- share
buy-back |
|
|
(360 |
) |
|
|
|
|
|
|
(649 |
) |
|
|
(1,009 |
) |
-dividends
(note 7) |
|
|
|
|
|
|
|
|
|
|
(3,186 |
) |
|
|
(3,186 |
) |
|
|
|
Balance at
30 June 2004 |
|
|
6,073 |
|
|
|
277 |
|
|
|
7,772 |
|
|
|
14,122 |
|
- net profit |
|
|
|
|
|
|
|
|
|
|
4,645 |
|
|
|
4,645 |
|
- share
buy-back |
|
|
(280 |
) |
|
|
|
|
|
|
(476 |
) |
|
|
(756 |
) |
- dividends
(note 7) |
|
|
|
|
|
|
|
|
|
|
(4,131 |
) |
|
|
(4,131 |
) |
|
|
|
Balance at
30 June 2005 |
|
|
5,793 |
|
|
|
277 |
|
|
|
7,810 |
|
|
|
13,880 |
|
|
|
|
237
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements
1. Summary of accounting policies
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 refers to 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 |
|
|
|
2005 means fiscal 2005 and similarly for other fiscal years. |
The principal accounting policies we used in preparing the financial report of the Telstra Entity
and the Telstra Group are listed below. These are presented to assist your understanding of the
financial reports. These accounting policies are consistent with those adopted in previous periods,
unless a change in accounting policy has been made and brought to your attention.
1.1 Basis of preparation of the financial report
This financial report is a general purpose financial report prepared in accordance with:
|
|
the Australian Corporations Act 2001; |
|
|
Accounting Standards applicable in Australia; |
|
|
other authoritative pronouncements of the Australian Accounting
Standards Board; |
|
|
Urgent Issues Group Consensus Views; and |
|
|
Australian generally accepted accounting principles (AGAAP). |
This financial report is prepared in accordance with historical cost, except for some categories of
investments that are equity accounted. Cost is the fair value of the consideration given in
exchange for net assets acquired.
In preparing this financial report, we have been required to make estimates and assumptions that
affect:
|
|
the reported amounts of assets and liabilities; |
|
|
the disclosure of contingent assets and liabilities; and |
|
|
revenues and expenses for the year. |
Actual results could differ from those estimates.
Note 30 contains a reconciliation of the major differences between our financial report prepared
under Australian generally accepted accounting principles (AGAAP) and those applicable under United
States generally accepted accounting principles (USGAAP).
United States dollar conversions
This financial report has been prepared using Australian dollars (A$). For the convenience of
readers outside Australia we have converted our statement of financial performance, statement of
financial position, statement of cash flows and USGAAP disclosures from A$ to US$ for fiscal 2005.
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 2005 was A$1.00 = US$0.7618.
These conversions are indicative only and do not mean that the A$ amounts could be converted to US$
at the rate indicated.
1.2 Change in accounting policies
No accounting policy changes occurred during fiscal 2005.
The following accounting policy changes occurred during fiscal 2004.
Revenue arrangements with multiple deliverables
It is our policy to prepare our financial statements to satisfy both AGAAP and USGAAP in relation
to revenue recognition and, in cases where there is no conflict between the two, we ensure that we
incorporate the more detailed requirements in both AGAAP and USGAAP financial statements.
In November 2002, the Emerging Issues Task Force in the US reached a consensus on Issue No. 00-21
(EITF 00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21 is applicable to us
from 1 July 2003.
EITF 00-21 requires that 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
under EITF 00-21 should be 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.
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 under EITF 00-21 is then
recognised in accordance with our revenue recognition policies described in note 1.21 Revenue
recognition.
238
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1.
Summary of accounting policies (continued)
1.2 Change in accounting policies (continued)
We have a number of arrangements with our customers that are considered to be distinguishable
into separate units of accounting under EITF 00-21. These are:
|
|
mobile handsets that are offered as part of a mobile network
contract or sold as part of a prepaid phone package; |
|
|
broadband internet installation kits, where a modem is provided,
and satellite internet packages; and |
|
|
advertising in the Yellow Pages printed and online directories. |
We assessed the requirements of EITF 00-21 and determined that there was no material impact on our
statement of financial performance or statement of financial position as at, and for the year
ended, 30 June 2004 and 30 June 2003 in relation to these arrangements.
1.3 Recently issued accounting standards to be applied in Australia in future periods
The adoption of the Australian equivalents of International Financial Reporting Standards
(A-IFRS) will apply in future financial reports. Refer to 1.4 Adoption of International Financial
Reporting Standards for the impact we are expecting these standards to have on Telstra.
1.4 Adoption of International Financial Reporting Standards
Australian entities reporting under the Corporations Act 2001 must prepare their financial
statements 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). This will involve preparing our first set of financial
statements applying A-IFRS for the half-year ending 31 December 2005 and for the financial year
ending 30 June 2006.
The transitional rules for first time adoption of A-IFRS require that we restate our comparative
financial statements using A-IFRS, except for AASB 132: Financial Instruments: Disclosure and
Presentation and AASB 139: Financial Instruments: Recognition and Measurement where comparative
information is not required to be restated.
Currently we provide two years of comparative financial information in our year end financial
statements to comply with applicable US Securities and Exchange Commission (SEC) requirements. The
SEC has granted a one-time relief from this requirement for foreign registered companies preparing
their first set of financial statements in compliance with International Financial Reporting
Standards. We have elected to apply this relief and will only provide one year of comparative
information in our 30 June 2006 financial statements.
For reporting in the 2006 fiscal year, comparatives will be remeasured and restated for the
half-year ending 31 December 2004 and the financial year ending 30 June 2005. Most of the
adjustments on transition are required to be made to opening retained profits at the beginning of
the first comparative period (ie. at 1 July 2004).
We have a formal IFRS project team to manage the convergence to A-IFRS and enable us to be
prepared to report for the first time in accordance with the timetable outlined above. The project
team is monitored by a governance committee comprising senior members of management, which reports
regularly on progress to the Audit Committee of the Telstra Board of Directors. The governance
committee is monitoring our adoption of A-IFRS in accordance with an established project
implementation plan. The committee has also been following the developments in IFRS and the
potential impact for our transition to A-IFRS.
The IFRS project is comprised of dedicated workstreams with project teams responsible for
evaluating the impact of a specific group of accounting changes resulting from the adoption of
A-IFRS. The technical evaluation phase of each workstream is substantially complete and the
project is in the implementation and review phases. The project is achieving its scheduled
milestones and we expect to be in a position to fully comply with the requirements of A-IFRS for
the 2006 fiscal year.
The following disclosures reflect the adjustments based on the work of our IFRS project team for
both the Telstra Group and the Telstra Entity. The adjustments reported are based on the A-IFRS
standards released as at 30 June 2005. These are subject to ongoing review and any amendments by
the AASB, or by interpretative guidance from the IASB or AASB, could change the adjustments
reported. The adjustments identified are our best judgements as at reporting date. The figures
presented are our current best estimate of the consequences for the Company adopting A-IFRS and
accordingly they remain subject to change.
There are certain items that still require resolution. We have not recognised a deferred tax
liability in relation to indefinite lived intangibles as detailed in note 1.4 (c). Also, in
respect of the Urgent Issues Group (UIG) release UIG1042: Subscriber Acquisition Costs in the
Telecommunication Industry, we have not changed the accounting for mobile phone handset subsidies
as detailed in note 1.4(j)
We set out below the key differences in accounting policy and our known estimable transitional
differences from application of A-IFRS. In addition, we have included the likely impacts on the
2005 fiscal year result and financial position where known and the transitional adjustments for
AASB 132/139 as at 1 July 2005.
239
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1.
Summary of accounting policies (continued)
1.4 Adoption of International Financial Reporting Standards (continued)
(a) AASB 2: Share-Based Payment (AASB 2)
Under current AGAAP we recognise an expense for all restricted shares, performance rights, deferred
shares, other like instruments and Telstra shares (consisting of directshares and ownshares)
issued. This expense is equal to the funding provided to the Telstra Growthshare Trust to purchase
Telstra shares on market to underpin these equity instruments, and is recognised in full in the
statement of financial performance when the funding is provided. Under current AGAAP, we do not
recognise an expense for options issued on the basis that instrument holders will be required to
pay the option exercise price once the options vest and are exercised. We have not issued options
subsequent to fiscal 2002.
On adoption of AASB 2 we will recognise an expense for all share-based remuneration determined with
reference to the fair value of the equity instruments issued. The fair value of our equity
instruments will be 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 in accordance with AASB 2 will be charged against profit over the relevant
vesting periods, and adjusted as required by the standard.
Under the transitional exemptions of AASB 1: First-time Adoption of Australian Equivalents to
International Financial Reporting Standards (AASB 1) we have elected not to apply AASB 2 to equity
instruments issued prior to 7 November 2002 (the effective date of IFRS 2). This approach gives
rise to a positive transitional adjustment to retained profits.
A transitional adjustment to increase Telstra Group opening retained profits by $55 million
(Telstra Entity: $55 million) represents the reversal of the expense previously recorded under
AGAAP. We will also recognise a transitional expense in Telstra Group retained profits under AASB 2
of $4 million (Telstra Entity: $4 million) relating to the amortisation over the vesting period of
issues subsequent to 7 November 2002. This transitional expense will increase share capital by $4
million.
We own 100% of the equity of Telstra Growthshare Pty Ltd, the corporate trustee for the Telstra
Growthshare Trust, which administers our share based payment plans.
Under current AGAAP we do not
control or significantly influence the trust, as beneficial ownership and control remains with the
employees who participate in the share plans, administered by the Trustee on their behalf.
Under A-IFRS, we believe that from transition date we will be required to include the results,
financial position and cash flows of the Telstra Growthshare Trust within our financial statements.
The following adjustments will be recorded on initial recognition within the Telstra Group and
Telstra Entity:
|
|
elimination of the loan receivable from the Telstra Growthshare
Trust ($65 million); |
|
|
reduction in share capital to reflect the shares held in the Telstra
Entity by the Telstra Growthshare Trust ($117 million); and |
|
|
the recognition of cash assets held by the Telstra Growthshare
Trust ($3 million). |
Other assets and liabilities held by the Trust are insignificant to the Telstra Group and Telstra
Entity.
Our interpretation of AASB 2 is that shares issued under the Telstra Employee Share Ownership Plans
(TESOP 97 and TESOP 99), in conjunction with the non-recourse loans, are to be accounted for as
options. As a result, the outstanding balance of the Telstra Group and Telstra Entity loans to
employees under TESOP 97 and TESOP 99 amounting to $174 million (comprising $24 million current
receivables and $150 million non-current receivables), will be deducted from share capital on
transition to A-IFRS.
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). Under current AGAAP, we do not control or significantly influence these trusts as
beneficial ownership and control remains with the employees who participate in the share plans
administered by the Trustee on their behalf.
Under A-IFRS we will also include TESOP 97 and TESOP 99 within our financial statements from
transition date. The assets and liabilities held by these trusts are insignificant to the Telstra
Group and Telstra Entity.
Comparative information
The cumulative effect on the Telstra Group and Telstra Entity financial position at 30 June 2005
will be 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. Telstra Group labour
expense will decrease by $10 million, interest revenue will decrease by $2 million, and dividends
will decrease by $7 million for the year ended 30 June 2005.
240
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1.
Summary of accounting policies (continued)
1.4 Adoption of International Financial Reporting Standards (continued)
(b) AASB 3: Business Combinations (AASB 3)
Our current accounting policy is to amortise goodwill over the period of expected benefit. Under
A-IFRS goodwill acquired in a business combination will no longer be amortised, but instead will be
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 will be recognised immediately in the statement of financial performance.
Under the transitional arrangements of AASB 1 we have the option of applying AASB 3 prospectively
from the transition date to A-IFRS. We have chosen this option rather than to restate all previous
business combinations. The impact of AASB 3 and associated transitional arrangements will be as
follows:
|
|
all prior business combination accounting will be frozen as at 1
July 2004; and |
|
|
the value of goodwill will be frozen as at transition date, with any
amortisation that has been, or will be, reported under AGAAP
subsequent to transition date reversed for A-IFRS restatements. |
Comparative information
The prohibition of amortisation of goodwill will have the effect of reducing expenses and therefore
improving reported profits, subject to any impairment charges that may be required from time to
time. This change in policy under A-IFRS may result in increased volatility of future earnings
where impairment losses are incurred. The cumulative effect on the Telstra Group financial position
at 30 June 2005 will be to increase intangibles goodwill by $145 million (Telstra Entity: $4
million). The AGAAP amortisation charge for the Telstra Group for the year ended 30 June 2005 was
$145 million (Telstra Entity: $4 million), which will be reversed for A-IFRS purposes.
In addition, the amortisation charge for notional goodwill that has previously been included in the
share of net loss from joint venture entities and associated entities will cease. The cumulative
effect on the Telstra Group financial position at 30 June 2005 will be to increase investments
accounted for using the equity method by $2 million. The AGAAP notional amortisation charge for the
Telstra Group for the year ended 30 June 2005 was $2 million and will be reversed for A-IFRS
purposes. There is no impact on the Telstra Entity.
The adoption of AASB 3 results in adjustments being recognised for acquisitions completed subsequent
to transition date in the 12 months to 30 June 2005. This means that deferred tax balances related
to assets and liabilities acquired are to be recognised as part of an acquisition, subsequently
resulting in adjusted goodwill balances. The effect on the Telstra Group financial position at 30
June 2005 will be to increase intangibles goodwill by $68 million and deferred tax liabilities by
$68 million. There is no impact on the Telstra Entity.
(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, will be adopted, replacing the income statement approach currently used by Australian
companies. Under the new method we will generally recognise deferred tax balances in the statement
of financial position when there is a difference between the carrying value of an asset or
liability and its tax base.
The identified tax adjustments to Telstra Group deferred tax liabilities that arise on transition
to other A-IFRS standards, comprise an increase of $137 million associated with the pension asset
as detailed in note 1.4 (e), and a decrease of $138 million for the tax effect of the transitional
adjustment relating to borrowing costs as detailed in note 1.4 (g). Opening retained earnings
increase by $1 million as a result of these entries.
The identified tax adjustments to Telstra Entity deferred tax liabilities that arise on transition
to other A-IFRS standards, comprise an increase of $135 million associated with the pension asset
as detailed in note 1.4 (e), and a decrease of $129 million for the tax effect of the transitional
adjustment relating to borrowing costs as detailed in note 1.4 (g). Opening retained earnings
decrease by $6 million as a result of these entries.
In addition, a net transitional increase to Telstra Group deferred tax liabilities of $234 million
will arise from the change in method of accounting for income taxes from an income statement
approach to a balance sheet approach, for items not previously required to be recognised. For the
Telstra Group, this comprises $93 million for the tax effect of fair value adjustments on entities
acquired by us and tax base differences on buildings of $169 million, partially offset by tax
losses of $28 million. Opening retained earnings decrease by $202 million, and the asset
revaluation reserve reduces by $32 million to a balance of nil, as a result of these entries.
241
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1.
Summary of accounting policies (continued)
1.4 Adoption of International Financial Reporting Standards (continued)
(c) AASB 112: Income Taxes (AASB 112) (continued)
In June 2005, the Urgent Issues Group released UIG 1052: Tax Consolidation Accounting. This
interpretation does not result in a change to reporting by the Telstra Group, but will impact on
reporting for the Telstra Entity. The interpretation must be applied for the year ending 30 June
2006. Due to the timing of this release, it has not been possible to ascertain the impact on the
Telstra Entity. As a result, the net transitional adjustment that will arise from the change in
method of accounting for income taxes from an income statement approach to a balance sheet approach
has not been finalised for the Telstra Entity.
The tax consequences of some aspects of the adoption of A-IFRS are still unclear. The Australian
Taxation Office has established a national tax liaison group IFRS sub-committee to identify,
calculate and manage the consequences arising from IFRS adoption. There are also some technical
aspects of AASB 112 that are the subject of further clarification as to how they will apply to us.
Finalisation of these matters could give rise to further transitional adjustments from the adoption
of AASB 112.
We have not recognised a deferred tax liability in relation to indefinite lived intangibles as we
do not believe that this asset balance gives rise to a future tax consequence. The AASB has
referred this matter to the International Financial Reporting Interpretations Committee, who has
added this to their August 2005 agenda for consideration. The IFRIC interpretation of this issue
could increase the transitional deferred tax liability adjustment by $135 million in the event that
our interpretation is not supported. Subsequent to transition date another indefinite lived
intangible has been acquired. Resolution of this issue could give rise to an increase in
intangibles goodwill by $2 million and deferred tax liabilities by $2 million.
Comparative information
The likely impact on the Telstra Group and Telstra Entity financial position at 30 June 2005,
and for the financial performance for the year then ended, has not currently been determined.
(d) AASB 116: Property, Plant and Equipment (AASB 116)
Under A-IFRS, we will deem the carrying value of our property, plant and equipment to be cost from
the date of transition.
Comparative information
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 current 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 AGAAP, the release of interest associated with the unwinding of the present value discount is
being capitalised as part of property, plant and equipment until the assets are installed ready for
use. Under A-IFRS the release of interest will be expensed as incurred.
FortheTelstra Group, this change in the discount rate and capitalisation of interest will result in
a decrease in our property, plant and equipment of $38 million, decrease in current and non current
deferred liabilities of $10 million, and decrease in deferred tax liability of $12 million as at 30
June 2005. Interest expense of the Telstra Group for the year ended 30 June 2005 will increase by
$28 million, and income tax expense will decrease by $12 million. There will be no impact on the
Telstra Entity.
(e) AASB 119: Employee Benefits (AASB 119)
Under
current AGAAP, we do not recognise an asset or liability in our statement of financial
position for the net position of the defined benefit schemes we sponsor in Australia and Hong Kong.
On adoption of A-IFRS, AASB 119 requires us to recognise the net position of each scheme as a
transitional adjustment in the statement of financial position, with a corresponding entry to
retained profits. The transitional adjustment is based on an actuarial valuation of each scheme at
transition date determined in accordance with AASB 119. This Telstra Group adjustment will result in
a $537 million defined benefit pension asset, an increase to opening retained profits of $400
million, and a $137 million increase to the deferred tax liability, as detailed in note 1.4 (c).
The Telstra Entity adjustment will result in a $528 million defined benefit pension asset, an
increase to opening retained profits of $393 million, and a $135 million increase to the deferred
tax liability.
We have elected to early adopt the revised AASB 119. This revised version permits a number of
options for recognising actuarial gains and losses on an ongoing basis. We have elected to apply
the option to recognise actuarial gains and losses directly in retained profits. Other components
of pension costs will be recognised in the statement of financial performance.
242
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(e) AASB
119: Employee Benefits (AASB 119) (continued)
Comparative information
The cumulative effect on the Telstra Group financial position at 30 June 2005 will be to increase
the defined benefit pension asset by $247 million, increase property, plant and equipment by $24
million, representing the capitalised portion of the additional labour cost, increase deferred tax
liabilities by $63 million, and decrease retained earnings for actuarial losses by $67 million.
Telstra Group labour expense will increase by $174 million, depreciation expense will increase by
$2 million, and income tax expense will decrease by $51 million for the year ended 30 June 2005.
The cumulative effect on the Telstra Entity financial position at 30 June 2005 will be to increase
the defined benefit pension asset by $241 million, increase property, plant and equipment by $24
million, increase deferred tax liabilities by $61 million, and decrease retained earnings for
actuarial losses by $64 million. Telstra Entity labour expense will increase by $175 million,
depreciation expense will increase by $2 million, and income tax expense will decrease by $52
million for the year ended 30 June 2005.
(f) AASB 121: The Effects of Changes in Foreign Exchange Rates (AASB 121)
The Telstra Group transitional adjustments to reset the goodwill and fair value adjustments of
foreign controlled entities will result in a decrease to the foreign currency translation reserve
(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 FCTR will be reset to nil following these adjustments.
On an ongoing basis, 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. In conjunction with the transitional adjustments, this may result in additional
fluctuations in our FCTR on an ongoing basis.
Under the transitional rules of AASB 1 we will be taking advantage of an exemption that permits the
resetting of the FCTR to nil as at the date of transition to A-IFRS. The A-IFRS FCTR balance prior
to reset is $343 million. The decision to reset will give rise to a decrease to opening retained
profits of this amount. There will be no adjustment related to the Telstra Entity.
Translation differences in relation to our foreign controlled entities subsequent to transition to
A-IFRS will continue to be recorded in the FCTR. The gain or loss on a future disposal of a foreign
controlled entity will exclude the translation differences that arose before the date of transition
to A-IFRS and the resetting of the FCTR.
Under the transitional rules of AASB 1 we will be taking advantage of an exemption that permits
goodwill and fair value adjustments related to foreign controlled entities to be reset to the
functional currency of the foreign operations at the original date of acquisition. The financial
impact of restating goodwill and fair value adjustments not denominated in functional currencies of
that entity are primarily attributable to our investments in the Telstra CSL Group (HKCSL) and
TelstraClear Limited (TelstraClear).
Comparative information
The cumulative effect on the Telstra Group financial position at 30 June 2005 will be to decrease
intangibles goodwill by $447 million, increase intangibles other by $11 million, increase
property, plant and equipment by $3 million and decrease FCTR by $90 million. The impact on
financial performance for the year ended 30 June 2005 will be insignificant. In addition, there
will be no adjustment related to the Telstra Entity.
(g) AASB 123: Borrowing Costs
In accordance with AGAAP, we capitalise borrowing costs incurred in respect of internally
constructed property, plant and equipment and software assets that meet the criteria of 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.
On transition to A-IFRS we will transfer the unamortised capitalised borrowing costs included in
property, plant and equipment and software assets to retained profits. This will give rise to a
reduction in Telstra Group property, plant and equipment of $396 million, a reduction in software
assets of $63 million, a decrease to opening retained profits of $321 million and a $138 million
decrease to deferred tax liabilities.
In relation to the Telstra Entity, this will give rise to a reduction in property, plant and
equipment of $368 million, a reduction in software assets of $63 million, a decrease to opening
retained profits of $302 million and a $129 million decrease to deferred tax liabilities. This
election will have the impact of reducing depreciation and increasing our interest expense in
subsequent reporting periods.
243
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(g) AASB 123: Borrowing Costs (AASB 123) (continued)
Comparative information
The cumulative effect on the Telstra Group financial position at 30 June 2005 will be to decrease
property, plant and equipment by $399 million, reduce software assets by $57 million, and increase
deferred tax liabilities by $138 million. Telstra Group depreciation expense will decrease by $93
million and borrowing costs will increase by $90 million for the year ended 30 June 2005.
The cumulative effect on the Telstra Entity financial position at 30 June 2005 will be to decrease
property, plant and equipment by $374 million, a reduction in software assets of $57 million and
increase deferred tax liabilities by $129 million. Telstra Entity depreciation expense will
decrease by $90 million, and borrowing costs will increase by $90 million for the year ended 30
June 2005.
(h) 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
joint venture 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 joint venture entity. Accordingly, we
have reclassified amounts that are not currently recorded in the carrying value of our investment
in associates or joint venture entities to now be treated as an extension of our equity investment.
This treatment gives rise to the continuation of equity accounting of our share of the operating
losses in respect of those associates and joint venture entities that are incurring losses and have
balances as described above.
On transition to AASB 128/131, there will be a decrease to Telstra Group non current receivables of
$208 million representing a capacity prepayment with our joint venture entity Reach Ltd (Reach).
This non current asset will be deemed to be an extension of our investment in Reach under A-IFRS.
This will result in equity accounting being reinstated against the capacity prepayment as part of
the transition to A-IFRS. The increase in our deemed investment balance in Reach will, however, be
absorbed by the carried forward losses in Reach not previously recognised. The impact of this
change on the Telstra Group will be 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 will be reset to
nil as detailed in the adjustment outlined in note 1.4 (f). There will be no adjustment related to
the Telstra Entity.
During the 2005 fiscal year we swapped our capacity prepayment with Reach for an Indefeasible Right
of Use (IRU). This IRU is recorded as a deferred expense under AGAAP and is being amortised over
the term of the IRU being 15 years. Refer to note 14 for further information. Under A-IFRS, this
IRU will be deemed to be an extension of our investment in Reach, similar to the capacity
prepayment. As such, we will continue to record the equity accounted losses in Reach against this
IRU in the Telstra Group.
Comparative information
The cumulative effect on the Telstra Group financial position at 30 June 2005 will be to decrease
intangibles other by $216 million. The Telstra Group share of net profit from joint venture
entities and associated entities will reduce by $14 million, amortisation expense will decrease by
$3 million, interest revenue will decrease by $18 million and exchange losses will decrease by $21
million for the year ended 30 June 2005. There will be no adjustment related to the Telstra Entity.
(i) AASB 136: Impairment of Assets (AASB 136)
Our current accounting policy under AGAAP is to assess our current and non current assets for
impairment by determining the recoverable amount of those assets. We then write down the value of
the non current asset where the carrying amount exceeds recoverable amount. Current AGAAP enables
us to assess recoverable amount for a group of non current assets where those assets are considered
to work together as one.
On adoption of AASB 136, impairment of assets will be 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. 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 current AGAAP, we assess recoverable amount on this same ubiquitous network basis, and as a
result, there will be no initial adjustments to the value of our assets under A-IFRS.
244
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(i) AASB 136: Impairment of Assets (AASB 136) (continued)
Each of our controlled entities, joint venture entities and associated entities have also been
assessed, and generally each significant entity will have at least one separate cash generating
unit in their own right. Under current AGAAP, we generally assess recoverable amount on a similar
basis, and there is not expected to be an 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 are to be recognised on transition to A-IFRS.
(j) AASB 138: Intangible Assets (AASB 138)
As part of the IFRS project, intangibles recognised under 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, net deferred mobile phone
handset subsidies and other deferred expenditure will be reclassified from other current and non
current assets to intangible assets on transition to AASB 138. This reclassification adjustment for
the Telstra Group amounts to $2,817 million (Telstra Entity: $2,614 million) as at transition date.
UIG 1042: Subscriber Acquisition Costs in the Telecommunication Industry, was released in
December 2004 and is applicable to us from 1 July 2005. It requires the costs of telephones
provided to subscribers to be excluded from subscriber acquisition costs, with the provision of the
telephone being accounted for as a separate sale under AASB 118: Revenue (AASB 118). However,
neither UIG 1042 nor AASB 118 specifies how to account for the separately identifiable component.
We have previously applied US GAAP to these transactions, which also require the provision of a
handset to be accounted for as a separately identifiable component. However, the detailed guidance
contained under US GAAP allows us to defer these handset subsidies as the revenue allocated to a
subsidised mobile handset is contingent on the delivery of the contracted services. As a result,
our current accounting policy is to defer handset subsidies and amortise them over the term of the
contract.
We have written to the UIG expressing the view that our handset subsidies do represent our
subscriber acquisition costs. As a result we have not adjusted our deferred handset subsidies at
transition date. As at transition date, the Telstra Group deferred handset subsidies balance was
$264 million (Telstra Entity: $264 million). Resolution of this issue may give rise to an
additional transition adjustment, reducing retained earnings by $264 million and could also impact
the financial performance and position for the year ended 30 June 2005. At this stage we are yet to
quantify the potential impact on the financial performance and position in the 2005 fiscal year.
Comparative information
The cumulative effect on the Telstra Group financial position at 30 June 2005 will be to increase
intangibles other by $3,154 million (Telstra Entity: $2,837 million). There will be no impact on
financial performance for the year ended 30 June 2005.
(k) AASB 132: Financial Instruments: Disclosure and Presentation (AASB 132) and AASB 139:
Financial Instruments: Recognition and Measurement (AASB 139)
Under AASB 132/139, our accounting policy will change to recognise our financial instruments in the
statement of financial position and to record all derivatives and some financial assets and
financial liabilities at fair market value. Those financial assets and financial liabilities which
are not at fair value will be carried at cost or amortised cost.
AASB 139 recognises fair value hedge accounting, cash flow hedge accounting and hedges of
investments in foreign operations. Fair value hedges are used to hedge against changes in fair
values, whereas cash flow hedges are used to hedge against variability in cash flows. Hedge
accounting can only be utilised where effectiveness tests are met on both a prospective and
retrospective basis. Ineffectiveness outside the prescribed range precludes the use of hedge
accounting, which may result in significant volatility in the statement of financial performance.
Our major exposure to interest rate risk and foreign currency risk arises from our foreign currency
borrowings. We expect to use a combination of fair value and cash flow hedges to hedge against
these risks. Cash flow hedges will hedge foreign exchange risk arising from payments on our foreign
currency borrowings. Fair value hedges will hedge exposure to changes in the fair value of foreign
borrowings attributable to foreign currency and interest rate risk.
Exposure to foreign currency risk also arises through our ongoing business activities,
predominantly where we have purchase or settlement commitments in foreign currencies. Cash flow
hedges are used to hedge foreign currency exposures of anticipated foreign currency transactions
that are considered to be highly probable.
245
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(k) MSB 132: Financial Instruments: Disclosure and Presentation (AASB 132) and AASB 139:
Financial Instruments: Recognition and Measurement (AASB 139) (continued)
In addition, we hedge our exposure to foreign currency risk as a result of our investments in
foreign operations, including our investments in TelstraClear and HKCSL. This risk is created by
the translation of the net assets of these entities from their functional currency to Australian
dollars.
The use of hedging instruments is governed by the guidelines set by our Board of Directors. These
guidelines are currently being reviewed for potential changes from the adoption of A-IFRS.
We are required to comply with AASB 132/139 from 1 July 2005. An exemption is available under AASB
1 such that comparative information does not need to be restated under these standards. We have
elected to apply the exemption and accordingly, there will be no impact on the 30 June 2005
financial statements.
However, it is expected that the application of the recognition and measurement criteria of AASB
139 at 1 July 2005 on the Telstra Group financial assets and financial liabilities, including
derivatives, will give rise to an increase in borrowings of $220 million, a decrease in net cross
currency and interest rate swap liability of $343 million, an increase in reserves of $151 million
and a decrease in retained earnings of $31 million. There will also be an increase in forward
foreign exchange contract liabilities of $3 million.
It is expected that the application of the recognition and measurement criteria of AASB 139 at 1
July 2005 on the Telstra Entity financial assets and financial liabilities, including derivatives
will give rise to an increase in borrowings of $220 million, a decrease in net cross currency and
interest rate swap liability of $343 million, an increase in reserves of $154 million and a
decrease in retained earnings of $31 million.
The gains and losses on hedging instruments that arise from the use of fair value hedges will be
recognised in the statement of financial performance and increase volatility in reported profits.
The increase in volatility of reported profits will include some ineffectiveness arising from the
application of hedge accounting. The gains and losses on hedging instruments that arise from the
use of cash flow hedges, to the extent they are considered effective, will be deferred to equity
until the hedged item is recognised in the statement of financial performance. This will create
some volatility in equity reserve balances. Gains and losses on hedging instruments used in hedges
of net investments in foreign operations will be recognised in the foreign currency translation
reserve in equity.
Under existing AGAAP, the gain or loss arising from our hedge activities is treated consistently
with the gain or loss arising on the original hedged transaction or balance. This results in the
majority of movements being recognised in the statement of financial performance, with the majority
of hedging activities of net investments in foreign operations taken to the FCTR.
In addition to the above, AASB 139 requires that we recognise certain embedded derivatives that
exist within contracts to which we are a party. Based on the work-in-progress of our IFRS project
team we are not aware of any significant embedded derivatives that require separate measurement and
reporting as at the transition date of 1 July 2005. This may be subject to change following
finalisation of our review of all our contracts as at the transition date.
246
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(I) Summary of transitional adjustments
The following provides a summary of the known estimable transitional adjustments from AGAAP to
A-IFRS for the Telstra Group as at 1 July 2004, based on the A-IFRSs as currently issued and
interpreted.
The transitional impacts disclosed below do not include any adjustments from applying AASB 132/139,
on the basis that these standards are to be applied prospectively, with the transition only
required to be recognised at 1 July 2005. Refer to note 1.4(k) for further information.
Any transitional adjustments identified are based on the work-in-progress of our IFRS project team
and our best judgements at reporting date and may be subject to change.
There are certain items that still require resolution. We have not recognised a deferred tax
liability in relation to indefinite lived intangibles or determined the impact on the Telstra
Entity of UIG 1052: Tax Consolidation Accounting as detailed in note 1.4 (c). Also, in respect of
UIG 1042 Subscriber Acquisition Costs in the Telecommunications Industry, we have not changed the
accounting for mobile phone handset subsidies as detailed in note 1.4 (j).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
Australian |
|
|
|
|
|
|
|
|
|
|
|
Presentation |
|
|
Accounting |
|
|
equivalent |
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
of IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
1.4 |
(a) |
|
|
687 |
|
|
|
|
|
|
|
3 |
|
|
|
690 |
|
Trade and other
receivables |
|
|
1.4 |
(a) |
|
|
3,608 |
|
|
|
(24 |
) |
|
|
|
|
|
|
3,584 |
|
Inventories |
|
|
|
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
229 |
|
Other assets |
|
|
1.4 |
(j) |
|
|
803 |
|
|
|
(491 |
) |
|
|
|
|
|
|
312 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
5,327 |
|
|
|
(515 |
) |
|
|
3 |
|
|
|
4,815 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other
receivables |
|
|
1.4(a), |
(h) |
|
|
740 |
|
|
|
(150 |
) |
|
|
(273 |
) |
|
|
317 |
|
Inventories |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Investments
accounted
for using the equity method
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Investments available for sale |
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Property, plant and
equipment |
|
|
1.4(f), |
(g) |
|
|
22,863 |
|
|
|
|
|
|
|
(393 |
) |
|
|
22,470 |
|
Intangibles
goodwill
|
|
|
1.4 |
(f) |
|
|
2,104 |
|
|
|
|
|
|
|
(314 |
) |
|
|
1,790 |
|
Intangibles
other
|
|
|
1.4(f), |
(j) |
|
|
1,501 |
|
|
|
2,817 |
|
|
|
(49 |
) |
|
|
4,269 |
|
Defined benefit
pension asset |
|
|
1.4 |
(e) |
|
|
|
|
|
|
|
|
|
|
537 |
|
|
|
537 |
|
Other assets |
|
|
1.4 (g), |
(j) |
|
|
2,328 |
|
|
|
(2,326 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
29,666 |
|
|
|
341 |
|
|
|
(492 |
) |
|
|
29,515 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
34,993 |
|
|
|
(174 |
) |
|
|
(489 |
) |
|
|
34,330 |
|
|
|
|
|
|
|
|
247
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(I) Summary of transitional adjustments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of transition to A-IFRS |
|
|
Australian |
|
|
|
|
|
|
|
|
|
|
|
Presentation |
|
|
Accounting |
|
|
equivalent |
|
|
|
|
|
|
|
AGAAP |
|
|
adjustments |
|
|
adjustments |
|
|
of IFRS |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
2,338 |
|
|
|
|
|
|
|
|
|
|
|
2,338 |
|
Borrowings |
|
|
|
|
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
3,246 |
|
Current tax payable |
|
|
|
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
539 |
|
Provisions |
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
358 |
|
Revenue received in advance |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
7,576 |
|
|
|
|
|
|
|
|
|
|
|
7,576 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Borrowings |
|
|
|
|
|
|
9,014 |
|
|
|
|
|
|
|
|
|
|
|
9,014 |
|
Deferred tax liabilities |
|
|
1.4(c),(e), (g) |
|
|
|
1,807 |
|
|
|
|
|
|
|
233 |
|
|
|
2,040 |
|
Provisions |
|
|
|
|
|
|
778 |
|
|
|
|
|
|
|
|
|
|
|
778 |
|
Revenue received in advance |
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
408 |
|
Total non current
liabilities |
|
|
|
|
|
|
12,056 |
|
|
|
|
|
|
|
233 |
|
|
|
12,289 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
19,632 |
|
|
|
|
|
|
|
233 |
|
|
|
19,865 |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
15,361 |
|
|
|
(174 |
) |
|
|
(722 |
) |
|
|
14,465 |
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
6,073 |
|
|
|
(174 |
) |
|
|
(113 |
) |
|
|
5,786 |
|
Reserves |
|
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
154 |
|
|
|
49 |
|
Retained profits |
|
|
|
|
|
|
9,391 |
|
|
|
|
|
|
|
(763 |
) |
|
|
8,628 |
|
Equity available to Telstra
Entity shareholders |
|
|
|
|
|
|
15,359 |
|
|
|
(174 |
) |
|
|
(722 |
) |
|
|
14,463 |
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
15,361 |
|
|
|
(174 |
) |
|
|
(722 |
) |
|
|
14,465 |
|
|
|
|
|
|
|
|
248
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies
(continued)
1.4 |
|
Adoption of International Financial Reporting Standards (continued) |
(m) Statement of changes in shareholders equity
The following statement of changes in shareholders equity provides a summary of the known
estimable transitional adjustments from AGAAP to A-IFRS for the Telstra Group as at 1 July 2004,
based on the A-IFRSs as currently issued and interpreted. The transitional impacts disclosed below
do not include any adjustments from applying AASB 132/139, on the basis that these standards are to
be applied prospectively, with the transition only required to be recognised at 1 July 2005. Refer
to note 1.4 (k) for further information.
Any transitional adjustments identified are based on the work-in-progress of our IFRS project team
and our best judgements at reporting date, and may be subject to change.
There are certain items that still require resolution. We have not recognised a deferred tax
liability in relation to indefinite lived intangibles as detailed in note 1.4 (c). Also, in respect
of UIG 1042 Subscriber Acquisition Costs in the Telecommunications Industry, we have not changed
the accounting for mobile phone handset subsidies as detailed in note 1.4 (j).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
Share |
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital/ |
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Consoli- |
|
|
|
|
|
|
Outside |
|
|
|
|
|
|
|
|
|
|
Contributed |
|
|
Asset |
|
|
currency |
|
|
|
|
|
|
dation |
|
|
Retained |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
equity |
|
|
revaluation |
|
|
translation |
|
|
General |
|
|
fair value |
|
|
profits |
|
|
interests |
|
|
Total |
|
|
|
Note |
|
|
$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 loans to employees |
|
|
1.4 |
(a) |
|
|
(174 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(174 |
) |
Shares held by employee share plan trusts |
|
|
1.4 |
(a) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117 |
) |
Services received under employee share plans |
|
|
1.4 |
(a) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
Share-based payments |
|
|
1.4 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
Carrying value differences from the tax base |
|
|
1.4 |
(c) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202 |
) |
|
|
|
|
|
|
(234 |
) |
Net defined benefit pension asset |
|
|
1.4 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
400 |
|
Retranslation of overseas goodwill balances |
|
|
1.4 |
(f) |
|
|
|
|
|
|
|
|
|
|
(297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297 |
) |
Resetting the foreign currency
translation reserve to zero |
|
|
1.4 |
(f) |
|
|
|
|
|
|
|
|
|
|
343 |
|
|
|
|
|
|
|
|
|
|
|
(343 |
) |
|
|
|
|
|
|
|
|
Expensing of borrowing costs previously
capitalised |
|
|
1.4 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321 |
) |
|
|
|
|
|
|
(321 |
) |
Equity accounting for Reach Ltd . |
|
|
1.4 |
(h) |
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
(348 |
) |
|
|
|
|
|
|
(208 |
) |
|
|
|
|
|
|
|
Balance at 1 July 2004 under A-IFRS for
known estimable transitional
adjustments |
|
|
|
|
|
|
5,786 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
44 |
|
|
|
8,628 |
|
|
|
2 |
|
|
|
14,465 |
|
|
|
|
|
|
|
|
249
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.5 |
|
Principles of consolidation |
Our 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 financial year and the consolidated
results and cash flows for the financial year. The effect of all intergroup transactions and
balances are eliminated in full from our consolidated financial report.
Where we do not control an entity for the whole 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 controlled entities retained profits/accumulated losses
from the time they became a controlled entity until control ceases. Outside equity interests in the
results and equity of controlled entities are shown separately in our consolidated statement of
financial performance and consolidated statement of financial position.
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 align dissimilar
accounting policies or accounting periods.
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 to enable
it to operate with us in achieving our objectives. Our controlled entities are listed in note 23.
Investments in other types of entities, including associated entities and joint ventures, are
accounted for as set out in note 1.11.
1.6 |
|
Foreign currency translation |
(a) Transactions
Foreign currency transactions are converted into Australian 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 Australian currency at market exchange rates at balance date. Any
currency translation gains and losses that arise are included in our net profit or loss for the
year. Where we enter into a hedge for a specific expenditure commitment or for the construction of
a qualifying asset, currency translation gains and losses and hedging costs on forward foreign
currency contracts are deferred and included with the expenditure commitment or cost of the asset.
Where we enter into a hedge for general expenditure commitments or for the construction of a
non-qualifying asset, currency translation gains and losses are recorded in the statement of
financial performance in the same period as the currency translation differences on the underlying
transaction being hedged. Costs of such contracts are amortised over the life of the hedge
contract.
Premiums and discounts on forward foreign currency contracts arising at the time of entering into
the hedge are deferred and amortised over the life of the contract and included in borrowing costs.
(b) Translation of financial reports of foreign operations
Non-Australian entities that operate on their own (self-sustaining entities)
Where our non-Australian operations operate independently of us both financially and operationally,
we translate their financial reports to Australian dollars using the current rate method of
accounting.
Under this method:
|
|
assets and liabilities are translated into Australian dollars using market exchange rates at balance date; |
|
|
|
shareholders 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; |
|
|
|
statements of financial performance 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. |
Exchange differences relating to foreign currency monetary items forming part of the net investment
in a self sustaining foreign entity, together with hedges of such monetary items and related tax
effects, are eliminated against the foreign currency translation reserve on consolidation of the
foreign entitys financial report.
Upon disposal or partial disposal of a self sustaining entity, the balance of the foreign currency
translation reserve relating to the entity, or the part disposed of, is transferred to retained
profits.
250
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.6 Foreign currency translation (continued)
Non-Australian entities that operate with us (integrated entities)
Where our non-Australian operations, either directly or indirectly, rely on us financially
and operationally, we translate their financial reports to Australian dollars using a method known
as the temporal method of accounting.
Under this method:
|
|
monetary statement of financial position items, such as cash and receivables, are translated into Australian dollars using market
exchange rates at balance date; |
|
|
|
non monetary statement of financial position items (including equity at the date of investment) are translated at market
exchange rates applicable at the date of the transactions (or at the
date of revaluation); |
|
|
|
statements of financial performance 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 statement of financial performance. |
1.7 |
|
Cash and cash equivalents (note 8) |
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 and interest revenue is recognised on an
effective yield to maturity basis.
Bills of exchange and commercial paper are valued at amortised cost with interest revenue
recognised on an effective yield to maturity basis.
The statement of cash flows discloses cash net of outstanding bank overdrafts.
Trade debtors are recorded at amounts to be received. A provision for doubtful debts is
raised based on a review of outstanding amounts at balance date. Bad debts specifically provided
for in previous years are recorded against the provision for doubtful debts (the provision is
reduced). In all other cases, bad debts are written off as an expense directly in the statement of
financial performance.
Bills of exchange and commercial paper with a maturity date that is greater than three months are
valued at amortised cost with interest revenue recognised on an effective yield to maturity basis.
Receivables from related parties are recognised and carried at the nominal amount due. Interest is
taken up as income on an accrual basis.
Employee share loans are carried at the amount advanced to each employee, less after tax dividend
repayments and loan repayments that have occurred. The outstanding principal on these loans is
mainly interest free. The current portion of the loan receivable is calculated using estimated loan
repayments expected to be received from tax adjusted dividend payments and estimated loan
repayments as a result of staff exiting the employee share plans, described in note 19.
1.9 |
|
Inventories (note 10) |
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.
Current inventories are inventory items held for resale or items to be consumed into the
telecommunications network within one year.
Non current inventories are items which will be consumed into the telecommunications network
after one year.
251
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.10 |
|
Construction contracts (note 10) |
(a) Valuation
We record construction contracts in progress at cost (net of any provision for foreseeable losses)
less progress billings where profits are yet to be recognised.
Cost includes:
|
|
both variable and fixed costs directly related to specific contracts; |
|
|
|
amounts which can be allocated to contract activity in general and which can be allocated to specific contracts on a reasonable basis;
and |
|
|
|
costs expected to be incurred under penalty clauses, warranty provisions and other variances directly related to the contract. |
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.
(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
1.21(d)).
Profits are recognised when:
|
|
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 (refer to note 10). Where progress billings exceed the balance of construction
work in progress the net amount is shown as a current liability within other creditors.
1.11 |
|
Investments (note 11) |
(a) Controlled entities
Our investments in controlled entities are valued at cost less any amount provided for
reduction in the investment value.
(b) Joint venture entities and associated entities
Joint venture entities
A joint venture 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 joint venture entities that are:
|
|
partnerships are accounted for using the equity method of accounting in the Telstra Group and Telstra Entity financial
statements; and |
|
|
|
not 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. |
Our policy for accounting for joint venture entities is otherwise consistent with that detailed
for our associated entities below.
Associated entities
Where we hold an interest in the equity of an entity and we 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.
Under the equity method of accounting we adjust the initial recorded amount of the investment for
our share of:
|
|
net profits or losses after tax since the date of investment; |
|
|
|
reserve movements since the date of investment; |
|
|
|
unrealised profits or losses; |
|
|
|
notional goodwill amortisation; |
|
|
|
dividends or distributions received; and |
|
|
|
deferred profit brought to account. |
Our share of all of these items, apart from dividends or distributions received and reserves, is
recorded in the statement of financial performance.
Notional goodwill on acquisition of an interest in a joint venture entity or associated entity is
amortised over the expected period of benefit, limited to a maximum of 20 years from the date of
acquisition.
252
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.11 |
|
Investments (note 11) (continued) |
This amortisation is recorded in the share of net profits or losses of joint venture entities
and associated entities line in the statement of financial performance.
Where we contribute or sell businesses or assets to a joint venture entity or associate in which we
retain an ownership interest, a portion of the profit arising on contribution or sale is deferred.
The amount deferred is determined with reference to our ownership percentage in the joint venture
entity or associated entity. The deferred amount is released to the statement of financial
performance through the equity accounted results over a period consistent with the utilisation of
the underlying assets.
We also assess the recoverable amount of our equity accounted investments at each reporting date to
ensure the equity accounted carrying amount does not exceed the recoverable amount. Where the
equity accounted amount of an investment has been reduced to recoverable amount, we only reverse
reductions to the extent the new recoverable amount at balance date exceeds the carrying amount at
that date.
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 year share of losses and reserve reductions.
(c) Joint venture operations
A joint venture operation means a contractual arrangement (that is not a joint venture entity)
whereby two or more parties undertake an economic activity that is governed by joint control. This
usually involves the shared use of assets. Joint control involves the contractually agreed sharing
of control where two or more parties must consent to all major decisions. Where the investment is
significant, we record assets and liabilities relating to our share of each asset and liability
used in the joint venture operation. We record expenses based on our percentage ownership interest
in the joint venture. We record revenue from the sale or use of our share of the output as
described in our revenue policy (refer to note 1.21).
With regard to our 3GIS partnership, we jointly design and construct third generation radio access
network (RAN) assets with our joint venture partner. The structure of the agreements is that of an
asset sharing arrangement, whereby we jointly retain the majority of the risks and rewards of
ownership of these constructed assets. As a result, we recognise our share of the RAN assets within
property, plant and equipment in our consolidated statement of financial position. Expenses
incurred by the partnership are on-charged to the partners in equal proportion.
(d) Listed securities and investments in other corporations
Listed securities (other than equity accounted investments) and investments in other corporations
are valued at cost less any amount provided for permanent reduction in their value.
We determine whether there is a need for a provision for reduction in value of our investments on
the following bases:
|
|
for listed securities traded in an organised financial market we use the current quoted market bid price at balance date; and |
|
|
|
for investments in unlisted securities not traded in an organised financial market, fair value is determined by reference to the net
assets of the unlisted security. |
|
1.12 |
|
Recoverable amount of non current assets |
Non current assets measured using the cost basis are written down to recoverable amount where
their carrying value exceeds this recoverable amount.
The recoverable amount of an asset is the net amount expected to be recovered through the cash
inflows and outflows arising from its continued use and subsequent disposal. Where net cash inflows
are derived from a group of assets working together, recoverable amount is determined on the basis
of the relevant group of assets. We recognise any decrement in the carrying value as an expense in
the statement of financial performance in the reporting period in which the recoverable amount
write down occurs.
The expected net cash flows included in determining recoverable amounts of non current assets are
discounted to their present values using a market determined, risk adjusted, discount rate.
1.13 |
|
Property, plant and equipment (note 12) |
(a) Acquisition
Items of property, plant and equipment are recorded at cost and depreciated as described in note
1.13(c). The cost of our constructed property, plant and equipment includes:
|
|
the cost of material and direct labour; |
|
|
|
an appropriate proportion of direct and indirect overheads; and |
|
|
|
borrowing costs up to the date the asset is installed ready for use. |
Our weighted average capitalisation interest rate for borrowing costs for fiscal 2005 was 7.3%
(2004: 7.7%; 2003: 7.5%). Interest revenue is not deducted in the calculation of borrowing costs
included in the cost of constructed assets when those borrowings are not for a specific asset.
253
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.13 Property, plant and equipment (note 12) (continued)
(b) Revaluation
We obtain valuations of all our land and buildings at
least once every three years, or more frequently if
necessary, in accordance with the note disclosure
requirements in AASB 1040: Statement of Financial
Position. It is our policy to apply the cost basis of
recording property plant and equipment. Any notional
increase in book value as a result of the triennial
valuation will therefore be disclosed in a note to the
financial statements but not booked (refer to note 12).
It is our policy to hold all of our property, plant and
equipment at cost. We have elected to deem all our
revalued property, plant and equipment carrying amounts
as at 30 June 2000 to be their cost going forward as
allowed by the relevant accounting standards. This means
that the asset revaluation reserve for the Telstra Group
of $32 million was fixed as at 1 July 2000 and writedowns
of previously revalued assets will no longer be made
through the asset revaluation reserve.
We reduce the value of our property, plant and
equipment to its recoverable amount where our
carrying amount is greater than recoverable amount.
Any writedown of this type is immediately charged to
the statement of financial performance.
The profit or loss on disposal of assets written down to
recoverable amount is calculated as the difference
between the carrying amount of the asset at the time of
disposal, and the revenue received on disposal. This is
included in the statement of financial performance in the
year of disposal.
The effect of capital gains tax has not been taken into
account in calculating the valuation amounts of property,
plant and equipment.
(c) Depreciation
Items of property, plant and equipment, including
buildings and leasehold property, but excluding freehold
land, are depreciated on a straight line basis 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 listed as
follows:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
Service life |
|
|
Service life |
|
Property, plant and equipment |
|
(years) |
|
|
(years) |
|
Buildings building shell |
|
|
55 |
|
|
|
55 |
|
- general purpose |
|
|
8 - 40 |
|
|
|
8 - 40 |
|
- fitout |
|
|
10 - 20 |
|
|
|
10 - 20 |
|
Communication assets |
|
|
|
|
|
|
|
|
Buildings building shell |
|
|
55 |
|
|
|
55 |
|
- network |
|
|
8 - 40 |
|
|
|
8 - 40 |
|
- fitout |
|
|
10 - 20 |
|
|
|
10 - 20 |
|
Customer premises equipment |
|
|
3 - 8 |
|
|
|
3 - 8 |
|
Transmission equipment |
|
|
3 - 25 |
|
|
|
3 - 25 |
|
Switching equipment |
|
|
1 - 10 |
|
|
|
1 - 10 |
|
Cables |
|
|
8 - 25 |
|
|
|
8 - 25 |
|
Ducts and pipes main cables |
|
|
40 |
|
|
|
40 |
|
- distribution |
|
|
30 |
|
|
|
30 |
|
Other communications plant |
|
|
3 - 16 |
|
|
|
3 - 16 |
|
Other assets |
|
|
|
|
|
|
|
|
Leasehold plant and equipment |
|
|
3 - 15 |
|
|
|
7 - 15 |
|
Other plant, equipment and motor
vehicles |
|
|
3 - 15 |
|
|
|
3 - 15 |
|
The service lives and residual values (where applicable)
of all assets are reviewed each year As part of that
review asset lives are reassessed. Certain asset lives are
extended and other asset lives are reduced. The net effect
of the reassessment for fiscal 2005 was a decrease in our
depreciation expense of $60 million (2004: $30 million
decrease; 2003: $94 million decrease). 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.
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. This is the case for certain
communication assets. 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.
Our major repairs and maintenance expenses relate to
maintaining our exchange equipment and the customer
access network (CAN). We charge the cost of repairs and
maintenance, including the cost of replacing minor items,
which are not substantial improvements, to operating
expenses.
254
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.14 Leased plant and equipment (note 12)
We account for leases in accordance with AASB 1008:
Leases. We distinguish 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 by using a finance
lease, the present value of future minimum lease payments
is disclosed as equipment under finance lease at the
beginning of the lease term. Capitalised lease payments
are amortised 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 statement of
financial performance in the periods in which they are
incurred. Operating lease rental expense is disclosed in
note 3.
Where we lease properties, costs of improvements to these
properties are capitalised, and disclosed as leasehold
improvements and amortised over the shorter of the useful
life of the improvements or the term of the lease.
1.15 Intangible assets (note 13)
Intangible assets are assets that have value but do
not have physical substance.
(a) Goodwill
On acquisition of investments, when we pay an amount
greater than the fair value of the net identifiable
assets of an entity, this excess is recorded as goodwill
in the Telstra Group statement of financial position. 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.
Goodwill is amortised on a straight line basis over the
period of expected benefit. This period is subject to a
maximum of 20 years from the date of gaining control. The
carrying amount of goodwill is reviewed every six months
and adjusted to the extent that future benefits are not
considered probable. The weighted average goodwill
amortisation period for fiscal 2005 was 20 years (2004:
20 years).
We continually assess whether changes have occurred that
would require revision of the remaining estimated useful
life of goodwill, or whether changes will render the
goodwill not
recoverable. If such circumstances arise, the recoverable
amount of goodwill is determined based on estimates of
the discounted value of expected future cash flows of the
business. Market interest rates and discount rates are
considered when calculating discounted cash flows.
We also calculate goodwill when we acquire joint venture
entities and associated entities. However, for these
entities the goodwill amount is included as part of the
cost of the investment and not shown separately as an
intangible asset. The amortisation of this notional
goodwill is included in the share of net profit/(loss) of
joint venture entities and associated entities line in
the statement of financial performance. Refer to note 1.11
for information regarding goodwill for joint venture
entities and associated entities.
(b) Identifiable intangible assets
Patents, trademarks, licences, brandnames and customer bases
Our identifiable intangible assets include patents,
trademarks and licences (including network and business
software and spectrum licences), brandnames and customer
bases. Where the costs of such assets have a benefit or
relationship to more than one accounting period, these
costs are deferred and amortised on a straight line basis
over the period of expected benefit.
The average amortisation periods of our identifiable
intangible assets are listed as follows:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
Expected |
|
|
Expected |
|
|
|
benefit |
|
|
benefit |
|
Identifiable intangible assets |
|
(years) |
|
|
(years) |
|
|
Patents, trademarks and licences |
|
|
14 |
|
|
|
12 |
|
Brandnames |
|
|
20 |
|
|
|
20 |
|
Customer bases |
|
|
13 |
|
|
|
13 |
|
The recoverable amounts of identifiable intangible assets
are reviewed every six months and the carrying amount is
adjusted down where it exceeds recoverable amount.
Recoverable amount of identifiable intangible assets is
determined based on estimates of the discounted value of
expected future cash flows to be derived from the use of
those assets.
255
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. |
|
Summary of accounting policies (continued) |
1.15 Intangible assets (note 13) (continued)
(b) Identifiable intangible assets (continued)
Mastheads
Mastheads, being the titles of newspapers and magazines,
are also considered to be an identifiable intangible
asset. Where we acquire an entity that is considered to
hold value in their mastheads, we recognise an asset in
our statement of financial position at the fair value
determined at the date of acquisition.
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 a useful life to be determined in the
foreseeable future. The status of the useful life and the
need to amortise the carrying amount of the mastheads is,
however, reassessed every six months.
In addition, an assessment of the recoverable amount of
the mastheads is made every six months to ensure this is
not less than their carrying amount. The recoverable
amount is determined based on the amount expected to be
recovered through the cash inflows and outflows arising
from the mastheads, discounted to their present value
using a market determined, risk adjusted discount rate.
1.16 Other assets (note 14)
(a) Research and development costs
Research costs are recorded as an expense as incurred.
Development costs are recorded as an expense as incurred,
unless future economic benefits are attainable from the
expenditure, in which case they are capitalised. The
majority of our research and development costs are
incurred in relation to software developed for internal
use. Refer to note 1.16 (d) for our policy on software
assets developed for internal use.
(b) Deferred mobile handset subsidies
Mobile handsets that are sold as part of service
contracts are accounted for as separate transactions. The
revenue allocated to a subsidised mobile handset is
contingent upon delivery of the contracted services and
is therefore recognised over the life of the contract.
Similarly, the cost of any associated subsidy is deferred
and written off over the contract term.
As a result, the expense is recognised over the life
of the contract, consistent with the timing of revenue
earned.
(c) Deferred expenditure
Deferred expenditure mainly includes upfront payments for
basic access installation and connection fees for in
place and new services, loan flotation costs and
indefeasible rights of use (IRU).
Significant items of expenditure:
|
|
are deferred to the extent that they are recoverable from future revenue and will contribute to
our future earning capacity; and |
|
|
|
cannot be deferred if they only relate to revenue which has already been recorded. |
We amortise deferred expenditure over the average period
in which the related benefits are expected to be realised.
This period is a weighted average of 4 years for fiscal
2005 (2004: 4 years). Our IRU is amortised over the
contract periods to which it relates, the periods range
from 5-22 years. Each year 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 immediately
written off as an expense in the statement of financial
performance.
(d) Software assets developed for internal use
We record direct costs associated with the development
of network and business software for internal use as
software assets. These amounts are capitalised where
project success is regarded as probable.
Costs included in software assets developed for internal use are:
|
|
external direct costs of materials and services consumed; |
|
|
|
payroll and direct payroll-related costs for employees (including contractors) directly
associated with the project; and |
|
|
|
borrowing costs incurred while developing the software. |
Software assets developed for internal use are amortised
on a straight line basis over their useful lives to us.
This period is a weighted average of 6 years for fiscal
2005 (2004: 6 years). Amortisation starts as soon as the
software is ready for use.
The carrying values of these assets are reviewed
regularly at each reporting date, to ensure they are
recoverable. Where such costs are no longer considered
recoverable, they are immediately written off in the
statement of financial performance.
1.17 Payables (note 15)
Accounts payable, including accruals and
creditors, are recorded when we are required to make
future payments as a result of a purchase of assets or
services prior to the end of the financial year.
256
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. |
|
Summary of accounting policies (continued) |
1.18 Interest-bearing liabilities (note 16)
Bills of exchange and commercial paper are recorded
as borrowings when issued, at the amount of the net
proceeds received. They are carried at amortised cost
until the liabilities are fully settled. Interest is
recorded as an expense on a yield to maturity basis.
Bank loans are carried at cost.
Telstra
bonds are carried at adjusted cost. Adjusted cost
is the face value of debt adjusted for any unamortised
premium or discount. Interest is calculated on a yield to
maturity basis. Bonds repurchased are cancelled against
the original liability and any gains or losses are
recorded in the statement of financial performance as
borrowing costs.
Other
loans are also carried at adjusted cost. Discounts
and premiums are amortised on a straight line basis over
the period to maturity. Interest is calculated on a yield
to maturity basis. Our other loans include both Australian
dollar loans and foreign currency loans. Amounts
denominated in foreign currency are revalued daily. Any
exchange gains or losses are taken to the statement of
financial performance.
1.19 Provisions (note 17)
Provisions are recognised when the group has:
|
|
a present legal, equitable or constructive obligation to make a future sacrifice of economic
benefits as a result of past transactions or events; |
|
|
|
it is probable that a future sacrifice of economic benefits will arise; |
|
|
|
a reliable estimate can be made of the amount of the obligation; and |
|
|
|
the amount or timing of the future sacrifice of economic benefits to satisfy the present
obligation is uncertain. |
(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 on
the remuneration rates expected to be current at the date
of settlement and include related on-costs.
Employee benefit on-costs, including payroll tax, are
recognised and included in employee benefit liabilities
and costs when the employee benefits to which they relate
are recognised as liabilities.
Telstra Entity employees who have been employed by the
Telstra Entity 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.
We accrue liabilities for other employee benefits not
expected to be paid or settled within 12 months of
balance date 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.
We calculate present values using rates based on
government guaranteed securities with similar due
dates to our liabilities.
Liabilities for redundancies are recognised when a
detailed formal plan for the redundancies has been
developed and a valid expectation has been created within
those employees affected, that the redundancies will be
carried out. The liabilities for redundancies are
recognised in payables unless the amount or timing of the
payments is uncertain, in which case they are recognised
as provisions.
(b) Workers compensation
We self
insure 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
government guaranteed securities with similar due dates.
Our 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 our future obligations in relation to the
fitout of our general purpose leased buildings when we
have a legal, equitable or constructive responsibility.
These costs include our obligations relating to the
dismantling, removal, remediation, restoration and other
expenditure associated with these fitouts. Restoration
provision is initially recorded based on a reliable
estimate of the costs to be incurred. 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.
Restoration costs associated with mobile tower
communication assets that are situated on land held
under operating leases are expensed in the statement
of financial performance when they become payable as
they are insignificant to our financial report.
(d) Dividends
We provide for dividends in the period in which they are declared.
When the declaration date is after balance date, but
before completion of the financial report, we
disclose the dividend as an event occurring after
balance date.
257
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.20 Contributed Equity (note 18)
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 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
are also deducted from contributed equity.
1.21 Revenue recognition (note 2)
It is our policy to prepare our financial statements
to satisfy both AGAAP and USGAAP, and in cases where
there is no conflict between the two, we incorporate the
more detailed requirements in both AGAAP and USGAAP
financial statements.
The underlying accounting principles of revenue
recognition are the same for both AGAAP and USGAAP. As
such we have applied the more detailed guidance under
USGAAP to the timing of revenue recognition for both
AGAAP and USGAAP financial statements.
Sales revenue
Our categories of sales revenue listed in note 2 are
recorded after deducting sales returns, trade
allowances, duties and taxes.
(a) Delivery of services
Revenue from the provision of our telecommunications
services includes:
|
|
basic access installation and
connections; |
|
|
local and international telephone calls; |
|
|
mobile phone services, connections and
calls; and |
|
|
BigPond and other internet solutions. |
We record revenue earned from:
|
|
calls on completion of the call; and |
|
|
|
other services generally at completion, or over the
period of service provided. |
Installation and connection fee revenues are deferred and
recognised over the average estimated customer contract
life. For basic access installation and connections this
is an average of five years. For mobile phone connections,
this is an average of two years.
Incremental costs directly related to these revenues are
also deferred and amortised over the customer contract
life. Any costs in excess of the revenue deferred are
recognised immediately. The average estimated customer
contract life is reviewed each year.
(b) Sale of goods
Our revenue from the sale of goods includes revenue from
the sale of telephony equipment, mobile phone handsets
and similar goods. This revenue is recorded on delivery of
the goods sold.
(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 from 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 (refer to note 1.10 for further
information).
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:
|
|
(actual costs / planned costs) x planned
revenue for material intensive projects; |
|
|
|
(actual labour hours / planned labour hours) x planned revenue for labour intensive projects;
and |
|
|
|
short duration projects are those that are expected to be completed within a month and revenues
and costs are recognised on completion. |
258
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1 Summary of accounting policies (continued)
1.21 Revenue recognition (note 2) (continued)
(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
print directories delivered when they have been
published and delivered to our customers premises
Revenue from online directories is recognised over the
life of the 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 accruals basis in
accordance with the substance of the relevant agreements.
Other revenue
(g) Dividend revenue
We record dividend revenue in the statement of financial
performance from the following entities when declared by
them:
|
|
controlled entities; |
|
|
|
joint venture entities and associated entities (when received by the Telstra Entity); and |
|
|
|
listed investments and other investments. |
We record distributions from trusts when the distribution is receivable.
For our consolidated financial statements, dividends and
distributions received from joint venture entities and
associated entities are recorded as a reduction of the
balance in the investment account as per equity
accounting requirements and not as dividend revenue of
the Telstra Group.
(h) Revenue
from the sale of non current assets
Revenue from the sale of our non current assets is
recorded when all conditions required to complete the
sale have been settled and finalised.
(i) Interest revenue
We record interest revenue on an accrual basis For
financial assets, interest revenue is determined by the
effective yield on the instrument (total return).
Revenue received in advance
Revenue received in advance consists mainly of revenue
from providing access to the fixed and mobile network
and directories advertising revenue This revenue is
initially recorded as a liability and then transferred
to earned revenue in line with the revenue policies
described above.
Accrued revenue
Accrued revenue represents revenue earned that has not
been billed to the customer This revenue is recorded in
accordance with the revenue policies described above.
Revenue arrangements with multiple deliverables
Where two or more 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 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.
We currently have a number of arrangements that are
considered to be distinguishable into separate units of
accounting These are:
|
|
mobile handsets that are offered as part of a mobile network contract, or sold as part of a
prepaid package; |
|
|
|
broadband internet installation kits, where a modem is provided; and |
|
|
|
advertising in the Yellow Pages printed and online directories. |
1.22 Advertising expenses
Costs for advertising products and services or
promoting our corporate image are expensed as incurred
These costs are included in the promotion and advertising
expenses line in note 3 to the financial statements.
259
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1 Summary of accounting policies (continued)
1.23 Share of net profits/(losses) of joint
venture entities and associated entities (note 24)
We record our share of the net profits/(losses) of
joint venture entities and associated entities by taking
the profit/(loss) after income tax expense, multiplied by
our ownership interest after adjusting for:
|
|
amortisation of notional goodwill; |
|
|
|
deferral and subsequent amortisation of unrealised profits after income tax expense arising from
transactions and the sale of assets from us to our associates; and |
|
|
|
deferral and subsequent amortisation of unrealised profits after income tax expense arising
from trading and the sale of assets from our associates to us. |
Refer to note 1.11(b) for information regarding deferral
of unrealised profits and amortisation of notional
goodwill in relation to joint venture entities and
associated entities.
1.24 Taxation (note 4)
Income tax
We apply tax-effect accounting using the liability method
to calculate income tax. Income tax expense is calculated
on accounting profit after allowing for permanent
differences and is recorded as an expense.
Permanent differences are:
|
|
items of revenue or expense that are included in taxable income, but will never be included in
accounting profit; or |
|
|
|
items of revenue or expense that are included in accounting profit, but will never be
included in taxable income. |
To the extent timing differences occur between the time
items are recognised in the financial statements and when
items are taken into account in determining taxable
income, the related taxation benefit or liability,
calculated at current rates, is disclosed as a future
income tax benefit or a provision for deferred income tax.
These items are netted within the tax consolidated group
of other controlled entities when the timing differences
are expected to reverse in the same financial years. We do
not net deferred tax balances between controlled entities
apart from those within the tax consolidated group.
The future income tax benefit relating to tax losses
is not carried forward as an asset unless the benefit
is virtually certain of being realised.
During fiscal 2003, the Telstra Entity elected for its
resident wholly owned controlled entities to join it in a
tax consolidation group. The Telstra Entity recognises all
current and deferred tax amounts in relation to its
resident wholly owned controlled entities in its own
financial statements in addition to the current and
deferred tax balances arising from its own transactions
and events (refer to note 4 for further information).
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.
We do not include any estimate for GST in either accrued
revenue or accrued expense balances. Our accruals refer to
a combination of items some of which will be supported by
the issue or receipt of a tax invoice at a later time
depending on the nature of the item. In general, no tax
invoice has been received or issued at the time the
accrual is recorded.
To accord with Urgent Issues Group Abstract 31
Accounting for Goods and Services Tax (GST), which
requires cash flows to be determined on a gross
basis, we have completed our cash flow statement in
the following manner:
|
|
we have derived from our accounting records the amounts which we have shown in our statement of
financial performance and statement of financial position, which are on a net GST basis, where the
GST is recoverable from the ATO; and |
|
|
|
we have estimated the amount of GST that is required to be added to various line items in
the cash flow statement by reference to our business activity statements prepared for the ATO. |
Our commitments are recorded net of GST, except where
there is non-recoverable GST (refer to note 20).
260
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1 Summary of accounting policies (continued)
1.25 Earnings per share (note 6)
Basic earnings per share
Basic earnings per share (EPS) is determined by dividing
net profit 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 year.
Diluted earnings per share
Where an entity has on issue potential ordinary shares
which are dilutive, diluted EPS must be calculated. As we
do not have any ordinary shares which are considered
dilutive, diluted EPS is the same as basic EPS.
1.26 Superannuation (note 22)
Defined benefit funds
For funding purposes actuarial valuations are required to
be performed at least every three years. In prior years,
if there has been a shortfall in the net market value of
scheme assets when compared with members vested
entitlements, we have provided for the amount to the
extent that a present obligation exists to rectify the
financial position of the schemes.
Accumulation schemes
Our commitment to accumulation type benefits is limited
to making the contributions specified in the trust deed
in accordance with our minimum statutory requirements. We
recognise a liability when we are required to make future
payments as a result of employee services provided.
All superannuation schemes
Contributions to employee superannuation schemes are
recorded as an expense in the statement of financial
performance as the contributions become payable.
1.27 Employee share plans (note 19)
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 do not control or
significantly influence these trusts as beneficial
ownership and control remains with the employees who
participate in the share plans administered by the
Trustee on their behalf. As a result, we do not
consolidate the operations of the trust into the Telstra
Group.
Telstra incurs expenses on behalf of both the TESOP97 and
the TESOP99. These expenses are in relation to
administration costs of the trusts and are recorded in
our statement of financial performance as incurred.
The Telstra Growthshare Trust was established to hold
equity based instruments for the purpose of our equity
based payment schemes. 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 specified
periods of service.
We own 100% of the equity of Telstra Growthshare Pty Ltd,
the corporate trustee for the Telstra Growthshare Trust
(Growthshare). We do not control or significantly
influence the trust as beneficial ownership and control
remains with the employees who participate in the share
plans administered by the trustee on their behalf.
An option, restricted share, performance right,
deferred share or incentive share represents a right
to acquire a share in Telstra.
For options, Telstra provides loans to the Growthshare
trustee to enable it to purchase shares on market to
underpin the options issued. When exercised, the eligible
employee pays for the shares at the exercise price and
the loan is repaid to us. On the basis that the loan is
fully repaid by the employee, there is no expense
associated with the allocation of options. Telstra
receives interest on the loans to the trust. From 1 July
2002, the Company suspended its option plan.
Restricted shares, performance rights, deferred shares
and incentive shares are recorded as an expense to
Telstra when we provide funding to the trust to purchase
the shares. The expense recorded in the statement of
financial performance represents the market price of the
shares at the time of purchase on market.
Directshare enables non-executive directors to receive
up to 20% of their fees in Telstra shares. Ownshare
enables eligible employees to be provided part of their
remuneration in Telstra shares. Telstra purchases shares
to meet the requirements of directshare and ownshare and
expenses these costs as part of the participants
remuneration.
We have also provided funding to the Trustee to enable
it to meet its other obligations under the trust deed.
261
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.28 Derivative financial instruments (note 29)
As we only use derivative financial instruments for
our hedging activities, the gains and losses on our
derivatives are accounted for on the same basis as the
underlying physical transactions. Therefore, hedge gains
and losses are recorded in the statement of financial
performance when the gains or losses arising from the
related physical exposures are recorded in the statement
of financial performance.
Foreign exchange gains and losses on the principal value
of our cross currency swaps are recorded in the statement
of financial performance and determined through reference
to the change in spot rates over the relevant reporting
period. Where appropriate, these foreign exchange gains
and losses offset the gains and losses recorded on the
underlying hedged transaction.
We account for our interest rate swaps and cross currency
swaps that hedge an underlying physical exposure using
the accrual method of accounting.
Interest receivable and payable under the terms of the
interest rate swaps and cross currency swaps are accrued
over the period to which the payments or receipts relate.
The interest receivable and payable under the swaps is
also recorded as part of our borrowing costs. Changes to
the underlying market value of the remaining interest
rate swap and cross currency swap payments and receipts
are not recorded in the financial statements.
We do not include the principal amounts of our cross
currency swaps and interest rate swaps in our statement
of financial
position. Where we have a legally recognised right to set
off the financial asset and financial liability and we
intend to settle on a net basis or simultaneously, we
record this position on a net basis in our statement of
financial position. 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 statement of financial position.
The net position in relation to our cross currency swaps
refers to the revalued component of our foreign currency
receivable or payable under the swap contract. We record
this component as a hedge receivable or hedge payable in
our statement of financial position. We do not offset the
hedge receivable or hedge payable with the underlying
financial asset or financial liability being hedged as
the transactions are with different counterparties and
are generally not settled on a net basis.
Forward foreign currency contracts are accounted for as
outlined in note 1.6 (a). Gains and losses on forward
foreign currency contracts intended to hedge anticipated
future transactions are deferred and recognised when the
anticipated future transaction occurs.
1.29 Insurance
We specifically carry the following types of insurance:
|
|
property; |
|
|
|
travel/personal accident; |
|
|
|
third party liability; |
|
|
|
directors and officers
liability; |
|
|
|
company reimbursement; and |
|
|
|
other insurance from time to
time. |
For risks not covered by insurance, any losses are
charged to the statement of financial performance in
the year in which the loss is reported.
The Telstra Entity self insures for workers
compensation. Further details are provided in note 1.19
(b).
1.30 Further clarification of terminology used
in our statement of financial performance
Under the requirements of AASB 1018: Statement of
Financial Performance we must classify all of our
expenses (apart from any borrowing costs and our share
of net losses of associates and joint venture 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.
Our expense categories represent an aggregation of
expenses classified by nature (type). These
categories do not include any indirect or fixed
costs and therefore are not identical to their
functional expense category. Specifically this
includes:
|
|
our goods and services purchased this category includes items such as inventory purchases and
network expenses that underpin the services we provide directly to our customers; and |
|
|
|
our promotion and advertising or general and administration expenses which are included in other
expenses (refer to note 3) and are not treated as a functional
expense category. |
262
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
1. Summary of accounting policies (continued)
1.30 Further clarification of terminology used
in our statement of financial performance (continued)
When a specific revenue or an expense from ordinary
activities is of such a size, nature or incidence that
its disclosure is relevant in explaining our financial
performance for the reporting period, its nature and
amount has been disclosed separately in note 3(c).
1.31 Rounding
All dollar amounts in this financial report (except
where indicated) have been rounded to the nearest million
dollars ($m or A$m) for presentation. This has been done
in accordance with Australian Securities and Investments
Commission (ASIC) Class Order 98/100, dated 10 July 1998
and issued under section 341(1) of the Corporations Act
2001.
1.32 Comparative figures
Where necessary, we adjust comparative figures to
align with changes in presentation in the current year.
In addition, we have quantified the effect on
comparatives of any changes in accounting policies where
such changes have arisen (refer to note 1.2).
263
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
2. Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
Note |
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
Revenue from ordinary operating activities (including
items disclosed in note 3(c)) is made up of revenue from
the following activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery of services |
|
|
12,522 |
|
|
|
12,119 |
|
|
|
12,393 |
|
|
|
10,783 |
|
|
|
10,956 |
|
Sale of goods |
|
|
691 |
|
|
|
531 |
|
|
|
572 |
|
|
|
430 |
|
|
|
393 |
|
Rent of network facilities |
|
|
7,233 |
|
|
|
6,656 |
|
|
|
6,123 |
|
|
|
7,233 |
|
|
|
6,656 |
|
Construction contracts |
|
|
130 |
|
|
|
90 |
|
|
|
201 |
|
|
|
136 |
|
|
|
77 |
|
Advertising and directory services |
|
|
1,585 |
|
|
|
1,341 |
|
|
|
1,206 |
|
|
|
377 |
|
|
|
315 |
|
Royalties (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628 |
|
|
|
599 |
|
|
|
|
|
|
|
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
19,587 |
|
|
|
18,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (excluding interest revenue) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- wholly owned controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142 |
|
- joint venture entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
- other entities |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from the sale of non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
3(c) |
|
50 |
|
|
|
102 |
|
|
|
811 |
|
|
|
58 |
|
|
|
131 |
|
- investments in controlled entities |
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
- investments in joint venture entities |
|
|
30 |
|
|
|
|
|
|
|
3 |
|
|
|
30 |
|
|
|
|
|
- investments in associated entities |
3(c) |
|
|
|
|
|
204 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
- investments in listed securities and other investments |
|
|
146 |
|
|
|
24 |
|
|
|
7 |
|
|
|
135 |
|
|
|
24 |
|
- businesses |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226 |
|
|
|
330 |
|
|
|
859 |
|
|
|
223 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent from property and motor vehicles |
|
|
20 |
|
|
|
23 |
|
|
|
33 |
|
|
|
20 |
|
|
|
22 |
|
Sale of PCCW converting note |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
Other revenue |
|
|
174 |
|
|
|
189 |
|
|
|
228 |
|
|
|
37 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
270 |
|
|
|
212 |
|
|
|
261 |
|
|
|
133 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
496 |
|
|
|
543 |
|
|
|
1,121 |
|
|
|
357 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from ordinary activities (excluding interest revenue) |
|
|
22,657 |
|
|
|
21,280 |
|
|
|
21,616 |
|
|
|
19,944 |
|
|
|
19,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
43 |
|
- joint ventures entities and associated entities |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
- other entities |
|
|
103 |
|
|
|
53 |
|
|
|
82 |
|
|
|
98 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
103 |
|
|
|
55 |
|
|
|
84 |
|
|
|
103 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from ordinary activities |
|
|
22,760 |
|
|
|
21,335 |
|
|
|
21,700 |
|
|
|
20,047 |
|
|
|
19,482 |
|
|
|
|
|
|
|
|
|
(a) |
|
During fiscal 2005 we reviewed the nature of the core
services agreement with our 100% controlled entity Sensis
Pty Ltd. As a result of our review we have reclassified
our intercompany revenue to include royalties as a
separate category. |
264
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Profit from ordinary activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
$m |
|
|
$m |
|
(a) Profit before income tax expense (including items
disclosed in note 3(c)) has been calculated after
charging/(crediting) the following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in our labour expenses are the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership based remuneration schemes |
|
|
20 |
|
|
|
23 |
|
|
|
23 |
|
|
|
20 |
|
|
|
23 |
|
Employee redundancy |
|
|
91 |
|
|
|
170 |
|
|
|
281 |
|
|
|
85 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in our goods and services purchased and relating to sale of
goods is: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
726 |
|
|
|
544 |
|
|
|
556 |
|
|
|
501 |
|
|
|
425 |
|
Rental expense on managed services |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value of assets we have sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
3(c) |
|
42 |
|
|
|
64 |
|
|
|
638 |
|
|
|
49 |
|
|
|
90 |
|
- investments in controlled entities |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
- investments in joint venture entities |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
- investments in associated entities |
3(c) |
|
|
|
|
|
34 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
- investments in listed securities and other investments |
|
|
79 |
|
|
|
16 |
|
|
|
9 |
|
|
|
72 |
|
|
|
16 |
|
- businesses |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
- sale of PCCW converting note |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
114 |
|
|
|
661 |
|
|
|
204 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense on operating leases |
|
|
597 |
|
|
|
530 |
|
|
|
584 |
|
|
|
429 |
|
|
|
399 |
|
Bad debts written off trade debtors |
|
|
152 |
|
|
|
168 |
|
|
|
172 |
|
|
|
135 |
|
|
|
149 |
|
Movement in provisions increase/(decrease): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- doubtful debts trade debtors |
|
|
(1 |
) |
|
|
15 |
|
|
|
21 |
|
|
|
(4 |
) |
|
|
8 |
|
- reduction in value of inventories (finished goods) |
|
|
11 |
|
|
|
5 |
|
|
|
5 |
|
|
|
11 |
|
|
|
5 |
|
- reduction in value of investments |
3(c) |
|
6 |
|
|
|
|
|
|
|
26 |
|
|
|
(310 |
) |
|
|
(709 |
) |
- reduction in value of amounts owed by controlled entities |
3(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
709 |
|
- reduction in value of amounts owed by joint ventures |
3(c) |
|
5 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
226 |
|
- reduction in value of capitalised software |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Net foreign currency translation losses/(gains) |
|
|
(9 |
) |
|
|
17 |
|
|
|
(17 |
) |
|
|
(5 |
) |
|
|
41 |
|
Auditors fees |
3(b) |
|
7 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
Service contracts and other agreements |
|
|
1,556 |
|
|
|
1,604 |
|
|
|
1,677 |
|
|
|
1,521 |
|
|
|
1,589 |
|
Promotion and advertising |
|
|
330 |
|
|
|
335 |
|
|
|
316 |
|
|
|
253 |
|
|
|
275 |
|
General and administration |
|
|
806 |
|
|
|
804 |
|
|
|
702 |
|
|
|
626 |
|
|
|
651 |
|
Other operating expenses |
|
|
380 |
|
|
|
431 |
|
|
|
349 |
|
|
|
340 |
|
|
|
390 |
|
|
|
|
|
|
|
|
|
4,055 |
|
|
|
4,255 |
|
|
|
4,504 |
|
|
|
3,666 |
|
|
|
3,844 |
|
|
|
|
|
|
265
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Profit from ordinary activities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
2004 |
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
(a) Profit before income tax expense (including items
disclosed in note 3(c)) has been calculated after
charging/(crediting) the following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- general purpose buildings and leasehold improvements |
12 |
|
56 |
|
|
|
55 |
|
|
|
75 |
|
|
|
48 |
|
|
|
55 |
|
- communication assets including leasehold improvements |
12 |
|
2,682 |
|
|
|
2,602 |
|
|
|
2,436 |
|
|
|
2,571 |
|
|
|
2,504 |
|
- communication assets under finance lease |
12 |
|
75 |
|
|
|
82 |
|
|
|
82 |
|
|
|
75 |
|
|
|
82 |
|
- equipment under finance lease |
12 |
|
9 |
|
|
|
13 |
|
|
|
7 |
|
|
|
7 |
|
|
|
11 |
|
- other plant, equipment and motor vehicles |
12 |
|
124 |
|
|
|
121 |
|
|
|
154 |
|
|
|
50 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
2,946 |
|
|
|
2,873 |
|
|
|
2,754 |
|
|
|
2,751 |
|
|
|
2,716 |
|
Amortisation of intangible assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- goodwill 13 |
|
|
145 |
|
|
|
123 |
|
|
|
116 |
|
|
|
4 |
|
|
|
4 |
|
- patents, trademarks and licences |
|
|
34 |
|
|
|
35 |
|
|
|
38 |
|
|
|
22 |
|
|
|
19 |
|
- brandnames |
|
|
10 |
|
|
|
10 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
- customer bases |
|
|
86 |
|
|
|
72 |
|
|
|
82 |
|
|
|
15 |
|
|
|
15 |
|
- deferred expenditure |
|
|
11 |
|
|
|
1 |
|
|
|
1 |
|
|
|
8 |
|
|
|
1 |
|
- software assets |
|
|
534 |
|
|
|
501 |
|
|
|
444 |
|
|
|
498 |
|
|
|
473 |
|
|
|
|
|
|
|
|
|
820 |
|
|
|
742 |
|
|
|
693 |
|
|
|
547 |
|
|
|
512 |
|
|
|
|
|
|
|
|
|
3,766 |
|
|
|
3,615 |
|
|
|
3,447 |
|
|
|
3,298 |
|
|
|
3,228 |
|
|
|
|
|
|
Borrowing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
81 |
|
- other entities |
|
|
924 |
|
|
|
841 |
|
|
|
983 |
|
|
|
921 |
|
|
|
836 |
|
- finance charges relating to finance leases |
|
|
5 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
929 |
|
|
|
841 |
|
|
|
984 |
|
|
|
941 |
|
|
|
917 |
|
- borrowing costs included in the cost of constructed assets |
|
|
(90 |
) |
|
|
(74 |
) |
|
|
(105 |
) |
|
|
(90 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
839 |
|
|
|
767 |
|
|
|
879 |
|
|
|
851 |
|
|
|
843 |
|
|
|
|
|
|
Other disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses (before crediting any grants) |
|
|
29 |
|
|
|
26 |
|
|
|
41 |
|
|
|
29 |
|
|
|
26 |
|
|
|
|
|
|
Net profit/(loss) on the sale of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- property, plant and equipment |
3(c) |
|
8 |
|
|
|
40 |
|
|
|
173 |
|
|
|
10 |
|
|
|
40 |
|
- investments in controlled entities |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
- investments in joint venture entities |
|
|
16 |
|
|
|
|
|
|
|
3 |
|
|
|
27 |
|
|
|
|
|
- investments in associated entities |
3(c) |
|
|
|
|
|
170 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
- investments in listed securities and other investments |
|
|
67 |
|
|
|
8 |
|
|
|
(2 |
) |
|
|
63 |
|
|
|
8 |
|
- businesses |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
- sale of PCCW converting note |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
218 |
|
|
|
198 |
|
|
|
96 |
|
|
|
48 |
|
|
|
|
|
|
266
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Profit from ordinary activities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra
Group |
|
|
Telstra
Entity |
|
|
|
|
|
|
|
Year
ended 30 June |
|
|
Year
ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
(b) Auditors fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Australian statutory auditor of the Telstra Entity has charged
the following amounts for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditing and reviewing the financial reports (i) |
|
|
|
|
|
|
5.038 |
|
|
|
4.412 |
|
|
|
4.445 |
|
|
|
4.404 |
|
|
|
4.183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditors other than the Australian statutory auditor have charged
the following amounts for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditing and reviewing the financial reports (ii) |
|
|
|
|
|
|
2.290 |
|
|
|
1.904 |
|
|
|
1.440 |
|
|
|
1.391 |
|
|
|
1.001 |
|
|
|
|
|
|
|
|
|
|
Total audit fees |
|
|
3 |
(a) |
|
|
7.328 |
|
|
|
6.316 |
|
|
|
5.885 |
|
|
|
5.795 |
|
|
|
5.184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to auditing and reviewing the financial reports, other
services have been provided by Ernst & Young in their own right as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit related (iii) |
|
|
|
|
|
|
0.571 |
|
|
|
0.987 |
|
|
|
0.936 |
|
|
|
|
|
|
|
|
|
Tax (iv) |
|
|
|
|
|
|
0.423 |
|
|
|
0.938 |
|
|
|
0.820 |
|
|
|
|
|
|
|
|
|
Other services (v) |
|
|
|
|
|
|
0.703 |
|
|
|
1.565 |
|
|
|
3.578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other services |
|
|
|
|
|
|
1.697 |
|
|
|
3.490 |
|
|
|
5.334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 & 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 audit 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 was capped at a
maximum of 1.0 times the total audit and audit related fees during the past three fiscal years. In
addition, the Audit Committee is required to pre-approve all proposals involving the provision of
services by EY. As part of the approval process, an assessment of the impact on independence is
made by the Audit Committee regarding the services to be provided. Monthly meetings are held
between EY and the Director, Business and Finance Services to monitor the process.
EY also 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 and various accounting advice provided.
(iv) Tax fees charged by EY relate to tax compliance, tax advice and other taxation services
provided. These services include advice in connection with our entry into tax consolidation,
reviews in connection with our implementation of a new tax software management system and tax law
technical support.
(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
assisting in the investigation of investment acquisitions and other Company projects, performance
of system and security reviews, and various other reviews and non assurance services across the
Company.
Related practice
We do not engage any related parties of EY for the provision of services to the Telstra Entity or
any member of the Telstra Group.
267
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Profit from ordinary activities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Items requiring specific disclosure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following items form part of the ordinary operations of our business and their disclosure
is relevant in explaining the financial performance of the group. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net profit has been calculated after (charging)/crediting specific revenue and expense
items from our ordinary activities as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
included in revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (excluding interest revenue) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- proceeds
on sale of our investment in IBM Global Services Australia Limited (iii) |
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- proceeds on sale of properties (vi) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue items |
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
included in expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- net book value of investment and modification of the information technology services
contract with IBM Global Services Australia Limited (iii) |
|
|
|
|
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- provision for the non recoverability of the loan to Reach Ltd (iv) |
|
|
27 |
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
- book value on sale of properties (vi) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439 |
) |
|
|
|
|
|
|
|
|
- movement in provision for reduction in value of our controlled entities (i) (v) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334 |
|
|
|
709 |
|
- movement in provision for amounts owed by controlled entities (ii) (v) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(475 |
) |
|
|
(709 |
) |
|
|
|
|
|
|
|
|
|
Total expense items |
|
|
|
|
|
|
|
|
|
|
(361 |
) |
|
|
(439 |
) |
|
|
(141 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In our share of net losses of joint venture entities and associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-write down of the carrying value of our investment in Reach Ltd (vii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(965 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net items |
|
|
|
|
|
|
|
|
|
|
(207 |
) |
|
|
(834 |
) |
|
|
(141 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense) attributable to those items requiring specific disclosure |
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
Effect of reset tax values on entering tax consolidation (viii) |
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
201 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Net items after income tax benefit/(expense) |
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
(674 |
) |
|
|
(141 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
During fiscal 2004, we identified the following transactions as requiring specific
disclosure:
(i) Movement
in provision for reduction in value of our controlled entities - Telstra Entity
The profit before income tax expense of the Telstra Entity included a $334 million net gain in
relation to the reversal of a provision for reduction in value of four controlled entities. This
balance was eliminated on consolidation for Telstra Group reporting purposes.
(ii) Movement in provision for amounts owed by controlled entities -Telstra Entity
The profit before income tax expense of the Telstra Entity included a movement of $475 million
relating to a provision for amounts owed by a controlled entity. This balance was eliminated on
consolidation for Telstra Group purposes (refer to note 27 for further information).
268
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
3. Profit from ordinary activities (continued)
(c) Items requiring specific disclosure (continued)
During fiscal 2004, we identified the following transactions as requiring specific disclosure:
(iii) Sale of shareholding in IBM Global Services Australia Limited (IBMGSA)
On 28 August 2003, we sold our 22.6% shareholding in our associated entity IBMGSA with a book value
of $5 million. Proceeds from the sale of this investment amounted to $154 million, resulting in a
profit before income tax expense of $149 million.
As part of the disposal we negotiated changes to a 10 year contract with IBMGSA to provide
technology services. This modification to our service contract resulted in an expense of $130
million being recognised and the removal of $1,596 million of expenditure commitments disclosed as
at 30 June 2003. The net impact on our profit before income tax expense of this transaction was a
profit of $19 million ($58 million after taking into account income tax benefits).
(iv) Provision for the non recoverability of the loan to Reach Ltd
During fiscal 2004, together with our co-shareholder PCCW Limited (PCCW), we purchased the loan
facility previously owed to a banking syndicate by Reach Finance Ltd, a subsidiary of our 50% owned
joint venture, Reach Ltd. (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. At 30 June 2004, we
provided for the non recoverability of the debt, amounting to $226 million, as we consider that
Reach will not be in a position to repay the amount in the medium term. Refer to note 9 for further
details.
(v) Movement in provision for reduction in value of controlled entities and amounts owed by
controlled entities -Telstra Entity
Included in our profit before income tax expense for fiscal 2004 for the Telstra Entity was a gain
of $709 million relating to a movement in our provision for diminution of investments in controlled
entities. This gain was offset by an expense of an equivalent amount relating to a provision for
amounts owed by a controlled entity. This gain/loss is effectively a reallocation of provisions
within the Telstra Entity. The balances are eliminated on consolidation for the Telstra Group.
During fiscal 2003, we identified the following transactions as requiring specific disclosure:
(vi) Sale of office properties
On 1 August 2002, we sold a portfolio of seven office properties for $570 million. The carrying
value of these properties was $439 million at the time of sale. The profit on sale of these
properties was $131 million before income tax expense and $90 million after income tax expense.
We entered into operating leases totalling $518 million in relation to these properties on normal
commercial terms of between five and twelve years, most of which commenced on 19 August 2002.
(vii) Write down of investment in Reach Ltd
During fiscal 2003 we wrote down the carrying amount of the investment in Reach Ltd. The write down
occurred due to the depressed conditions in the global market for international data and internet
capacity resulting in high levels of excess capacity, intense price competition and lower than
expected revenues. This resulted in a reduction of our investments accounted for using the equity
method in our statement of financial position and an increase to our share of net losses of joint
venture entities and associated entities in the statement of financial performance, amounting to
$965 million.
(viii) Effect of reset tax values on entering tax consolidation
During fiscal 2003, legislation was enacted which enabled the Telstra Entity and its Australian
resident wholly owned entities to be treated as a single entity for income tax purposes. The
Telstra Entity (or head entity) elected to form a tax consolidated group from 1 July 2002. On
formation of the tax consolidated group, the head entity had the option to bring the assets of each
subsidiary member into the tax consolidated group by choosing between two alternative methods, the
Allocable Cost Amount (ACA) method or Transitional Method. We chose the ACA method for a number of
our subsidiaries. Under this method, the tax values of a subsidiarys assets were reset according
to certain allocation rules, which consequently impacts future tax deductions and our deferred tax
balances. The once-off benefit of $201 million reflected the increase in future tax deductions
arising from these reset tax values. Subsequent analysis of this adjustment has resulted in a
further tax benefit of $58 million being recognised in fiscal 2004 (refer to note 4 for further
details).
269
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
4. Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Notional income tax expense on profit differs from actual income tax expense
recorded as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
6,269 |
|
|
|
5,848 |
|
|
|
4,928 |
|
|
|
6,422 |
|
|
|
6,076 |
|
|
|
|
|
|
(Loss) before income tax expense of subsidiary companies that form part of
the Telstra Corporation Limited tax consolidation group (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|
|
(197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense for the tax consolidated group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,297 |
|
|
|
5,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional income tax expense on profit calculated at 30% |
|
|
1,881 |
|
|
|
1,754 |
|
|
|
1,478 |
|
|
|
1,889 |
|
|
|
1,764 |
|
|
Which is adjusted by the tax effect of (ii): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of different rates of tax on overseas income |
|
|
(9 |
) |
|
|
(15 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
Research and development concessions |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
Share of net (profit)/loss from joint venture entities and associated entities |
|
|
(28 |
) |
|
|
11 |
|
|
|
296 |
|
|
|
(25 |
) |
|
|
|
|
Profit on sale of non current assets |
|
|
(28 |
) |
|
|
(65 |
) |
|
|
(34 |
) |
|
|
(30 |
) |
|
|
(59 |
) |
Non deductible depreciation and amortisation |
|
|
59 |
|
|
|
64 |
|
|
|
58 |
|
|
|
7 |
|
|
|
11 |
|
Reduction in the value of investments and intercompany receivables |
|
|
3 |
|
|
|
68 |
|
|
|
|
|
|
|
9 |
|
|
|
87 |
|
Assessable foreign source income not included in accounting profit |
|
|
4 |
|
|
|
18 |
|
|
|
43 |
|
|
|
4 |
|
|
|
18 |
|
Under/(over) provision of tax in prior years |
|
|
2 |
|
|
|
24 |
|
|
|
(28 |
) |
|
|
3 |
|
|
|
21 |
|
Effect of reset tax values on entering tax consolidation (iii) |
|
|
|
|
|
|
(58 |
) |
|
|
(201 |
) |
|
|
|
|
|
|
(58 |
) |
Other adjustments |
|
|
(56 |
) |
|
|
(63 |
) |
|
|
(42 |
) |
|
|
(74 |
) |
|
|
(79 |
) |
|
|
|
|
|
Income tax expense on profit |
|
|
1,822 |
|
|
|
1,731 |
|
|
|
1,534 |
|
|
|
1,777 |
|
|
|
1,697 |
|
|
|
|
|
|
(i) Net of consolidation entries and other applicable adjustments.
(ii) For the Telstra Entity, adjustments include those for the tax consolidation group.
(iii) As part of the election to enter tax consolidation (refer following for further details), the
head entity in the group was able to elect to reset the tax values of a subsidiary member under
certain allocation rules. In fiscal 2003, the reset of tax values resulted in a tax benefit of $201
million. In fiscal 2004, subsequent analysis resulted in a further reset of tax values and an
additional tax benefit of $58 million. These benefits reflect the increase in future tax deductions
available from these reset values.
Tax consolidation
During fiscal 2003, legislation was enacted that enabled the Telstra Entity and its Australian
resident wholly owned entities to be treated as a single entity for income tax purposes. The
Telstra Entity elected to form a tax consolidated group from 1 July 2002. As a result, the Telstra
Entity, as the head entity in the tax consolidated group, recognises tax entries for all entities
in the group in addition to its own.
The entities within the tax consolidated group have entered into a tax sharing agreement. The terms
of this agreement specify 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.
Agreements which formalise the transition of subsidiaries into the tax consolidated group were also
entered into by group members. These agreements covered the transfer of deferred tax balances to
the Telstra Entity as at 1 July 2002 and the treatment of any PAYG instalments made. Since entering
tax consolidation, we have also acquired other Australian resident wholly owned controlled
entities. This has resulted in these entities transferring their deferred tax balances to the
Telstra Entity upon entry into the tax consolidated group.
The election to tax consolidate on 1 July 2002 did not have a significant impact on the assets and
liabilities of the Telstra Group, apart from the resetting of certain tax values (refer to item
(iii) above and note 3 for further information regarding this impact).
270
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
4. Income tax expense (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
Future income
tax benefits as at
30 June not
recorded in the
statement of
financial position
for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
losses |
|
|
225 |
|
|
|
205 |
|
|
|
209 |
|
|
|
|
|
|
|
|
|
Capital tax
losses |
|
|
198 |
|
|
|
206 |
|
|
|
132 |
|
|
|
161 |
|
|
|
165 |
|
Timing
differences |
|
|
88 |
|
|
|
42 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
453 |
|
|
|
383 |
|
|
|
161 |
|
|
|
165 |
|
|
|
|
|
|
Our benefit for tax losses may be used in
future years if the following criteria are met:
|
|
our controlled entities have sufficient
future assessable income to
enable the income tax losses to be offset against that assessable
income; |
|
|
the Telstra Entity and our controlled entities have sufficient future
capital gains to enable the capital tax losses to be offset against
those capital gains; |
|
|
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. |
Our statement of financial position includes the following:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
Future income tax benefit balance
Amount of future income tax benefit |
|
|
2 |
|
|
|
2 |
|
|
|
|
related to tax losses carried forward |
|
|
2 |
|
|
|
2 |
|
|
|
|
Our future income tax benefit is included
within our other non current assets (refer to
note 14).
271
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 type and location of customers for
our key products and services delivered. Our customer facing business segments service different
customer types with our full range of products and services. 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 adjustment from our internal management reporting structure to our reported business
segments is that the TelstraClear group (TelstraClear) in New Zealand is reported as part of a
segment we have called Telstra International for segment reporting purposes. For internal
management reporting purposes, TelstraClear is included with Telstra Business and Government. For
the purposes of the applicable accounting standard, we consider that the risks and returns of
TelstraClear 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 the current year, we restructured our pre-existing business unit known as the Bigpond,
Media and Sensis group. This restructure resulted in the establishment of Telstra Bigpond, Telstra
Media and Sensis as separate business units.
In fiscal 2004, we formed a new group being Telstra Technology, Innovation and Products. This
business segment brought together product development areas, network technologies, information
technology systems and the Telstra Research Laboratories.
Those business segments not impacted by the above restructures are substantially consistent with
the structure in prior years. 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 those prior years.
For segment reporting purposes, the Telstra Group is organised into the following business
segments:
Telstra Consumer and Marketing (TC&M) is responsible for:
|
|
the provision of the full range of telecommunication products
and services to metropolitan consumer customers; |
management of Telstra brands, advertising and sponsorship; and
implementing our bundling initiatives.
Telstra
Country Wide (TCW) is responsible for:
|
|
the provision of the full range of 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
Business and Government (TB&G) is responsible for:
|
|
the provision of the full range of telecommunication products and
services, communication solutions, and information and
communication technology (ICT) services to corporate, small to
medium enterprises 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
International (TInt.) is the combination of our Telstra Asia business unit and
TelstraClear. These business units have been combined for segment reporting purposes as we consider
that the risks and returns of these international operations differ from those of our local
operations.
|
|
Telstra Asia is responsible for our Asia-Pacific investments. In
particular this includes our operations in Hong Kong that mainly
generate revenues from the mobiles market; and |
|
|
TelstraClear is our New Zealand subsidiary that provides
integrated telecommunications services to the New Zealand
market. |
Infrastructure Services (IS) is responsible for:
|
|
the provisioning, restoration, operation and maintenance of our
fixed, mobile, Internet protocol (IP) and data networks to supply
products and services as our primary service delivery manager; and |
|
|
the design and construction of infrastructure for voice, data and
transmission networks, as well as product and application
platforms and the online environment. |
|
272
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
Telstra Wholesale (TW) is responsible for:
|
|
the provision of the full range of telecommunication products and
services, including design, construction, and operations and
maintenance, delivered over our networks and associated support
systems to: |
|
|
|
non-Telstra branded carriers, carriage service providers,
Internet service providers, system integrators, application
service providers and commercially driven infrastructure
sharing agreements; and |
|
|
|
|
infrastructure owners and managers who acquire
infrastructure services. |
Telstra Technology Innovation and Products (TTIP) is responsible for:
|
|
leading product, technology and information technology strategy
for our company; |
|
|
the overall planning, design specification of standards and
commissioning construction of our communication networks; |
|
|
the delivery of information technology solutions to support our
products, services and customer support function; |
|
|
product development and management; |
|
|
the office of the Chief Information Officer; and |
|
|
the Telstra Research Laboratories. |
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 interest in the FOXTEL partnership, along
with the development and management of the hybrid fibre coaxial
(HFC) broadband cable network.
|
|
|
|
Sensis is responsible for: |
|
|
the management and growth of the information, advertising and
directories business, including printed publications, voice and
online products and services. |
|
|
|
Corporate areas include: |
|
|
Legal Services provides legal services across the Company; |
|
|
Regulatory, Corporate and Human Relations responsible for
managing our relationships and positioning with key groups such
as our customers, the media, governments, community groups
and staff. It manages personnel, health and safety, environment,
remuneration and training. It also has responsibility for regulatory
positioning and negotiation; and |
|
|
Finance and Administration encompasses the functions of
business and finance services, treasury, productivity, risk
management and assurance, credit management, billing
directorate, corporate services, corporate development 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. |
The Corporate areas and the Telstra Bigpond, Telstra Media and Sensis business segments are not
reportable segments in their own right and have been aggregated in the Other category.
Segment financial results
Our internal management reporting structure provides the initial basis for identifying those items
that can be directly attributable, or reasonably allocated to each respective business segment.
Items are initially allocated to each business unit for internal management reporting on a basis
that is considered suitable for senior management to manage the business. For financial 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 in
accordance with the requirements of 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 financial 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&M, TB&G
and TCW are allocated totally to the TC&M segment, with the
exception of products sold in relation to small to medium
enterprises which are allocated to TB&G. Ongoing prepaid and
postpaid mobile revenues derived from our mobile usage is
recorded in TC&M, TB&G and TCW depending on the type and
location of customer serviced. In addition, the majority of goods
and services purchased, associated with our mobile revenues, are
allocated to the TC&M segment. As a result, the TC&M segment
also holds segment assets and segment liabilities related to those
revenues and expenses recorded in TC&M; |
|
|
trade debtors in relation to the mobile repayment option on
mobile handsets sold by our dealers are allocated totally to TC&M;
and |
|
|
revenue received in advance in relation to installation and
connection fees is allocated totally to TC&M. |
These allocations reflect managements accountability framework and internal reporting system and
accordingly no reasonable basis for reallocation to the respective business segments exist.
273
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
Segment financial results (continued)
In addition, revenue derived from our Bigpond Internet products and its related segment
assets are recorded in the customer facing business units of TC&M, TB&G and TCW. Certain
distribution costs in relation to these products are recognised in these three business segments.
IS and TTIP 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 definition of business segment 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 change occurred during fiscal 2005:
Small to medium enterprise revenue
In previous financial years, our segment accounting policy was to recognise sales revenue
relating to our small to medium enterprises below a certain limit in the TC&M segment. In fiscal
2005, the revenue earned from our small to medium enterprises was allocated to the TB&G segment in
accordance with a revised threshold for small to medium enterprises. In addition, the related
expenses of these customers has also been allocated to the TB&G segment. Sales revenue in TC&M was
reduced and sales revenue in TB&G decreased by $442 million in fiscal 2004 and $471 million in
fiscal 2003 to reflect this change in policy.
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.
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.
274
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
TC&M |
|
TCW |
|
TB&G |
|
Tlnt. |
|
IS |
|
TW |
|
TTIP |
|
Other |
|
Elimina- |
|
Total of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
tions |
|
all |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
Year ended 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue from external
customers |
|
|
5,030 |
|
|
|
5,751 |
|
|
|
5,214 |
|
|
|
1,359 |
|
|
|
67 |
|
|
|
2,940 |
|
|
|
1 |
|
|
|
1,799 |
|
|
|
|
|
|
|
22,161 |
|
Other revenue from external customers |
|
|
96 |
|
|
|
132 |
|
|
|
5 |
|
|
|
82 |
|
|
|
11 |
|
|
|
3 |
|
|
|
35 |
|
|
|
161 |
|
|
|
(29 |
) |
|
|
496 |
|
|
|
|
Total revenue from external customers
(excluding interest revenue) |
|
|
5,126 |
|
|
|
5,883 |
|
|
|
5,219 |
|
|
|
1,441 |
|
|
|
78 |
|
|
|
2,943 |
|
|
|
36 |
|
|
|
1,960 |
|
|
|
(29 |
) |
|
|
22,657 |
|
Less sale of investment/dividend
revenue |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176 |
|
|
|
|
Segment revenue from external
customers |
|
|
5,031 |
|
|
|
5,883 |
|
|
|
5,219 |
|
|
|
1,360 |
|
|
|
78 |
|
|
|
2,943 |
|
|
|
36 |
|
|
|
1,960 |
|
|
|
(29 |
) |
|
|
22,481 |
|
Add inter-segment revenue |
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
37 |
|
|
|
54 |
|
|
|
284 |
|
|
|
23 |
|
|
|
13 |
|
|
|
(464 |
) |
|
|
|
|
|
|
|
Total segment revenue |
|
|
5,031 |
|
|
|
5,883 |
|
|
|
5,272 |
|
|
|
1,397 |
|
|
|
132 |
|
|
|
3,227 |
|
|
|
59 |
|
|
|
1,973 |
|
|
|
(493 |
) |
|
|
22,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment result under AGAAP |
|
|
2,420 |
|
|
|
4,944 |
|
|
|
3,255 |
|
|
|
(34 |
) |
|
|
(1,702 |
) |
|
|
2,973 |
|
|
|
(1,374 |
) |
|
|
(3,572 |
) |
|
|
3 |
|
|
|
6,913 |
|
Share of equity accounted net
(losses)/profits |
|
|
3 |
|
|
|
|
|
|
|
8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
9 |
|
Net book value of investments sold |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
Sale of investment/dividend revenue |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176 |
|
|
|
|
Earnings before interest and income tax
expense (EBIT) segment result under
USGAAP |
|
|
2,493 |
|
|
|
4,944 |
|
|
|
3,263 |
|
|
|
(18 |
) |
|
|
(1,702 |
) |
|
|
2,973 |
|
|
|
(1,374 |
) |
|
|
(3,577 |
) |
|
|
3 |
|
|
|
7,005 |
|
|
|
|
Earnings has been calculated after
charging/(crediting) the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,320 |
|
|
|
|
|
|
|
3,766 |
|
Non cash expenses excluding depreciation
and amortisation |
|
|
499 |
|
|
|
52 |
|
|
|
15 |
|
|
|
75 |
|
|
|
41 |
|
|
|
1 |
|
|
|
8 |
|
|
|
173 |
|
|
|
(29 |
) |
|
|
835 |
|
|
|
|
Non current segment assets acquired
(excluding acquisition of
investments) |
|
|
16 |
|
|
|
10 |
|
|
|
42 |
|
|
|
246 |
|
|
|
1,881 |
|
|
|
503 |
|
|
|
1,113 |
|
|
|
235 |
|
|
|
|
|
|
|
4,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (b) |
|
|
1,266 |
|
|
|
692 |
|
|
|
1,661 |
|
|
|
3,911 |
|
|
|
1,101 |
|
|
|
1,216 |
|
|
|
717 |
|
|
|
27,918 |
|
|
|
(2,172 |
) |
|
|
36,310 |
|
|
|
|
Segment assets include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint venture entities |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Investment in associated entities |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
877 |
|
|
|
284 |
|
|
|
953 |
|
|
|
734 |
|
|
|
900 |
|
|
|
590 |
|
|
|
578 |
|
|
|
19,410 |
|
|
|
(2,897 |
) |
|
|
21,429 |
|
|
|
|
(a) Sales revenue for the other segment relates primarily to our advertising and
directories revenue earned by Sensis. The Asset Accounting Group is the main contributor to the
segment result for this segment, which is primarily depreciation and amortisation charges.
(b) Segment assets for the other segment includes the Telstra Entity fixed assets (including
network assets) managed through the centralised Asset Accounting Group.
275
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
TC&M |
|
TCW |
|
TB&G |
|
Tlnt. |
|
IS |
|
TW |
|
TTIP |
|
Other |
|
Elimina- |
|
Total of |
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)(d) |
|
tions |
|
all |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
Year ended 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue from external
customers |
|
|
4,956 |
|
|
|
5,508 |
|
|
|
4,786 |
|
|
|
1,301 |
|
|
|
60 |
|
|
|
2,631 |
|
|
|
1 |
|
|
|
1,494 |
|
|
|
|
|
|
|
20,737 |
|
Other revenue from external
customers |
|
|
1 |
|
|
|
136 |
|
|
|
199 |
|
|
|
51 |
|
|
|
12 |
|
|
|
|
|
|
|
4 |
|
|
|
147 |
|
|
|
(7 |
) |
|
|
543 |
|
|
|
|
Total revenue from external customers
(excluding interest revenue) |
|
|
4,957 |
|
|
|
5,644 |
|
|
|
4,985 |
|
|
|
1,352 |
|
|
|
72 |
|
|
|
2,631 |
|
|
|
5 |
|
|
|
1,641 |
|
|
|
(7 |
) |
|
|
21,280 |
|
Less sale of investment/dividend
revenue |
|
|
|
|
|
|
|
|
|
|
178 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
|
Segment revenue from external
customers |
|
|
4,957 |
|
|
|
5,644 |
|
|
|
4,807 |
|
|
|
1,301 |
|
|
|
72 |
|
|
|
2,631 |
|
|
|
5 |
|
|
|
1,641 |
|
|
|
(7 |
) |
|
|
21,051 |
|
Add inter-segment revenue |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
36 |
|
|
|
54 |
|
|
|
271 |
|
|
|
51 |
|
|
|
12 |
|
|
|
(462 |
) |
|
|
|
|
|
|
|
Total segment revenue |
|
|
4,957 |
|
|
|
5,644 |
|
|
|
4,845 |
|
|
|
1,337 |
|
|
|
126 |
|
|
|
2,902 |
|
|
|
56 |
|
|
|
1,653 |
|
|
|
(469 |
) |
|
|
21,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment result under AGAAP |
|
|
2,549 |
|
|
|
4,784 |
|
|
|
3,455 |
|
|
|
(18 |
) |
|
|
(1,625 |
) |
|
|
2,709 |
|
|
|
(1,557 |
) |
|
|
(3,856 |
) |
|
|
18 |
|
|
|
6,459 |
|
Share of equity accounted net
(losses)/profits |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(78 |
) |
Net book value of investments sold |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
Sale of investment/dividend revenue |
|
|
|
|
|
|
|
|
|
|
178 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
|
Earnings before interest and income
tax expense (EBIT) segment result under
USGAAP |
|
|
2,551 |
|
|
|
4,784 |
|
|
|
3,614 |
|
|
|
(34 |
) |
|
|
(1,625 |
) |
|
|
2,709 |
|
|
|
(1,557 |
) |
|
|
(3,900 |
) |
|
|
18 |
|
|
|
6,560 |
|
|
|
|
Earnings has been calculated after
charging/(crediting) the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
363 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3,229 |
|
|
|
|
|
|
|
3,615 |
|
Non cash expenses excluding depreciation
and amortisation |
|
|
339 |
|
|
|
63 |
|
|
|
44 |
|
|
|
44 |
|
|
|
49 |
|
|
|
(2 |
) |
|
|
1 |
|
|
|
293 |
|
|
|
(7 |
) |
|
|
824 |
|
|
|
|
Non current segment assets acquired
(excluding acquisition of
investments) |
|
|
21 |
|
|
|
|
|
|
|
11 |
|
|
|
188 |
|
|
|
1,729 |
|
|
|
35 |
|
|
|
871 |
|
|
|
270 |
|
|
|
|
|
|
|
3,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (b) |
|
|
1,361 |
|
|
|
684 |
|
|
|
882 |
|
|
|
3,999 |
|
|
|
1,190 |
|
|
|
659 |
|
|
|
591 |
|
|
|
27,008 |
|
|
|
(1,381 |
) |
|
|
34,993 |
|
|
|
|
Segment assets include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint venture entities |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
944 |
|
|
|
317 |
|
|
|
495 |
|
|
|
765 |
|
|
|
879 |
|
|
|
128 |
|
|
|
559 |
|
|
|
18,150 |
|
|
|
(2,605 |
) |
|
|
19,632 |
|
|
|
|
(a) Sales revenue for the other segment relates primarily to our
advertising and directories revenue earned by Sensis. The Asset
Accounting Group is the main contributor to the segment result for
this segment, which is primarily depreciation and amortisation
charges.
(b) Segment assets for the other segment includes the Telstra Entity
fixed assets (including network assets) managed through the
centralised Asset Accounting Group.
(c) Included in revenue from sale of investments and dividends is the
sale of our 22.6% shareholding in our associated entity IBM Global
Services Australia Limited (IBMGSA), amounting to $154 million. Refer
to note 3 for further information.
(d) Included in the segment result for the other segment is the
provision for the non recoverability of our loan to Reach Ltd,
amounting to $226 million. Refer to note 3 for further information.
276
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
TC&M |
|
TCW |
|
TB&G |
|
Tlnt, |
|
IS |
|
TW |
|
TTIP |
|
Other |
|
Elimina- |
|
Total of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)(d) |
|
tions |
|
all |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
Year ended 30 June 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue from external customers |
|
|
4,908 |
|
|
|
5,281 |
|
|
|
4,764 |
|
|
|
1,471 |
|
|
|
138 |
|
|
|
2,519 |
|
|
|
1 |
|
|
|
1,413 |
|
|
|
|
|
|
|
20,495 |
|
Other revenue from external
customers |
|
|
6 |
|
|
|
136 |
|
|
|
33 |
|
|
|
54 |
|
|
|
11 |
|
|
|
|
|
|
|
22 |
|
|
|
859 |
|
|
|
|
|
|
|
1,121 |
|
|
|
|
Total revenue from external
customers (excluding interest
revenue) |
|
|
4,914 |
|
|
|
5,417 |
|
|
|
4,797 |
|
|
|
1,525 |
|
|
|
149 |
|
|
|
2,519 |
|
|
|
23 |
|
|
|
2,272 |
|
|
|
|
|
|
|
21,616 |
|
Less sale of investment/dividend
revenue |
|
|
1 |
|
|
|
|
|
|
|
17 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
Segment revenue from external customers |
|
|
4,913 |
|
|
|
5,417 |
|
|
|
4,780 |
|
|
|
1,498 |
|
|
|
149 |
|
|
|
2,519 |
|
|
|
23 |
|
|
|
2,272 |
|
|
|
|
|
|
|
21,571 |
|
Add inter-segment revenue |
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
33 |
|
|
|
754 |
|
|
|
258 |
|
|
|
40 |
|
|
|
46 |
|
|
|
(1,186 |
) |
|
|
|
|
|
|
|
Total segment revenue |
|
|
4,913 |
|
|
|
5,417 |
|
|
|
4,835 |
|
|
|
1,531 |
|
|
|
903 |
|
|
|
2,777 |
|
|
|
63 |
|
|
|
2,318 |
|
|
|
(1,186 |
) |
|
|
21,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment result under AGAAP |
|
|
2,548 |
|
|
|
4,601 |
|
|
|
3,524 |
|
|
|
15 |
|
|
|
(1,457 |
) |
|
|
2,573 |
|
|
|
(1,444 |
) |
|
|
(3,446 |
) |
|
|
(182 |
) |
|
|
6,732 |
|
Share of equity accounted net
(losses)/profits |
|
|
2 |
|
|
|
|
|
|
|
(6 |
) |
|
|
(974 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
(1,025 |
) |
Net book value of investments sold |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
Sale of investment/dividend revenue |
|
|
1 |
|
|
|
|
|
|
|
17 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
Earnings before interest and income
tax expense (EBIT) segment result
under USGAAP |
|
|
2,551 |
|
|
|
4,601 |
|
|
|
3,528 |
|
|
|
(954 |
) |
|
|
(1,457 |
) |
|
|
2,573 |
|
|
|
(1,444 |
) |
|
|
(3,493 |
) |
|
|
(182 |
) |
|
|
5,723 |
|
|
|
|
Earnings has been calculated after
charging/(crediting) the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,043 |
|
|
|
(3 |
) |
|
|
3,447 |
|
Non cash expenses excluding depreciation
and amortisation |
|
|
313 |
|
|
|
62 |
|
|
|
17 |
|
|
|
65 |
|
|
|
14 |
|
|
|
11 |
|
|
|
13 |
|
|
|
626 |
|
|
|
|
|
|
|
1,121 |
|
|
|
|
Non current segment assets acquired
(excluding acquisition of
investments) |
|
|
8 |
|
|
|
(2 |
) |
|
|
3 |
|
|
|
187 |
|
|
|
2,171 |
|
|
|
46 |
|
|
|
847 |
|
|
|
236 |
|
|
|
(164 |
) |
|
|
3,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (b) |
|
|
1,111 |
|
|
|
676 |
|
|
|
923 |
|
|
|
4,256 |
|
|
|
1,357 |
|
|
|
682 |
|
|
|
642 |
|
|
|
27,319 |
|
|
|
(1,367 |
) |
|
|
35,599 |
|
|
|
|
Segment assets include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint venture entities |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
129 |
|
Investment in associated entities |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
1,018 |
|
|
|
312 |
|
|
|
446 |
|
|
|
817 |
|
|
|
997 |
|
|
|
96 |
|
|
|
580 |
|
|
|
18,346 |
|
|
|
(2,435 |
) |
|
|
20,177 |
|
|
|
|
(a) Sales revenue for the other segment relates primarily to our
advertising and directories revenue earned by Sensis. The Asset
Accounting Group is the main contributor to the segment result for
this segment, which is primarily depreciation and amortisation
charges.
(b) Segment assets for the other segment includes the Telstra Entity
fixed assets (including network assets) managed through the
centralised Asset Accounting Group.
(c) Included in the share of equity accounted net (losses)/profits is the
write down of our investment in Reach, amounting to $965 million.
Refer to note 3 for further information.
(d) Included in other revenue from external customers is the sale of
seven office properties for $570 million. Refer to note 3 for further
information.
277
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
Total segment revenue |
|
|
|
22,481 |
|
|
|
21,051 |
|
|
|
21,571 |
|
Sale of investment/dividend revenue |
|
|
|
176 |
|
|
|
229 |
|
|
|
45 |
|
|
|
|
|
Total revenue from external customers (excluding interest revenue) |
2 |
|
|
22,657 |
|
|
|
21,280 |
|
|
|
21,616 |
|
Interest revenue |
|
|
|
103 |
|
|
|
55 |
|
|
|
84 |
|
|
|
|
|
Total revenue from ordinary activities |
2 |
|
|
22,760 |
|
|
|
21,335 |
|
|
|
21,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income tax expense (EBIT) |
|
|
|
7,005 |
|
|
|
6,560 |
|
|
|
5,723 |
|
Interest revenue |
|
|
|
103 |
|
|
|
55 |
|
|
|
84 |
|
Borrowing costs |
|
|
|
(839 |
) |
|
|
(767 |
) |
|
|
(879 |
) |
|
|
|
|
Profit before income tax expense |
|
|
|
6,269 |
|
|
|
5,848 |
|
|
|
4,928 |
|
Income tax expense |
|
|
|
(1,822 |
) |
|
|
(1,731 |
) |
|
|
(1,534 |
) |
|
|
|
|
Net profit |
|
|
|
4,447 |
|
|
|
4,117 |
|
|
|
3,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about sales revenue from our products and services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
PSTN products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic access |
|
|
|
3,362 |
|
|
|
3,237 |
|
|
|
3,083 |
|
Local calls |
|
|
|
1,284 |
|
|
|
1,504 |
|
|
|
1,567 |
|
PSTN value added services |
|
|
|
250 |
|
|
|
259 |
|
|
|
280 |
|
National long distance calls |
|
|
|
1,013 |
|
|
|
1,121 |
|
|
|
1,162 |
|
Fixed to mobile |
|
|
|
1,566 |
|
|
|
1,597 |
|
|
|
1,517 |
|
International direct |
|
|
|
234 |
|
|
|
266 |
|
|
|
307 |
|
|
|
|
|
|
|
|
|
7,709 |
|
|
|
7,984 |
|
|
|
7,916 |
|
Mobiles |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile services |
|
|
|
3,760 |
|
|
|
3,470 |
|
|
|
3,239 |
|
Mobile handsets |
|
|
|
381 |
|
|
|
352 |
|
|
|
386 |
|
|
|
|
|
|
|
|
|
4,141 |
|
|
|
3,822 |
|
|
|
3,625 |
|
Data and internet services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet and IP solutions |
|
|
|
1,377 |
|
|
|
1,013 |
|
|
|
817 |
|
ISDN products |
|
|
|
890 |
|
|
|
927 |
|
|
|
942 |
|
Specialised data |
|
|
|
966 |
|
|
|
1,035 |
|
|
|
1,059 |
|
|
|
|
|
|
|
|
|
3,233 |
|
|
|
2,975 |
|
|
|
2,818 |
|
Other products and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and directories |
|
|
|
1,585 |
|
|
|
1,341 |
|
|
|
1,205 |
|
Customer premises equipment |
|
|
|
229 |
|
|
|
184 |
|
|
|
197 |
|
Payphones |
|
|
|
121 |
|
|
|
141 |
|
|
|
148 |
|
Intercarrier services |
|
|
|
1,146 |
|
|
|
1,103 |
|
|
|
1,136 |
|
Inbound calling products |
|
|
|
449 |
|
|
|
476 |
|
|
|
494 |
|
Solutions management |
|
|
|
931 |
|
|
|
508 |
|
|
|
501 |
|
Offshore controlled entities (a) |
|
|
|
1,611 |
|
|
|
1,431 |
|
|
|
1,544 |
|
Pay TV bundling |
|
|
|
263 |
|
|
|
154 |
|
|
|
23 |
|
Other sales and service |
|
|
|
743 |
|
|
|
618 |
|
|
|
888 |
|
|
|
|
|
|
2 |
|
|
7,078 |
|
|
|
5,956 |
|
|
|
6,136 |
|
|
|
|
|
|
|
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
|
|
278
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
5. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
|
Information about sales 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 |
|
|
501 |
|
|
|
388 |
|
|
|
348 |
|
International Mobiles |
|
|
751 |
|
|
|
744 |
|
|
|
921 |
|
International Data and internet services |
|
|
264 |
|
|
|
204 |
|
|
|
166 |
|
International Intercarrier services |
|
|
24 |
|
|
|
27 |
|
|
|
43 |
|
International Other |
|
|
71 |
|
|
|
68 |
|
|
|
66 |
|
|
|
|
|
|
|
1,611 |
|
|
|
1,431 |
|
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about our geographic operations (i) |
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
Australian customers |
|
|
20,855 |
|
|
|
19,589 |
|
|
|
19,946 |
|
International customers |
|
|
1,626 |
|
|
|
1,462 |
|
|
|
1,625 |
|
|
|
|
2 |
|
|
22,481 |
|
|
|
21,051 |
|
|
|
21,571 |
|
|
|
|
Carrying amount of segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
Australian customers |
|
|
32,080 |
|
|
|
30,872 |
|
|
|
31,264 |
|
International customers |
|
|
4,230 |
|
|
|
4,121 |
|
|
|
4,335 |
|
|
|
|
|
|
|
36,310 |
|
|
|
34,993 |
|
|
|
35,599 |
|
|
|
|
Non current segment assets acquired (excluding acquisition of
investments) |
|
|
|
|
|
|
|
|
|
|
|
|
Located in Australia |
|
|
3,800 |
|
|
|
2,937 |
|
|
|
3,145 |
|
Located in international countries |
|
|
246 |
|
|
|
188 |
|
|
|
187 |
|
|
|
|
|
|
|
4,046 |
|
|
|
3,125 |
|
|
|
3,332 |
|
|
|
|
(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 TB&G
segment. No individual geographical area forms a
significant part of our operations apart from our
Australian operations.
279
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
6. Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
¢ |
|
|
¢ |
|
|
¢ |
|
|
Basic and
diluted earnings per
share |
|
|
35.5 |
|
|
|
32.4 |
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
m |
|
|
$ |
m |
|
|
$ |
m |
|
|
|
|
The following
reflects the earnings
and share information
used in determining
our basic and diluted
earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
|
|
4,447 |
|
|
|
4,117 |
|
|
|
3,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Outside equity
interests in net loss
|
|
|
|
|
|
|
1 |
|
|
|
35 |
|
|
|
|
Earnings used in
the calculation of
basic and diluted
earnings per share
|
|
|
4,447 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
shares |
|
|
|
(millions) |
|
|
|
|
Weighted average number of issued ordinary
shares used in the calculation of basic and
diluted earnings per share (a) (b) |
|
|
12,513 |
|
|
|
12,723 |
|
|
|
12,867 |
|
|
|
|
(a) As at 30 June 2005, we had issued fully
paid ordinary shares of 12,443,074,357 (2004:12,628,359,026;
2003:12,866,600,200).
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 brought 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 18 for further information).
On 24 November 2003, we completed an off-market
share buy-back of 238,241,174 ordinary shares as
part of our capital management program. The
ordinary shares were brought back at $4.20 per
share, which comprised a fully franked dividend
component of $2.70 per share and a capital
component of $1.50 per share. The Commonwealth of
Australia did not participate in the share
buy-back.
(b) There are no potential ordinary shares or
dilutive ordinary shares. We are precluded from issuing instruments that
gives rise to the issue of new shares by the Telstra Corporation Act 1991
(Cwth). The Telstra Growthshare Trust was established to allocate
incentive shares, performance rights, deferred shares, restricted
shares, options, direct shares and own shares to executives and
employees. The Telstra Growthshare trustee purchases shares on market to
underpin the various instruments issued (refer to note 19 for
further information).
280
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous year final dividend
paid |
|
|
1,642 |
|
|
|
1,544 |
|
|
|
1,415 |
|
|
|
1,642 |
|
|
|
1,544 |
|
Interim dividend paid |
|
|
1,742 |
|
|
|
1,642 |
|
|
|
1,544 |
|
|
|
1,742 |
|
|
|
1,642 |
|
Special dividend paid with the
interim dividend |
|
|
747 |
|
|
|
|
|
|
|
386 |
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
Total dividends paid |
|
|
4,131 |
|
|
|
3,186 |
|
|
|
3,345 |
|
|
|
4,131 |
|
|
|
3,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per ordinary share paid |
|
|
¢ |
|
|
|
¢ |
|
|
|
¢ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous year final dividend paid |
|
|
13.0 |
|
|
|
12.0 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
Interim dividend paid |
|
|
14.0 |
|
|
|
13.0 |
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
Special dividend paid with the
interim dividend |
|
|
6.0 |
|
|
|
|
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends paid |
|
|
33.0 |
|
|
|
25.0 |
|
|
|
26.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As our final dividend (including the
special dividend paid with the final dividend)
for fiscal 2005 was not declared, determined or
publicly recommended as at 30 June 2005, no
provision has been raised in the statement of
financial position. Our final dividend
(including the special dividend paid with the
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 28 for further details.
Our dividends paid have been franked in
aggregate and per share to the extent detailed
in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
Franking credit percentages |
|
|
|
|
|
|
|
|
|
|
|
|
Previous year final dividend
paid |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Interim dividend paid |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Special dividend paid with the
interim dividend |
|
|
100 |
|
|
|
|
|
|
|
100 |
|
|
|
|
Our dividends were franked at a tax rate of 30% for the last three years.
Our dividends paid or declared per share for each
fiscal year are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Year ended 30 June |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
¢ |
|
|
¢ |
|
|
¢ |
|
|
Dividends paid/declared per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Interim dividend |
|
|
14 |
|
|
|
13 |
|
|
|
12 |
|
Special dividend paid with the interim
dividend |
|
|
6 |
|
|
|
|
|
|
|
3 |
|
Final dividend |
|
|
14 |
|
|
|
13 |
|
|
|
12 |
|
Special dividend to be paid with the final
dividend |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
40 |
|
|
|
26 |
|
|
|
27 |
|
|
|
|
281
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
7. Dividends (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$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 as at
30 June (i) |
|
|
285 |
|
|
|
625 |
|
|
|
585 |
|
|
|
285 |
|
|
|
625 |
|
Franking credits that will arise from the payment
of income tax payable as at 30 June (ii) |
|
|
519 |
|
|
|
512 |
|
|
|
614 |
|
|
|
519 |
|
|
|
512 |
|
Franking credits and exempting credits that we may be
prevented from distributing in the next fiscal year |
|
|
(24 |
) |
|
|
(25 |
) |
|
|
(1 |
) |
|
|
(24 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
780 |
|
|
|
1,112 |
|
|
|
1,198 |
|
|
|
780 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franking debits that will arise on paying dividends
declared after 30 June but before completion of the financial
report (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final dividend |
|
|
747 |
|
|
|
704 |
|
|
|
662 |
|
|
|
747 |
|
|
|
704 |
|
Special dividend to be paid with the final dividend |
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,067 |
|
|
|
704 |
|
|
|
662 |
|
|
|
1,067 |
|
|
|
704 |
|
|
|
|
|
|
(i) During fiscal 2003, legislation was enacted which enabled the Telstra Entity and
its Australian resident wholly owned entities to be treated as a single entity for income tax
purposes. The Telstra Entity elected to form a tax consolidated group from 1 July 2002. On entry
into tax consolidation, the franking credits held in the franking accounts and exempting accounts
of the subsidiary members were transferred to the Telstra Entity. Therefore, one franking account
and one exempting account is maintained by the Telstra Entity for the tax consolidated group.
As at 30 June 2005, the Telstra Entity had a combined exempting and franking account balance of
$285 million (2004: $625 million; 2003: $585 million). This total combines the surplus in its
franking account of $261 million (2004: $600 million; 2003: $584 million) and a surplus of $24
million (2004: $25 million; 2003: $1 million) in its exempting account. The franking account
balance of $261 million represents the amount of tax paid by the entity that is available for
distribution to shareholders and equates to a fully franked distributable dividend of $609 million
(2004: $1,400 million; 2003: $1,363 million). There are statutory restrictions placed on the
distribution of exempting credits from the exempting account.
Additional franking credits will arise when the Telstra Entity pays tax instalments during fiscal
2006, relating to the fiscal 2005 and 2006 income tax years. Franking credits will be used when the
Telstra Entity pays its 2005 final ordinary dividend (including special dividend to be paid with
the final dividend) in fiscal 2006.
(ii) Franking credits that arise from the payment of income tax are expressed at the 30% tax rate
on a tax paid basis.
(iii) The franking debits that will arise when we pay our final ordinary dividend (including the
special dividend to be paid with the final dividend) have been 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 2006, will be sufficient to cover the
franking debits arising from our final dividend (including our the special dividend). Refer to note
28 for further details in relation to our dividends declared subsequent to year end.
282
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
8. Cash assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
As at 30 June |
|
As at 30 June |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank
and on hand |
|
|
217 |
|
|
|
149 |
|
|
|
75 |
|
|
|
32 |
|
Bank deposits,
bills of exchange
and commercial
paper (a) |
|
|
1,323 |
|
|
|
538 |
|
|
|
1,285 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
1,540 |
|
|
|
687 |
|
|
|
1,360 |
|
|
|
543 |
|
|
|
|
|
|
(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.
283
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
9. Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade debtors (a) |
|
|
|
|
|
|
2,630 |
|
|
|
2,459 |
|
|
|
1,970 |
|
|
|
1,894 |
|
Provision for doubtful debts |
|
|
|
|
|
|
(159 |
) |
|
|
(196 |
) |
|
|
(125 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,471 |
|
|
|
2,263 |
|
|
|
1,845 |
|
|
|
1,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by
controlled entities (other
than trade debtors) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
2,194 |
|
|
|
1,265 |
|
Provision for amounts
owed by controlled entities
(other than trade debtors) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
(1,469 |
) |
|
|
(994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725 |
|
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by joint
venture entities and
associated entities (b) |
|
|
27 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued revenue |
|
|
|
|
|
|
976 |
|
|
|
1,043 |
|
|
|
930 |
|
|
|
1,001 |
|
Share loans to
employees(c) |
|
|
19,27 |
|
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
Cross currency swap
hedge receivable |
|
|
29 |
|
|
|
4 |
|
|
|
169 |
|
|
|
4 |
|
|
|
169 |
|
Other receivables |
|
|
|
|
|
|
102 |
|
|
|
109 |
|
|
|
38 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,138 |
|
|
|
1,345 |
|
|
|
996 |
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,609 |
|
|
|
3,608 |
|
|
|
3,566 |
|
|
|
3,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by
controlled entities (other
than trade debtors) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
362 |
|
Provision for amounts
owed by controlled entities
(other than trade debtors) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed by joint
venture entities and
associated entities (d) |
|
|
27 |
|
|
|
232 |
|
|
|
226 |
|
|
|
226 |
|
|
|
226 |
|
Provision for amounts
owed by joint venture
entities and associated
entities |
|
|
27 |
|
|
|
(232 |
) |
|
|
(226 |
) |
|
|
(226 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share loans to
employees(c) |
|
|
19,27 |
|
|
|
131 |
|
|
|
150 |
|
|
|
131 |
|
|
|
150 |
|
Reach capacity
prepayment (e) |
|
|
27 |
|
|
|
|
|
|
|
208 |
|
|
|
|
|
|
|
208 |
|
Cross currency swap
hedge receivable |
|
|
29 |
|
|
|
|
|
|
|
237 |
|
|
|
|
|
|
|
237 |
|
Other receivables (f)
|
|
|
|
|
|
|
109 |
|
|
|
145 |
|
|
|
103 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
|
740 |
|
|
|
234 |
|
|
|
730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
|
740 |
|
|
|
290 |
|
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
(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 statement of financial position.
(b) During fiscal 2005, we formed a joint venture with Hutchison 3G Australia Pty Ltd (H3GA), to jointly own and operate H3GAs existing
3G radio access network and fund future network development. During the year we provided funding to the joint venture for
operational expenditure purposes. The balance owing will be settled within twelve months and is provided interest free.
(c) Share loans to employees represent amounts receivable from employees under the Telstra Employee
Share Ownership Plan (TESOP97) and the Telstra Employee Share Ownership Plan II (TESOP99). At the
commencement of the scheme, loans were advanced to participating employees to enable the purchase
of Telstra shares. Loans under TESOP97 and TESOP99 are provided interest free. For further details
on repayment terms refer to note 19 regarding the share plans.
284
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
9. Receivables (continued)
(d) During fiscal 2004, together with our co-shareholder PCCW Limited (PCCW), we bought out a loan facility previously owed to a banking
syndicate by Reach Finance Ltd, a controlled entity of our 50% owned joint venture Reach Ltd (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.
In the period 17 June 2004 to 16 December 2004, interest arising on the loan under the loan
facility was suspended and did not accrue. In the period 17 December 2004 to 16 April 2005, the
loan accrued interest equivalent to the 3 month US LIBOR rate plus an additional 2.5%, amounting to
$2 million, but payment of such interest was deferred. On 16 April 2005, we waived our right to
receive further interest under this loan facility as part of the discharge of the Reach capacity
prepayment and subsequent acquisition of an indefeasible right of use (refer to footnote (e) below
for further details).
As part of the April 2005 agreement, the terms of maturity were altered such that the facility is
now an interest free loan and is 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.
(e) Until 16 April 2005, we were party to a capacity prepayment agreement (CPA) with our 50% owned joint venture entity, Reach and
certain subsidiaries of Reach. The CPA had a face value of US$143 million and earned compounding interest equivalent to the 3 month
US LIBOR rate plus an additional 2.5%. The CPA provided the right to receive future carriage and related services capacity equivalent to the
amount of the prepayment and accrued interest.
On 16 April 2005, we terminated the CPA and entered into an indefeasible right of use (IRU)
arrangement with Reach. Under this arrangement, Reach allocated its international cable capacity
between us and our co-shareholder, PCCW, for payment of $205 million (US$157 million) each. Our
share of the payment was made via discharge of Reachs liabilities under the CPA in the amount of
$187 million (US$143 million), accrued interest on the prepayment agreed at $16 million (US$12
million), and accrued interest on the loan facility referred to in footnote (d) above, agreed at $2
million (US$2 million).
The IRU has been classified as deferred expenditure and further details are available at note 14.
(f) Included in our other non current receivables is an amount of $45 million (2004: $65 million) from Telstra Growthshare. This non current
receivable represents amounts provided to the Telstra Growthshare Trust to enable it to purchase shares on market to facilitate the senior
executive equity participation scheme. The interest rate applicable to the loan balance at fiscal 2005 is 4.0% (2004: 4.0%). There are no
specified repayment terms. Refer to note 19 for further information on Telstra Growthshare.
Also included in our other non current receivables is an amount of $59 million (2004: $69 million)
which relates to customer deferred debt. This amount relates to eligible post paid customers where
we allow repayment of the cost of their mobile handset and approved accessories monthly over 12,18
or 24 months. This receivable is non interest bearing.
285
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
10. Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods recorded at net realisable value |
|
|
4 |
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Finished goods recorded at cost |
|
|
222 |
|
|
|
204 |
|
|
|
183 |
|
|
|
167 |
|
Provision for stock obsolescence |
|
|
(25 |
) |
|
|
(29 |
) |
|
|
(16 |
) |
|
|
(15 |
) |
|
|
|
|
|
Total finished goods |
|
|
201 |
|
|
|
205 |
|
|
|
167 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and stores recorded at cost |
|
|
16 |
|
|
|
16 |
|
|
|
12 |
|
|
|
16 |
|
Construction contracts (a) |
|
|
15 |
|
|
|
8 |
|
|
|
15 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
232 |
|
|
|
229 |
|
|
|
194 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods recorded at net realisable value |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Finished goods recorded at cost |
|
|
20 |
|
|
|
6 |
|
|
|
20 |
|
|
|
6 |
|
Provision for stock obsolescence |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
15 |
|
|
|
10 |
|
|
|
15 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Construction contract disclosures are shown in the table below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amount of construction work in progress |
|
|
65 |
|
|
|
33 |
|
|
|
65 |
|
|
|
33 |
|
Profits recognised to date |
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
69 |
|
|
|
36 |
|
|
|
69 |
|
|
|
36 |
|
Progress billings |
|
|
(54 |
) |
|
|
(28 |
) |
|
|
(54 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
15 |
|
|
|
8 |
|
|
|
15 |
|
|
|
8 |
|
|
|
|
|
|
As at 30 June 2005, we had received
advances in relation to our construction work
in progress amounting to $7 million (2004:
$nil).
286
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
11. Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Investments accounted for using the equity method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint venture entities |
|
|
|
|
|
|
37 |
|
|
|
40 |
|
|
|
82 |
|
|
|
81 |
|
Provision for reduction in value |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(50 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
Carrying amount of investments in joint venture entities |
|
|
24 |
|
|
|
33 |
|
|
|
40 |
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in associated entities |
|
|
|
|
|
|
40 |
|
|
|
24 |
|
|
|
34 |
|
|
|
25 |
|
Provision for reduction in value |
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
|
|
(22 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
Carrying amount of investments in associated entities |
|
|
24 |
|
|
|
16 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
40 |
|
|
|
44 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in listed corporations (at cost) (i) |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlisted securities and other investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in controlled entities (at cost) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
12,868 |
|
|
|
12,537 |
|
Provision for reduction in value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,839 |
) |
|
|
(7,173 |
) |
|
|
|
|
|
|
|
|
|
Total investment in controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,029 |
|
|
|
5,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in other corporations (at cost) |
|
|
|
|
|
|
3 |
|
|
|
68 |
|
|
|
3 |
|
|
|
62 |
|
Provision for reduction in value |
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Total investment in other corporations (ii) |
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
6,029 |
|
|
|
5,435 |
|
|
|
|
|
|
|
|
|
|
287
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
11. Investments (continued)
Listed securities and investments in other corporations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of investment |
|
Principal |
|
Ownership |
|
Telstra Group's recorded |
|
Telstra Entity's recorded |
|
|
activities |
|
interest |
|
amount of investment(*) |
|
amount of investment(*) |
|
|
|
|
As at 30 June |
|
As at 30 June |
|
As at 30 June |
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
% |
|
|
% |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Listed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infonet
Services Corporation (a) |
|
International communications and computing services |
|
|
|
|
|
|
5.3 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
Other listed investments (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Investments in other corporations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intelsat Limited (c) |
|
Provision of satellite capacity |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
Other investments (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) Amounts shown net of provision for reduction in value.
(a) On 25 February 2005, we sold our
investment in Infonet Services
Corporation for $65 million.
(b) During fiscal 2005, we sold other minor
listed investments for
nominal consideration.
(c) On 28 January 2005, we sold our investment
in Intelsat Limited for
$69 million (US$53.3 million).
(d) During fiscal 2005, we sold other minor
investments for nominal
consideration. In addition, we were issued
additional capital in m.Net
Corporation Limited as consideration for
in-kind services provided. As
a result of the increase in shares held we
classified the investment as
a joint venture. Refer note 24 for further
information.
288
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
As at 30 June |
|
As at 30 June |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
|
|
|
|
Land and site improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
40 |
|
|
|
43 |
|
|
|
37 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
840 |
|
|
|
752 |
|
|
|
743 |
|
|
|
706 |
|
Accumulated depreciation |
|
|
(396 |
) |
|
|
(345 |
) |
|
|
(363 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
444 |
|
|
|
407 |
|
|
|
380 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
43,942 |
|
|
|
41,225 |
|
|
|
41,730 |
|
|
|
39,664 |
|
Accumulated depreciation |
|
|
(21,843 |
) |
|
|
(19,726 |
) |
|
|
(21,214 |
) |
|
|
(19,214 |
) |
|
|
|
|
|
|
|
|
22,099 |
|
|
|
21,499 |
|
|
|
20,516 |
|
|
|
20,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
Accumulated depreciation |
|
|
(434 |
) |
|
|
(359 |
) |
|
|
(434 |
) |
|
|
(359 |
) |
|
|
|
|
|
|
|
|
424 |
|
|
|
499 |
|
|
|
424 |
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plant, equipment and motor vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
1,058 |
|
|
|
1,384 |
|
|
|
753 |
|
|
|
1,004 |
|
Accumulated depreciation |
|
|
(734 |
) |
|
|
(980 |
) |
|
|
(553 |
) |
|
|
(792 |
) |
|
|
|
|
|
|
|
|
324 |
|
|
|
404 |
|
|
|
200 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
52 |
|
|
|
48 |
|
|
|
26 |
|
|
|
19 |
|
Accumulated depreciation |
|
|
(32 |
) |
|
|
(37 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
20 |
|
|
|
11 |
|
|
|
16 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost |
|
|
46,790 |
|
|
|
44,310 |
|
|
|
44,147 |
|
|
|
42,293 |
|
Accumulated depreciation |
|
|
(23,439 |
) |
|
|
(21,447 |
) |
|
|
(22,574 |
) |
|
|
(20,693 |
) |
|
|
|
|
|
|
|
|
23,351 |
|
|
|
22,863 |
|
|
|
21,573 |
|
|
|
21,600 |
|
|
|
|
|
|
289
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entiy |
|
|
|
|
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Land and site improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
43 |
|
|
|
49 |
|
|
|
42 |
|
|
|
48 |
|
- additions |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
- disposals |
|
|
|
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(6 |
) |
- acquistion of businesses |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
40 |
|
|
|
43 |
|
|
|
37 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
407 |
|
|
|
419 |
|
|
|
388 |
|
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
752 |
|
|
|
698 |
|
|
|
706 |
|
|
|
653 |
|
- additions |
|
|
|
|
|
|
47 |
|
|
|
65 |
|
|
|
43 |
|
|
|
63 |
|
- disposals |
|
|
|
|
|
|
(16 |
) |
|
|
(18 |
) |
|
|
(15 |
) |
|
|
(11 |
) |
- acquisitions of businesses |
|
|
|
|
|
|
57 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
- net foreign currency exchange differences on
translation of financial statements of self-sustaining
operations |
|
|
|
|
|
|
(6 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
6 |
|
|
|
3 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
840 |
|
|
|
752 |
|
|
|
743 |
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation |
|
|
|
|
|
|
(345 |
) |
|
|
(279 |
) |
|
|
(318 |
) |
|
|
(267 |
) |
- disposals |
|
|
|
|
|
|
4 |
|
|
|
9 |
|
|
|
3 |
|
|
|
1 |
|
- depreciation and amortisation expense |
|
|
3 |
|
|
|
(56 |
) |
|
|
(55 |
) |
|
|
(48 |
) |
|
|
(55 |
) |
- net foreign currency exchange differences on
translation of financial statements of
self-sustaining operations |
|
|
|
|
|
|
3 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(2 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation |
|
|
|
|
|
|
(396 |
) |
|
|
(345 |
) |
|
|
(363 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
444 |
|
|
|
407 |
|
|
|
380 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
290
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
Note |
|
$m |
|
$m |
|
$m |
|
$m |
|
|
|
|
|
|
|
|
|
Communication assets (including leasehold improvements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
21,499 |
|
|
|
21,521 |
|
|
|
20,450 |
|
|
|
20,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
41,225 |
|
|
|
39,492 |
|
|
|
39,664 |
|
|
|
38,086 |
|
- additions |
|
|
|
|
|
|
3,378 |
|
|
|
2,654 |
|
|
|
2,732 |
|
|
|
2,519 |
|
- disposals |
|
|
|
|
|
|
(740 |
) |
|
|
(1,010 |
) |
|
|
(740 |
) |
|
|
(1,001 |
) |
- acquisitions of businesses |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
- net foreign currency exchange differences on
translation of financial statements of self-sustaining operations |
|
|
|
|
|
|
(37 |
) |
|
|
33 |
|
|
|
|
|
|
|
4 |
|
- other |
|
|
|
|
|
|
116 |
|
|
|
55 |
|
|
|
74 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
43,942 |
|
|
|
41,225 |
|
|
|
41,730 |
|
|
|
39,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation |
|
|
|
|
|
|
(19,726 |
) |
|
|
(17,971 |
) |
|
|
(19,214 |
) |
|
|
(17,558 |
) |
- disposals |
|
|
|
|
|
|
584 |
|
|
|
866 |
|
|
|
588 |
|
|
|
859 |
|
- acquisitions of businesses |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
- depreciation and amortisation expense |
|
|
3 |
|
|
|
(2,682 |
) |
|
|
(2,602 |
) |
|
|
(2,571 |
) |
|
|
(2,504 |
) |
- net foreign currency exchange differences on
translation of financial statements of self-sustaining operations |
|
|
|
|
|
|
8 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(27 |
) |
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation |
|
|
|
|
|
|
(21,843 |
) |
|
|
(19,726 |
) |
|
|
(21,214 |
) |
|
|
(19,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
22,099 |
|
|
|
21,499 |
|
|
|
20,516 |
|
|
|
20,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication assets under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
499 |
|
|
|
581 |
|
|
|
499 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening and closing cost (a) |
|
|
|
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation |
|
|
|
|
|
|
(359 |
) |
|
|
(277 |
) |
|
|
(359 |
) |
|
|
(277 |
) |
- depreciation and amortisation expense |
|
|
3 |
|
|
|
(75 |
) |
|
|
(82 |
) |
|
|
(75 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation |
|
|
|
|
|
|
(434 |
) |
|
|
(359 |
) |
|
|
(434 |
) |
|
|
(359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
424 |
|
|
|
499 |
|
|
|
424 |
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
(a) In fiscal 2005 and fiscal 2004 there
were no additions or disposals to this class of
asset. As a result, our opening and closing cost
has remained unchanged.
291
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Property, plant and equipment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
Year ended 30 June |
|
Year ended 30 June |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
Other plant, equipment and motor vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
404 |
|
|
|
430 |
|
|
|
212 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
1,384 |
|
|
|
1,449 |
|
|
|
1,004 |
|
|
|
1,064 |
|
- additions |
|
|
|
|
|
|
114 |
|
|
|
166 |
|
|
|
52 |
|
|
|
63 |
|
- disposals |
|
|
|
|
|
|
(301 |
) |
|
|
(239 |
) |
|
|
(295 |
) |
|
|
(123 |
) |
- acquisitions of businesses |
|
|
|
|
|
|
15 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
- net foreign currency exchange differences on
translation of financial statements of self-sustaining operations |
|
|
|
|
|
|
(14 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
(140 |
) |
|
|
(1 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
1,058 |
|
|
|
1,384 |
|
|
|
753 |
|
|
|
1,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation |
|
|
|
|
|
|
(980 |
) |
|
|
(1,019 |
) |
|
|
(792 |
) |
|
|
(820 |
) |
- disposals |
|
|
|
|
|
|
287 |
|
|
|
169 |
|
|
|
281 |
|
|
|
91 |
|
- acquisitions of businesses |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
- depreciation and amortisation expense |
|
|
3 |
|
|
|
(124 |
) |
|
|
(121 |
) |
|
|
(50 |
) |
|
|
(64 |
) |
- net foreign currency exchange differences on
translation of financial statements of self-sustaining operations |
|
|
|
|
|
|
9 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
- other |
|
|
|
|
|
|
74 |
|
|
|
(4 |
) |
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation |
|
|
|
|
|
|
(734 |
) |
|
|
(980 |
) |
|
|
(553 |
) |
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
324 |
|
|
|
404 |
|
|
|
200 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under finance lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening net book value |
|
|
|
|
|
|
11 |
|
|
|
12 |
|
|
|
9 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening cost |
|
|
|
|
|
|
48 |
|
|
|
52 |
|
|
|
19 |
|
|
|
9 |
|
- additions |
|
|
|
|
|
|
13 |
|
|
|
48 |
|
|
|
12 |
|
|
|
|
|
- disposals |
|
|
|
|
|
|
(9 |
) |
|
|
(36 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
- acquisitions of businesses |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
- other |
|
|
|
|
|
|
(4 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cost |
|
|
|
|
|
|
52 |
|
|
|
48 |
|
|
|
26 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening accumulated depreciation |
|
|
|
|
|
|
(37 |
) |
|
|
(40 |
) |
|
|
(10 |
) |
|
|
(2 |
) |
- disposals |
|
|
|
|
|
|
3 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
- depreciation and amortisation expense |
|
|
3 |
|
|
|
(9 |
) |
|
|
(13 |
) |
|
|
(7 |
) |
|
|
(11 |
) |
- other |
|
|
|
|
|
|
11 |
|
|
|
1 |
|
|
|
7 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Closing accumulated depreciation |
|
|
|
|
|
|
(32 |
) |
|
|
(37 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value |
|
|
|
|
|
|
20 |
|
|
|
11 |
|
|
|
16 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
292
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
12. Property, plant and equipment (continued)
Communication assets
Communication assets include certain network land and buildings which are essential to the
operation of our communication assets.
Current value of all land and buildings
We obtain valuations of all of our land and buildings at least once every three years and the
current value as at 30 June 2005 was $2,882 million for both the Telstra Group and Telstra
Entity (2004: $2,869 million).
These current values were not an independent valuation. The following bases are used in
determining the current value of property, plant and equipment:
|
|
|
|
|
|
Property, plant and equipment |
|
Valuation |
|
Last valuation |
category |
|
basis |
|
Date |
|
General purpose land and
buildings
|
|
Market value
|
|
31 March 2005 |
Network land
|
|
Market value
|
|
31 March 2004 |
Network buildings
|
|
Depreciated
replacement
cost
|
|
31 March 2004 |
|
Details of our capital expenditure and finance lease commitments are shown in note 20 to
these financial statements.
Work in progress
In fiscal 2005, the Telstra Group has property, plant and equipment under construction amounting
to $1,040 million (2004: $987 million). In fiscal 2005, the Telstra Entity has property, plant
and equipment under construction amounting to $945 million (2004: $947 million). As these assets
are not installed and ready for use, there is no depreciation being charged on the amounts.
293
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
13. Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
As at 30 June |
|
As at 30 June |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Intangibles- goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (a)(b) |
|
|
2,826 |
|
|
|
2,498 |
|
|
|
22 |
|
|
|
22 |
|
Accumulated amortisation |
|
|
(539 |
) |
|
|
(394 |
) |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
2,287 |
|
|
|
2,104 |
|
|
|
12 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles -other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mastheads |
|
|
447 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and licences |
|
|
708 |
|
|
|
687 |
|
|
|
287 |
|
|
|
287 |
|
Accumulated amortisation |
|
|
(183 |
) |
|
|
(154 |
) |
|
|
(124 |
) |
|
|
(102 |
) |
|
|
|
|
|
|
|
|
525 |
|
|
|
533 |
|
|
|
163 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brandnames |
|
|
212 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
(42 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer bases |
|
|
742 |
|
|
|
581 |
|
|
|
70 |
|
|
|
70 |
|
Accumulated amortisation |
|
|
(303 |
) |
|
|
(238 |
) |
|
|
(51 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
439 |
|
|
|
343 |
|
|
|
19 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
1,581 |
|
|
|
1,501 |
|
|
|
182 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
(a) |
|
The movement in the carrying value of our net goodwill balance is summarised as follows: |
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
|
|
Carrying amount at beginning of year |
|
|
2,104 |
|
|
|
2,018 |
|
Additional goodwill recognised (i) (ii) |
|
|
328 |
|
|
|
209 |
|
Amortisation expense |
|
|
(145 |
) |
|
|
(123 |
) |
|
|
|
Carrying amount at end of year |
|
|
2,287 |
|
|
|
2,104 |
|
|
|
|
(i) During fiscal 2005, we acquired 100% of the issued share capital of the following
entities:
|
|
KAZ Group Limited and its controlled entities, which resulted in additional goodwill of
$205 million; |
|
|
|
PSINet UK Limited and its controlled entities, which resulted in additional goodwill of
$82 million; |
|
|
|
ESA Holding Pty Ltd and its controlled entity, Damovo (Australia) Pty Ltd, and Damovo HK
Limited (Damovo Group); which resulted in additional goodwill of $16 million; and |
|
|
|
Universal
Publishers Pty Ltd, which resulted in additional goodwill of $15 million. |
Various other entities were also acquired during the current year, which resulted in the
recognition of additional goodwill amounting to $10 million. Refer to note 23 for further details
on our acquisitions.
(ii) During fiscal 2004, we acquired 100% of the issued share capital of the following entities:
|
|
Trading Post (Australia) Holdings Pty Ltd and its controlled entities, which resulted in
additional goodwill of $179 million; and |
|
|
|
Cable Telecom (GB) Limited, which resulted in additional goodwill of $23 million. |
|
|
In fiscal 2004, we also acquired a 75% controlling interest in Invizage Pty Ltd, which resulted in
additional goodwill of $7 million. |
294
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
13. Intangible assets (continued)
|
|
|
(b) |
|
As at 30 June 2005, the net goodwill was attributable to investments made in
the following controlled entities: |
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
As at 30 June |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
|
|
Telstra CSL Limited |
|
|
1,586 |
|
|
|
1,685 |
|
KAZ Group Limited |
|
|
195 |
|
|
|
|
|
Trading Post (Australia) Holdings Pty Ltd |
|
|
169 |
|
|
|
177 |
|
TelstraClear Limited |
|
|
132 |
|
|
|
137 |
|
Telstra PSINet Limited (formerly PSINet UK
Limited) |
|
|
79 |
|
|
|
|
|
Sensis Pty Ltd |
|
|
33 |
|
|
|
36 |
|
Cable Telecom (GB) Limited |
|
|
21 |
|
|
|
23 |
|
Telstra Enterprise Services Pty Ltd |
|
|
18 |
|
|
|
25 |
|
ESA Holding Pty Ltd |
|
|
16 |
|
|
|
|
|
Universal Publishers Pty Ltd |
|
|
15 |
|
|
|
|
|
Telstra eBusiness Services Pty Ltd |
|
|
9 |
|
|
|
10 |
|
Other |
|
|
14 |
|
|
|
11 |
|
|
|
|
Net goodwill |
|
|
2,287 |
|
|
|
2,104 |
|
|
|
|
295
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
14. Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred
mobile phone
handset subsidies |
|
|
|
|
|
|
241 |
|
|
|
205 |
|
|
|
241 |
|
|
|
205 |
|
Deferred
expenditure |
|
|
|
|
|
|
305 |
|
|
|
286 |
|
|
|
264 |
|
|
|
249 |
|
Prepayments |
|
|
|
|
|
|
250 |
|
|
|
227 |
|
|
|
174 |
|
|
|
148 |
|
Converting note
issued by PCCW (a) |
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
796 |
|
|
|
803 |
|
|
|
679 |
|
|
|
687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
expenditure |
|
|
|
|
|
|
298 |
|
|
|
350 |
|
|
|
294 |
|
|
|
345 |
|
Accumulated
amortisation |
|
|
|
|
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291 |
|
|
|
344 |
|
|
|
287 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software assets
developed for
internal use (b) |
|
|
|
|
|
|
3,702 |
|
|
|
3,335 |
|
|
|
3,300 |
|
|
|
3,135 |
|
Accumulated
amortisation |
|
|
|
|
|
|
(1,699 |
) |
|
|
(1,412 |
) |
|
|
(1,569 |
) |
|
|
(1,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,003 |
|
|
|
1,923 |
|
|
|
1,731 |
|
|
|
1,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reach indefeasible
right of use (c) |
|
|
|
|
|
|
219 |
|
|
|
|
|
|
|
219 |
|
|
|
|
|
Accumulated
amortisation |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future income
tax benefit |
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Net deferred
mobile phone
handset subsidies |
|
|
|
|
|
|
98 |
|
|
|
59 |
|
|
|
98 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,610 |
|
|
|
2,328 |
|
|
|
2,332 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On 30 June 2005, we redeemed the converting note issued by PCCW Limited (PCCW) for cash
consideration of $76 million. The note had a carrying value of $80 million, which resulted in us
realising a loss on conversion of $4 million. This loss represented a 5% discount which was
negotiated for the redemption of the note in cash. The converting note originally had a three year
term with interest compounded at 5% per annum. The converting note expired and became payable on 30
June 2005. |
|
(b) |
|
In fiscal 2005, the Telstra Group had software assets under construction amounting to $362
million (2004: $337 million). In fiscal 2005, the Telstra Entity has software assets under
construction amounting to $301 million (2004: $278 million). As these assets were not installed and
ready for use, no amortisation being charged on the amounts. |
|
(c) |
|
On 16 April 2005, we entered into an arrangement with our joint venture 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. |
We paid Reach $205 million (US$157 million) for the IRU, which was made up of the discharge of
Reachs liabilities under the capacity prepayment agreement we held with Reach, the accrued
interest thereon, and other accrued interest owed under the Reach loan facility. Refer to note 9
for further details.
The IRU is amortised over the contract periods for the capacity on the various international cable
systems, which range from 5 to 22 years. Over the period of the IRU, we will pay Reach an
outsourcing fee for managing our cable usage on a cost-plus mark up basis, which is recorded as an
expense as incurred.
As part of the arrangement, we have committed to fund half of Reachs committed capital expenditure
for the period until 2022, up to a value of US$106 million. Any amounts we provide to Reach to fund
this capital expenditure will be added to the value of the IRU and amortised over its remaining
life. Refer to note 21 for further details. In the period since we acquired the IRU, Reach has
drawn down $14 million under this commitment.
296
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
15. Payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade creditors
(a) |
|
|
|
|
|
|
649 |
|
|
|
624 |
|
|
|
480 |
|
|
|
493 |
|
Accrued expenses |
|
|
|
|
|
|
1,057 |
|
|
|
1,050 |
|
|
|
816 |
|
|
|
824 |
|
Accrued capital
expenditure |
|
|
|
|
|
|
289 |
|
|
|
266 |
|
|
|
210 |
|
|
|
216 |
|
Accrued
interest |
|
|
|
|
|
|
227 |
|
|
|
179 |
|
|
|
227 |
|
|
|
179 |
|
Deferred cash
settlement for
acquisitions (b) |
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other creditors
(a) |
|
|
|
|
|
|
266 |
|
|
|
219 |
|
|
|
219 |
|
|
|
174 |
|
Amounts owed to
controlled entities
(other than trade
creditors) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,809 |
|
|
|
2,338 |
|
|
|
1,957 |
|
|
|
1,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred cash
settlement for
acquisitions (b) |
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other creditors |
|
|
|
|
|
|
15 |
|
|
|
49 |
|
|
|
13 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
49 |
|
|
|
13 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. The purchase
price of these assets at transaction date
amounted to $450 million, payable over two
years. We recognised this payable at present
value in our statement of financial position
and are releasing the associated interest
over the period of the payable. For fiscal
2005, this release of interest amounted to
$13 million. |
As at balance date we have $309 million
included in our current deferred
consideration and $107 million included in
our non current deferred consideration
relating to this transaction. Our liability
will be settled by our final payment due on 1
July 2006. Refer to the notes accompanying
our statement of cash flows for further
information.
297
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
16. Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft (a) |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from joint venture entities and associated
entities (b) |
|
|
27 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Bills of exchange and commercial paper (c) |
|
|
|
|
|
|
449 |
|
|
|
869 |
|
|
|
449 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463 |
|
|
|
870 |
|
|
|
449 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from wholly owned controlled entities |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
2,282 |
|
Telstra bonds (d) |
|
|
|
|
|
|
516 |
|
|
|
273 |
|
|
|
516 |
|
|
|
273 |
|
Other loans (e) |
|
|
|
|
|
|
523 |
|
|
|
2,096 |
|
|
|
523 |
|
|
|
2,096 |
|
Finance leases |
|
|
20 |
|
|
|
5 |
|
|
|
7 |
|
|
|
4 |
|
|
|
6 |
|
Cross currency swap hedge payable (e) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,055 |
|
|
|
2,376 |
|
|
|
3,454 |
|
|
|
4,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,518 |
|
|
|
3,246 |
|
|
|
3,903 |
|
|
|
5,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds (d) |
|
|
|
|
|
|
2,608 |
|
|
|
2,136 |
|
|
|
2,608 |
|
|
|
2,136 |
|
Other loans (e) |
|
|
|
|
|
|
8,297 |
|
|
|
6,458 |
|
|
|
8,297 |
|
|
|
6,458 |
|
Finance leases |
|
|
20 |
|
|
|
47 |
|
|
|
10 |
|
|
|
13 |
|
|
|
10 |
|
Cross currency swap hedge payable (e) |
|
|
|
|
|
|
864 |
|
|
|
410 |
|
|
|
864 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,816 |
|
|
|
9,014 |
|
|
|
11,782 |
|
|
|
9,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft (a) |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from joint venture entities and
associated entities (b) |
|
|
27 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Bills of exchange and commercial paper (c) |
|
|
|
|
|
|
449 |
|
|
|
869 |
|
|
|
449 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463 |
|
|
|
870 |
|
|
|
449 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt (including current portion) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from wholly owned controlled entities |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
2,282 |
|
Telstra bonds (d) |
|
|
|
|
|
|
3,124 |
|
|
|
2,409 |
|
|
|
3,124 |
|
|
|
2,409 |
|
Other loans (e) |
|
|
|
|
|
|
8,820 |
|
|
|
8,554 |
|
|
|
8,820 |
|
|
|
8,554 |
|
Finance leases |
|
|
20 |
|
|
|
52 |
|
|
|
17 |
|
|
|
17 |
|
|
|
16 |
|
Cross currency swap hedge payable |
|
|
29 |
|
|
|
875 |
|
|
|
410 |
|
|
|
875 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,871 |
|
|
|
11,390 |
|
|
|
15,236 |
|
|
|
13,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,334 |
|
|
|
12,260 |
|
|
|
15,685 |
|
|
|
14,541 |
|
|
|
|
|
|
|
|
|
|
298
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
16. Interest-bearing liabilities (continued)
Our long term debt (excluding cross
currency swap hedge payable) is repayable over
years ending 30 June as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
after 2010 |
|
Total |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
$m |
|
|
|
Telstra bonds (d) |
|
|
517 |
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
1,649 |
|
|
|
3,166 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans (e) |
|
|
496 |
|
|
|
390 |
|
|
|
1,297 |
|
|
|
83 |
|
|
|
792 |
|
|
|
5,804 |
|
|
|
8,862 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
12 |
|
|
|
10 |
|
|
|
10 |
|
|
|
8 |
|
|
|
5 |
|
|
|
54 |
|
|
|
99 |
|
|
|
|
|
|
|
|
Future finance charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term debt
payable (excluding cross
currency
swap hedge payable) |
|
|
1,025 |
|
|
|
900 |
|
|
|
1,307 |
|
|
|
591 |
|
|
|
79 |
|
|
|
7,507 |
|
|
|
12,127 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets pledged as security
On 9 January 2004, our 50% owned pay television joint venture FOXTEL 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 2005 was $nil. Refer to
note 21, for details of an equity contribution deed entered as part of this agreement.
Our interest-bearing liabilities 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 2005, we had a bank overdraft of $14 million (2004: nil), which related to a
controlled entity. This bank overdraft is unsecured, with interest being charged daily, net of the
controlled entitys offsetting position of cash in bank and any outstanding loans. The weighted
average effective interest rate relating to this overdraft is 6.27% (2004: nil).
(b) Loan from joint venture entities and associated entities
As at 30 June 2005, we have no loans outstanding from joint venture entities or associated
entities. As at 30 June 2004, we owed a joint venture entity $1 million for an amount deposited
with the Telstra Entity. The amount was repayable on demand and had an interest rate of 4.70%. The
amount was repaid during fiscal 2005.
(c) Bills of exchange and commercial paper
We have issued bills of exchange and commercial paper of $449 million (2004: $869 million) to
financial institutions with an original maturity of less than 180 days. At 30 June 2005, all $449
million (2004: $651 million) of the commercial paper matures in less than three months.
The weighted average effective interest rate applicable to the commercial paper at 30 June 2005
was 5.24% (2004: 5.21%).
299
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
16. Interest-bearing liabilities (continued)
(d) Telstra bonds
Telstra bonds have been issued to both retail and wholesale investors.
They have effective interest rates ranging from 6.48% to 12.67% (2004:
7.23% to 12.67%) and mature up until the year 2020 (2004: 2020).
During fiscal 2005, $273 million (2004: $210 million) of Telstra bonds
matured. Our Telstra bonds are repayable in the years ending 30 June
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Due in the year ending 30 June |
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
after 2010 |
|
|
Total |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Coupon interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
up to 6.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
35 |
|
up to 8.0% |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
1,510 |
|
|
|
2,510 |
|
up to 10.0% |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
41 |
|
up to 12.0% |
|
|
504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
548 |
|
up to 16.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
517 |
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
1,649 |
|
|
|
3,166 |
|
|
|
|
|
|
|
|
Unamortised discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) Other loans
Details of our other loans including currency of
borrowing, interest rates and maturity dates are
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra
Group Other loans details |
|
A$ amount |
|
|
Interest rates |
|
|
Maturity dates |
|
|
|
As at 30 June |
|
|
Year ended 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
A$m |
|
|
A$m |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
Australian dollar loans |
|
|
250 |
|
|
|
250 |
|
|
|
5.93 |
% |
|
|
5.93 |
% |
|
November 2007 |
|
November 2007 |
|
|
|
|
|
|
|
|
|
|
3.49% to |
|
1.48% to |
|
between Nov 2005 |
|
between Nov 2005 |
US dollar loans |
|
|
1,309 |
|
|
|
1,453 |
|
|
|
6.50 |
% |
|
|
6.50 |
% |
|
and April 2012 |
|
and April 2012 |
|
|
|
|
|
|
|
|
|
|
3.00% to |
|
2.56% to |
|
between June 2010 |
|
between June 2005 |
Euro eurobond loan |
|
|
4,723 |
|
|
|
4,368 |
|
|
|
6.38 |
% |
|
|
6.38 |
% |
|
and July 2015 |
|
and June 2011 |
Deutschemark eurobond loan |
|
|
808 |
|
|
|
894 |
|
|
|
5.13 |
% |
|
|
5.13 |
% |
|
April 2008 |
|
April 2008 |
French franc loan |
|
|
362 |
|
|
|
400 |
|
|
|
6.00 |
% |
|
|
6.00 |
% |
|
December 2006 |
|
December 2006 |
Swiss franc eurobond loan |
|
|
304 |
|
|
|
344 |
|
|
|
2.50 |
% |
|
|
3.38 |
% |
|
April 2013 |
|
June 2005 |
|
|
|
|
|
|
|
|
|
|
0.31% to |
|
0.30% to |
|
between July 2007 |
|
between July 2007 |
Japanese yen loans |
|
|
333 |
|
|
|
241 |
|
|
|
1.89 |
% |
|
|
1.65 |
% |
|
and Nov 2014 |
|
and Sept 2010 |
Singapore dollar loans |
|
|
78 |
|
|
|
85 |
|
|
|
3.80 |
% |
|
|
3.80 |
% |
|
March 2008 |
|
March 2008 |
|
|
|
|
|
|
|
|
|
|
6.99% to |
|
|
|
|
|
between Nov 2011 |
|
|
|
|
New Zealand dollar loans |
|
|
183 |
|
|
|
|
|
|
|
7.15 |
% |
|
|
|
|
|
and Nov 2014 |
|
|
|
British pound sterling loans |
|
|
470 |
|
|
|
519 |
|
|
|
6.13 |
% |
|
|
6.13 |
% |
|
August 2014 |
|
August 2014 |
|
|
|
Total other loans including current portion |
|
|
8,820 |
|
|
|
8,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
16. Interest-bearing liabilities (continued)
(e) Other loans (continued)
To appropriately assess our foreign currency borrowings
included in other loans, the hedge receivables and hedge
payables arising from our cross currency swaps entered to
hedge this position should also be considered. The
following table shows our other loan position, net of our
outstanding cross currency swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
Other loans |
|
|
8,820 |
|
|
|
8,554 |
|
less hedge receivable current |
|
|
(4 |
) |
|
|
(169 |
) |
less hedge receivable non current |
|
|
|
|
|
|
(237 |
) |
add hedge payable current |
|
|
11 |
|
|
|
|
|
add hedge payable non current |
|
|
864 |
|
|
|
410 |
|
|
|
|
Other loans net of cross currency swaps |
|
|
9,691 |
|
|
|
8,558 |
|
|
|
|
(f) Financing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Our financing arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have access to the following lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit standby arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured committed cash standby facilities which are subject to annual review |
|
|
892 |
|
|
|
849 |
|
|
|
887 |
|
|
|
815 |
|
Amount of credit unused |
|
|
891 |
|
|
|
820 |
|
|
|
887 |
|
|
|
815 |
|
|
|
|
|
|
We have commercial paper facilities in place with
financial institutions under which we may issue up to
$13,842 million (2004: $15,000 million). As at 30 June
2005, we had drawn down $449 million (2004: $869 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.
301
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
17. Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits (a) |
|
|
336 |
|
|
|
312 |
|
|
|
288 |
|
|
|
288 |
|
Workers compensation (b) (c) |
|
|
32 |
|
|
|
32 |
|
|
|
31 |
|
|
|
31 |
|
Other provisions (b) (c) |
|
|
21 |
|
|
|
14 |
|
|
|
5 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
389 |
|
|
|
358 |
|
|
|
324 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits (a) |
|
|
610 |
|
|
|
559 |
|
|
|
588 |
|
|
|
549 |
|
Workers compensation (b) (c) |
|
|
182 |
|
|
|
184 |
|
|
|
175 |
|
|
|
176 |
|
Other provisions (b) (c) |
|
|
44 |
|
|
|
35 |
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
836 |
|
|
|
778 |
|
|
|
779 |
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Aggregate employee benefits and related on-costs liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision for employee benefits |
|
|
336 |
|
|
|
312 |
|
|
|
288 |
|
|
|
288 |
|
Non current provision for employee benefits |
|
|
610 |
|
|
|
559 |
|
|
|
588 |
|
|
|
549 |
|
Accrued labour and on-costs (i) |
|
|
237 |
|
|
|
179 |
|
|
|
225 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
1,183 |
|
|
|
1,050 |
|
|
|
1,101 |
|
|
|
1,012 |
|
|
|
|
|
|
(i) Accrued labour and related on-costs are included
within our current payables (refer to note 15).
Provision for employee benefits consist of amounts for
annual leave, long service leave accrued by employees
and provision for redundancy payments.
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 |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
Weighted average projected increase in salaries, wages and associated on-costs |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
Weighted average discount rates |
|
|
5.4 |
% |
|
|
5.7 |
% |
|
|
5.4 |
% |
|
|
5.7 |
% |
Leave taking rates |
|
|
13.3 |
% |
|
|
13.2 |
% |
|
|
13.3 |
% |
|
|
13.3 |
% |
(b) Information about our provisions, other than 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.
Present values are calculated using appropriate rates
based on government guaranteed securities with similar
due dates. Actual compensation paid may vary where
accidents and claims incurred vary from those
estimated.
Our controlled entities do not self insure, but pay
annual premiums to third party insurance companies for
their workers compensation liabilities.
302
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
17. Provisions (continued)
(b) Information about our provisions, other than
employee benefits (continued)
Other
Other provisions include provision for restructuring,
provision for warranties, provision for restoration costs
and other general provisions. The provision for
restructuring relates to restructuring costs expected on
acquisition of controlled entities and our internal
restructures. The provision for warranties relates to
our best estimate of warranty costs expected to meet our
products future repairs and replacement based on current
sales levels and past historical information. Provision
for restoration costs relates to our future expected
restoration obligations in relation to the fitout of our
general purpose leased buildings. Other general
provisions are to cover future costs that we are
obligated to meet as a result of past transactions
entered into. Actual costs incurred may vary from those
provided for when there is variation from our original
estimates.
(c) Movement in provisions, other than employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
Year ended 30 June |
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Workers compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
216 |
|
|
|
236 |
|
|
|
207 |
|
|
|
220 |
|
- additional provisions |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
3 |
|
- amount used |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
- reductions due to remeasurements |
|
|
(5 |
) |
|
|
(21 |
) |
|
|
(4 |
) |
|
|
(18 |
) |
- other |
|
|
3 |
|
|
|
(2 |
) |
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
Closing balance |
|
|
214 |
|
|
|
216 |
|
|
|
206 |
|
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
49 |
|
|
|
80 |
|
|
|
27 |
|
|
|
35 |
|
- additional provisions |
|
|
35 |
|
|
|
7 |
|
|
|
3 |
|
|
|
6 |
|
- amount used |
|
|
(10 |
) |
|
|
(30 |
) |
|
|
(3 |
) |
|
|
(18 |
) |
- reductions due to remeasurements |
|
|
(13 |
) |
|
|
(11 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
- other |
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
Closing balance |
|
|
65 |
|
|
|
49 |
|
|
|
21 |
|
|
|
27 |
|
|
|
|
|
|
303
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
18. Contributed equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully paid ordinary shares (a) (b) |
|
|
5,793 |
|
|
|
6,073 |
|
|
|
5,793 |
|
|
|
6,073 |
|
|
|
|
|
|
(a) 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.
In fiscal 2005 and fiscal 2004 we had no outstanding
equity that could have been called up in the event of
the Company winding up.
(b) 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 movement in the number of issued, fully paid ordinary
shares is as follows:
|
|
|
|
|
|
|
Number of |
|
|
shares |
|
Balance at 30 June 2004 |
|
|
12,628,359,026 |
|
Shares bought back |
|
|
(185,284,669 |
) |
|
|
|
|
|
Balance at 30 June 2005 |
|
|
12,443,074,357 |
|
|
|
|
|
|
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 |
|
|
|
|
|
304
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans
The Company has a number of employee share
plans that are available for directors, senior
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 and
movements in holdings, and other relevant information is
disclosed in the following:
(a) TESOP99 and TESOP97
(i) Nature of TESOP99 and TESOP97
As part of the Commonwealths sale of its shareholding
in fiscal 2000 and fiscal 1998 we offered our eligible
employees as defined by the employee share plans the
opportunity to buy Telstra shares. The shares were
ordinary shares of the Telstra Entity at the time of the
offer.
These share plans were:
|
|
the Telstra Employee Share Ownership Plan II
(TESOP99); and |
|
|
|
the Telstra Employee Share Ownership Plan
(TESOP97). |
All eligible employees of the Telstra Entity and of
companies that Telstra owned greater than 50% equity were
able to participate in the plans. Certain employees who
were part time, casual, fixed term, on leave without pay
or living outside Australia and contractors were not
eligible to participate.
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. 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.
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 ceases. This restriction period has now been
fulfilled under each plan.
Given conclusion of the restriction period, the employee
can now sell the shares provided the loan is repaid in
full for the loan shares and TESOP97 extra shares.
Participating employees are entitled to receive dividends
and voting rights in the shares. Approximately 70% of
the dividends on the loan shares and TESOP97 extra shares
held for the employees under the plans are used to repay
their loans.
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 if the sale proceeds
cover the amount outstanding on the loan plus relevant
costs. 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.
For TESOP99, the Government guaranteed an allocation of
up to 5,000 shares for employees using their own funds to
purchase shares in the public offer. These shares are
directly held by the employees.
Further details on each of the plans are highlighted
in the table following in section (a) (ii).
Telstra incurs expenses in relation to the administration
of the trusts for TESOP99 and TESOP97. These are
recognised in the statement of financial performance of
Telstra as incurred. The allocation of shares under
these plans did not give rise to any other expense to be
recognised by us in the current or prior period.
305
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(a) TESOP99 and TESOP97 (continued)
(ii) TESOP99 and TESOP97 Share plan information
The table below provides information about our
TESOP99 and TESOP97 share plans:
|
|
|
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
TESOP97 |
|
|
|
|
Date used to determine number of eligible employees |
|
27 August 1999 |
|
|
20 September 1997 |
Date the plan started |
|
16 October 1999 |
|
|
15 November 1997 |
Number of employees eligible to participate |
|
|
53,900 |
|
|
|
64,309 |
|
|
|
|
Price paid by employee - first instalment |
|
(16 October 1999) $4.50 |
|
|
(15 November 1997) $1.95 |
Price paid by employee - second instalment |
|
(2 November 2000) $2.90 |
|
|
(17 November 1998) $1.35 |
|
|
|
|
|
|
Total price paid by employee and market price on date of issue |
|
|
$7.40 |
|
|
|
$3.30 |
|
|
|
|
|
|
Number of shares each eligible employee was able to buy with
interest free loan (loan shares) |
|
|
400 |
|
|
|
2,000 |
|
|
one extra share for every four |
|
|
one extra share for every four |
|
|
guaranteed allocation shares |
|
|
loan shares or non-loan shares |
Number of extra shares received by each eligible employee |
|
purchased up to a limit of 200 |
|
|
purchased up to a limit of 500 |
|
|
|
|
The date participating employees have full ownership of the loan
shares and extra shares (a) |
|
16 October 2002 |
|
|
15 November 2000 |
Number of employees who purchased loan shares |
|
|
42,439 |
|
|
|
55,748 |
Total number of loan shares initially purchased |
|
|
16,939,000 |
|
|
|
109,979,100 |
Total number of extra shares initially acquired relating to loan
shares |
|
|
(b) |
|
|
|
27,494,775 |
|
|
|
|
Number of employees who used their own funds to buy shares in the
TESOPs and received extra shares |
|
|
21,424 |
|
|
|
2,282 |
Number of shares initially purchased under the TESOPs with own
funds |
|
|
(c) |
|
|
|
3,776,732 |
Number of extra shares initially acquired by employees from using
their own funds |
|
|
(b) 3,903,314 |
|
|
|
944,183 |
|
|
|
|
Total market value of shares at issue date |
|
$93,790,413 (first instalment) |
|
|
$277,279,841 (first instalment) |
(including extra shares) |
|
$58,832,889 (second instalment) |
|
|
$181,936,265 (second instalment) |
|
|
|
|
|
|
$76,225,500 (first instalment) |
|
|
$221,823,872 (first instalment) |
Total initial loan made to employees |
|
$48,556,440 (second instalment) |
|
|
$144,401,940 (second instalment) |
|
|
|
|
Loan discount paid on behalf of employees ($1 per loan) |
|
|
$42,439 |
|
|
|
$55,748 |
|
|
|
|
Number of
Commonwealth loyalty shares available to each eligible employee at no
additional cost (shares need to be held for 12 months to qualify) |
|
one for every 10 shares purchased up to a limit of 80 |
|
|
one for every 10 non loan shares
purchased in the public offer up to a limit of 200 |
Number of employees who received Commonwealth loyalty shares |
|
|
(d) 17,138 |
|
|
|
21,761 |
Number of loyalty shares issued |
|
|
(d) 1,243,305 |
|
|
|
3,162,222 |
Market value of Commonwealth loyalty shares issued |
|
(d) $7,696,058 ($6.19 per share) |
|
|
$20,363,290 ($646 per share) |
|
|
|
|
(a) In the case of all loan shares, and extra shares
acquired under TESOP97, the loan must be repaid in
full before shares may be transferred to the
employee.
(b) For TESOP99, the extra shares were acquired under the
Commonwealth component as a result of employees acquiring
guaranteed allocation shares in the public offer using
their own funds.
(c) Guaranteed allocation shares not included as these
were acquired by employees from the Commonwealth under
the Commonwealth component.
(d) TESOP99 loyalty shares were issued to eligible
employees still holding their Commonwealth component
shares on 2 November 2000 and did not prepay the final
instalment.
306
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(a) TESOP99 and TESOP97 (continued)
(ii) TESOP99 and TESOP97 Share plan information (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 |
|
|
|
2005 |
|
|
2004 |
|
|
Market price of Telstra shares |
|
$5.06 per share |
|
|
$5.03 per share |
|
Employee share loan balance (total including current and non
current, excluding Growthshare option loans note 9) |
|
$155 million |
|
|
$174 million |
|
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
|
|
|
|
|
|
|
Remaining employees with loan shares (a) |
|
|
36,412 |
|
|
|
36,628 |
|
Remaining number of loan shares |
|
|
14,535,900 |
|
|
|
14,622,000 |
|
|
|
|
|
|
|
|
|
|
TESOP97 |
|
|
|
|
|
|
|
|
|
Remaining employees with loan shares |
|
|
18,524 |
|
|
|
19,525 |
|
Remaining number of loan shares |
|
|
36,674,100 |
|
|
|
38,661,600 |
|
Remaining number of extra shares |
|
|
9,168,525 |
|
|
|
9,665,400 |
|
(a) The number of employees with loan shares includes
14,050 (2004: 13,238) employees that have ceased
employment and elected not to repay their loan. The
Telstra ESOP Trustee continues to hold the shares
relating to those loans 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 2005, there were 5,603,100 shares held for this
purpose (2004: 5,295,200).
(iii) TESOP99 and TESOP97 other information
Shares held by the TESOP99 and TESOP97 trusts for the
purposes of facilitating the operations of the relevant
share plans amount to 60,378,525 shares (2004: 62,949,000
shares). The fair value of these shares as at 30 June
2005 based on the market value of Telstra shares at
balance date amounts to $306 million (2004: $317
million). As the final restriction period for these
shares was completed on 16 October 2002, they are now
considered fully transferable to the employees once the
loan has been repaid in full.
307
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. 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; |
|
|
|
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.
Short term incentive equity plan
Incentive shares
In fiscal 2005, the Board revised the chief executive
officers and senior executives remuneration structure
to provide half of their short term incentive payments in
rights to acquire Telstra shares. Previously the full
amount was provided in cash. Known as incentive
shares, these new rights will vest equally over a period
of 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.
Incentive shares will become vested incentive shares
after the executive has satisfied the relevant continued
period of employment (1, 2 or 3 years). At this time,
the executive will be invited to exercise their vested
incentive shares at a cost of $1 in total for all of the
incentive shares exercised on a particular day. Vested
incentive shares must be exercised before their expiry
date, otherwise they will lapse.
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 Telstra shares allocated to the
executive when the vested incentive shares are exercised.
The allocation of incentive shares is determined by the
Board in August each year. There has not yet been any
allocation as at 30 June 2005 hence there are no amounts
recognised for incentive shares in any of the tables that
follow.
The issue of incentive shares is recorded as an expense
when we provide funding to the trust to purchase Telstra
shares on market to underpin the incentive shares. As
no allocation has occurred during fiscal 2005, we have
not recognised any expense for these instruments.
Long term incentive equity plans
(i) Nature of the share plans
The purpose of the performance rights, deferred shares,
restricted shares and option plans is to align key
executives rewards with shareholders interests, and
reward performance improvement 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.
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 two types of performance rights on issue. These
are the total shareholder return (TSR) performance rights
and the earnings per share (EPS) performance rights. The
major difference between these two types of instruments
is in the performance hurdle to be achieved to enable
vesting. Details of the performance hurdles required for
performance rights are detailed below.
For both 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.
308
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(i) Nature of the share plans (continued)
Performance rights (continued)
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. The issue of performance rights is
recorded as an expense when we provide funding to the
trust to purchase Telstra shares on market to underpin
the performance rights. In fiscal 2005, we recorded an
expense of $16.6 million for total performance rights
(2004: $8.6 million).
Deferred shares
The chief executive officer and senior 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.
These deferred shares were considered to be a method of
deferring a component of the executives remuneration.
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.
The issue of deferred shares is recorded as an expense
when we provide funding to the trust to purchase Telstra
shares on market to underpin the deferred shares. In
fiscal 2005, there were no deferred shares allocated and
therefore no expense (2004: $10.7 million).
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. These shares were recorded as an
expense to us when we provided funding to the trust to
purchase them on market. In fiscal 2005 and fiscal
2004, there were no restricted shares allocated and
therefore no associated expense.
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.
We provide loans to the trustee to enable it to purchase
Telstra shares on market to underpin the options. When
exercised, the executive pays for the shares at the
exercise price and the loan is repaid to us. We receive
interest on the loans to the trust. On the basis that
the executives must pay the exercise price of the
options, which repays the loans made by Telstra, there is
no cash expense incurred by us and included in our
statement of financial performance. We have not issued
options during fiscal 2005 or fiscal 2004. Previously
issued options remain outstanding and valid until they
lapse.
Performance hurdle for TSR performance rights, restricted
shares and options
The exercise of TSR performance rights, restricted shares
and options are subject to certain performance hurdles.
For allocations of TSR performance rights made after 30
June 2001 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.
309
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(i) Nature of the share plans (continued)
Performance hurdle for TSR performance rights, restricted
shares and options (continued)
The number of TSR performance rights and options
exercisable is dependant on whether, during the
performance period, the Telstra 30 day average TSR
achieves or exceeds the 50th percentile ranking when
compared with the 30 day average TSR of the peer group,
and the timing of when or if this occurs.
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:
(i) 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
(ii) 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:
(i) half of the allocation will lapse; and
(ii) 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.
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).
Performance hurdle for EPS performance rights
The vesting of EPS performance rights is dependent on the
growth of earnings per share in the year of allocation
and two subsequent years. The percentage growth or
reduction in EPS is added together in each of the three
years to determine the total growth. The number of EPS
performance rights that become vested EPS performance
rights, and therefore become exercisable, is based on the
following:
(i) if the cumulative growth in EPS is equal to 15.7%
then 50% of the allocation becomes exercisable;
(ii) 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%
becoming exercisable and 100% becoming exercisable;
(iii) if the cumulative growth in EPS exceeds 33.1% then
100% of the EPS performance rights will become
exercisable; or
(iv) if Telstra does not achieve cumulative growth in
EPS of 15.7%, all EPS performance rights will lapse.
Telstra Growthshare amounts expensed for USGAAP purposes
For the purposes of the United States generally accepted
accounting principles (USGAAP) disclosures, the estimated
fair value of the performance rights, deferred shares,
restricted shares and options is made at the date of
grant. We have used an option pricing model that takes
into account various factors, including the exercise
price and expected life of the instrument, the current
price of the underlying share and its expected
volatility, expected dividends, the risk-free interest
rate for the expected life of the instrument, and the
expected volatility of Telstras peer group companies.
This approach has also been used for the purposes of
determining a valuation for Australian reporting
purposes. In fiscal 2005, an adjustment to reduce
compensation expense by $2 million (2004: $nil) was
recognised for USGAAP. Refer to note 30 for additional
information.
310
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(ii) Instruments outstanding at the beginning of fiscal 2005
The following performance rights, deferred shares,
restricted shares and options had been granted at the
start of fiscal 2005, 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 2000 - Sept 1999 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
1,395,000 |
|
|
13 Sept 1999 |
|
13 Sept 2002 |
|
13 Sept 2004 |
|
$8.02 |
|
13 Sept 2009 |
Restricted shares |
|
|
236,500 |
|
|
13 Sept 1999 |
|
13 Sept 2002 |
|
13 Sept 2004 |
|
$1 per parcel exercised |
|
13 Sept 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2001 - Sept 2000 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
2,833,347 |
|
|
8 Sept 2000 |
|
8 Sept 2003 |
|
8 Sept 2005 |
|
$6.28 |
|
8 Sept 2010 |
Restricted shares |
|
|
587,208 |
|
|
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 |
|
|
31,803,277 |
|
|
6 Sept 2001 |
|
6 Sept 2004 |
|
6 Sept 2006 |
|
$4.90 |
|
6 Sept 2011 |
TSR Performance rights |
|
|
3,039,610 |
|
|
6 Sept 2001 |
|
6 Sept 2004 |
|
6 Sept 2006 |
|
$1 per parcel exercised |
|
8 Dec 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2002 - March 2002 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
1,682,000 |
|
|
14 March 2002 |
|
14 March 2005 |
|
14 March 2007 |
|
$5.63 |
14 March 2012 |
TSR Performance rights |
|
|
142,800 |
|
|
14 March 2002 |
|
14 March 2005 |
|
14 March 2007 |
|
$1 per parcel exercised |
|
14 June 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2003 - Sept 2002 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
1,929,713 |
|
|
5 Sept 2002 |
|
None (a) |
|
|
|
|
|
$1 per parcel exercised |
|
5 Sept 2007 |
TSR Performance rights |
|
|
3,910,320 |
|
|
5 Sept 2002 |
|
5 Sept 2005 |
|
5 Sept 2007 |
|
$1 per parcel exercised |
|
5 Dec 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2003 - March 2003 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
22,100 |
|
|
7 March 2003 |
|
None (a) |
|
|
|
|
|
$1 per parcel exercised |
|
7 March 2008 |
TSR Performance rights |
|
|
44,200 |
|
|
7 March 2003 |
|
7 March 2006 |
|
7 March 2008 |
|
$1 per parcel exercised |
|
7 June 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growthshare 2004 - Sept 2003 allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
2,169,089 |
|
|
5 Sept 2003 |
|
None (a) |
|
|
|
|
|
$1 per parcel exercised |
|
5 Sept 2008 |
TSR Performance rights |
|
|
4,344,194 |
|
|
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 |
|
None (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 |
(a) 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.
311
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iii) Instruments granted during the financial year
The following instruments were granted in fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
August |
|
|
August |
|
|
|
allocation of TSR |
|
|
allocation of EPS |
|
|
|
performance rights |
|
|
performance rights |
|
|
Number of executives who were allocated performance
rights |
|
|
178 |
|
|
|
178 |
|
Effective commencement date of instruments |
|
20 August 2004 |
|
20 August 2004 |
|
|
|
|
|
|
|
|
|
Performance hurdle period i.e. over what time period
executives have to satisfy the performance hurdle for |
|
20 August 2007 to |
|
1 July 2004 to |
the instruments to vest |
|
20 August 2009 |
|
30 June 2007 |
|
Number of performance rights issued |
|
|
2,473,000 |
|
|
|
2,473,000 |
|
|
|
|
|
|
$1 per parcel of |
|
$1 per parcel of |
Exercise price (once the instruments become |
|
instruments |
|
instruments |
exercisable) |
|
exercised |
|
exercised |
|
|
|
Market price of Telstra shares on commencement date |
|
$4.89 per share |
|
$4.89 per share |
Exercise date (once the instruments become |
|
anytime before |
|
anytime before |
exercisable) |
|
20 November 2009 |
|
20 November 2009 |
|
The following instruments were granted in fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February |
|
|
February |
|
|
September |
|
|
September |
|
|
|
allocation of TSR |
|
|
allocation of |
|
|
allocation of TSR |
|
|
allocation of |
|
|
|
performance rights |
|
|
deferred shares |
|
|
performance rights |
|
|
deferred shares |
|
|
Number of executives who were allocated performance
rights and deferred shares |
|
|
3 |
|
|
|
3 |
|
|
|
176 |
|
|
|
176 |
|
Effective commencement date of performance rights
and deferred shares |
|
20 February 2004 |
|
20 February 2004 |
|
5 September 2003 |
|
5 September 2003 |
Performance hurdle period i.e. over what time period
executives have to satisfy the performance hurdle for the instruments
to vest |
|
20 Feb 2007 to
20 Feb 2009 |
|
|
(a |
) |
|
5 Sept 2006 to
5 Sept 2008 |
|
|
(a |
) |
|
Number of performance rights and deferred shares
issued |
|
|
36,700 |
|
|
|
18,350 |
|
|
|
4,412,800 |
|
|
|
2,206,400 |
|
|
|
|
|
|
$1 per parcel of |
|
$1 per parcel of |
|
$1 per parcel of |
|
$1 per parcel of |
Exercise price (once the instruments become |
|
instruments |
|
instruments |
|
instruments |
|
instruments |
exercisable) |
|
exercised |
|
exercised |
|
exercised |
|
exercised |
|
|
|
Market price of Telstra shares on commencement date |
|
$4.71 per share |
|
$4.71 per share |
|
$5.06 per share |
|
$5.06 per share |
Exercise date (once the instruments become |
|
any time before |
|
any time before |
|
any time before |
|
any time before |
exercisable) |
|
20 May 2009 |
|
20 February 2009 |
|
5 December 2008 |
|
5 September 2008 |
|
(a) As deferred shares are allocated as annual fixed
remuneration, there is no performance hurdle. Generally,
deferred shares will vest if the participating executive
continues to be employed by an entity that forms part of
the Telstra Group for three years after the effective
commencement date.
No consideration is required to be provided by the
participating executives on the granting of these
performance rights and deferred shares.
(iv) Instruments exercised during the financial year
During fiscal 2005 and fiscal 2004, there were no
performance rights, restricted shares or options
exercised and no fully paid shares distributed relating
to these plans as a result.
312
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(iv) Instruments exercised during the financial year (continued)
In fiscal 2005, there were 49,834 deferred shares (2004:
32,586) that were exercised from the September 2002
allocation and 27,486 deferred shares (2004: 3,008) that
were exercised from the September 2003 allocation at the
exercise price of $1. These instruments were exercised
at various dates throughout the year. The total proceeds
received on exercise of the deferred shares was $8 (2004:
$6). The fair value at the date of the transfers of
Telstra shares relating to the exercise of these
instruments was $376,912 (2004: $170,199), based on the
closing market price on those dates. The date these
instruments were exercised was different from the expiry
date. For details on the date these instruments expire
refer to the instruments outstanding at the beginning of
fiscal 2005.
(v) Instruments which have lapsed during the financial year
The following instruments issued to participating
employees have lapsed during the financial year due to
cessation of employment or the relevant performance
hurdle not being met:
|
|
|
|
|
|
|
|
|
|
|
Instruments lapsed |
|
|
|
during year ended 30 June |
|
Allocation |
|
2005 |
|
|
2004 |
|
|
Options |
|
|
|
|
|
|
|
|
September 1999 |
|
|
1,395,000 |
|
|
|
138,722 |
|
September 2000 |
|
|
419,447 |
|
|
|
537,313 |
|
September 2001 |
|
|
18,478,124 |
|
|
|
613,668 |
|
March 2002 |
|
|
80,000 |
|
|
|
172,000 |
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
September 1999 |
|
|
236,500 |
|
|
|
23,778 |
|
September 2000 |
|
|
86,608 |
|
|
|
110,752 |
|
|
|
|
|
|
|
|
|
|
Deferred shares |
|
|
|
|
|
|
|
|
September 2002 |
|
|
105,856 |
|
|
|
60,199 |
|
March 2003 |
|
|
3,500 |
|
|
|
|
|
September 2003 |
|
|
116,595 |
|
|
|
34,303 |
|
|
|
|
|
|
|
|
|
|
TSR Performance rights |
|
|
|
|
|
|
|
|
September 2001 |
|
|
1,765,828 |
|
|
|
58,545 |
|
March 2002 |
|
|
6,800 |
|
|
|
6,200 |
|
September 2002 |
|
|
223,096 |
|
|
|
123,906 |
|
March 2003 |
|
|
7,000 |
|
|
|
|
|
September 2003 |
|
|
244,648 |
|
|
|
68,606 |
|
August 2004 |
|
|
48,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Performance rights |
|
|
|
|
|
|
|
|
August 2004 |
|
|
48,286 |
|
|
|
|
|
(vi) Instruments outstanding at the end of fiscal 2005
After movements in our share plans during the
financial year, the following instruments remain
outstanding as at 30 June 2005:
|
|
|
|
|
|
|
No. outstanding |
|
|
Growthshare 2000 - Sept 1999 allocations |
|
|
|
|
|
Options |
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
Growthshare 2001 - Sept 2000 allocation |
|
|
|
|
|
Options |
|
|
2,413,900 |
|
Restricted shares |
|
|
500,600 |
|
|
|
|
|
|
Growthshare 2001 - March 2001 allocation |
|
|
|
|
|
Options |
|
|
150,000 |
|
Restricted shares |
|
|
40,000 |
|
|
|
|
|
|
Growthshare 2002 - Sept 2001 allocation |
|
|
|
|
|
Options |
|
|
13,325,153 |
|
TSR Performance rights |
|
|
1,273,782 |
|
|
|
|
|
|
Growthshare 2002 - March 2002 allocation |
|
|
|
|
|
Options |
|
|
1,602,000 |
|
TSR Performance rights |
|
|
136,000 |
|
|
|
|
|
|
Growthshare 2003 - Sept 2002 allocation |
|
|
|
|
|
Deferred shares |
|
|
1,774,023 |
|
TSR Performance rights |
|
|
3,687,224 |
|
|
|
|
|
|
Growthshare 2003 - March 2003 allocation |
|
|
|
|
|
Deferred shares |
|
|
18,600 |
|
TSR Performance rights |
|
|
37,200 |
|
|
|
|
|
|
Growthshare 2004 - Sept 2003 allocation |
|
|
|
|
|
Deferred shares |
|
|
2,025,008 |
|
TSR Performance rights |
|
|
4,099,546 |
|
|
|
|
|
|
Growthshare 2004 - February 2004 allocation |
|
|
|
|
|
Deferred shares |
|
|
18,350 |
|
TSR Performance rights |
|
|
36,700 |
|
|
|
|
|
|
Growthshare 2005 - August 2004 allocation |
|
|
|
|
|
TSR Performance Rights |
|
|
2,424,714 |
|
EPS Performance Rights |
|
|
2,424,714 |
|
None of the above instruments have become vested
instruments at balance date, with the exception of the
September 2001 allocation of options and TSR performance
rights. These instruments have become vested but are yet
to be exercised. The grant dates, performance hurdles,
exercise prices and other terms relating to the above
instruments have not changed from initial allocation date
or from those terms disclosed at the beginning of fiscal
2005.
313
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(vii) Summary of movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Number of TSR |
|
|
Number of EPS |
|
|
|
Number of |
|
|
restricted |
|
|
deferred |
|
|
performance |
|
|
performance |
|
|
|
options |
|
|
shares |
|
|
shares |
|
|
rights |
|
|
rights |
|
|
Equity instruments outstanding as at 30 June 2002 |
|
|
44,884,913 |
|
|
|
1,221,388 |
|
|
|
|
|
|
|
3,653,441 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
2,145,100 |
|
|
|
4,290,200 |
|
|
|
|
|
Lapsed |
|
|
(5,559,586 |
) |
|
|
(223,150 |
) |
|
|
(91,577 |
) |
|
|
(618,060 |
) |
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(8,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity instruments outstanding as at 30 June 2003 |
|
|
39,325,327 |
|
|
|
998,238 |
|
|
|
2,044,598 |
|
|
|
7,325,581 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
2,224,750 |
|
|
|
4,449,500 |
|
|
|
|
|
Lapsed |
|
|
(1,461,703 |
) |
|
|
(134,530 |
) |
|
|
(94,502 |
) |
|
|
(257,257 |
) |
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(35,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity instruments outstanding as at 30 June 2004 |
|
|
37,863,624 |
|
|
|
863,708 |
|
|
|
4,139,252 |
|
|
|
11,517,824 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,473,000 |
|
|
|
2,473,000 |
|
Lapsed |
|
|
(20,372,571 |
) |
|
|
(323,108 |
) |
|
|
(225,951 |
) |
|
|
(2,295,658 |
) |
|
|
(48,286 |
) |
Exercised |
|
|
|
|
|
|
|
|
|
|
(77,320 |
) |
|
|
|
|
|
|
- |
|
|
|
|
Equity instruments outstanding as at 30 June 2005 |
|
|
17,491,053 |
|
|
|
540,600 |
|
|
|
3,835,981 |
|
|
|
11,695,166 |
|
|
|
2,424,714 |
|
|
|
|
314
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
(viii) Other information relevant to our employee share plans
Performance rights, restricted shares and options are subject to a performance hurdle. Deferred
shares require a prescribed period of service to be completed. Generally, if these requirements
are not achieved the instruments will have a nil value and will lapse. Under Australian Accounting
Standards and USGAAP, the required methodology for valuing equity instruments differs in regard to
incorporation of adjustments for the effect of non-retention of participants and the
non-transferability of the instruments. Under both we have used an option pricing model that
takes into account various factors, including the exercise price and expected life of the
instrument, the current price of the underlying share and its expected volatility, expected
dividends, the risk-free interest rate for the expected life of the instrument, and the expected
average volatility of Telstras peer group companies.
The value of the allocations per security as used in our USGAAP disclosures is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR |
|
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perfor- |
|
|
Perfor- |
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
mance |
|
|
mance |
|
|
Deferred |
|
Offers |
|
Options |
|
|
shares |
|
|
rights |
|
|
rights |
|
|
shares |
|
|
|
|
Sept 1999 |
|
$ |
1.38 |
|
|
$ |
5.64 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
Sept 2000 |
|
$ |
0.89 |
|
|
$ |
2.05 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
March 2001 |
|
$ |
0.80 |
|
|
$ |
2.15 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
Sept 2001 |
|
$ |
0.90 |
|
|
|
(a |
) |
|
$ |
2.33 |
|
|
|
(a |
) |
|
|
(a |
) |
March 2002 |
|
$ |
0.97 |
|
|
|
(a |
) |
|
$ |
2.51 |
|
|
|
(a |
) |
|
|
(a |
) |
Sept 2002 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.54 |
|
|
|
(a |
) |
|
$ |
3.77 |
|
March 2003 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.15 |
|
|
|
(a |
) |
|
$ |
3.08 |
|
Sept 2003 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
1.78 |
|
|
|
(a |
) |
|
$ |
2.49 |
|
Feb 2004 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
1.62 |
|
|
|
(a |
) |
|
$ |
2.39 |
|
Aug 2004 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
1.57 |
|
|
$ |
2.49 |
|
|
|
(a |
) |
|
|
|
(a) |
|
There were no allocations of performance rights, restricted shares, deferred shares or options
in the relevant offer periods. |
For purposes of our Australian reporting requirements, we have used the following valuations, which
are based on the same methodologies as those used in the USGAAP disclosures, but in all cases,
exclude adjustments for the effect of non-retention of participants and non-transferability of the
instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR |
|
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perfor- |
|
|
Perfor- |
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
mance |
|
|
mance |
|
|
Deferred |
|
Offers |
|
Options |
|
|
shares |
|
|
rights |
|
|
rights |
|
|
shares |
|
|
|
|
Sept 1999 |
|
$ |
1.38 |
|
|
$ |
5.64 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
Sept 2000 |
|
$ |
1.59 |
|
|
$ |
3.62 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
March 2001 |
|
$ |
1.53 |
|
|
$ |
3.77 |
|
|
|
(a |
) |
|
|
(a |
) |
|
|
(a |
) |
Sept 2001 |
|
$ |
1.13 |
|
|
|
(a |
) |
|
$ |
2.86 |
|
|
|
(a |
) |
|
|
(a |
) |
March 2002 |
|
$ |
1.19 |
|
|
|
(a |
) |
|
$ |
3.08 |
|
|
|
(a |
) |
|
|
(a |
) |
Sept 2002 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.99 |
|
|
|
(a |
) |
|
$ |
4.41 |
|
March 2003 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.60 |
|
|
|
(a |
) |
|
$ |
3.60 |
|
Sept 2003 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
3.07 |
|
|
|
(a |
) |
|
$ |
4.29 |
|
Feb 2004 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.73 |
|
|
|
(a |
) |
|
$ |
4.02 |
|
Aug 2004 |
|
|
(a |
) |
|
|
(a |
) |
|
$ |
2.63 |
|
|
$ |
4.18 |
|
|
|
(a |
) |
|
|
|
(a) |
|
There were no allocations of performance rights, restricted shares, deferred shares or options
in the relevant offer periods. |
Shares held by the Telstra Growthshare Trust for the purposes of facilitating the operations of our
share plans involving performance rights, deferred shares, restricted shares and options amount to
20,216,091 shares (2004: 20,956,641 shares). The fair value of these shares as at 30 June 2005,
based on the market value of Telstra shares at balance date, amounts to $102 million (2004: $105
million).
The following weighted average assumptions were used in determining the above current year
valuations:
|
|
|
|
|
|
|
Growthshare |
|
|
|
TSR and EPS |
|
|
|
performance rights |
|
|
|
Aug 2004 |
|
|
Risk free rate |
|
|
5.39 |
% |
Dividend yield |
|
|
5.5 |
% |
Expected stock volatility |
|
|
13.1 |
% |
Expected life performance rights |
|
5.25 years |
|
Discount for non-transferability |
|
|
30 |
% |
Average forfeiture rate per annum for TSR
performance rights |
|
|
10 |
% |
Average forfeiture rate per annum for EPS
performance rights |
|
|
15 |
% |
Expected rate of achievement of TSR
performance hurdles |
|
|
62 |
% |
|
|
|
|
As EPS performance rights are not based on market conditions, no adjustment for the expected
achievement of the performance hurdles are made in the valuation.
315
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. 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. |
As a result, these instruments will not lapse.
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. |
As a result, these instruments will not lapse.
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. The expense
associated with shares allocated under this plan is included in the disclosure for employees
remuneration.
(ii) Instruments outstanding at the beginning of fiscal 2005
The following directshares and ownshares had been issued at the start of fiscal 2005 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
|
|
|
13,854 |
|
5 September 2002 allocation
|
|
|
14,785 |
|
7 March 2003 allocation
|
|
|
33,572 |
|
5 September 2003 allocation
|
|
|
26,096 |
|
20 February 2004 allocation
|
|
|
29,554 |
|
|
|
|
|
|
Ownshares |
|
|
|
|
|
15 September 2000 allocation
|
|
|
59,247 |
|
14 September 2001 allocation
|
|
|
250,775 |
|
2 November 2001 allocation
|
|
|
79,691 |
|
5 September 2002 allocation
|
|
|
514,487 |
|
28 October 2002 allocation
|
|
|
146,945 |
|
5 September 2003 allocation
|
|
|
374,974 |
|
31 October 2003 allocation
|
|
|
213,671 |
|
316
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. 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 2005 and September and
February of fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directshare Equity Plan |
|
|
Aug 2004 |
|
Feb 2005 |
|
Sept 2003 |
|
Feb 2004 |
|
Number of eligible non-executive directors
|
|
|
8 |
|
|
|
8 |
|
|
|
11 |
|
|
|
11 |
|
Number of participants in the plan
|
|
|
8 |
|
|
|
8 |
|
|
|
10 |
|
|
|
10 |
|
Allocation date of shares
|
|
20 August 2004 |
|
|
19 February 2005 |
|
|
5 September 2003 |
|
|
20 February 2004 |
|
|
|
|
Number of shares allocated
|
|
|
7,567 |
|
|
|
26,013 |
|
|
|
31,630 |
|
|
|
35,499 |
|
Fair value of shares allocated
|
|
$4.89 per share |
|
|
$5.29 per share |
|
|
$5.06 per share |
|
|
$4.71 per share |
|
Total fair value of shares allocated
|
|
$ |
37,003 |
|
|
$ |
137,609 |
|
|
$ |
160,048 |
|
|
$ |
167,200 |
|
|
|
|
The following ownshares were granted in August and October of fiscal 2005 and September and October
of fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownshare Equity Plan |
|
|
Aug 2004 |
|
Oct 2004 |
|
Sept 2003 |
|
Oct 2003 |
|
Number of eligible participants
|
|
|
8,975 |
|
|
|
16,062 |
|
|
|
9,868 |
|
|
|
14,151 |
|
Number of participants in the plan
|
|
|
311 |
|
|
|
173 |
|
|
|
369 |
|
|
|
180 |
|
Allocation date of shares
|
|
20 August 2004 |
|
|
29 October 2004 |
|
|
5 September 2003 |
|
|
31 October 2003 |
|
|
|
|
Number of shares allocated
|
|
|
348,240 |
|
|
|
250,386 |
|
|
|
397,076 |
|
|
|
222,095 |
|
Fair value of shares allocated
|
|
$4.89 per share
|
|
|
$4.67 per share |
|
|
$5.06 per share |
|
|
$4.75 per share |
|
Total fair value of shares allocated
|
|
$ |
1,702,894 |
|
|
$ |
1,169,303 |
|
|
$ |
2,009,205 |
|
|
$ |
1,054,951 |
|
|
|
|
On an allocation of directshares and ownshares, the participants in the plans are not required to
make any payment to the Telstra Entity. Participants may be provided a portion of their
remuneration in the form of directshares or ownshares as applicable. The August allocation of
ownshares relates to executives short term incentive payments and the October allocation relates
to shares acquired through salary sacrifice by executives.
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.
317
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. 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 2005 to directors and executives under the directshare and ownshare plans
respectively:
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
|
|
|
|
distributed |
|
|
Fair value |
|
|
Directshares |
|
|
13,644 |
|
|
$ |
68,629 |
|
Ownshares |
|
|
425,950 |
|
|
$ |
2,033,620 |
|
|
In fiscal 2004, William Owens resigned as a Director and his directshares then became
transferrable. These directshares were transferred during fiscal 2005.
The following fully paid shares relating to the same plans were distributed during fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
|
|
|
|
distributed |
|
|
Fair value |
|
|
Directshares |
|
|
39,683 |
|
|
$ |
184,526 |
|
Ownshares |
|
|
357,453 |
|
|
$ |
1,711,160 |
|
|
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 2005
|
|
|
|
|
|
|
No. of instruments |
|
|
outstanding as at |
Directshares |
|
30 June 2005 |
|
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 |
|
|
|
|
|
|
Ownshares |
|
|
|
|
|
15 September 2000 allocation |
|
|
49,928 |
|
14 September 2001 allocation |
|
|
47,202 |
|
2 November 2001 allocation |
|
|
|
|
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 |
|
The grant dates, restriction period and other terms relating to the above instruments have not
changed from initial allocation.
(vi) Other information relevant to our employee share plans
Shares held by the Telstra Growthshare Trust for the purposes of facilitating the operations of
directshare and ownshare plans amount to 1,971,529 shares (2004: 1,778,917 shares). The fair value
of these shares as at 30 June 2005 based on the market value of Telstra shares at balance date
amounts to $10 million (2004: $9 million).
Holdings by individual directors and specified executives
Our directors and executives hold the following instruments for each share plan:
|
|
|
|
|
|
|
Holding at the |
|
|
beginning and the |
|
|
end of fiscal 2005 |
|
|
|
Deferred shares |
|
Zygmunt E Switkowski |
|
|
500,700 |
|
Bruce Akhurst |
|
|
135,300 |
|
Douglas Campbell |
|
|
135,300 |
|
David Moffatt |
|
|
152,400 |
|
Ted Pretty |
|
|
155,100 |
|
Michael Rocca |
|
|
100,600 |
|
Bill Scales |
|
|
84,200 |
|
Deena Shiff |
|
|
42,300 |
|
John Stanhope |
|
|
73,200 |
|
David Thodey |
|
|
121,600 |
|
There have been no deferred shares that were issued, exercised or lapsed during the year.
318
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
Holdings by individual directors and specified executives (continued)
The following table shows the balances and changes in instruments issued from the Telstra
Growthshare Trust for all directors and specified executives throughout fiscal 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held as at |
|
|
|
|
|
Exercised |
|
Other |
|
Total held as at |
|
Vested and |
Instrument type |
|
30 June 2004 |
|
Granted |
|
during the year |
|
changes (a) |
|
30 June 2005 |
|
exercisable (b) |
director/specified executive |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Directshares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald G McGauchie |
|
|
15,628 |
|
|
|
7,117 |
|
|
|
|
|
|
|
|
|
|
|
22,745 |
|
|
|
|
|
John T Ralph |
|
|
19,843 |
|
|
|
3,698 |
|
|
|
|
|
|
|
|
|
|
|
23,541 |
|
|
|
|
|
Sam H Chisholm (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony J Clark |
|
|
12,503 |
|
|
|
2,523 |
|
|
|
|
|
|
|
|
|
|
|
15,026 |
|
|
|
|
|
John E Fletcher |
|
|
16,060 |
|
|
|
4,874 |
|
|
|
|
|
|
|
|
|
|
|
20,934 |
|
|
|
|
|
Belinda J Hutchinson |
|
|
8,237 |
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
10,396 |
|
|
|
|
|
Catherine B Livingstone |
|
|
11,041 |
|
|
|
2,543 |
|
|
|
|
|
|
|
|
|
|
|
13,584 |
|
|
|
|
|
Charles Macek |
|
|
9,462 |
|
|
|
2,543 |
|
|
|
|
|
|
|
|
|
|
|
12,005 |
|
|
|
|
|
John W Stocker |
|
|
32,709 |
|
|
|
8,123 |
|
|
|
|
|
|
|
|
|
|
|
40,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski (d) |
|
|
1,259,400 |
|
|
|
513,200 |
|
|
|
|
|
|
|
(129,000 |
) |
|
|
1,643,600 |
|
|
|
129,000 |
|
Bruce Akhurst |
|
|
388,600 |
|
|
|
144,000 |
|
|
|
|
|
|
|
(59,000 |
) |
|
|
473,600 |
|
|
|
59,000 |
|
Douglas Campbell |
|
|
388,600 |
|
|
|
131,600 |
|
|
|
|
|
|
|
(59,000 |
) |
|
|
461,200 |
|
|
|
59,000 |
|
David Moffatt |
|
|
446,200 |
|
|
|
146,400 |
|
|
|
|
|
|
|
(71,000 |
) |
|
|
521,600 |
|
|
|
71,000 |
|
Ted Pretty |
|
|
446,200 |
|
|
|
146,400 |
|
|
|
|
|
|
|
|
|
|
|
592,600 |
|
|
|
|
|
Michael Rocca |
|
|
251,200 |
|
|
|
115,000 |
|
|
|
|
|
|
|
(25,000 |
) |
|
|
341,200 |
|
|
|
25,000 |
|
Bill Scales |
|
|
210,400 |
|
|
|
106,400 |
|
|
|
|
|
|
|
(21,000 |
) |
|
|
295,800 |
|
|
|
21,000 |
|
Deena Shiff |
|
|
118,600 |
|
|
|
50,000 |
|
|
|
|
|
|
|
(17,000 |
) |
|
|
151,600 |
|
|
|
17,000 |
|
John Stanhope |
|
|
192,400 |
|
|
|
120,600 |
|
|
|
|
|
|
|
(23,000 |
) |
|
|
290,000 |
|
|
|
23,000 |
|
David Thodey |
|
|
345,200 |
|
|
|
133,000 |
|
|
|
|
|
|
|
(51,000 |
) |
|
|
427,200 |
|
|
|
51,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski (d) |
|
|
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 |
|
|
|
|
|
David Thodey |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other changes have arisen in fiscal 2005 as a result of instruments lapsing due to the
specified performance hurdles not being achieved. |
|
(b) |
|
As the performance hurdle in relation to the September 2001 allocation of TSR performance
rights was achieved, these instruments have vested. None of the vested instruments have been
exercised at balance date. |
|
(c) |
|
Sam Chisholm resigned as a Director on 28 October 2004. |
|
(d) |
|
Zygmunt E Switkowski resigned as the chief executive officer and managing director on 1 July
2005. |
319
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
19. Employee share plans (continued)
(b) Telstra Growthshare Trust (continued)
Holdings by individual directors and specified executives (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held as at |
|
|
|
|
|
Exercised |
|
Other |
|
Total held as at |
|
Vested and |
Instrument type |
|
30 June 2004 |
|
Granted |
|
during the year |
|
changes (a) |
|
30 June 2005 |
|
exercisable (b) |
director/specified executive |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zygmunt E Switkowski (c) |
|
|
3,456,000 |
|
|
|
|
|
|
|
|
|
|
|
(1,646,000 |
) |
|
|
1,810,000 |
|
|
|
1,346,000 |
|
Bruce Akhurst |
|
|
1,542,000 |
|
|
|
|
|
|
|
|
|
|
|
(737,000 |
) |
|
|
805,000 |
|
|
|
617,000 |
|
Douglas Campbell |
|
|
1,597,000 |
|
|
|
|
|
|
|
|
|
|
|
(777,000 |
) |
|
|
820,000 |
|
|
|
617,000 |
|
David Moffatt |
|
|
1,630,000 |
|
|
|
|
|
|
|
|
|
|
|
(740,000 |
) |
|
|
890,000 |
|
|
|
740,000 |
|
Ted Pretty |
|
|
1,722,000 |
|
|
|
|
|
|
|
|
|
|
|
(120,000 |
) |
|
|
1,602,000 |
|
|
|
|
|
Michael Rocca |
|
|
640,000 |
|
|
|
|
|
|
|
|
|
|
|
(315,000 |
) |
|
|
325,000 |
|
|
|
262,000 |
|
Bill Scales |
|
|
465,000 |
|
|
|
|
|
|
|
|
|
|
|
(220,000 |
) |
|
|
245,000 |
|
|
|
220,000 |
|
Deena Shiff |
|
|
380,200 |
|
|
|
|
|
|
|
|
|
|
|
(178,000 |
) |
|
|
202,200 |
|
|
|
178,000 |
|
John Stanhope |
|
|
616,000 |
|
|
|
|
|
|
|
|
|
|
|
(306,000 |
) |
|
|
310,000 |
|
|
|
241,000 |
|
David Thodey |
|
|
1,068,000 |
|
|
|
|
|
|
|
|
|
|
|
(534,000 |
) |
|
|
534,000 |
|
|
|
534,000 |
|
|
|
|
(a) |
|
Other changes have arisen in fiscal 2005 as a result of instruments lapsing due to the
specified performance hurdles not being achieved. |
|
(b) |
|
As the performance hurdle in relation to the September 2001 allocation of options was achieved
these instruments have vested. None of these vested instruments have been exercised at balance
date. |
|
(c) |
|
Zygmunt E Switkowski resigned as the chief executive officer and managing director on 1 July
2005. |
320
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
20. Expenditure commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
(a) Capital expenditure commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditure commitments contracted for at balance date but not
recorded in the financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
537 |
|
|
|
513 |
|
|
|
483 |
|
|
|
466 |
|
Within 1-2 years |
|
|
27 |
|
|
|
40 |
|
|
|
15 |
|
|
|
33 |
|
Within 2-3 years |
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
4 |
|
Within 3-4 years |
|
|
11 |
|
|
|
7 |
|
|
|
|
|
|
|
4 |
|
Within 4-5 years |
|
|
13 |
|
|
|
6 |
|
|
|
|
|
|
|
3 |
|
After 5 years |
|
|
79 |
|
|
|
32 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
677 |
|
|
|
608 |
|
|
|
498 |
|
|
|
513 |
|
|
|
|
|
|
The capital expenditure commitments above include contracts for building and
improving our networks, software enhancements and our share of FOXTEL
commitments for digital set top box units. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Operating lease commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future lease payments for non-cancellable operating leases not recorded in the
financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
380 |
|
|
|
311 |
|
|
|
232 |
|
|
|
203 |
|
Within 1-2 years |
|
|
260 |
|
|
|
245 |
|
|
|
154 |
|
|
|
156 |
|
Within 2-3 years |
|
|
209 |
|
|
|
182 |
|
|
|
117 |
|
|
|
111 |
|
Within 3-4 years |
|
|
149 |
|
|
|
153 |
|
|
|
64 |
|
|
|
86 |
|
Within 4-5 years |
|
|
128 |
|
|
|
139 |
|
|
|
49 |
|
|
|
73 |
|
After 5 years |
|
|
397 |
|
|
|
373 |
|
|
|
154 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
1,523 |
|
|
|
1,403 |
|
|
|
770 |
|
|
|
784 |
|
|
|
|
|
|
In addition, in fiscal 2005 the Telstra Group has total
future commitments under cancellable operating leases of
$343 million (2004: $375 million). In fiscal 2005, the
Telstra Entity has total future commitments under
cancellable operating leases of $338 million (2004: $330
million).
Description of our operating leases
We have operating leases for the following major services:
|
|
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:
|
|
seven years for land and buildings; |
|
|
|
two years for motor vehicles, five years for light commercial vehicles and seven to
twelve years for trucks and mechanical aids; and |
|
|
|
three years for personal computers and related equipment. |
Contingent rental payments only 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.
We do not have any significant purchase options or
non-cancellable sub-leases in our operating leases. Our
property operating leases contain escalation clauses,
which are fixed increases between 3% and 5%.
Operating leases related to our personal computers and
associated equipment had average interest rates of 5.6%
for fiscal 2005 (5.8% for fiscal 2004).
321
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
20.
Expenditure commitments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
(c) Finance lease commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
|
|
|
|
12 |
|
|
|
7 |
|
|
|
5 |
|
|
|
6 |
|
Within 1-2 years |
|
|
|
|
|
|
10 |
|
|
|
6 |
|
|
|
5 |
|
|
|
6 |
|
Within 2-3 years |
|
|
|
|
|
|
10 |
|
|
|
2 |
|
|
|
5 |
|
|
|
2 |
|
Within 3-4 years |
|
|
|
|
|
|
8 |
|
|
|
2 |
|
|
|
5 |
|
|
|
2 |
|
Within 4-5 years |
|
|
|
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
After 5 years |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
|
|
|
|
99 |
|
|
|
18 |
|
|
|
21 |
|
|
|
17 |
|
Future finance charges on finance leases |
|
|
|
|
|
|
(47 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Present value of net future minimum lease payments |
|
|
|
|
|
|
52 |
|
|
|
17 |
|
|
|
17 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as current interest-bearing liabilities |
|
|
16 |
|
|
|
5 |
|
|
|
7 |
|
|
|
4 |
|
|
|
6 |
|
Recorded as non current interest-bearing liabilities |
|
|
16 |
|
|
|
47 |
|
|
|
10 |
|
|
|
13 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
Total finance lease liabilities |
|
|
16 |
|
|
|
52 |
|
|
|
17 |
|
|
|
17 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
In addition to the above finance lease commitments, we
previously entered into US finance leases for
communications exchange equipment with various entities.
We have prepaid all lease rentals due under the terms of
these leases.
These entities lease the communications exchange
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
21 for further information).
The leases will expire in fiscal 2012. As part of the
lease arrangements, we received guarantee fees, which
have been recorded in revenue received in advance. The
total revenue received in advance is insignificant and
is being released to the statement of financial
performance over the life of the leases.
Description of our finance leases
We have finance leases for the following major services:
|
|
communications exchange equipment denominated in US dollars; |
|
|
|
property leases in our controlled entity, Telstra (PSINet) Limited; |
|
|
|
computer mainframes, computer processing equipment and other related equipment. |
The average lease term is:
|
|
eleven years for communications exchange equipment denominated in US dollars; |
|
|
|
eighteen years for property leases; and |
|
|
|
three years for computer mainframe and associated equipment. |
Interest rates for our finance leases are:
|
|
US dollar communication assets between 4.3% and 5.1%; |
|
|
|
property leases interest rate of 10.3%; and |
|
|
|
computer mainframe, computer processing equipment and associated equipment weighted
average interest rate of 16.6%. |
Refer to note 12 for further details on communication
assets and equipment that are held under finance
lease.
We do not have any significant contingent rentals or
non-cancellable sub-leases in our finance leases.
322
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
20. Expenditure commitments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$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 |
|
|
638 |
|
|
|
570 |
|
|
|
410 |
|
|
|
307 |
|
Within 1-2 years |
|
|
325 |
|
|
|
229 |
|
|
|
127 |
|
|
|
36 |
|
Within 2-3 years |
|
|
214 |
|
|
|
210 |
|
|
|
64 |
|
|
|
27 |
|
Within 3-4 years |
|
|
162 |
|
|
|
149 |
|
|
|
40 |
|
|
|
20 |
|
Within 4-5 years |
|
|
113 |
|
|
|
114 |
|
|
|
18 |
|
|
|
12 |
|
After 5 years |
|
|
1,250 |
|
|
|
1,323 |
|
|
|
6 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
2,702 |
|
|
|
2,595 |
|
|
|
665 |
|
|
|
418 |
|
|
|
|
|
|
The other expenditure commitments above include contracts for purchase of
capacity, printing, engineering and operational support services, software
maintenance licence fees, information technology services, naming rights and
building maintenance. The above commitments also include commitments
relating to our investment in FOXTEL (refer note 24) as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL commitments (i): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
144 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
Within 1-2 years |
|
|
144 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
Within 2-3 years |
|
|
118 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
Within 3-4 years |
|
|
93 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
Within 4-5 years |
|
|
80 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
After 5 years |
|
|
1,110 |
|
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,689 |
|
|
|
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Our joint venture entity, FOXTEL, has other
commitments amounting to approximately $3,377 million
(US$2,582 million) (2004: $3,667 million, US$2,445
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
(2004: 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.
The commitments for MSG has been adjusted downward from
the amount disclosed in our 30 June 2004 financial
report as FOXTEL has reviewed the original MSG
contracts, and reassessed the applicable commitment
period for certain contracts.
Refer also to note 21 FOXTEL minimum subscriber
guarantees, for further information.
Commitments with Reach Ltd (Reach)
Until 1 March 2005, we were committed to an
International Services Agreement Australia (AISA)
agreement with our joint venture entity, Reach, which
required us to purchase a certain percentage of our
annual capacity requirements of switched voice,
international transmission and global internet access
services from Reach. Our commitment was terminated
during the year as part of the restructure of our
arrangements with Reach (refer to note 9 for further
details).
323
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
21. Contingent liabilities and contingent assets
We have no significant contingent assets as at 30
June 2005. 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 2005, 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 is a litigation case
made by the Seven Network Limited and C7 Pty Ltd
(Seven). In November 2002, Seven commenced litigation
against us and various other parties in relation to
contracts and arrangements between us and those other
parties. These contracts and arrangements relate to the
right to broadcast the Australian Football League and
the National Rugby League, the contract with FOXTEL for
the provision of broadband hybrid-fibre coaxial
services (the Broadband Co-operation Agreement), and
other matters.
Seven seeks unspecified damages and other relief,
including that these contracts and arrangements are
void. Seven also seeks orders which would, in effect,
require a significant restructure of the subscription
television/sports rights market in Australia. The matter
is proceeding before the courts, but it is not practical
at this stage to estimate the expected effect on our
financial position, results of operations or cash flows.
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 $329
million (2004: $350 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 $282
million (2004: $207 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 $69 million (2004:
$36 million) and a requirement that the entity remains our controlled entity. |
|
|
|
Guarantees of the performance of joint venture entities under contractual agreements
to a maximum amount of $126 million (2004: $213 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 finance leases. The lease payments over the remaining period of the leases
(average 11 years) amount to $850 million (US$650 million) (2004: $981 million (US$675
million)). |
Refer to note 20 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. On 28 August 2003, we sold our shareholding in this entity (refer to note 3 for further
information). 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
2005, this guarantee has still been provided and $142 million (2004: $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. |
|
|
|
Indemnities to Telstra Growthshare Pty Ltd for all liabilities, costs and expenses
incurred by the trustee in the execution of the powers vested in it. These indemnities are
currently insignificant to the Telstra Entitys financial position, results of operations
and cash flows. |
Controlled entities
Indemnities provided by our controlled entities
In fiscal 2005 and fiscal 2004, our controlled entities
had no significant outstanding indemnities in respect of
obligations to financial institutions and corporations.
324
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
21. Contingent liabilities and contingent assets (continued)
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 20 for details of MSG
commitments).
As we are subject to joint and several liability in
relation to 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 capital and other
agreements are $1,814 million (2004: $1,876 million).
The value of the contingent liability for minimum
subscriber guarantees has been adjusted downward from
the amount disclosed in our 30 June 2004 financial
statements ($2,075 million) as FOXTEL has reviewed the
original minimum subscriber guarantee contracts, and
reassessed the applicable commitment period for certain
contracts.
FOXTEL Equity Contribution Deed (ECD)
On 9 January 2004, FOXTEL 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. The ECD
expires on 30 April 2009.
3GIS Partnership
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 $132
million (2004: $nil).
Reach working capital facility
On 17 June 2004, together with our co-shareholder PCCW
Limited (PCCW), we bought a loan facility previously
owed to a banking syndicate by Reach Finance Ltd, a
subsidiary of our 50% owned joint venture Reach Ltd
(Reach). For further details in relation to the loan
facility, refer to note 9. As part of this arrangement,
the shareholders also agreed to provide a US$50m 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 2005, 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.
Reach committed capital expenditure
On 16 April 2005, we entered into an arrangement with
our joint venture entity, Reach and our co-shareholder
PCCW Limited, whereby Reachs international cable
capacity was allocated between us and PCCW under an
indefeasible right of use (IRU). For further details
refer to note 14. As part of the arrangement, both
shareholders have agreed to fund half of Reachs
committed capital expenditure for the period until 2022,
up to a value of US$106 million each, if required. The
amount of the payment is not known by us until such time
that a notice of payment is received from Reach. Since
16 April 2005, $14 million has been drawn down from us
to fund these capital expenditure commitments.
We have no joint or several liability to fund PCCWs
share of the capital expenditure.
ASIC deed of cross guarantee
A list of the companies that are part of our deed of
cross guarantee appear in note 23. 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 23 for further information.
325
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
22. Superannuation commitments
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 accumulation schemes, or at rates determined by the
actuaries for defined benefit schemes.
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 (see below for further details in
relation to the CSS). Telstra Super has both defined
benefit and accumulation divisions. The defined benefit
divisions of Telstra Super are closed to new members.
On 31 August 2000, we entered into a funding deed with
the trustee of Telstra Super to make such future
employer payments to Telstra Super as may be required to
maintain the vested benefits index (VBI) of the defined
benefit divisions in the range of 100 110%. The VBI is
the ratio of fund assets to members vested benefits. It
is considered a suitable measure of determining our
employer contributions because it demonstrates whether
members benefits can be adequately met by the assets in
the scheme.
The funding deed was revised in fiscal 2004 and our
contributions to Telstra Super will recommence when the
VBI of the defined benefit divisions falls to 103%. Our
actuary is satisfied that contributions to maintain the
VBI at this rate in accordance with the revised funding
deed will maintain the financial position of Telstra
Super at a satisfactory level. The VBI of the defined
benefit divisions was 111% as at 30 June 2005 (111% at
30 June 2004).
The benefits received by members of each defined
benefit scheme take into account factors such as the
employees length of service, final average salary,
employer and employee contributions.
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 Telstra Super for the financial year
ending 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.
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. The scheme has both defined
benefit and accumulation divisions.
The HK CSL Retirement Scheme is established under trust
and is administered by an independent trustee. The
benefits received by members for the defined benefits
scheme are based on the employees remuneration and
length of service.
Annual actuarial investigations are currently
undertaken for this scheme by Watson Wyatt Hong Kong
Limited.
Commonwealth Superannuation Scheme (CSS)
Before 1 July 1990, eligible employees of the Telstra
Entity were members of the CSS. The CSS is a defined
benefit scheme for Commonwealth Public Sector employees.
Under the CSS rules, we were responsible for funding all
employer financed benefits that arose from 1 July 1975
for our employees who were CSS members. Previously, employer contributions by us and other
employers that participated in the CSS, were paid to the
Commonwealth Consolidated Revenue Fund. Employee
contributions to the CSS were separately managed.
A majority of our CSS members transferred to Telstra
Super when it was first established. As CSS members
transferred, the liability for benefits for their past
service was transferred to Telstra Super and a transfer
of assets was payable from the Commonwealth to Telstra
Super (otherwise known as the deferred transfer value
or DTV).
In June 1999, the Minister for Finance and
Administration signed a document which allowed the CSS
surplus (otherwise known as the residual notional fund
surplus or RNFS) based on the schemes financial
position at 30 June 1997 to be transferred to Telstra
Super over a 40 year period. This amounted to $1,428
million at this date. RNFS amounts transferred to
Telstra Super were taxed at the rate of 15%.
During fiscal 2004, we settled our obligations for the
CSS members as the Commonwealth assumed responsibility
for this fund. On 17 June 2004, the Commonwealth paid
Telstra Super $3,125 million in exchange for the removal
of DTV and RNFS payments and obligations after 1 January
2004. This amount is equal to the value of the DTV asset
of $1,890 million and RNFS asset of $1,235 million, as
reported in the Telstra Super audited financial report
as at 30 June 2003. The payment to Telstra Super is
taxed at the rate of 15%.
326
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
22. Superannuation commitments (continued)
Commonwealth Superannuation Scheme (CSS) (continued)
As part of the settlement arrangement, the Commonwealth
has assumed 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.
Financial position
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 (a) |
|
Vested benefits |
|
|
As at 30 June |
|
As at 30 June |
|
As at 30 June |
|
As at 30 June |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
Telstra
Super (b) |
|
|
4,360 |
|
|
|
4,113 |
|
|
|
3,202 |
|
|
|
2,992 |
|
|
|
1,158 |
|
|
|
1,121 |
|
|
|
3,916 |
|
|
|
3,710 |
|
HK CSL Retirement Scheme (c) |
|
|
79 |
|
|
|
76 |
|
|
|
74 |
|
|
|
68 |
|
|
|
5 |
|
|
|
8 |
|
|
|
63 |
|
|
|
67 |
|
|
|
|
Total |
|
|
4,439 |
|
|
|
4,189 |
|
|
|
3,276 |
|
|
|
3,060 |
|
|
|
1,163 |
|
|
|
1,129 |
|
|
|
3,979 |
|
|
|
3,777 |
|
|
|
|
|
|
|
(a) |
|
Net surplus is the excess of net scheme assets
over accrued benefits. |
|
(b) |
|
Amounts for the defined benefit divisions of
Telstra Super have been taken from the audited
financial report of the scheme as at 30 June 2005 and
30 June 2004. The scheme assets are stated at net
market values.
|
|
(c) |
|
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 2005 and 30 June
2004. The scheme assets are stated at net market values. |
The estimated period over which the benefits of our
members will be returned is 12 years (2004: 13 years)
for Telstra Super.
Employer contributions
Employer contributions made to:
|
|
the defined benefits divisions of Telstra Super were $nil for the past three fiscal
years; and |
|
|
|
the defined benefit divisions of the HK CSL scheme for fiscal 2005 were $3 million
(2004: $4 million; 2003: $8 million). |
In addition, our employer contributions to the
accumulation divisions of Telstra Super were
insignificant for the past three fiscal years.
These employer contributions are reflected in our
statement of financial performance. In addition, no
asset has been recorded in our statement of financial
position for any surplus of the superannuation schemes.
327
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. 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 |
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
|
|
Parent entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Corporation Limited (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications Equipment Finance Pty Ltd * (g) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Finance Limited (a) (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Corporate Services Pty Ltd (a) |
|
Australia |
|
|
6 |
|
|
|
6 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Transport Communications Australia Pty Ltd * |
|
Australia |
|
|
4 |
|
|
|
4 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra ESOP Trustee Pty Ltd * (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Growthshare Pty Ltd * (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
On Australia Pty Ltd * (d) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra Media Pty Ltd * |
|
Australia |
|
|
381 |
|
|
|
381 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Multimedia Pty Ltd (a) |
|
Australia |
|
|
2,678 |
|
|
|
2,678 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra International Limited (a) |
|
Australia |
|
|
84 |
|
|
|
84 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra New Wave Pty Ltd * (a) (b) |
|
Australia |
|
|
1 |
|
|
|
1 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Hypertokens Pty Ltd * (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Hypermax Holdings Pty Ltd (formerly Customer Contact
Technologies Pty Ltd) * (a) (c) (f) |
|
Australia |
|
|
8 |
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Chief Entertainment Pty Ltd * (f) (k) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Data & Text Mining Technologies Pty Ltd * (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Lyrebird Technologies Pty Ltd * (f) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra OnAir Infrastructure Holdings Pty Ltd * (j) (r) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra 3G Spectrum Holdings Pty Ltd * (r) |
|
Australia |
|
|
302 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
1300 Australia Pty Ltd * (q) |
|
Australia |
|
|
5 |
|
|
|
|
|
|
|
60.0 |
|
|
|
50.0 |
|
Telstra OnAir Holdings Pty Ltd (r) |
|
Australia |
|
|
302 |
|
|
|
302 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra OnAir Infrastructure Holdings Pty Ltd * (j) (r) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra 3G Spectrum Holdings Pty Ltd * (r) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra Communications Limited (a) |
|
Australia |
|
|
29 |
|
|
|
29 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telecom Australia (Saudi) Company Limited (d) (e) (h) (i) |
|
Saudi Arabia |
|
|
|
|
|
|
|
|
|
|
50.0 |
|
|
|
50.0 |
|
ESA Holding Pty Ltd (n) |
|
Australia |
|
|
16 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra Business Systems Pty Ltd (formerly Damovo
(Australia) Pty Ltd (c) (n) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
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 Ltd (a) |
|
Australia |
|
|
29 |
|
|
|
29 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Enterprise Services Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Pay TV Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
(continued over page)
328
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. 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 |
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Holdings Pty Ltd (a) |
|
Australia |
|
|
7,177 |
|
|
|
7,177 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Beijing Australia Telecommunications Technical
Consulting Services Company Limited (e) (i) |
|
China |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Holdings (Bermuda) No. 2 Limited (i) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CSL Limited (i) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Bestclass Holdings Ltd (i) |
|
British Virgin Islands |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Hong Kong CSL Limited (i) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Integrated Business Systems Limited (i) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
One2Free Personalcom Limited (i) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
CSL Limited (i) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Holdings (Bermuda) No 1 Limited (i) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra International HK Limited (i) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Damovo HK Ltd (i) (n) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra IDC Holdings Limited (d) (i) |
|
Bermuda |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra Japan Retail K.K. (i) |
|
Japan |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Singapore Pte Ltd (i) |
|
Singapore |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Global Limited (i) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
PT Telstra Nusantara (i) |
|
Indonesia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Europe Limited (i) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra (Cable Telecom) Limited (formerly Cable
Telecom (GB) Limited) (c) (i) (r) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra (PSINet) Limited (formerly PSINet UK
Limited) (c) (i) (m) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra (CTE) Limited (formerly Cable Telecom
Europe Limited) (c) (i) (r) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Cable Telecommunication Limited (i) (r) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra (CTE) Limited (formerly Cable Telecom
Europe Limited) (c) (i) (r) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Cable Telecommunication Limited (i) (r) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
PSINet Datacentre UK Limited (i) (m) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Inteligen Communications Limited (formerly
EUNet GB Limited) (c) (i) (m) |
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra Jersey Limited (formerly PSINet Jersey
Limited) (c) (i) (m) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
PSINet Hosting Centre Limited (i) (m) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Cordoba Holdings Limited (i) (m) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra (LHC) Limited (formerly London Hosting
Centre Limited) (c) (i) (m) |
|
Jersey |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Telstra Inc. (i) |
|
United States |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra India (Private) Limited (i) |
|
India |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra Limited (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra New Zealand Holdings Limited (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
TelstraClear Limited (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
TelstraSaturn Holdings Limited (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
(continued over page)
329
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. 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 |
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sytec Resources Ltd (i) (o) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Sytec Resources (Australia) Pty Ltd * (i) (o) . |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
DMZ Global Limited (i) (o) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
DMZ Global (Australia) Pty Ltd * (i) (o) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
CLEAR Communications Limited (i) |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Network Design and Construction Limited (a) |
|
Australia |
|
|
177 |
|
|
|
177 |
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Global Holdings Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Telecommunications India Private Limited (i) |
|
India |
|
|
|
|
|
|
|
|
|
|
98.0 |
|
|
|
98.0 |
|
PT NDC Indonesia (d) (i) |
|
Indonesia |
|
|
|
|
|
|
|
|
|
|
95.0 |
|
|
|
95.0 |
|
NDC Global Philippines, Inc (d) (e) (i) |
|
Philippines |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Global Services (Thailand) Limited (d) (i) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
49.0 |
|
NDC Global Holdings (Thailand) Limited (d) (h) (i) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
49.0 |
|
NDC Global Services (Thailand) Limited (d) (i) |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
51.0 |
|
|
|
51.0 |
|
NDC Global Services Malaysia Sdn. Bhd (d) (i) |
|
Malaysia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
NDC Global Services Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
NDC Telecommunications India Private Limited (i) |
|
India |
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
2.0 |
|
Telstra Services Solutions Holdings Limited (a) |
|
Australia |
|
|
898 |
|
|
|
898 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.net Limited (a) (b) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.Com Limited (a) (b) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra CB.fs Limited (a) (b) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Telstra eBusiness Services Pty Ltd (a) (r) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Telstra eBusiness Services Pty Ltd (a) (r) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
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 Limited (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 * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
KAZ Group Limited (a) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Computer Services (SEA) Pte Ltd (i) (l) |
|
Singapore |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Computer Services (Hong Kong) Ltd (i) (l) |
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
75.0 |
|
|
|
|
|
Australian Administration Services Pty Ltd (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
AAS Superannuation Services Pty Ltd * (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Business Services Australia Pty Ltd (formerly
Nexis Pty Ltd) * (c) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Business Services Pty Ltd (a) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Software Solutions Pty Ltd * (a) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Atune Financial Solutions Pty Ltd * (a) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Technology Services Pty Ltd (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
IOCORE Asia Pacific Pty Ltd * (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Techsouth Pty Ltd * (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
KAZ Technology Services Australia Pty Ltd
(formerly 551 Glenferrie Road Pty Ltd) * (c) (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Fundi Software Pty Ltd * (l) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
(continued over page)
330
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. 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 |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
% |
|
|
% |
|
|
Controlled entities (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensis Pty Ltd (a) |
|
Australia |
|
|
757 |
|
|
|
757 |
|
|
|
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 Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
33.0 |
|
|
|
33.0 |
|
Trading Post (Australia) Holdings Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post Group Pty Ltd (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
67.0 |
|
|
|
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 Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Collectormania Australia Pty Ltd * (a) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
The Personal Trading Post Pty Ltd (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 Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Warranty Direct (Australia) Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Just Listed Pty Ltd * (a) |
|
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 Ltd (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 Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Trading Post On Line Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Sensis Holdings Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
Invizage Pty Ltd * |
|
Australia |
|
|
|
|
|
|
|
|
|
|
75.0 |
|
|
|
75.0 |
|
Universal Publishers Pty Ltd (a) (p) |
|
Australia |
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in consolidated entities |
|
|
|
|
|
|
12,868 |
|
|
|
12,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(#) |
|
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. |
331
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
ASIC deed of cross guarantee
(a) The following companies have entered into a deed of
cross guarantee dated 4 June 1996 (or have been
subsequently added to this deed by an assumption deed):
|
|
Telstra Corporation Limited; |
|
|
|
Telstra Corporate Services Pty Ltd; |
|
|
|
Telstra Multimedia Pty Ltd; |
|
|
|
Telstra International Limited; |
|
|
|
Telstra New Wave Pty Ltd (b); |
|
|
|
Hypermax Holdings Pty Ltd (formerly Customer Contact Technologies Pty Ltd) (+); |
|
|
|
Telstra Communications Limited; |
|
|
|
Telstra Media Holdings Pty Ltd; |
|
|
|
Telstra Enterprise Services Pty Ltd; |
|
|
|
Telstra Pay TV Pty Ltd; |
|
|
|
Telstra Holdings Pty Ltd; |
|
|
|
Network Design and Construction Limited; |
|
|
|
NDC Global Holdings Pty Ltd; |
|
|
|
NDC Global Services Pty Ltd; |
|
|
|
Telstra Services Solutions Holdings Ltd; |
|
|
|
Telstra CB.net Limited (b); |
|
|
|
Telstra CB.Com Limited (b); |
|
|
|
Telstra CB.fs Limited (b); |
|
|
|
Telstra eBusiness Services Pty Ltd; |
|
|
|
Australasian Insurance Systems Pty Ltd; |
|
|
|
TRC Computer Systems Pty Ltd; |
|
|
|
DBA Limited; |
|
|
|
Brokerlink Pty Ltd; |
|
|
|
DBA Computer Systems Pty Ltd; |
|
|
|
KAZ Group Limited (+); |
|
|
|
KAZ Business Services Pty Ltd (+); |
|
|
|
KAZ Software Solutions Pty Ltd (+); |
|
|
|
Atune Financial Services Pty Ltd (+); |
|
|
|
Sensis Pty Ltd; |
|
|
|
Trading Post (Australia) Holdings Pty Ltd; |
|
|
|
Trading Post Group Pty Ltd; |
|
|
|
The Melbourne Trading Post Pty Ltd; |
|
|
|
The National Trading Post Pty Ltd; |
|
|
|
Collectormania Australia Pty Ltd; |
|
|
|
Australian Retirement Publications Pty Ltd; |
|
|
|
The Personal Trading Post Pty Ltd; |
|
|
|
Auto Trader Australia Pty Ltd; |
|
|
|
WA Auto Trader Pty Ltd; |
|
|
|
Just Listed Pty Ltd; |
|
|
|
Trading Post (TCA) Pty Ltd; |
|
|
|
Trading Post Australia Pty Ltd; and |
|
|
|
Universal Publishers Pty Ltd (+). |
Telstra Finance Limited is trustee to the deed of cross guarantee.
(+) These entities were added to the deed of cross
guarantee during fiscal 2005 by an assumption deed
dated 24 June 2005.
The deed of cross guarantee was formed under Australian
Securities and Investment Commission (ASIC) Class Order
98/1418, including subsequent amendments made thereto.
This class order was dated 13 August 1998 and has been
subsequently amended by class orders 98/ 2017, 00/321,
01/1087, 02/248, 02/1017, 04/663, 04/682, 04/1624 and 05/
542. Under this class order and the deed of cross
guarantee, the companies listed above, except for Telstra
Finance Limited:
|
|
form a closed group and extended closed group as defined in the class 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 named companies in the event
of their winding up. |
The consolidated assets and liabilities of the closed
group and extended closed group at 30 June 2005 and 30
June 2004 are presented according to ASIC class order
98/1418 (as amended) as follows. This excludes Telstra
Finance Limited. All significant transactions between
members of the closed group have been eliminated.
332
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
ASIC deed of cross guarantee (continued)
(a) continued
|
|
|
|
|
|
|
|
|
Closed group statement of financial position |
|
Closed Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash assets |
|
|
1,368 |
|
|
|
604 |
|
Receivables |
|
|
3,596 |
|
|
|
3,556 |
|
Inventories |
|
|
197 |
|
|
|
200 |
|
Other assets |
|
|
765 |
|
|
|
697 |
|
|
|
|
Total current assets |
|
|
5,926 |
|
|
|
5,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
Receivables |
|
|
1,066 |
|
|
|
1,760 |
|
Inventories |
|
|
15 |
|
|
|
10 |
|
Investments accounted for using the equity method |
|
|
48 |
|
|
|
41 |
|
Investments other |
|
|
3,134 |
|
|
|
2,596 |
|
Property, plant and equipment |
|
|
21,546 |
|
|
|
21,567 |
|
Intangibles goodwill |
|
|
311 |
|
|
|
248 |
|
Intangibles other |
|
|
622 |
|
|
|
617 |
|
Other assets |
|
|
2,565 |
|
|
|
2,324 |
|
|
|
|
Total non current assets |
|
|
29,307 |
|
|
|
29,163 |
|
|
|
|
Total assets |
|
|
35,233 |
|
|
|
34,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Payables |
|
|
2,052 |
|
|
|
1,999 |
|
Interest-bearing liabilities |
|
|
2,183 |
|
|
|
3,753 |
|
Income tax payable |
|
|
516 |
|
|
|
509 |
|
Provisions |
|
|
353 |
|
|
|
350 |
|
Revenue received in advance |
|
|
1,091 |
|
|
|
1,075 |
|
|
|
|
Total current liabilities |
|
|
6,195 |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
Payables |
|
|
14 |
|
|
|
47 |
|
Interest-bearing liabilities |
|
|
11,800 |
|
|
|
9,014 |
|
Provision for deferred income tax |
|
|
1,826 |
|
|
|
1,748 |
|
Provisions |
|
|
810 |
|
|
|
758 |
|
Revenue received in advance |
|
|
387 |
|
|
|
408 |
|
|
|
|
Total non current liabilities |
|
|
14,837 |
|
|
|
11,975 |
|
|
|
|
Total liabilities |
|
|
21,032 |
|
|
|
19,661 |
|
|
|
|
Net assets |
|
|
14,201 |
|
|
|
14,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Contributed equity |
|
|
5,793 |
|
|
|
6,073 |
|
Reserves |
|
|
37 |
|
|
|
41 |
|
Retained profits |
|
|
8,371 |
|
|
|
8,445 |
|
|
|
|
Shareholders equity available to the closed group |
|
|
14,201 |
|
|
|
14,559 |
|
|
|
|
333
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
ASIC deed of cross guarantee (continued)
(a) (continued)
The consolidated net profit of the closed group and
extended closed group for the fiscal years ended 30
June 2005 and 30 June 2004 is presented according to
ASIC class order 98/1418 (as amended) as follows.
This excludes Telstra Finance Limited. All
significant transactions between members of the
closed group have been eliminated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed group statement of financial performance and retained profits reconciliation |
|
|
Closed Group |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
Ordinary activities |
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense |
|
|
|
|
|
|
6,316 |
|
|
|
5,867 |
|
Income tax expense |
|
|
|
|
|
|
1,789 |
|
|
|
1,700 |
|
|
|
|
|
|
|
|
Net profit available to the closed group |
|
|
|
|
|
|
4,527 |
|
|
|
4,167 |
|
Retained profits at the beginning of the financial year available to
the closed group |
|
|
|
|
|
|
8,445 |
|
|
|
8,112 |
|
Share buy-back |
|
|
18 |
|
|
|
(476 |
) |
|
|
(649 |
) |
Transfer out of closed group |
|
|
|
|
|
|
|
|
|
|
1 |
|
Transfers to retained profits |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total available for distribution |
|
|
|
|
|
|
12,502 |
|
|
|
11,631 |
|
Dividends paid |
|
|
|
|
|
|
4,131 |
|
|
|
3,186 |
|
|
|
|
|
|
|
|
Retained profits at the end of the financial year available to the
closed group |
|
|
|
|
|
|
8,371 |
|
|
|
8,445 |
|
|
|
|
|
|
|
|
(b) The following companies will cease to be party to the deed of cross
guarantee as at 11 September 2005 due to a revocation deed dated 11
March 2005:
|
|
Telstra New Wave Pty Ltd; |
|
|
|
Telstra CB.net Limited; |
|
|
|
Telstra CB.Com Limited; and |
|
|
|
Telstra CB.fs Limited. |
334
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
Change of company names
(c) The following entities changed their names during fiscal 2005:
|
|
Customer Contact Technologies Pty Ltd changed
its name to Hypermax Holdings Pty Ltd on 30
July 2004; |
|
|
551 Glenferrie Road Pty Ltd changed its name to
KAZ Technology Services Australia Pty Ltd on 3
December 2004; |
|
|
Nexis Pty Ltd changed its name to KAZ Business
Services Australia Pty Ltd on 3 December 2004; |
|
|
Damovo (Australia) Pty Ltd changed its name to
Telstra Business Systems Pty Ltd on 1 February
2005; |
|
|
Cable Telecom (GB) Limited changed its name to
Telstra (Cable Telecom) Limited on 28 February
2005; |
|
|
Cable Telecom Europe Limited changed its name to
Telstra (CTE) Limited on 28 February 2005; |
|
|
PSINet UK Limited changed its name to Telstra
(PSINet) Limited on 28 February 2005; |
|
|
London Hosting Centre Limited changed its name to
Telstra (LHC) Limited on 28 February 2005; |
|
|
PSINet Jersey Limited changed its name to Telstra
Jersey Limited on 28 February 2005; and |
|
|
EUNet GB Limited changed its name to Inteligen
Communications Limited on 26 April 2005. |
Liquidations
(d) As at 30 June 2005, the following companies were
in voluntary liquidation:
|
|
Telecom Australia (Saudi) Company Limited; |
|
|
NDC Global Philippines, Inc; |
|
|
NDC Global Services (Thailand) Limited; |
|
|
NDC Global Holdings (Thailand) Limited; and |
The following companies were liquidated during fiscal 2005:
|
|
Telstra IDC Holdings Limited; |
|
|
|
NDC Global Services Malaysia Sdn. Bhd; and |
|
|
|
On Australia Pty Ltd. |
During fiscal 2002, we entered into arrangements to
transfer responsibility for the operation and funding of
the Telstra Visa Card, Qantas Telstra Visa Card and the
Telstra Visa Business Card loyalty programs and related
trusts from Telstra. Dissolution of Telstras
involvement with these trusts commenced in fiscal 2004
and will be completed during fiscal 2006.
Controlled entities with different balance dates
(e) The following companies have balance dates that
differ from our balance date of 30 June for fiscal
2005:
|
|
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.
Rounded investments
(f) The cost of the Telstra Entitys investments in
the following controlled entities, are not shown
when rounded to the nearest million dollars:
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$ |
|
|
$ |
|
|
Telstra Finance Limited |
|
|
5 |
|
|
|
5 |
|
Telstra ESOP Trustee Pty Ltd |
|
|
2 |
|
|
|
2 |
|
Telstra Growthshare Pty Ltd |
|
|
1 |
|
|
|
1 |
|
Hypertokens Pty Ltd |
|
|
40,002 |
|
|
|
40,002 |
|
Hypermax Holdings Pty Ltd (formerly
Customer Contact Technologies Pty Ltd) (c). |
|
|
# |
|
|
|
2 |
|
Chief Entertainment Pty Ltd (k) |
|
|
168,399 |
|
|
|
|
|
Data & Text Mining Technologies Pty Ltd |
|
|
2 |
|
|
|
2 |
|
Lyrebird Technologies Pty Ltd |
|
|
2 |
|
|
|
2 |
|
|
|
|
# Investment greater than $1 million as at 30 June 2005
due to capital injections. Hypermax Holdings Pty Ltd used
the capital injections to purchase a business and fund
ongoing operations during the period.
Controlled entities in which we have no equity ownership
(g) We do not have an equity investment in
Telecommunications Equipment Finance Pty Ltd. We have
effective control over this entity through economic
dependency and have consolidated it into our group
financial report. This company does not have significant
assets or liabilities.
335
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
Controlled entities in which our equity ownership
is less than or equal to 50%
(h) 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.
We own 49% of the issued capital of NDC Global Holdings
(Thailand) Limited. We can exercise control over this
entity in perpetuity, and therefore we have consolidated
the financial results, position and cash flows of this
entity into our group financial report.
Controlled entities not individually audited by the
Australian National Audit Office
(i) Companies not audited by the Australian National
Audit Office, our Australian statutory auditor.
Dividends and distributions received by the Telstra Entity
(j) The Telstra Entity received a return of capital of
$302 million from Telstra OnAir Infrastructure Holdings
Pty Ltd during fiscal 2005.
New incorporations and investments
(k) On 1 July 2004, we acquired 100% of the issued share
capital of Chief Entertainment Pty Ltd. The initial
consideration was not significant.
Chief Entertainment Pty Ltd is a provider of
broadband audio and visual entertainment.
(l) On 19 July 2004, we acquired 100% of the issued
share capital of KAZ Group Limited and its controlled
entities (KAZ Group) for a total consideration of $340
million, including acquisition costs.
Our acquisition of KAZ Group Limited included its
controlled entities as listed below:
|
|
KAZ Computer Services (SEA) Pte Ltd; |
|
|
KAZ Computer Services (Hong Kong) Limited; |
|
|
Australian Administration Services Pty Ltd; |
|
|
AAS Superannuation Services Pty Ltd; |
|
|
KAZ Business Services Pty Ltd; |
|
|
KAZ Software Solutions Pty Ltd; |
|
|
Atune Financial Solutions Pty Ltd; |
|
|
KAZ Technology Services Pty Ltd; |
|
|
IOCORE Asia Pacific Pty Ltd; |
|
|
551 Glenferrie Road Pty Ltd (c); and |
|
|
Fundi Software Pty Ltd. |
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.
(m) On 25 August 2004, we acquired 100% of the issued
share capital of PSINet UK Limited and its controlled
entities (PSINet Group) for a total consideration of
$124 million, including acquisition costs. Subsequent to
acquisition, the PSINet Group was restructured within
the Telstra Europe Limited Group and PSINet UK Limited
changed its name to Telstra (PSINet) Limited.
Our acquisition of the PSINet Group included the
controlled entities as listed below:
|
|
PSINet Datacentre UK Limited; |
|
|
PSINet Jersey Limited (c); |
|
|
PSINet Hosting Centre Limited; |
|
|
Cordoba Holdings Limited; and |
|
|
London Hosting Centre Limited (c). |
The PSINet Group is a provider of e-business
infrastructure solutions and corporate internet protocol
based communication services.
(n) On 17 September 2004, we acquired 100% of the
issued share capital of ESA Holding Pty Ltd and its
controlled entity, Damovo (Australia) Pty Ltd, and
Damovo HK Limited (Damovo Group) for a total
consideration of $66 million, including acquisition
costs. The acquisition was achieved through the use of
two controlled entities within the Telstra Group.
The Damovo Group provides advanced voice and data
business communication solutions and services to
large enterprises and government departments.
(o) On 5 November 2004, we acquired 100% of the issued
share capital of Sytec Resources Limited and its
controlled entities (Sytec Group). The amount initially
invested was not significant.
Our acquisition of Sytec Resources Limited included
its
controlled entities as listed below:
|
|
Sytec Resources (Australia) Pty Ltd; |
|
|
DMZ Global Limited; and |
|
|
DMZ Global (Australia) Pty Ltd. |
The Sytec Group is a provider of information
technology related services.
336
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
23. Investments in controlled entities (continued)
New incorporations and investments (continued)
(p) On 20 December 2004, we acquired 100% of the issued
share capital of Universal Publishers Pty Ltd for a
total consideration of $46 million, including
acquisition costs.
Universal Publishers is a publisher of mapping and
travel related products. Its publishing program
includes street directories, guides, maps and road
atlases.
Other acquisitions
(q) On 10 February 2005, we acquired a further 10% of
the issued share capital of 1300 Australia Pty Ltd for
nominal consideration giving us a 60% controlling
interest. Prior to this date, 1300 Australia Pty Ltd was
classified as a joint venture entity.
Sales and disposals
(r) The following entities were sold between entities
within the Telstra Group:
|
|
On 5 November 2004, Telstra CB.fs Limited sold its investment in Telstra eBusiness
Services Pty Ltd to Telstra Services Solutions Holdings Ltd; |
|
|
On 6 November 2004, Telstra OnAir Holdings Pty Ltd sold its investment in Telstra
OnAir Infrastructure Holdings Pty Ltd to Telstra Corporation Limited; |
|
|
On 6 November 2004, Telstra OnAir Infrastructure Holdings Pty Ltd sold its investment
in Telstra 3G Spectrum Holdings Pty Ltd to Telstra Corporation Limited; |
|
|
On 1 June 2005, Telstra (Cable Telecom) Limited sold its investment in Telstra (CTE)
Limited to Telstra Europe Limited; and |
|
|
On 1 June 2005, Telstra (Cable Telecom) Limited sold its investment in Cable
Telecommunication Limited to Telstra Europe Limited. |
337
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities
Our investments in joint venture entities are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Ownership |
|
Telstra Group's carrying |
|
Telstra Entity's carrying |
|
|
activities |
|
interest |
|
amount of investment (*) |
|
amount of investment (*) |
|
|
|
|
As at 30 June |
|
As at 30 June |
|
As at 30 June |
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
% |
|
% |
|
$m |
|
$m |
|
$m |
|
$m |
|
Joint venture entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Partnerships (#) (1)
|
|
Pay television
|
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
Customer Services Pty Ltd (1)
|
|
Customer service
|
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Management Pty Ltd (a)
|
|
Management services
|
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Cable Television Pty Ltd (1) (c)
|
|
Pay television
|
|
|
|
80.0 |
|
|
|
80.0 |
|
|
|
|
|
|
|
|
|
Reach Ltd (incorporated in
Bermuda) (1) (o) (t)
|
|
International connectivity
services
|
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
Stellar Call Centres Pty Ltd (b) (p)
|
|
Call centre services and solutions
|
|
|
|
|
|
|
|
50.0 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
3 |
|
Xantic B.V. (incorporated in The
Netherlands) (t)
|
|
Global satellite
communications
|
|
|
|
35.0 |
|
|
|
35.0 |
|
|
|
29 |
|
|
|
29 |
|
|
|
29 |
|
|
|
29 |
|
TNAS Limited (incorporated in New Zealand)
(1) (t)
|
|
Toll free number
portability in New Zealand
|
|
|
|
33.3 |
|
|
|
33.3 |
|
|
|
|
|
|
|
|
|
|
|
|
1300 Australia Pty Ltd (a) (q)
|
|
Acquisition and marketing
of 1300 phone words
|
|
|
|
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Solutions Pty Ltd (1) (h)
|
|
Financial advice and
education services
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HelpYouPay Systems Pty Ltd (formerly
Red2Black Systems Pty Ltd) (1) (h) (s)
|
|
Debt management services
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HelpYouPay Pty Ltd (formerly Red2Black
Payment Services Pty Ltd) (1) (h) (s)
|
|
Debt management services
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Processing Technologies Pty Ltd (a)
(h) (f)
|
|
Business process
outsourcing
|
|
|
|
60.0 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Enhanced Processing Technologies Inc
(incorporated in United States) (a) (h) (f)
|
|
Software sales
|
|
|
|
60.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adstream (Aust) Pty Ltd (g)
|
|
Digital advertising and
asset management
|
|
|
|
33.3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
3GIS Pty Ltd (a) (j) (t)
|
|
Management services
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3GIS Partnership (a) (j) (t)
|
|
3G network services
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge Mobile Pte Ltd (incorporated in
Singapore) (k)
|
|
Regional roaming provider
|
|
|
|
12.5 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
m.Net Corporation Limited (l)
|
|
Mobile phone content
provider
|
|
|
|
39.5 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
note 11
|
|
|
|
33 |
|
|
|
40 |
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless noted in footnote (t), all investments have a
balance date of 30 June and are incorporated in
Australia. Where there is a different balance date,
financial reports prepared as at 30 June are used for
equity accounting purposes. Our ownership interest in
joint venture entities with different balance dates is
the same at that balance date as above unless otherwise
noted.
(#) This includes both the FOXTEL Partnership and
the FOXTEL Television Partnership.
(1) Equity accounting of these investments has been
suspended and the investment is recorded at zero due to
losses made by the entities and/or reductions in the
equity accounted carrying amount.
(*) The Telstra Group carrying amounts are calculated
using the equity method of accounting. The Telstra
Entitys carrying amounts are at cost less any provision
for reduction in value.
338
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
Our investments in associated entities are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Ownership |
|
Telstra Group's carrying |
|
Telstra Entity's carrying |
|
|
activities |
|
interest |
|
amount of investment (*) |
|
amount of investment (*) |
|
|
|
|
As at 30 June |
|
As at 30 June |
|
As at 30 June |
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
% |
|
% |
|
$m |
|
$m |
|
$m |
|
$m |
|
(ii) Associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia-Japan Cable Holdings Limited
(incorporated in Bermuda) (1) (t)
|
|
Network cable provider
|
|
|
39.9 |
|
|
|
39.9 |
|
|
|
|
|
|
|
|
|
ECard Pty Ltd (a) (b) (r)
|
|
Smart card transaction
processing
|
|
|
|
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
Telstra Super Pty Ltd (1) (a) (d)
|
|
Superannuation trustee
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
Keycorp Limited (b) (i) (n)
|
|
Electronic transactions
solutions
|
|
|
47.8 |
|
|
|
47.9 |
|
|
|
12 |
|
|
|
|
|
12 |
|
|
|
Telstra Foundation Limited (e)
|
|
Charitable trustee
organisation
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
LinkMe Pty Ltd (m)
|
|
Internet recruitment
provider
|
|
|
40.0 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless noted in footnote (t), all investments have a
balance date of 30 June and are incorporated in
Australia. Where there is a different balance date,
financial reports prepared as at 30 June are used for
equity accounting purposes. Our ownership interest in
associated entities with different balance dates is the
same at that balance date as above unless otherwise
noted.
(1) Equity accounting of these investments has been
suspended and the investment is recorded at zero due to
losses made by the entities and/or reductions in the
equity accounted carrying amount.
(*) The Telstra Group carrying amounts are calculated
using the equity method of accounting. The Telstra
Entitys carrying amounts are at cost less any provision
for reduction in value.
339
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
Share of joint venture entities and associated entities net losses/
(profits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Our net loss/(profit) from joint venture entities and associated entities
has been contributed by the following entities: |
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities |
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Partnerships (#) |
|
|
5 |
|
|
|
44 |
|
|
|
47 |
|
Stellar Call Centres Pty Ltd (b) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Xantic B.V |
|
|
(3 |
) |
|
|
43 |
|
|
|
24 |
|
Reach Ltd (o) |
|
|
|
|
|
|
|
|
|
|
946 |
|
|
|
|
|
|
|
(1 |
) |
|
|
85 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
IBM Global Services Australia Limited (+) |
|
|
|
|
|
|
(3 |
) |
|
|
(6 |
) |
Australia-Japan Cable Holdings Limited |
|
|
|
|
|
|
|
|
|
|
6 |
|
Solution 6 Holdings Limited (+) |
|
|
|
|
|
|
|
|
|
|
2 |
|
ECard Pty Ltd (a) (b) (r) |
|
|
|
|
|
|
2 |
|
|
|
10 |
|
Keycorp Limited (i) (b) (n) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
PT Mitra Global Telekomunikasi Indonesia (+) |
|
|
|
|
|
|
(6 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(7 |
) |
|
|
10 |
|
|
|
|
|
|
|
(9 |
) |
|
|
78 |
|
|
|
1,025 |
|
|
|
|
(#) This includes both the FOXTEL Partnership and
the FOXTEL Television Partnership.
(+) In prior reporting periods we have sold our
interests in these associated entities.
340
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
Rounded investments
(a) The carrying amounts of our investments in joint
venture entities and associated entities which are not
shown when rounded to the nearest million dollars are
shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of investment |
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
(i) Joint venture entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOXTEL Management Pty Ltd |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
1300 Australia Pty Ltd (q) |
|
|
|
|
|
|
398,853 |
|
|
|
|
|
|
|
500,000 |
|
Enhanced Processing Technologies Pty Ltd (h) |
|
|
505,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Processing Technologies Inc (h) |
|
|
100,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3GIS Pty Ltd (j) (t) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3GIS Partnership (j) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Associated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECard Pty Ltd (b) (r) |
|
|
|
|
|
|
100,001 |
|
|
|
|
|
|
|
100,001 |
|
Telstra Super Pty Ltd (d) |
|
|
* |
|
|
|
* |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
* Equity accounted amount of investment is suspended and
the investment is recorded at zero due to losses made by
the entities or as a result of reducing the equity
accounted amount to zero.
Dividends received from joint venture entities and
associated entities
(b) We received dividends and distributions from the
following entities during fiscal 2005:
|
|
Stellar Call Centres Pty Ltd $0.6 million (2004: $1.2 million); |
|
|
ECard Pty Ltd $0.3 million (2004: $1.4 million); and |
|
|
Keycorp Limited $1.2 million (2004: $nil). |
Associated entities and joint venture entities in which
we own more than 50% equity
(c) We own 80% of the equity of FOXTEL Cable Television
Pty Ltd. This entity is disclosed as a joint venture
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.
(d) 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.
(e) We own 100% of the equity of Telstra Foundation
Limited (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 Telstras
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.
(f) We own 60% of the equity of Enhanced Processing
Technologies Pty Ltd and Enhanced Processing Technologies
Inc. These entities are subject to joint control based on
their respective shareholders agreements, under which
mutual consent of the shareholders is required in
determining the financial and operating policies of the
entities. As a result, they have been classified as joint
venture entities.
341
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
New joint venture entities and associated entities
(g) On 19 July 2004, we acquired 33.3% of the issued share capital of Adstream
(Aust) Pty Ltd. The amount invested was not significant.
(h) On 19 July 2004, we acquired KAZ Group Ltd and its controlled entities (KAZ
Group). As part of the acquisition of the KAZ Group we also acquired a number of
joint venture entities. Refer to note 23 for further details of the acquisition.
(i) On 20 September 2004, the ownership interest in Keycorp Limited was
transferred to Telstra Corporation Limited from Telstra CB.fs Limited.
(j) On 6 December 2004, we signed agreements with Hutchison 3G Australia Pty Ltd
(H3GA), a subsidiary of Hutchison Telecommunications (Australia) Limited, to
jointly own and operate H3GAs existing third generation (3G) radio access
network and fund future network development.
The 3GIS Partnership has been established to operate this network. 3GIS Pty Ltd
was established to act as agent for the 3GIS Partnership.
(k) On 14 April 2005, we acquired 12.5% of the issued share capital of Bridge
Mobile Pte Ltd. Our voting interest in this entity is equivalent to our seven
joint venture partners. The amount invested was not significant.
(l) On 20 May 2005, we were issued a further 31.2% shareholding in m.Net
Corporation Limited as consideration for in-kind services provided. As a result
of the increase, we have now classified the investment as a joint venture entity
and commenced equity accounting. Prior to this date we classified our interest
as an other investment.
(m) On 2 June 2005, we acquired 40% of the issued share capital of LinkMe Pty
Ltd. The amount invested was not significant.
Other changes in joint venture entities and associated entities
(n) On 7 March 2005, our investment in Keycorp Limited was decreased from 47.9%
to 47.8% due to a dilution in our shareholding.
(o) During fiscal 2003 we wrote down the carrying amount of the investment in
our 50% owned joint venture, Reach Ltd. Equity accounting of the investment is
suspended and the investment is recorded at zero.
The write down occurred due to
the depressed conditions in the global market for international data and
internet capacity resulting in high levels of excess capacity, intense price
competition and lower than expected revenues. Refer to note 3 for further
information.
Sale of investments
(p) On 21 June 2005, we completed the sale of our 50% shareholding in
Stellar Call Centres Pty Ltd. The revenue on sale of the investment was
not considered to be significant.
Investments no longer equity accounted
(q) On 10 February 2005, we acquired an additional 10% shareholding
in 1300 Australia Pty Ltd giving us a controlling interest. Prior to this
date 1300 Australia Pty Ltd was a joint venture entity and was equity
accounted.
(r) On 14 April 2005, we ceased equity accounting our investment in
ECard Pty Ltd as the entity was deregistered.
Change of company name
(s) The following entities changed names during fiscal 2005:
|
|
Red2Black Systems Pty Ltd changed its name to HelpYouPay Systems Pty Ltd
on 11 October 2004; and |
|
|
|
Red2Black Payment Services Pty Ltd changed its name to HelpYouPay Pty Ltd
on 11 October 2004. |
Joint venture entities and associated entities with different balance
dates
(t) The following joint ventures entities and associated entities have
different balance dates to our balance date of 30 June for fiscal 2005:
|
|
Reach Ltd 31 December; |
|
|
|
Xantic B.V. 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.
342
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
The movements in the consolidated equity accounted
amount of our joint venture entities and associated
entities are summarised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities |
|
|
Associated entities |
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
|
|
|
|
30 June |
|
|
30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Carrying amount of investments at beginning of year |
|
|
|
|
|
|
40 |
|
|
|
129 |
|
|
|
|
|
|
|
30 |
|
Additional investments made during the year |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
129 |
|
|
|
4 |
|
|
|
30 |
|
Share of profits/(losses) before income tax expense |
|
|
|
|
|
|
2 |
|
|
|
(81 |
) |
|
|
7 |
|
|
|
10 |
|
Share of income tax expense |
|
|
|
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
1 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
Share of net profits/(losses) after income tax expense |
|
|
|
|
|
|
1 |
|
|
|
(85 |
) |
|
|
8 |
|
|
|
7 |
|
Amortisation of unrealised inter-entity profits after income tax |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Write down of notional goodwill and release of deferred profit of Reach Ltd |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation of notional goodwill |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of net profits/(losses) |
|
|
|
|
|
|
1 |
|
|
|
(85 |
) |
|
|
8 |
|
|
|
7 |
|
Dividends and distributions received |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Share of reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
Share of foreign currency translation reserve and movements due to exchange rate
translations |
|
|
|
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
(2 |
) |
Sale, transfers and reductions of investments during the year |
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
Carrying amount of investments before reduction to recoverable amount |
|
|
|
|
|
|
35 |
|
|
|
40 |
|
|
|
16 |
|
|
|
|
|
Reduction in value of investments to recoverable amount |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of investments at end of year |
|
|
11 |
|
|
|
33 |
|
|
|
40 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of contingent liabilities of joint venture entities
and associated entities we are not directly liable for these |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of capital commitments contracted for, by our joint
venture entities and associated entities we are not directly liable for these (a) |
|
|
|
|
|
|
9 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of other expenditure commitments contracted
for (other than the supply of inventories), by our joint venture entities
and associated entities we are not directly liable for these (a) |
|
|
|
|
|
|
52 |
|
|
|
67 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
(a) Our share of commitments and guarantees of our joint venture
entities for which we are directly liable are included within note 20
and note 21 respectively.
343
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
Other disclosures for joint venture entities
Summarised presentation of our share of all of our joint
venture entities and associated entities assets,
liabilities, revenue and expense items (including joint
venture entities and associated entities where equity
accounting has been suspended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities |
|
|
Associated entities |
|
|
|
Telstra Group |
|
|
Telstra Group |
|
|
|
|
|
|
Year ended/As at |
|
|
Year ended/As at |
|
|
|
30 June |
|
|
30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Current assets |
|
|
393 |
|
|
|
297 |
|
|
|
31 |
|
|
|
27 |
|
Non current assets |
|
|
391 |
|
|
|
526 |
|
|
|
151 |
|
|
|
198 |
|
|
|
|
|
|
Total assets |
|
|
784 |
|
|
|
823 |
|
|
|
182 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
729 |
|
|
|
595 |
|
|
|
36 |
|
|
|
38 |
|
Non current liabilities |
|
|
296 |
|
|
|
1,316 |
|
|
|
202 |
|
|
|
221 |
|
|
|
|
|
|
Total liabilities |
|
|
1,025 |
|
|
|
1,911 |
|
|
|
238 |
|
|
|
259 |
|
|
|
|
|
|
Net assets |
|
|
(241 |
) |
|
|
(1,088 |
) |
|
|
(56 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,377 |
|
|
|
1,383 |
|
|
|
81 |
|
|
|
76 |
|
Total expenses |
|
|
1,240 |
|
|
|
2,240 |
|
|
|
81 |
|
|
|
116 |
|
|
|
|
|
|
Profit/(loss) before income tax expense |
|
|
137 |
|
|
|
(857 |
) |
|
|
|
|
|
|
(40 |
) |
Income tax expense/(benefit) |
|
|
5 |
|
|
|
(36 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) |
|
|
132 |
|
|
|
(821 |
) |
|
|
(3 |
) |
|
|
(40 |
) |
|
|
|
|
|
344
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
24. Investments in joint venture entities and associated entities (continued)
Included in the consolidated financial report of the Telstra Group are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities |
|
|
Associated entities |
|
|
|
Telstra Group |
|
|
Telstra Group |
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Amount of our recorded retained losses balance relating to
equity accounting our joint venture entities and associated
entities (a) |
|
|
(2,633 |
) |
|
|
(2,630 |
) |
|
|
(163 |
) |
|
|
(172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of our recorded foreign currency translation reserve
credit/(debit) balance relating to equity accounting our joint
venture entities and associated entities |
|
|
(18 |
) |
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of our recorded general reserve credit/(debit) balance
relating to equity accounting our joint venture entities and
associated entities |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
(a) The following items are included in this amount:
|
|
share of net (losses)/profits; |
|
|
|
adjustment for initial unrealised inter-entity profit after income tax expense; |
|
|
|
notional goodwill amortisation and writedowns; |
|
|
|
deferred profits amortised; and |
|
|
|
reduction in value of investments to recoverable amount. |
345
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
25. Directors remuneration salaries and other benefits
The directors of the Telstra Entity for the year
ended 30 June 2005 were:
|
|
|
Name |
|
Position |
Donald G McGauchie
|
|
Chairman, Non Executive Director, appointed 1998, appointed Chairman 20 July 2004 |
John T Ralph
|
|
Deputy Chairman, Non Executive Director, appointed 1996, retirement announced effective 11 August 2005 |
Zygmunt E Switkowski
|
|
Chief Executive Officer and Managing Director, appointed 1999, resigned as of 1 July 2005 |
Samuel H Chisholm
|
|
Non Executive Director, appointed 2000, resigned 28 October 2004 |
Anthony J Clark
|
|
Non Executive Director, appointed 1996, retirement announced effective 11 August 2005 |
John E Fletcher
|
|
Non Executive Director, appointed 2000 |
Belinda J Hutchinson
|
|
Non Executive Director, appointed 2001 |
Catherine B Livingstone
|
|
Non Executive Director, appointed 2000 |
Charles Macek
|
|
Non Executive Director, appointed 2001 |
John W Stocker
|
|
Non Executive Director, appointed 1996 |
Our directors remuneration for the year ended 30 June
2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary benefits |
|
|
Post employment |
|
|
Equity compensation |
|
|
Other |
|
|
Total |
|
|
|
Salary & |
|
|
Short term |
|
|
Non- |
|
|
Superan- |
|
|
Retirement |
|
|
Direct- |
|
|
Deferred |
|
|
Other |
|
|
Other |
|
|
|
|
Year ended |
|
fees |
|
|
incentive |
|
|
monetary |
|
|
nuation |
|
|
benefits (a) |
|
|
share |
|
|
shares |
|
|
equity |
|
|
fees (b) |
|
|
|
|
30 June 2005 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
D McGauchie |
|
|
225,503 |
|
|
|
|
|
|
|
2,317 |
|
|
|
11,484 |
|
|
|
195,396 |
|
|
|
60,054 |
|
|
|
|
|
|
|
|
|
|
|
2,837 |
|
|
|
497,591 |
|
J Ralph |
|
|
131,559 |
|
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
79,940 |
|
|
|
30,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,455 |
|
Z Switkowski |
|
|
1,830,900 |
|
|
|
1,961,000 |
|
|
|
24,357 |
|
|
|
101,850 |
|
|
|
|
|
|
|
|
|
|
|
725,912 |
|
|
|
2,045,313 |
|
|
|
|
|
|
|
6,689,332 |
|
S Chisholm (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
A Clark |
|
|
69,357 |
|
|
|
|
|
|
|
2,753 |
|
|
|
8,493 |
|
|
|
48,811 |
|
|
|
19,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
2,600,502 |
|
|
|
1,961,000 |
|
|
|
43,511 |
|
|
|
158,956 |
|
|
|
551,260 |
|
|
|
265,232 |
|
|
|
725,912 |
|
|
|
2,045,313 |
|
|
|
2,837 |
|
|
|
8,354,523 |
|
|
|
|
During fiscal 2005, Dr Switkowski ceased employment with
the Company effective 1 July 2005. Dr Switkowskis
termination payment was paid to him during July 2005, the
details of which are as follows:
|
|
|
|
|
Nature of payment |
|
$ |
|
|
Termination payment (*) |
|
|
2,092,000 |
|
Accrued annual leave entitlements |
|
|
649,843 |
|
Accrued long service leave entitlements |
|
|
409,683 |
|
|
|
|
|
Total |
|
|
3,151,526 |
|
|
|
|
|
(*) In accordance with the terms of Dr Switkowskis
employment contract, he was entitled to an amount equal
to 12 months fixed remuneration as a termination
payment. Fixed remuneration comprises salary,
superannuation and the value of salary sacrificed items. The amount is based on
our October to October salary review period and hence,
will differ from the amounts disclosed for Dr
Switkowskis fiscal 2005 remuneration above.
Dr Switkowski will receive his short term incentive
payment, included in total remuneration above, subsequent
to the Board approving the value at the August 2005 Board
meeting.
Dr Switkowski participated in the deferred remuneration
and long term incentive plans. Upon ceasing employment,
Dr Switkowski retained the right to deferred shares
allocated under the deferred remuneration plan. These can
be exercised at any time and those not exercised before
the expiration of the exercise period will lapse. He also
retained the right to instruments previously allocated
under the long term incentive plans, subject to the
required performance hurdles being met. Further details
of the plans and the instruments allocated to Dr
Switkowski are available at note 19.
346
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
25. Directors remuneration salaries and other benefits (continued)
Performance rights and options allocated under the
September 2001 plan vested on 28 June 2005, and as a
result, may be exercised any time after this date,
subject to the Companys share trading policy. All other
allocations are yet to meet the required performance
hurdles and have not vested.
Dr Switkowski has not received any entitlement to
additional superannuation benefits upon termination.
His cumulative superannuation entitlements are as
disclosed in his remuneration over the period of his
employment. These amounts reside in Dr Switkowskis
superannuation fund to be dealt with at his discretion.
Our directors remuneration for the year ended 30 June 2004
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary benefits |
|
|
Post employment |
|
|
Equity compensation |
|
|
Other |
|
|
Total |
|
|
|
Salary & |
|
|
Short term |
|
|
Non- |
|
|
Superan- |
|
|
Retirement |
|
|
Direct- |
|
|
Deferred |
|
|
Other |
|
|
Other |
|
|
|
|
Year ended |
|
fees |
|
|
incentive |
|
|
monetary |
|
|
nuation |
|
|
benefits (a) |
|
|
share |
|
|
shares |
|
|
equity |
|
|
fees (b) |
|
|
|
|
30 June 2004 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
D McGauchie |
|
|
45,871 |
|
|
|
|
|
|
|
6,279 |
|
|
|
8,629 |
|
|
|
30,908 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
171,687 |
|
J Ralph |
|
|
141,852 |
|
|
|
|
|
|
|
5,136 |
|
|
|
|
|
|
|
78,896 |
|
|
|
28,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,884 |
|
R Mansfield (d) |
|
|
144,200 |
|
|
|
|
|
|
|
139 |
|
|
|
19,800 |
|
|
|
82,180 |
|
|
|
56,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,319 |
|
Z Switkowski |
|
|
1,339,314 |
|
|
|
627,300 |
|
|
|
25,913 |
|
|
|
98,437 |
|
|
|
|
|
|
|
|
|
|
|
660,854 |
|
|
|
1,663,245 |
|
|
|
|
|
|
|
4,415,063 |
|
S Chisholm (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A Clark |
|
|
67,450 |
|
|
|
|
|
|
|
6,482 |
|
|
|
8,550 |
|
|
|
47,932 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,414 |
|
J Fletcher |
|
|
37,800 |
|
|
|
|
|
|
|
3,026 |
|
|
|
7,200 |
|
|
|
24,098 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,124 |
|
B Hutchinson |
|
|
59,661 |
|
|
|
|
|
|
|
4,476 |
|
|
|
6,480 |
|
|
|
71,790 |
|
|
|
13,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,266 |
|
C Livingstone |
|
|
67,450 |
|
|
|
|
|
|
|
4,602 |
|
|
|
8,550 |
|
|
|
30,004 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,606 |
|
C Macek |
|
|
67,450 |
|
|
|
|
|
|
|
4,192 |
|
|
|
8,550 |
|
|
|
77,789 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,981 |
|
W Owens (d) |
|
|
46,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,083 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
31,529 |
|
|
|
181,766 |
|
J Stocker |
|
|
34,499 |
|
|
|
|
|
|
|
5,465 |
|
|
|
3,105 |
|
|
|
60,590 |
|
|
|
77,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,055 |
|
|
|
|
|
|
|
2,051,701 |
|
|
|
627,300 |
|
|
|
65,710 |
|
|
|
169,301 |
|
|
|
578,270 |
|
|
|
327,255 |
|
|
|
660,854 |
|
|
|
1,663,245 |
|
|
|
81,529 |
|
|
|
6,225,165 |
|
|
|
|
(a) We have not paid any post employment benefits
that are prescribed benefits during fiscal 2005
or fiscal 2004.
(b) These items relate to fees for services in addition
to the directors Board duties.
(c) Mr Chisholm resigned from the Board on 28 October
2004. During his tenure, Mr Chisholm declined to receive fees
for his Board duties to Telstra.
(d) Mr Mansfield and Mr Owens resigned from the Board
during fiscal 2004.
Details of the components of our directors remuneration
The information below relates to the remuneration for
our non-executive directors. The remuneration of our CEO
and managing director is determined in a manner that is
consistent with that of our specified executives, which
is described in note 26.
Salary and fees
Telstra directors are remunerated in accordance with our
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 setting the pool limit, the Board takes into account
the Companys existing remuneration policies, independent
professional advice, the value of fee pools of other
comparable companies, the fees paid to individual
directors of other companies, and the level of
remuneration necessary to attract and retain directors of
a suitable calibre. The fees paid to directors are set at
levels which reflect both the responsibilities of, and
the time commitments required, from each director to
discharge their duties.
347
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
25. Directors remuneration salaries and other benefits (continued)
Salary and fees (continued)
In order to maintain their independence and
impartiality, the quantum of the remuneration of the
non-executive directors is not linked to the short term
performance of the Company. However, the directors are
required to take at least 20% of their fees in
restricted Telstra shares (or directshares) which are
purchased on market and included in equity compensation
- directshare in the remuneration table. This is
consistent with the Boards focus on the long term
strategic direction of the Company.
Non monetary benefits
We provide directors 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 directors without charge to allow
directors to familiarise themselves with them and recent
technological developments. To the extent it is
considered that this provides a personal benefit to a
director, it is included in primary benefits in the
remuneration table.
Superannuation
Directors receive mandatory superannuation contributions
as part of their annual remuneration. Directors may state
a preference to increase the proportion of their fees
taken as superannuation. Where this occurs, we may
provide a greater percentage of the directors fees as
superannuation contributions, subject to normal
legislative requirements.
Retirement
benefits
We do not provide other post employment benefits to
directors appointed to the Board after 30 June 2002. The
directors appointed prior to this date are eligible to
receive post employment benefits in the form of
retirement benefits upon leaving office as a director.
Directors who have served 9 years or more are entitled to
receive a maximum amount equal to their total
remuneration in the preceding 3 years. Directors who have
served less than 9 years, but more than 2 years, are
entitled to receive a pro-rated amount based on the
number of months served as a director. We disclose the
increment earned for the current year of service in post
employment other.
Directshare
Non-executive directors are required to sacrifice a
minimum of 20% of their fees toward the acquisition of
restricted Telstra shares by way of a scheme known as
directshare. Further details regarding the allocation of
shares under directshare are included in note 19.
Other equity compensation
The items included in other equity compensation in the
remuneration table relate to Dr Switkowski, the managing
director and chief executive officer (CEO) of the Company
until 1 July 2005, who is remunerated in a manner
consistent with our specified executives. Please refer to
note 26 for explanations regarding the components of the
former CEOs and other specified executives
remuneration.
Individual contracts for services
There are no individual contracts for service with our
non-executive directors other than as described above
in relation to post employment benefits.
The new CEOs remuneration
Mr Solomon D Trujillo has been appointed CEO and
executive director with a commencement date of 1 July
2005. Mr Trujillo will receive fixed remuneration in the
amount of $3,000,000 comprising salary, superannuation
and other primary benefits. In addition, a short term
incentive will be available of up to the value of his
fixed remuneration ($3,000,000), and a long term
incentive of up to one and a third times his fixed
remuneration ($4,000,000). His short term and long term
incentives will be subject to the same conditions as our
specified executives, refer to note 26 for details.
Mr Trujillo will receive a once-off sign-on bonus of
$1,000,000 and a sign-on incentive in the amount of 50%
of his maximum potential benefit under the short term
incentive plan ($1,500,000). The amount of the sign-on
incentive will be deducted from his potential short term
incentive for the first year of employment.
If the board terminates Mr Trujillos employment for
reasons other than misconduct, Mr Trujillo will be
entitled to:
|
|
twenty four months fixed remuneration if the termination occurs within the first twelve months of
employment; or |
|
|
|
twelve months fixed remuneration if the termination occurs after the first twelve months of
employment; |
|
|
|
a pro rated value of participation in the short term and long term incentive plans, regardless of
when the termination occurs; and |
|
|
|
reimbursement of any taxation penalties that may occur in the event of an early return to the
United States. |
348
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Executives remuneration salaries and other benefits
The specified executives for the Telstra Group for
the year ended 30 June 2005 were:
|
|
|
Name |
|
Position |
Bruce Akhurst
|
|
Chief Executive Officer of Sensis appointed 1 January 2005; previously Group General Counsel and Group |
|
|
Managing Director, Telstra Wholesale, Telstra Broadband and Media until 31 December 2004 |
Douglas Campbell
|
|
Group Managing Director, Telstra Country Wide |
David Moffatt
|
|
Group Managing Director, Telstra Consumer and Marketing |
Ted Pretty
|
|
Group Managing Director, Telstra Technology, Innovation and Products |
Michael Rocca
|
|
Group Managing Director, Infrastructure Services |
Bill Scales
|
|
Group Managing Director,
Regulatory, Corporate and Human Relations, retirement announced
effective 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 Business and Government |
Specified executives remuneration for the years ended
30 June 2005 and 30 June 2004 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary benefits |
|
|
|
|
|
|
employment |
|
|
Equity compensation |
|
|
Total |
|
|
|
|
|
|
|
Short term |
|
|
Non- |
|
|
|
|
|
|
Superan- |
|
|
Deferred |
|
|
Long term |
|
|
|
|
|
|
Salary & fees |
|
|
incentive |
|
|
monetary |
|
|
Other |
|
|
nuation |
|
|
shares |
|
|
incentive |
|
|
|
|
Year ended 30 June 2005 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
B Akhurst |
|
|
927,664 |
|
|
|
523,600 |
|
|
|
11,893 |
|
|
|
|
|
|
|
177,086 |
|
|
|
196,141 |
|
|
|
732,594 |
|
|
|
2,568,978 |
|
D Campbell |
|
|
941,394 |
|
|
|
310,600 |
|
|
|
10,149 |
|
|
|
|
|
|
|
88,356 |
|
|
|
196,141 |
|
|
|
732,354 |
|
|
|
2,278,994 |
|
D Moffatt |
|
|
1,133,165 |
|
|
|
248,300 |
|
|
|
18,781 |
|
|
|
400,000 |
|
|
|
11,585 |
|
|
|
220,968 |
|
|
|
801,183 |
|
|
|
2,833,982 |
|
T Pretty |
|
|
1,120,581 |
|
|
|
540,500 |
|
|
|
22,370 |
|
|
|
260,000 |
|
|
|
24,169 |
|
|
|
224,936 |
|
|
|
789,217 |
|
|
|
2,981,773 |
|
M Rocca |
|
|
735,791 |
|
|
|
416,600 |
|
|
|
9,817 |
|
|
|
|
|
|
|
140,459 |
|
|
|
145,754 |
|
|
|
401,479 |
|
|
|
1,849,900 |
|
B Scales |
|
|
681,167 |
|
|
|
428,700 |
|
|
|
9,635 |
|
|
|
|
|
|
|
117,583 |
|
|
|
121,946 |
|
|
|
326,788 |
|
|
|
1,685,819 |
|
D Shiff (a) |
|
|
277,321 |
|
|
|
295,150 |
|
|
|
1,326 |
|
|
|
|
|
|
|
47,680 |
|
|
|
30,641 |
|
|
|
102,562 |
|
|
|
754,680 |
|
J Stanhope |
|
|
800,685 |
|
|
|
240,150 |
|
|
|
11,398 |
|
|
|
|
|
|
|
99,065 |
|
|
|
105,628 |
|
|
|
365,338 |
|
|
|
1,622,264 |
|
D Thodey |
|
|
966,890 |
|
|
|
206,200 |
|
|
|
8,375 |
|
|
|
|
|
|
|
52,360 |
|
|
|
176,235 |
|
|
|
560,447 |
|
|
|
1,970,507 |
|
|
|
|
|
|
|
7,584,658 |
|
|
|
3,209,800 |
|
|
|
103,744 |
|
|
|
660,000 |
|
|
|
758,343 |
|
|
|
1,418,390 |
|
|
|
4,811,962 |
|
|
|
18,546,897 |
|
|
|
|
Year ended 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Akhurst |
|
|
757,632 |
|
|
|
299,700 |
|
|
|
12,380 |
|
|
|
|
|
|
|
129,368 |
|
|
|
178,454 |
|
|
|
640,027 |
|
|
|
2,017,561 |
|
D Campbell |
|
|
801,559 |
|
|
|
263,800 |
|
|
|
9,257 |
|
|
|
|
|
|
|
85,441 |
|
|
|
178,454 |
|
|
|
663,649 |
|
|
|
2,002,160 |
|
D Moffatt |
|
|
980,248 |
|
|
|
267,600 |
|
|
|
18,311 |
|
|
|
400,000 |
|
|
|
11,002 |
|
|
|
201,290 |
|
|
|
659,572 |
|
|
|
2,538,023 |
|
T Pretty |
|
|
963,700 |
|
|
|
247,600 |
|
|
|
22,453 |
|
|
|
240,000 |
|
|
|
36,300 |
|
|
|
205,258 |
|
|
|
692,897 |
|
|
|
2,408,208 |
|
M Rocca |
|
|
603,770 |
|
|
|
270,800 |
|
|
|
4,847 |
|
|
|
|
|
|
|
71,230 |
|
|
|
131,998 |
|
|
|
311,457 |
|
|
|
1,394,102 |
|
B Scales |
|
|
479,907 |
|
|
|
234,200 |
|
|
|
1,969 |
|
|
|
|
|
|
|
91,968 |
|
|
|
110,129 |
|
|
|
226,002 |
|
|
|
1,144,175 |
|
J Stanhope (b) |
|
|
546,820 |
|
|
|
250,000 |
|
|
|
2,733 |
|
|
|
|
|
|
|
56,120 |
|
|
|
92,854 |
|
|
|
275,829 |
|
|
|
1,224,356 |
|
D Thodey |
|
|
738,731 |
|
|
|
327,600 |
|
|
|
3,249 |
|
|
|
|
|
|
|
67,020 |
|
|
|
160,049 |
|
|
|
433,249 |
|
|
|
1,729,898 |
|
|
|
|
|
|
|
5,872,367 |
|
|
|
2,161,300 |
|
|
|
75,199 |
|
|
|
640,000 |
|
|
|
548,449 |
|
|
|
1,258,486 |
|
|
|
3,902,682 |
|
|
|
14,458,483 |
|
|
|
|
349
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Executives remuneration salaries and other benefits (continued)
(a) Appointed to the position of Group Managing
Director, Telstra Wholesale on 1 January 2005, Ms Shiff
was not considered to be a specified executive prior to
that date. As a result, the disclosed remuneration
includes only remuneration from the date of appointment
and no comparative information is disclosed in relation
to fiscal 2004.
(b) Appointed Chief Financial Officer and Group Managing
Director, Finance and Administration on 1 October 2003,
Mr Stanhope was not considered to be a specified
executive prior to that date. As a result, the disclosed
remuneration includes only remuneration from that date in
our fiscal 2004 disclosures.
Details of the components of our executives remuneration
Total remuneration
The Telstra Entity has a Remuneration Committee, which is
a committee of Board members responsible for reviewing
and recommending to the Board the remuneration
arrangements for the chief executive officer (CEO) and
certain senior executives, which includes the specified
executives above. The committee compares both the
structure of the remuneration package and the overall
quantum on a periodic basis by comparison to other major
corporations in Australia. It also has regard to a range
of macro economic indicators used to determine the likely
movements in broad salary rates. Where appropriate, the
committee seeks advice from an independent specialised
remuneration consultant to ensure that payments are in
line with general market practice and are competitively
placed to attract and retain the necessary talent for the
critical work required by these roles.
The committee has adopted a set of principles used to
guide decisions related to the remuneration of the CEO
and specified executives which are designed to link the
level of remuneration with the financial and operational
performance of the Company. The arrangements must:
|
|
reflect the size and scope of the role and be market competitive in order to attract and retain
talent; |
|
|
|
be linked to the financial and operational performance of the Company; |
|
|
|
be aligned with the achievement of the Companys long-term business objectives; and |
|
|
|
be differentiated based on individual performance. |
Prior to fiscal 2005, Telstra provided part of the senior
executives and CEOs remuneration in the form of rights
to shares that would vest upon the completion of certain
employment conditions. These were known as deferred
shares. The deferred share program was discontinued in
fiscal 2005 and the portion of remuneration was
reallocated between salary and short term incentive.
Salary and fees
The level of salary and fees is assessed, together with
superannuation, in accordance with the above principles.
This component of remuneration is guaranteed and is
generally reviewed annually as part of the Company wide
remuneration review.
Short term incentive
The short term incentive (STI) rewards the CEO and
specified 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 measures include financial, customer service and
retention, employee opinion and individual measures that
support our key business objectives. The key company
financial measures are linked to earnings and revenue
growth and, in the case of the CEO, underlying EBITDA
margin. There are also financial measures specific to
business unit performance. Before any incentive is
payable, a threshold level of performance against each of
these measures must be reached. The plan also provides
that payments are capped at a specified level.
In fiscal 2004, the STI was delivered in cash. In fiscal
2005, half of the STI will be delivered in cash and the
other half delivered as rights to Telstra shares, called
incentive shares. The incentive shares will vest
equally over a period of 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 will vest in August
2006. Incentive shares will be administered through the
Telstra Growthshare Trust. Refer to note 19 for further
details. This applies to all specified executives except
for Mr Scales and Dr Switkowski. They will receive their
STI in cash as they will cease employment with the
Company prior to the allocation of the equity component.
The cash portion of the fiscal 2005 STI is included in
primary benefits and the incentive shares component will
be included in equity compensation each year as the
incentive shares vest.
Non monetary benefits
Executives 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 without charge to allow executives to
familiarise themselves with them and other recent
technological developments. To the extent we consider
that this provides a personal benefit to the executive,
it is included in Primary benefits in the remuneration
table above.
350
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
26. Executives remuneration salaries and other benefits (continued)
Other primary benefits
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.
Superannuation
Executives receive mandatory superannuation
contributions as part of their annual remuneration.
Executives may state a preference to increase the
proportion of their salary taken as superannuation,
subject to normal legislative requirements.
Equity compensation
On an annual basis, we invite selected senior executives
who contribute significantly to sustained improvement in
shareholder value to participate in an equity based long
term incentive (LTI) plan, as administered through the
Telstra Growthshare Trust. 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.
For further details of the LTI plan and equity based
deferred remuneration plan, including detailed
explanations of performance hurdles and allocations,
refer to note 19.
To value our equity based compensation we use an option
pricing model that takes into account various factors
including the exercise price and expected life of the
instrument, the current life of the underlying share and
its expected volatility, expected dividends, the
risk-free interest rate for the expected life of the
instrument and the expected average volatility of
Telstras peer group companies to derive a value. Details
of the valuations derived since the commencement of the
Telstra Growthshare Trust and the assumptions used in
deriving those values for fiscal 2005 are detailed in
note 19.
Our deferred share program was discontinued in fiscal
2005 and the portion of remuneration was reallocated
between salary and STI. 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 remuneration 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.
Individual contracts for services
Where Telstra terminates a senior executives employment
prior to the expiration of their employment contract for
reasons other than for misconduct, they are entitled to 6
months notice or payment in lieu of notice and an amount
equal to 12 months pay. Both elements are calculated on
fixed remuneration at the time of termination. The
specified executives are employed under contracts without
a fixed duration. During fiscal 2005 it was announced
that the CEO, Zygmunt E Switkowski would cease employment
1 July 2005. Refer to note 25 for details of his
termination payment.
351
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures
Ultimate controlling entity
The Commonwealth is the ultimate parent and controlling
entity of the Telstra Group. Telstra Corporation Limited
is the parent entity in the group comprising the Telstra
Entity and its controlled entities.
We supply telecommunications services to, and acquire
other services from, the Commonwealth, 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
reports do not disclose transactions relating to the
purchase and sale of goods and services from or to the
Commonwealth, its Departments of State, trading and other
agencies.
Directors of the Telstra Entity and specified executives
of the Telstra Group
Refer to note 25 for details of the names of each person
who held office as a director of the Telstra Entity
during fiscal 2005 and refer to note 26 for details of
the specified executives for the Telstra Group. Refer
also to these notes for details of directors and
specified executives remuneration, superannuation and
retirement payments.
Loans to directors and specified executives of the Telstra Entity
No non-executive director of the Telstra Entity had a
loan with the Telstra Entity or any of its controlled
entities at any time during fiscal 2005 or fiscal 2004.
In previous years, Telstra provided loans to senior
executives, including the chief executive officer, as it
did for all employees, as part of their participation in
the Telstra Employee Share Ownership Plans (TESOP97 and
TESOP99). Further details of the share plans and the
terms under which these loans were provided are
contained in note 19. The loans were provided interest
free and on the same terms as all other eligible
employees who participated in TESOP97 and TESOP99. There
were five specified executives who held loans during the
year. Details of the balance of the loans provided to
specified executives are as follows:
|
|
|
|
|
|
|
Loan |
|
|
|
amount |
|
|
|
$ |
|
|
Balance as at 1 July 2004 |
|
|
30,388 |
|
Amounts repaid during the year |
|
|
(3,423 |
) |
|
|
|
|
Balance as at 30 June 2005 |
|
|
26,965 |
|
|
|
|
|
The balance as at 1 July 2004 represents the highest
amount of indebtedness of specified executives
during the year.
If the loans had not been provided free of interest, the
interest charged on an arms length basis would have been
$2,313 for the year ended 30 June 2005.
There were no new loans provided during the fiscal year
and there were no loans with a balance greater than
$100,000 during the year.
Other transactions with directors and specified
executives of the Telstra Entity and their personally
related entities
Each of the directors of the Telstra Entity and
specified executives of the Telstra Group have
telecommunications services transactions with the
Telstra Group, which are not significant and are both
trivial and domestic in nature. The directors and
specified executives personally related entities also
have telecommunications services with us on normal
commercial terms and conditions.
Directors and specified executives 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
directors and specified executives 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
director or specified executive, it is included in their
remuneration. Details are included in note 25 and note
26.
352
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures (continued)
Directors interests in shares of the Telstra Entity
As at 30 June 2005 and 30 June 2004, the directors and
their personally related entities held share capital of
the Telstra Entity directly, indirectly or beneficially
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares acquired or |
|
|
as at 30 June 2005 |
|
|
|
|
|
|
Total shares held |
|
|
Directshare |
|
|
disposed of by |
|
|
or at date of |
|
|
Shares that are |
|
|
|
as at 30 June 2004 |
|
|
allocation |
|
|
other means |
|
|
leaving office |
|
|
held nominally |
|
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
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 |
|
Sam H Chisholm (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
(i) As fees were declined by the director, no
directshares were allocated during fiscal 2005.
Specified executives interests in shares of the Telstra Entity
As at 30 June 2005 and 30 June 2004, the specified
executives and their personally related entities had
interests in the share capital of the Telstra Entity as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares |
|
|
|
|
|
|
|
|
|
|
Shares acquired |
|
|
Total shares |
|
|
|
|
|
|
held as at |
|
|
Ownshare |
|
|
Exercise of |
|
|
or disposed of by |
|
|
held as at |
|
|
Shares that are |
|
|
|
30 June 2004 |
|
|
allocation |
|
|
options |
|
|
other means |
|
|
30 June 2005 |
|
|
held nominally |
|
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
No. of shares |
|
|
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 |
|
|
|
|
Total shareholdings include shares held by the directors,
specified executives and their personally related
entities. Unless related to TESOP99, TESOP97 or Telstra
Growthshare, shares acquired or disposed by directors
during the year were on an arms length basis at market
price.
353
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures (continued)
Controlled entities disclosures
Amounts receivable from and payable to entities in the
wholly owned group and other controlled entities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
Telstra Entity |
|
|
|
|
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
Note |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
Total amounts receivable at 30 June from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly owned controlled entities |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
2,194 |
|
|
|
1,265 |
|
Provision for amounts owed by wholly owned controlled entities (i) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
(1,469 |
) |
|
|
(994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725 |
|
|
|
271 |
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non wholly owned controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
Wholly owned controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
362 |
|
Provision for amounts owed by wholly owned controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
781 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
Total amounts payable at 30 June to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly owned controlled entities payables |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
Wholly owned controlled entities loans |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
2,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,405 |
|
|
|
2,287 |
|
|
|
|
|
|
|
|
|
|
Transactions with our controlled entities
(i) Included in the profit before income tax expense of
the Telstra Entity was a charge of $475 million (2004:
$709 million) in relation to the provision for amounts
owed by a controlled entity. This balance is eliminated
on consolidation for Telstra Group reporting purposes
(refer note 3 for further information).
(ii) In fiscal 2005, a number of significant
purchase and sale transactions occurred between the
Telstra Entity and its wholly owned controlled
entities as follows:
|
|
The Telstra Entity sold services, purchased goods
and communications assets, paid fees and received
and paid interest to entities in the wholly owned
group during the year. These transactions are in the
normal course of business and are on normal
commercial terms and conditions. |
|
|
Prior to fiscal 2005, our controlled entity,
Network Design and Construction Limited (NDC),
constructed communication assets on our behalf. During fiscal 2004, we paid for
the purchase and maintenance of communication assets
from NDC amounting to $79 million (2003: $737 million).
During that year, the operations of NDC were purchased
by the Telstra Entity and incorporated back into the
business of Telstra Corporation Limited. As a result,
no trading occurred between the Telstra Entity and NDC
during fiscal 2005. Refer to the accompanying notes to
our statement of cashflows for details of the balances
acquired by the Telstra Entity. |
|
|
Included in the revenue of the Telstra Entity is
$628 million (2004: $599 million) in royalty fees
received from a controlled entity for the use of
our Yellow Pages ® and White Pages ® trademarks.
Included in our revenue received in advance balance
at 30 June 2005 is $240 million (2004: $247
million) for the use of our Yellow Pages ®
trademark and $104 million (2004:$92 million) for
the use of our White Pages ® trademark. |
354
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures (continued)
Other related entity disclosures
Amounts receivable and payable to other related entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
Telstra Entity |
|
|
|
|
|
|
As at 30 June |
|
As at 30 June |
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
Note |
|
$m |
|
$m |
|
$m |
|
$m |
|
|
|
|
|
Total amounts receivable at 30 June from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities and associated entities trade debtors |
|
|
|
|
|
|
16 |
|
|
|
25 |
|
|
|
12 |
|
|
|
16 |
|
Joint venture entities and associated entities loans |
|
|
9 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
25 |
|
|
|
12 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities and associated entities loans |
|
|
9 |
|
|
|
232 |
|
|
|
226 |
|
|
|
226 |
|
|
|
226 |
|
Provision for amounts owed by joint venture entities and
associated entities |
|
|
9 |
|
|
|
(232 |
) |
|
|
(226 |
) |
|
|
(226 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
rakesh |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts payable at 30 June to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities and associated entities accounts payable |
|
|
|
|
|
|
21 |
|
|
|
46 |
|
|
|
13 |
|
|
|
38 |
|
Joint venture entities and associated entities other |
|
|
16 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
47 |
|
|
|
13 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2005, 2004 and 2003, we had the following
transactions between members of the wholly owned group and other related
entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
Telstra Entity |
|
|
Year ended 30 June |
|
|
|
|
|
Year ended 30 June |
|
|
2005 |
|
2004 |
|
2003 |
| |
2005 |
|
2004 |
|
|
$m |
|
$m |
|
|
$m |
|
$m |
|
$m |
|
|
|
|
|
Transactions between other related entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax expense for the year includes
the following transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods and services to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities and associated entities |
|
|
165 |
|
|
|
130 |
|
|
|
232 |
|
|
|
97 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of goods and services from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture entities and associated entities |
|
|
533 |
|
|
|
528 |
|
|
|
1,113 |
|
|
|
277 |
|
|
|
334 |
|
355
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures (continued)
Other related entity disclosures (continued)
The Telstra Entity sold services, purchased goods and communications assets, paid fees and received
and paid interest to our other related entities during the year. These transactions are in the
normal course of business and are on normal commercial terms and conditions unless otherwise noted.
During fiscal 2005, purchases of pay television services were made by the Telstra Group of $218
million (2004:$134 million; 2003:$25 million) from our joint venture entity FOXTEL The purchases
were to enable the resale of FOXTEL services to our existing customers. The purchases of pay
television content are made to facilitate the Telstra Groups ongoing product bundling initiatives.
These purchases were made on normal commercial terms and conditions.
During
fiscal 2005, we established a joint venture partnership with Hutchison 3G Australia Pty Ltd
(H3GA) to jointly own and operate H3GAs existing third generation radio access network and fund
network development. In establishing the joint venture (known as the 3GIS Partnership), we have
agreed to supply the use of our spectrum licences, operating and maintenance services, transmission
capacity services and construction services. All the services we provide will be on normal
commercial terms and conditions. In fiscal 2005 we have received an insignificant amount for the
above transactions.
As at 30 June 2005, we had provided the use of our third generation property, plant and equipment
to the partnership. We will receive a fee for the usage of these assets from the joint venture. As
at balance date, the amount received was insignificant.
In fiscal 2003, we entered a capacity prepayment agreement with our joint venture entity Reach Ltd
(Reach). On 16 April 2005, the capacity prepayment agreement was terminated and we entered into an
indefeasible right of use (IRU) pursuant to which we and our co-shareholder, PCCW Limited, were
allocated Reachs international cable capacity (refer to note 9 for details). The IRU amounted to
$205 million as at 30 June 2005 and is included in deferred expenditure, refer to note 14 for
details.
As part of the arrangement, we have committed to fund half of Reachs committed capital expenditure
for the period until 2022, up to a value of US$106 million. Since 16 April 2005, Reach has drawn
down $14 million from us to fund its capital expenditure commitments.
During fiscal 2005, purchases were made by the Telstra Group of $226 million (2004: $231 million;
2003: $506 million) and Telstra Entity of $192 million (2004: $177 million; 2003: $471 million)
from Reach. These amounts were for both the purchase of, and entitlement to, capacity and
connectivity services. These purchases were made in line with market prices. Sales were made for
international inbound call termination services, construction and consultancy by the Telstra Group
of $71 million (2004: $89 million; 2003: $109 million) and Telstra Entity of $62 million (2004: $79
million; 2003: $105 million) to Reach.
Prior to fiscal 2005, we purchased information technology services from our associated entity
IBMGSA. During fiscal 2004, the purchases for Telstra Group amounted $73 million (2003: $413
million) and Telstra Entity $71 million (2003: $403 million). These amounts were for information
technology services predominately resulting from a contract with IBMGSA. During that year, we sold
our investment in IBMGSA and as a result, we have no related party transactions with IBMGSA in
fiscal 2005. These purchases were made on normal commercial terms and conditions (refer note 3 for
further information).
During fiscal 2005, we paid for operating expenses on behalf of the following entities:
|
|
Telstra Foundation Limited; |
|
|
|
Telstra Community Development Trust; |
|
|
|
Telstra Growthshare Trust; |
|
|
|
Telstra Employee Share Ownership Plan I (TESOP97); and |
|
|
|
Telstra Employee Share Ownership Plan II (TESOP99). |
We own 100% of the share capital of Telstra Foundation Limited (TFL). TFL is limited by guarantee
(guaranteed to $100) with Telstra Corporation Limited being the sole member (refer note 24 for
further details). In respect of the other entities we have no direct ownership interests. These
entities are operated by corporate trustees (of which we own 100%) and are run for the benefit of
the beneficiaries. The expenses paid on behalf of these entities was not significant.
Loan to the Telstra Growthshare Trust
During fiscal 2000, Telstra created the Telstra Growthshare Trust, (which facilitates the senior
executive equity participation plan). The trustee for the trust is Telstra Growthshare Pty Ltd.
This company is 100% owned by us. In prior financial years, we have advanced funds to the trust to
enable it to purchase shares in the Telstra Entity.
The loan balance at 30 June 2005 of $45 million (2003: $65 million) was used to acquire Telstra
Entity shares over which certain senior executives
were granted options. The interest rate applicable to the loan balance at fiscal 2005 is 4.0%
(2004:4.0%). Telstra Growthshare also holds in trust certain shares allocated to senior executives
and non-executive directors under the ownshare and directshare schemes (refer note 19 for further
information).
356
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
27. Related party, directors and specified executives disclosures (continued)
Other related entity disclosures (continued)
Leans to employees
We have
two employee shares schemes, being TESOP97 and TESOP99. At the commencement of the scheme,
loans were advanced to participating employees to enable the purchase of Telstra shares. Loans
under TESOP97 and TESOP99 are provided interest free. During fiscal 2005, $19 million (2004: $24
million) of the loans under TESOP97 and TESOP99 was repaid. At 30 June 2005, the outstanding loan
balance for both schemes was $155 million (2004: $174 million). Refer to note 19 for further
information.
Directors of controlled entities
Each of our controlled entity directors and their director related entities have telecommunications
services transactions with us, which are on normal commercial terms and conditions and are trivial
and domestic in nature.
Loans to directors of controlled entities
Certain employees of the Telstra Group who were eligible to participate in TESOP99 and TESOP97
(refer note 19) were also directors of controlled entities. The directors of the controlled
entities were provided with an interest free loan to enable the purchase of shares from the
Commonwealth on the same terms and conditions as all other employees eligible to participate in
TESOP99 and TESOP97. During fiscal 2005, certain employees became directors of controlled entities
in the Telstra Group. These directors brought with them existing loans of $35,722.
There were no new loans issued during fiscal 2005. Loan repayments of $21,425 (2004: $15,709) were
made during the current fiscal year. For TESOP99 shares, directors that have resigned from the
Company, continue to be the beneficial owner of the shares. The balance of the director loans
outstanding at 30 June 2005 was $157,186 (2004: $185,277). All controlled entity directors as at
year end listed below made loan repayments during fiscal 2005:
R Baxter
H Bradlow
J Burke
A Cherubin
T Crossley
C Davis
A Day
A Dix
W Donaldson
L Etienne
R Howard
P Jamieson
H Kelly
D Kirton
M Lawrey
A Lockwood
P McConnell
C Nanavati
G Nicholson
J Paitaridis
N Peckham
P Pickering
B Pilbeam
D Pitt
J Price
M Robey
C Rowles
L Saly
L Sorbello
W Treeby
M Walker
P Wallis
K Wijeyewardene
L Wood
There was 1 director (2004:nil) who repaid their TESOP97 loan in full during the year, Andrew Day.
There were no directors (2004: nil) who repaid their TESOP99 loans in full.
Telstra shares owned by the Telstra Superannuation Scheme (Telstra Super)
Telstra Super owns shares in Telstra Corporation Limited. We own 100% of the equity of Telstra
Super Pty Ltd, the trustee for Telstra Super. As at 30 June 2005, Telstra Super owned 13,280,885
(2004: 15,176,724) shares at a cost of $67 million (2004: $71 million) and a market value of $67
million (2004: $76 million). In fiscal 2005, we paid dividends to Telstra Super of $5 million
(2004: $2 million).
In addition, Telstra Super holds bonds issued by Telstra Corporation Limited. As at 30 June 2005,
Telstra Super holds bonds with a cost of $13 million (2004: $13 million) and a market value of $12
million (2004: $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.
357
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
28. Events after balance
We are not aware of any matter or circumstance that has occurred since 30 June 2005 that, in
our opinion, has significantly affected or may significantly affect in future years:
|
|
our operations; |
|
|
|
the results of those operations; or |
|
|
|
the state of our affairs; |
other than:
Dividend declaration
On 11 August 2005, we declared a fully franked final dividend of 14 cents per ordinary share and a
fully franked special dividend of 6 cents per ordinary share. The record date for the final and
special dividends will be 30 September 2005 with payment being made on 31 October 2005. Shares will
trade excluding the entitlement to the dividends on 26 September 2005.
A provision for dividend payable has been raised as at the date of declaration, amounting to $2,489
million. The financial effect of the dividend declaration was not brought to account as at 30 June
2005.
On 11 August 2005, we also disclosed the intention to pay a fully franked special dividend of 6
cents per ordinary share with the interim dividend in respect of fiscal 2006. The proposed special
dividend is part of the execution of our capital management program, whereby it is our intention to
return approximately $1,500 million to shareholders each year through to fiscal 2007. The financial
effect of the special dividend will be reflected in the fiscal 2006 financial statements.
Business acquisition
On 28 June, we announced the acquisition of 100% of the issued share capital of Keycorp Solutions
Limited for a cash consideration of $55 million plus transaction costs. This acquisition is subject
to approval by the shareholders of Keycorp Solutions Limiteds parent company, Keycorp Limited, and
if approved, will be effective from 1 July 2005.
In conjunction with and conditional upon our purchase of Keycorp Solutions Limited, Keycorp Limited
announced, subject to shareholder approval, it would use the proceeds from the sale to enable a
pro-rata return of capital to shareholders of 41 cents per share. As a shareholder of Keycorp
Limited, we are expecting to receive approximately $16 million in returned capital.
Keycorp Solutions Limited is a subsidiary of Keycorp Limited, an associated entity of ours, in
which we hold 47.8% of the issued share capital. Keycorp Solutions Limited has previously partnered
with us to provide payment transaction network carriage services to customers. In acquiring this
entity, we will now provide the services in our own right.
Neither the acquisition nor the return of capital have been recognised in our financial statements
as at 30 June 2005.
Appointment of CEO
We have appointed Sol Trujillo as our new Chief Executive Officer (CEO), effective 1 July 2005. The
new CEO is undertaking an operational and strategic review to be completed within 3 to 4 months of
his appointment.
358
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures
We undertake transactions in a range of financial instruments which can be classified as
either primary (physical instruments) or secondary instruments (derivative instruments).
Our primary instruments include:
|
|
cash assets; |
|
|
|
receivables; |
|
|
|
payables; |
|
|
|
bank deposits; |
|
|
|
bills of exchange and commercial paper; |
|
|
|
listed investments and investments in other corporations; and |
|
|
|
various forms of borrowings, both receivable and payable. |
These primary financial instruments enable us to achieve company objectives through facilitating
our ongoing operating activities and ensuring that all entities within the Telstra Group remain
solvent at all times.
Secondary instruments, or derivative instruments, create an obligation or right that effectively
transfers one or more of the risks associated with an underlying primary financial instrument. We
use derivatives to manage our exposure within levels considered acceptable to the group as
determined by guidelines and policies approved by our Board. Instruments that we use to achieve
this include:
|
|
forward foreign currency contracts; |
|
|
|
cross currency swaps; and |
|
|
|
interest rate swaps. |
Primary instruments create underlying exposures for the group. The main risks associated with these instruments include:
|
|
interest rate risk; |
|
|
|
foreign currency risk; |
|
|
|
credit risk; and |
|
|
|
liquidity risk. |
Interest rate risk refers to the risk that the value of a financial instrument will fluctuate due
to changes in market interest rates. Our interest rate risk arises from the interest bearing
financial assets and liabilities that we use, whether the primary instrument has a fixed or
variable rate attached. We monitor this risk on our net debt portfolio which includes our financial
liabilities less matching short term financial assets. We manage interest rate risk by:
|
|
controlling the settings of the group financial position to target
levels affixed and variable interest proportions of the net debt
portfolio; and |
|
|
|
ensuring access to diverse sources of funding, minimising risks of
refinancing. |
We use suitable derivative instruments as part of the management of this risk.
Foreign currency risk refers to the risk that the value of a financial commitment or investment
will fluctuate due to changes in foreign currency exchange rates. Our foreign currency risk
arises due to:
|
|
firm or anticipated transactions for receipts and payments for
international telecommunications traffic settled in foreign
currencies; |
|
|
|
purchase commitments priced in foreign currencies; |
|
|
|
investments denominated in foreign currencies; and |
|
|
|
a portion of our borrowings denominated in foreign currencies. |
We manage this risk by initially seeking contracts effectively denominated in Australian dollars
where possible and economically favourable to do so. Where financial commitments are denominated in
foreign currencies and do not form part of a natural hedging position, we manage exposure to rate
movements through the use of derivative instruments.
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 statement of financial position. 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 minimise exposure to individual entities we either transact with
or enter into derivative contracts with (through a system of credit
limits). |
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; and |
|
|
|
generally use instruments that are tradeable in highly liquid
markets. |
359
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29.
Additional financial instruments disclosures (continued)
After we have minimised the initial potential risk associated with entering into a primary
financial instrument, any remaining risk is then hedged through the use of derivative instruments
within guidelines approved by our Board. These instruments enable us to minimise our exposure to:
|
|
interest rate risk; |
|
|
|
foreign currency risk; and/or |
|
|
|
other market risk. |
After hedging risk through derivatives, the remaining potential for gain or loss is managed. This
is due to the gains or losses on the underlying physical transactions being offset by the gains or
losses on the related derivative instrument. Hedging activities also enable us to minimise the
volatility of our cash flows due to changes in interest rates and foreign currency exchange rates.
We do not speculatively trade in derivative instruments. All our derivative transactions are
entered into to hedge the risks relating to underlying physical transactions.
To hedge our interest rate risk, we mainly use interest rate swaps and cross currency swaps. Our
interest rate risk is calculated on our net debt portfolio, which includes both physical borrowings
such as bonds and commercial paper and associated derivative instruments. We manage our net debt in
accordance with set targeted interest rate profiles and debt maturity profiles.
To hedge our foreign currency risk, we predominantly use cross currency swaps and forward
foreign currency contracts.
Our currency risk arising from translation of foreign currency borrowings and investments is
determined by reference to the underlying primary instrument. In relation to borrowings, we
effectively remove the currency risk by fully converting them to Australian dollar borrowings at
drawdown by applying cross currency swaps, unless a natural hedge position exists. In relation to
investments, we hedge using borrowings in the same currency and with the same interest rate
characteristics where appropriate. We also enter into forward foreign currency contracts on
anticipated future transactions in order to reduce our risk to a level considered acceptable by the
Company.
Foreign currency risk on transactions (i.e. excluding translation risks) is calculated on a net
foreign exchange basis for individual currencies. This underlying foreign exchange risk is combined
(offset) with the associated foreign exchange derivatives used to hedge these risks generating our
net foreign exchange risk.
Foreign currency risk also arises on translation of the financial reports of our non-Australian
controlled entities. Our significant non-Australian controlled entities operate independently from
us both financially and operationally. As a result, the majority of the foreign currency gains or
losses arising from this risk are recorded through the foreign currency translation reserve. Where
hedging of this risk is undertaken, we prefer to use foreign currency borrowings to provide a
natural hedge position. Where this is not an option, other derivative instruments are used (e.g.
forward foreign currency contracts).
We enter into, and hedge transactions in the following significant foreign currencies:
|
|
United States dollars; |
|
|
|
British pounds sterling; |
|
|
|
New Zealand dollars; |
|
|
|
Euro; |
|
|
|
Swiss francs; |
|
|
|
Hong Kong dollars; and |
|
|
|
Japanese yen. |
360
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures (continued)
Interest rate risk
Our exposure to interest rate risk and the
effective interest rates on financial
instruments at 30 June 2005 are shown in Table A
below. This information includes all financial
instruments both recognised and unrecognised in
the statement of financial position. The
information as at 30 June 2004 is shown in Table
B.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
As at 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
|
|
|
|
|
Non |
|
|
|
|
|
|
|
|
|
|
|
|
|
effective |
|
|
|
|
|
|
|
Fixed rate due dates |
|
|
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
interest rate |
|
|
Floating |
|
|
1 yr. or less 2 to 5 yrs. over 5 yrs. |
|
|
bearing |
|
|
Total (b) |
|
|
|
|
|
|
|
|
|
|
% |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Note |
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash assets |
|
|
(a |
) |
|
|
5.20 |
|
|
|
1,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217 |
|
|
|
1,540 |
|
|
|
8 |
|
Trade debtors and accrued revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,447 |
|
|
|
3,447 |
|
|
|
9 |
|
Share loan to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155 |
|
|
|
155 |
|
|
|
9 |
|
Other receivables |
|
|
(a |
) |
|
|
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
166 |
|
|
|
211 |
|
|
|
9 |
|
Loans to joint venture entities and
associated entities |
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
|
9 |
|
Cross currency swaps |
|
|
(a |
) |
|
|
|
|
|
|
(192 |
) |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
as at 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
1,131 |
|
|
|
196 |
|
|
|
|
|
|
|
45 |
|
|
|
4,017 |
|
|
|
5,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft |
|
|
(a |
) |
|
|
6.27 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
16 |
|
Trade creditors and accrued
expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,222 |
|
|
|
2,222 |
|
|
|
15 |
|
Other creditors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281 |
|
|
|
281 |
|
|
|
15 |
|
Deferred cash settlement for
acquisitions |
|
|
|
|
|
|
5.65 |
|
|
|
|
|
|
|
321 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
15 |
|
Bills of exchange and commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paper |
|
|
(a |
) |
|
|
5.24 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449 |
|
|
|
16 |
|
Telstra bonds |
|
|
(a |
) |
|
|
7.77 |
|
|
|
|
|
|
|
516 |
|
|
|
995 |
|
|
|
1,613 |
|
|
|
|
|
|
|
3,124 |
|
|
|
16 |
|
Other loans |
|
|
(a |
) |
|
|
5.19 |
|
|
|
188 |
|
|
|
481 |
|
|
|
2,453 |
|
|
|
5,698 |
|
|
|
|
|
|
|
8,820 |
|
|
|
16 |
|
Cross currency swaps |
|
|
(a |
) |
|
|
|
|
|
|
2,514 |
|
|
|
(327 |
) |
|
|
(1,390 |
) |
|
|
78 |
|
|
|
|
|
|
|
875 |
|
|
|
16 |
|
Finance lease liabilities |
|
|
(a |
) |
|
|
12.07 |
|
|
|
|
|
|
|
7 |
|
|
|
18 |
|
|
|
27 |
|
|
|
|
|
|
|
52 |
|
|
|
16 |
|
Interest rate swaps |
|
|
(a |
) |
|
|
|
|
|
|
(2,027 |
) |
|
|
(290 |
) |
|
|
122 |
|
|
|
2,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities as at
30 June 2005 |
|
|
|
|
|
|
|
|
|
|
1,138 |
|
|
|
708 |
|
|
|
2,305 |
|
|
|
9,611 |
|
|
|
2,503 |
|
|
|
16,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets/(liabilities)
as at 30 June 2005 |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(512 |
) |
|
|
(2,305 |
) |
|
|
(9,566 |
) |
|
|
1,514 |
|
|
|
(10,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The effective yield (effective interest
rate) on our net debt at 30
June 2005 was 7.22%, after taking into account
the impact of interest
rate swaps and cross currency swaps. |
|
(b) Carrying amount as per statement of financial position. |
361
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures (continued)
Interest rate risk (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
As at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
|
|
|
|
|
Non |
|
|
|
|
|
|
|
|
|
|
|
|
|
effective |
|
|
|
|
|
|
|
|
|
|
Fixed rate due dates |
|
|
|
|
|
|
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
interest rate |
|
|
Floating |
|
|
1 yr. or less 2 to 5 yrs. over 5 yrs. |
|
|
bearing |
|
|
Total (c) |
|
|
|
|
|
|
|
|
|
|
% |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Note |
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash assets |
|
|
(a |
) |
|
|
4.81 |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
687 |
|
|
|
8 |
|
Trade debtors and accrued revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,306 |
|
|
|
3,306 |
|
|
|
9 |
|
Share loan to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
174 |
|
|
|
9 |
|
Other receivables |
|
|
(a |
) |
|
|
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
189 |
|
|
|
254 |
|
|
|
9 |
|
Loans to joint ventures entities and
associated entities |
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Cross currency swaps |
|
|
(a |
) |
|
|
|
|
|
|
(1,789 |
) |
|
|
342 |
|
|
|
1,877 |
|
|
|
(24 |
) |
|
|
|
|
|
|
406 |
|
|
|
9 |
|
Investments |
|
|
(b |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
80 |
|
|
|
11 |
|
PCCW converting note |
|
|
(a |
) |
|
|
5.00 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets as at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
(1,251 |
) |
|
|
427 |
|
|
|
1,877 |
|
|
|
41 |
|
|
|
3,898 |
|
|
|
4,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade creditors and accrued expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,119 |
|
|
|
2,119 |
|
|
|
15 |
|
Other creditors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268 |
|
|
|
268 |
|
|
|
15 |
|
Loan from joint venture entity |
|
|
(a |
) |
|
|
4.70 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
16 |
|
Bills of exchange and commercial
paper |
|
|
(a |
) |
|
|
5.21 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
869 |
|
|
|
16 |
|
Telstra bonds |
|
|
(a |
) |
|
|
8.44 |
|
|
|
|
|
|
|
273 |
|
|
|
1,011 |
|
|
|
1,125 |
|
|
|
|
|
|
|
2,409 |
|
|
|
16 |
|
Other loans |
|
|
(a |
) |
|
|
5.90 |
|
|
|
|
|
|
|
2,096 |
|
|
|
2,482 |
|
|
|
3,976 |
|
|
|
|
|
|
|
8,554 |
|
|
|
16 |
|
Cross currency swaps |
|
|
(a |
) |
|
|
|
|
|
|
589 |
|
|
|
|
|
|
|
(151 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
410 |
|
|
|
16 |
|
Finance lease liabilities |
|
|
(a |
) |
|
|
6.47 |
|
|
|
|
|
|
|
7 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
17 |
|
|
|
16 |
|
Interest rate swaps |
|
|
(a |
) |
|
|
|
|
|
|
(1,039 |
) |
|
|
574 |
|
|
|
(1,045 |
) |
|
|
1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities as at
30 June 2004 |
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
2,951 |
|
|
|
2,306 |
|
|
|
6,584 |
|
|
|
2,387 |
|
|
|
14,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets/(liabilities) as at
30 June 2004 |
|
|
|
|
|
|
|
|
|
|
(1,670 |
) |
|
|
(2,524 |
) |
|
|
(429 |
) |
|
|
(6,543 |
) |
|
|
1,511 |
|
|
|
(9,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The effective yield (effective
interest rate) on our net debt at 30 June 2004
was 7.74%, after taking into account the impact
of interest rate swaps and cross currency swaps. |
|
(b) This excludes investments in joint venture
entities and associated entities. |
|
(c) Carrying amount as per statement of financial position. |
362
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29.
Additional financial instruments disclosures (continued)
Credit risk
Credit risk associated with the statement of financial position
The recorded amounts of financial assets included in the consolidated statement of financial
position, net of any applicable provisions for loss, represent our maximum exposure due to credit
risk for these assets. 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. Accordingly, our maximum credit risk exposure amounts to $5,389 million (2004: $4,992
million).
We do not have any other significant operating exposure to any individual contracting entity.
Overall credit risk
The major concentrations of credit risk for the group arise from our transactions in money
market instruments, forward foreign currency contracts, cross currency and interest rate swaps. One
of the methods that we use to manage the risk relating to these instruments is to monitor our
exposure by country of jurisdiction. 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 (which includes a time based volatility
allowance (VAR)) by country of jurisdiction is included in Table C below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table C |
|
|
|
Telstra Group |
|
|
|
|
|
Credit risk concentrations (VAR based) |
|
|
|
|
|
As at 30 June |
|
|
|
|
|
2005 |
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
% |
|
|
$m |
|
|
% |
|
|
$m |
|
|
|
|
Australia |
|
|
35 |
|
|
|
2,258 |
|
|
|
27 |
|
|
|
1,811 |
|
United States |
|
|
32 |
|
|
|
2,078 |
|
|
|
53 |
|
|
|
3,663 |
|
Japan |
|
|
1 |
|
|
|
64 |
|
|
|
|
|
|
|
17 |
|
Europe |
|
|
16 |
|
|
|
1,065 |
|
|
|
11 |
|
|
|
770 |
|
United Kingdom . |
|
|
4 |
|
|
|
278 |
|
|
|
4 |
|
|
|
257 |
|
Canada |
|
|
3 |
|
|
|
178 |
|
|
|
2 |
|
|
|
152 |
|
Switzerland |
|
|
7 |
|
|
|
441 |
|
|
|
2 |
|
|
|
134 |
|
Other |
|
|
2 |
|
|
|
126 |
|
|
|
1 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
100 |
|
|
|
6,488 |
|
|
|
100 |
|
|
|
6,867 |
|
|
|
|
|
|
In addition to the credit risk on our primary financial instruments, we also have exposure on
our derivative instruments. The values shown in Table D include all transactions where the net fair
value is favourable. For credit purposes, there is only a credit risk where the contracting entity
is liable to pay us in the event of a closeout. The amounts disclosed in Table D are different from
those shown in the net fair value amounts in Tables G and H as these show the net fair value after
netting favourable against unfavourable transactions. Table D only shows the favourable
transactions.
|
|
|
|
|
|
|
|
|
Table D |
|
Telstra Group |
|
|
|
Net fair value |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
Interest rate swaps |
|
|
560 |
|
|
|
348 |
|
Cross currency swaps |
|
|
50 |
|
|
|
526 |
|
Forward foreign currency contracts |
|
|
4 |
|
|
|
24 |
|
|
|
|
|
|
|
614 |
|
|
|
898 |
|
|
|
|
Net fair value of our financial assets and financial liabilities
Apart from those items referred to below, our financial assets and financial liabilities
recorded in the statement of financial position approximate net fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table E |
|
Telstra Group |
|
|
|
Carrying amount |
|
|
Net fair value |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
Not readily traded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee share
ownership plan loans (a) |
|
|
155 |
|
|
|
174 |
|
|
|
135 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Converting note issued
by PCCW |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traded on organised
markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed investments |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra bonds (b) |
|
|
3,176 |
|
|
|
2,457 |
|
|
|
3,361 |
|
|
|
2,621 |
|
Other loans (b) |
|
|
8,949 |
|
|
|
8,647 |
|
|
|
9,636 |
|
|
|
9,159 |
|
|
|
|
|
|
|
|
|
12,125 |
|
|
|
11,104 |
|
|
|
12,997 |
|
|
|
11,780 |
|
|
|
|
|
|
363
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures (continued)
Net fair value of our financial assets and financial liabilities (continued)
(a) Share loans to employees represent amounts receivable from
employees under the Telstra Employee Share Ownership Plan
(TESOP97) and the Telstra Employee Share Ownership Plan II
(TESOP99). Refer to note 19 for details regarding the share plans. The
loan balance has not been written down to net fair value as the loan
is considered fully recoverable over the period of the employee share
schemes. The net fair value is determined separately for TESOP97 and
TESOP99 as the lesser of the employee share loan balance and the
market value of the shares held for the purpose of facilitating the
operations of the relevant share plans by TESOP97 and TESOP99.
(b) The carrying amount represents the net principal which is recorded
in interest bearing liabilities and accrued interest which is recorded in
current payables.
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. This includes items such as
bank deposits, trade debtors, payables, bills of exchange and commercial paper.
The net fair values of other financial assets and financial liabilities (apart from our listed
investments) are determined through reference to discounted cash flows, current risk adjusted
market interest rates and any rights specific to each instrument or group of instruments. 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. Net fair values of interest rate swaps, cross
currency swaps and forward foreign currency contracts are calculated at prices based on amounts
quoted on Reuters to close out existing contracts (both favourable and unfavourable).
The net fair value of our derivative instruments is included in the following discussion on
derivatives.
Additional information about our derivative instruments
As indicated, we enter into contracts for derivative instruments to hedge risks relating to
underlying transactions. The following information provides further details on terms and conditions
relating to those derivative instruments. To appropriately assess our exposure to risk, these
secondary instruments should be viewed in the context of the underlying transactions and balances
being hedged. As a result, net market values and other data should not be assessed on their own.
Our major exposure to interest rate risk and foreign currency risk arises from our loans and
borrowings. It is our policy to hedge the interest rate exposure on our debt portfolio to adjust
the ratio of fixed interest debt to variable interest debt, as required by our debt management
policy.
We also hedge currency exposure on our foreign currency loans and borrowings remaining after
considering any natural hedging positions. We mainly use cross currency swaps, interest rate swaps,
and forward foreign currency contracts to achieve this position.
The terms and conditions in relation to interest rate and maturity of the cross currency swaps are
similar to the terms and conditions of the underlying hedged borrowings in note 16.
The due dates of interest rate swaps match the due dates of the underlying debt within the
requirements of our debt management policy. Net interest receipts and payments are recognised as an
adjustment to borrowing costs.
At 30 June
2005 and 30 June 2004, the Australian dollar interest rates applicable to our
derivatives varied as shown in Table F below.
|
|
|
|
|
|
|
|
|
Table F |
|
Telstra Group |
|
|
|
Interest rate variations |
|
|
|
As at 30 June |
|
Cross currency swaps |
|
2005 |
|
|
2004 |
|
|
|
from 6.25% to |
|
|
|
|
Fixed |
|
|
7.05 |
% |
|
|
7.05 |
% |
|
from 5.61% to |
from 5.45% to |
Variable |
|
|
7.12 |
% |
|
|
6.94 |
% |
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
from 5.34% to |
from 5.27% to |
Fixed |
|
|
8.24 |
% |
|
|
10.14 |
% |
|
from 5.66% to |
from 5.48% to |
Variable |
|
|
6.12 |
% |
|
|
5.94 |
% |
The notional principal amounts of interest rate swaps represent the face values of swap
contracts entered into by us that are outstanding at balance date. The notional principal amounts
do not represent amounts exchanged or to be exchanged by the parties to the contract. They are not
a true reflection of the credit risk and are therefore not recorded in the statement of financial
position.
The maturity dates, net notional principal amounts, net fair value and carrying amounts of our
outstanding interest rate swaps at balance date are shown in Table G following.
The gross notional principal amounts of our interest rate swaps are $10,843 million (2004: $12,884
million). The gross notional principal amounts of interest rate swaps is significantly larger than
the net notional principal amounts shown. This is due to the net notional principal amount taking
into account our offsetting positions. Gross positions have also been modified over time as volumes
and positions have changed.
364
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures (continued)
Additional information about our derivative instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table G |
|
Telstra Group |
|
|
|
Net notional |
|
|
Net |
|
|
|
|
|
|
principal amount (a) |
|
|
fair value (b) |
|
|
Carrying amount (c) |
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Interest rate swaps with floating interest rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year receivable/(payable) |
|
|
290 |
|
|
|
(574 |
) |
|
|
(2 |
) |
|
|
39 |
|
|
|
(1 |
) |
|
|
|
|
One to five years receivable/(payable) |
|
|
(122 |
) |
|
|
1,045 |
|
|
|
(30 |
) |
|
|
(74 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
Greater than five years receivable/(payable) |
|
|
(2,195 |
) |
|
|
(1,510 |
) |
|
|
411 |
|
|
|
227 |
|
|
|
45 |
|
|
|
30 |
|
|
|
|
|
|
|
(2,027 |
) |
|
|
(1,039 |
) |
|
|
379 |
|
|
|
192 |
|
|
|
41 |
|
|
|
25 |
|
|
|
|
|
|
|
(a) |
|
At 30 June 2005 and 30 June 2004, we had a net interest rate swap
position of pay variable. This means that on a net basis we pay
interest on the interest rate swap at variable rates and receive interest
on the interest rate swaps at fixed rates. As a result our exposure to
movements in interest rates is managed. |
|
(b) |
|
The net fair value represents the market value of both the fixed
and floating components of our interest rate swaps and includes the
costs that would be incurred to exchange at settlement. |
|
(c) |
|
The carrying amount represents the accrued interest payable on
interest rate swaps which is included in current payables. |
The maturity profile, notional principal amounts, net fair values and carrying amounts of our
outstanding cross currency swaps at balance date are shown in Table H below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table H |
|
Telstra Group |
|
|
|
Notional |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
principal amount (a) |
|
|
fair value (b) |
|
|
Carrying amount (c) |
|
|
|
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Cross currency swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year |
|
|
530 |
|
|
|
1,927 |
|
|
|
16 |
|
|
|
171 |
|
|
|
10 |
|
|
|
167 |
|
One to five years |
|
|
2,463 |
|
|
|
2,212 |
|
|
|
(97 |
) |
|
|
161 |
|
|
|
(175 |
) |
|
|
54 |
|
Greater than five years |
|
|
6,266 |
|
|
|
4,172 |
|
|
|
(783 |
) |
|
|
(253 |
) |
|
|
(706 |
) |
|
|
(212 |
) |
|
|
|
|
|
|
9,259 |
|
|
|
8,311 |
|
|
|
(864 |
) |
|
|
79 |
|
|
|
(871 |
) |
|
|
9 |
|
|
|
|
|
|
|
(a) |
|
The notional principal amount represents the face value of the
payable leg of our swaps we have entered into, denominated in
Australian dollars. |
|
(b) |
|
The net fair value represents the market value of our outstanding
cross currency swaps and includes the costs that would be incurred to
exchange at settlement. |
|
(c) |
|
The carrying amount represents the revalued component of our net principal which is recorded in
interest bearing liabilities, current receivables and non current receivables and accrued interest
which is recorded in current receivables. |
365
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial Instruments disclosures (continued)
Additional information about our derivative instruments (continued)
We also have exposure to foreign currency risk
through our ongoing business activities where we
have purchase or settlement commitments in
foreign currencies. This includes equipment and
material purchases or other currency conversion
exposures on ongoing receivables and payables,
excluding loan and borrowing balances, in
addition, 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.
This risk is created by the translation of the
net assets of these entities from their
operating currency to Australian dollars. Our
exposures before and after hedging are detailed
in Table I below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table I |
|
Telstra Group |
|
|
|
Exposure |
|
|
Exposure |
|
|
|
before hedging |
|
|
after hedging |
|
|
|
As at 30 June |
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
|
|
|
|
Net anticipated future transactions (amounts payable) |
|
|
(105 |
) |
|
|
(176 |
) |
|
|
(56 |
) |
|
|
(82 |
) |
Net transaction exposure (on amounts payable recorded in the statement of financial
position) |
|
|
(65 |
) |
|
|
(40 |
) |
|
|
(51 |
) |
|
|
(23 |
) |
Translation exposure (offshore investments) |
|
|
2,154 |
|
|
|
2,301 |
|
|
|
1,074 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
1,984 |
|
|
|
2,085 |
|
|
|
967 |
|
|
|
658 |
|
|
|
|
|
|
The maturity dates of the anticipated future transactions are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year |
|
|
(105 |
) |
|
|
(176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our hedging policy provides effective
hedging for all our foreign currency exchange
exposures within levels considered acceptable to
the Company.
Details of forward foreign currency contracts we
have entered into to hedge our trading
activities are combined with forward foreign
currency contracts entered into to hedge our
loans and borrowings in Table J below. Details
include net Australian dollar amounts
receivable/(payable), settlement dates and
average contractual forward exchange rates.
|
|
|
|
|
|
|
|
|
Table J |
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
United States (US) dollars |
|
|
|
|
|
|
|
|
less
than three months, at rates averaging US$0.7607 (2004: US$0.6951) |
|
|
43 |
|
|
|
(388 |
) |
3 to 12 months, at rates averaging US$0.7329 (2004: US$0.7369) |
|
|
32 |
|
|
|
105 |
|
12 to 18 months, at rates averaging US$0.5938 (2004: US$0.6046) |
|
|
4 |
|
|
|
8 |
|
over 18 months, at rates averaging US$0.5936 (2004: US$0.6135) |
|
|
3 |
|
|
|
19 |
|
|
|
|
|
|
|
82 |
|
|
|
(256 |
) |
|
|
|
366
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
29. Additional financial instruments disclosures (continued)
Additional Information about our derivative instruments (continued)
|
|
|
|
|
|
|
|
|
Table J (continued) |
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
|
$m |
|
|
$m |
|
|
British pounds sterling
less than three months,at rates averaging British
pounds sterling 0.4150(2004: British pounds sterling nil) |
|
|
1 |
|
|
|
|
|
3 to 12 months, at rates averaging British pounds
sterling nil (2004: British pounds sterling 0.4181) |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
1 |
|
|
|
7 |
|
|
|
|
New Zealand (NZ) dollars |
|
|
|
|
|
|
|
|
less than three months, at rates averaging
NZ$1.0678 (2004: NZ$1.1679) |
|
|
70 |
|
|
|
(130 |
) |
|
|
|
Hong Kong (HK) dollars |
|
|
|
|
|
|
|
|
less than three months, at rates averaging
HK$6.0099 (2004: HK$4.8184) |
|
|
(10 |
) |
|
|
(126 |
) |
|
|
|
Our offshore controlled entities have also entered
into the following Australian dollar forward foreign currency
contracts: |
|
|
|
|
|
|
|
|
less than three months, at rates averaging Australian
$nil (2004: Australian dollars $0.8905) |
|
|
|
|
|
|
2 |
|
3 to 12 months, at rates averaging Australian $nil
(2004: Australian dollars $0.8748) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
The net fair value of forward foreign currency contracts at 30 June 2005 is a $5 million loss
(2004: $1 million gain).
For interest rate swaps, cross currency swaps and forward foreign currency contracts where the
carrying amount is in excess of net fair value at balance date, no reduction to net fair value is
made since these derivatives act as hedges of underlying physical transactions.
367
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures
Reconciliations to financial reports prepared using USGAAP
Our consolidated financial report is prepared in
accordance with accounting principles generally
accepted in Australia (AGAAP). AGAAP has significant
differences from the accounting principles generally
accepted in the United States (USGAAP). The significant
differences between AGAAP and USGAAP are presented
throughout note 30. Additionally, where there is no
conflict with AGAAP requirements we have incorporated
some of the additional USGAAP requirements throughout
the AGAAP financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Reconciliation of net income to USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGAAP net income reported in statement of financial performance |
|
|
|
|
|
|
4,447 |
|
|
|
3,388 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments required to agree with USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
30 |
(a) |
|
|
(75 |
) |
|
|
(57 |
) |
|
|
(86 |
) |
|
|
(323 |
) |
Retirement benefit (expense)/gain |
|
|
30 |
(f) |
|
|
(175 |
) |
|
|
(133 |
) |
|
|
(3,965 |
) |
|
|
130 |
|
Income tax (expense)/benefit |
|
|
30 |
(i) |
|
|
(62 |
) |
|
|
(47 |
) |
|
|
1,228 |
|
|
|
164 |
|
Employee compensation expense |
|
|
30 |
(j) |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Derivative financial instruments and hedging activities |
|
|
30 |
(l) |
|
|
(96 |
) |
|
|
(73 |
) |
|
|
264 |
|
|
|
(420 |
) |
PCCW converting note |
|
|
30 |
(l) |
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(2 |
) |
|
|
12 |
|
Equity accounting and write down adjustments for Reach Ltd (Reach) |
|
|
30 |
(n) |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(264 |
) |
|
|
665 |
|
Fair value / general reserve adjustments |
|
|
30 |
(p) |
|
|
5 |
|
|
|
4 |
|
|
|
(35 |
) |
|
|
9 |
|
Goodwill and other intangible asset adjustments |
|
|
30 |
(q) |
|
|
146 |
|
|
|
111 |
|
|
|
122 |
|
|
|
(216 |
) |
Consolidation of variable interest entities |
|
|
30 |
(r) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per USGAAP |
|
|
|
|
|
|
4,172 |
|
|
|
3,179 |
|
|
|
1,381 |
|
|
|
3,450 |
|
|
|
|
|
|
|
|
Statement of financial performance measured and classified per USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (i) |
|
|
|
|
|
|
22,167 |
|
|
|
16,887 |
|
|
|
20,737 |
|
|
|
20,495 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labour (viii) |
|
|
|
|
|
|
3,866 |
|
|
|
2,944 |
|
|
|
7,183 |
|
|
|
3,074 |
|
Goods and services purchased (v) |
|
|
|
|
|
|
3,442 |
|
|
|
2,622 |
|
|
|
2,924 |
|
|
|
3,236 |
|
Depreciation and amortisation |
|
|
|
|
|
|
3,712 |
|
|
|
2,828 |
|
|
|
3,609 |
|
|
|
3,532 |
|
Other operating expenses |
|
|
|
|
|
|
4,560 |
|
|
|
3,474 |
|
|
|
4,756 |
|
|
|
4,337 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
15,580 |
|
|
|
11,868 |
|
|
|
18,472 |
|
|
|
14,179 |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
6,587 |
|
|
|
5,019 |
|
|
|
2,265 |
|
|
|
6,316 |
|
Net interest expense (ii) |
|
|
|
|
|
|
(760 |
) |
|
|
(580 |
) |
|
|
(715 |
) |
|
|
(823 |
) |
Dividend income |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Share of net losses of joint venture entities and associated entities |
|
|
|
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(253 |
) |
|
|
(114 |
) |
Other income/(expense) (iii) |
|
|
|
|
|
|
232 |
|
|
|
177 |
|
|
|
671 |
|
|
|
(297 |
) |
|
|
|
|
|
|
|
Net income before income tax expense and minority interests |
|
|
|
|
|
|
6,052 |
|
|
|
4,611 |
|
|
|
1,969 |
|
|
|
5,083 |
|
Income tax expense |
|
|
30 |
(i) |
|
|
1,880 |
|
|
|
1,432 |
|
|
|
593 |
|
|
|
1,359 |
|
|
|
|
|
|
|
|
Net income before minority interests and cumulative effect
adjustments |
|
|
|
|
|
|
4,172 |
|
|
|
3,179 |
|
|
|
1,376 |
|
|
|
3,724 |
|
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before cumulative effect adjustments |
|
|
|
|
|
|
4,172 |
|
|
|
3,179 |
|
|
|
1,377 |
|
|
|
3,759 |
|
Cumulative effect of changes in accounting principles, net of tax |
|
|
30(r),30 |
(q) |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
(309 |
) |
|
|
|
|
|
|
|
Net income per USGAAP |
|
|
|
|
|
|
4,172 |
|
|
|
3,179 |
|
|
|
1,381 |
|
|
|
3,450 |
|
|
|
|
|
|
|
|
368
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Reconciliation of certain statement of financial performance components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to present the statement of financial performance according
to USGAAP,
the following components have been reconciled from AGAAP to USGAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from ordinary activities per AGAAP |
|
|
2 |
|
|
|
22,657 |
|
|
|
17,260 |
|
|
|
21,280 |
|
|
|
21,616 |
|
Revenue for services provided to 3GIS Partnership |
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Revenue from the sale of non current assets |
|
|
2 |
|
|
|
(226 |
) |
|
|
(172 |
) |
|
|
(330 |
) |
|
|
(859 |
) |
Other revenue per AGAAP (iv) |
|
|
|
|
|
|
(270 |
) |
|
|
(206 |
) |
|
|
(212 |
) |
|
|
(261 |
) |
|
|
|
|
|
|
|
(i) Operating revenue per USGAAP |
|
|
|
|
|
|
22,167 |
|
|
|
16,887 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowing costs per AGAAP |
|
|
|
|
|
|
(736 |
) |
|
|
(561 |
) |
|
|
(712 |
) |
|
|
(795 |
) |
Additional derivative financial instruments and hedging expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Interest income on Reach capacity prepayment |
|
|
|
|
|
|
(18 |
) |
|
|
(14 |
) |
|
|
4 |
|
|
|
2 |
|
PCCW converting note interest revenue reversal |
|
|
|
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(15 |
) |
Elimination of interest income from employee share plan trusts |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
(ii) Net interest expense per USGAAP |
|
|
|
|
|
|
(760 |
) |
|
|
(580 |
) |
|
|
(715 |
) |
|
|
(823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iv) Other revenue per AGAAP |
|
|
|
|
|
|
270 |
|
|
|
206 |
|
|
|
212 |
|
|
|
261 |
|
AGAAP Net profit/(loss) on sale of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
property, plant and equipment |
|
|
3 |
(a) |
|
|
8 |
|
|
|
6 |
|
|
|
40 |
|
|
|
173 |
|
investments in controlled entities |
|
|
3 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
investments in joint venture entities |
|
|
3 |
(a) |
|
|
16 |
|
|
|
12 |
|
|
|
|
|
|
|
3 |
|
investments in associated entities |
|
|
3 |
(a) |
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
9 |
|
investments in listed entities and other corporations |
|
|
3 |
(a) |
|
|
67 |
|
|
|
51 |
|
|
|
8 |
|
|
|
(2 |
) |
businesses |
|
|
3 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
sale of PCCW converting note |
|
|
3 |
(a) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Reversal of revenue on sale of PCCW converting note |
|
|
|
|
|
|
(76 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
USGAAP net profit/(loss) on sale of non current assets |
|
|
|
|
|
|
4 |
|
|
|
3 |
|
|
|
(26 |
) |
|
|
48 |
|
USGAAP write down of Reach investment |
|
|
30 |
(n) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203 |
) |
USGAAP impairment of CSL goodwill |
|
|
30 |
(q) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85 |
) |
USGAAP reversal of gain on sale/leaseback and subsequent amortisation |
|
|
30 |
(a) |
|
|
18 |
|
|
|
14 |
|
|
|
18 |
|
|
|
(162 |
) |
Derivative financial instruments and hedging activities |
|
|
|
|
|
|
(95 |
) |
|
|
(72 |
) |
|
|
265 |
|
|
|
(404 |
) |
PCCW converting note |
|
|
|
|
|
|
(6 |
) |
|
|
(5 |
) |
|
|
2 |
|
|
|
27 |
|
Net foreign currency translation gains/(losses) |
|
|
|
|
|
|
30 |
|
|
|
23 |
|
|
|
(18 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
(iii) Other
income/(expense) per USGAAP |
|
|
|
|
|
|
232 |
|
|
|
177 |
|
|
|
671 |
|
|
|
(297 |
) |
|
|
|
|
|
|
|
(v) 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 |
|
|
|
Directory paper costs. |
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.
369
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
USGAAP Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per USGAAP |
|
|
|
|
|
|
4,172 |
|
|
|
3,179 |
|
|
|
1,381 |
|
|
|
3,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¢ |
|
|
US¢ |
|
|
¢ |
|
|
|
¢ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share before cumulative effect of change in accounting principles |
|
|
|
|
|
|
33.6 |
|
|
|
25.6 |
|
|
|
10.9 |
|
|
|
29.4 |
|
Cumulative effect of change in accounting principles (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition impairment of CSL goodwill |
|
|
30 |
(q) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
Basic earnings per share per USGAAP (cents) (viii) |
|
|
|
|
|
|
33.6 |
|
|
|
25.6 |
|
|
|
10.9 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings per share before cumulative effect of change in accounting principles. |
|
|
|
|
|
|
33.5 |
|
|
|
25.5 |
|
|
|
10.9 |
|
|
|
29.3 |
|
Cumulative effect of change in accounting principles (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition impairment of CSL goodwill |
|
|
30 |
(q) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
Diluted earnings per share per USGAAP (cents) (viii) |
|
|
|
|
|
|
33.5 |
|
|
|
25.5 |
|
|
|
10.9 |
|
|
|
26.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (in millions) |
|
Weighted average number of ordinary shares and common share
equivalents used for basic earnings per share calculations (vi) |
|
|
12,431 |
|
|
|
12,431 |
|
|
|
12,636 |
|
|
|
12,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive employee share options (vii) |
|
|
37 |
|
|
|
37 |
|
|
|
38 |
|
|
|
36 |
|
|
|
|
Weighted average number of potential ordinary shares and
common share equivalents used for diluted earnings per share calculations |
|
|
12,468 |
|
|
|
12,468 |
|
|
|
12,674 |
|
|
|
12,829 |
|
|
|
|
(vi) Reconciliation of weighted average number of ordinary shares and common share
equivalents used for basic earnings per share calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (in millions) |
|
Number of shares used for AGAAP earnings per share calculations |
|
|
6 |
|
|
|
12,513 |
|
|
|
12,513 |
|
|
|
12,723 |
|
|
|
12,867 |
|
Adjusted for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- weighted average TESOP97 and TESOP99 options outstanding during the
year |
|
|
30 |
(j) |
|
|
(62 |
) |
|
|
(62 |
) |
|
|
(66 |
) |
|
|
(74 |
) |
- stock held by employee share plan trusts |
|
|
30 |
(r) |
|
|
(20 |
) |
|
|
(20 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
Number of shares used for USGAAP basic earnings per share calculations |
|
|
|
|
|
|
12,431 |
|
|
|
12,431 |
|
|
|
12,636 |
|
|
|
12,793 |
|
|
|
|
|
|
|
|
(vii) In fiscal 2005 and 2004, only the TESOP97 options
and the deferred share options are dilutive to dilutive
earnings per share per
USGAAP. In fiscal 2003, only the TESOP97 options were
dilutive to dilutive earnings per share per USGAAP. Refer
to note 30(j) for further information regarding the
impact of the options, restricted share options,
performance right options and TESOP99 options on the
earnings per share calculation.
(viii) Labour expense in fiscal 2004 includes the
additional expense recognised on the settlement of the
CSS defined benefit fund ($3,870 million). This has
impacted net income per USGAAP and the calculation of
basic and diluted earnings per share per USGAAP. Refer to
note 30(f) for further information.
370
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Reconciliation of shareholders equity to USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGAAP shareholders equity per statement of financial position |
|
|
|
|
|
|
14,881 |
|
|
|
11,336 |
|
|
|
15,361 |
|
|
|
15,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustments required to agree with USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
30 |
(a) |
|
|
(65 |
) |
|
|
(49 |
) |
|
|
10 |
|
|
|
96 |
|
Listed investments (available-for-sale securities) |
|
|
30 |
(b) |
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
57 |
|
Minority interests |
|
|
30 |
(d) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Retirement benefits |
|
|
30 |
(f) |
|
|
78 |
|
|
|
59 |
|
|
|
253 |
|
|
|
4,217 |
|
Income tax |
|
|
30 |
(i) |
|
|
110 |
|
|
|
83 |
|
|
|
144 |
|
|
|
(1,031 |
) |
Employee share loans |
|
|
30 |
(j) |
|
|
(155 |
) |
|
|
(118 |
) |
|
|
(174 |
) |
|
|
(198 |
) |
Derivative financial instruments and hedging activities |
|
|
30 |
(l) |
|
|
(370 |
) |
|
|
(282 |
) |
|
|
(274 |
) |
|
|
(538 |
) |
PCCW converting note (available-for-sale security) |
|
|
30 |
(l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Sale of Global Wholesale Business to Reach Ltd (Reach) fiscal 2001 |
|
|
30 |
(m) |
|
|
(882 |
) |
|
|
(672 |
) |
|
|
(882 |
) |
|
|
(882 |
) |
Equity accounting and write down adjustments for Reach Ltd (Reach) |
|
|
30 |
(n) |
|
|
576 |
|
|
|
439 |
|
|
|
584 |
|
|
|
696 |
|
Consolidation adjustment for Telstra CSL Limited (CSL) |
|
|
30 |
(o) |
|
|
936 |
|
|
|
714 |
|
|
|
936 |
|
|
|
936 |
|
Fair value / general reserve adjustments |
|
|
30 |
(p) |
|
|
(54 |
) |
|
|
(41 |
) |
|
|
(54 |
) |
|
|
(54 |
) |
Goodwill and other intangible asset adjustments |
|
|
30 |
(q) |
|
|
(649 |
) |
|
|
(494 |
) |
|
|
(605 |
) |
|
|
(696 |
) |
Consolidation of variable interest entities |
|
|
30 |
(r) |
|
|
(37 |
) |
|
|
(28 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity per USGAAP |
|
|
|
|
|
|
14,367 |
|
|
|
10,945 |
|
|
|
15,291 |
|
|
|
18,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of financial position measured and classified per USGAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
1,548 |
|
|
|
1,179 |
|
|
|
690 |
|
|
|
1,300 |
|
Accounts receivable, net |
|
|
|
|
|
|
3,515 |
|
|
|
2,678 |
|
|
|
3,336 |
|
|
|
3,561 |
|
Inventories |
|
|
10 |
|
|
|
232 |
|
|
|
177 |
|
|
|
229 |
|
|
|
260 |
|
Deferred tax asset |
|
|
30 |
(i) |
|
|
294 |
|
|
|
224 |
|
|
|
200 |
|
|
|
166 |
|
Other assets |
|
|
|
|
|
|
796 |
|
|
|
606 |
|
|
|
718 |
|
|
|
578 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
6,385 |
|
|
|
4,864 |
|
|
|
5,173 |
|
|
|
5,865 |
|
|
|
|
|
|
|
|
Non current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
|
|
|
|
64 |
|
|
|
49 |
|
|
|
80 |
|
|
|
259 |
|
Derivative financial instruments |
|
|
|
|
|
|
369 |
|
|
|
281 |
|
|
|
664 |
|
|
|
694 |
|
Inventories |
|
|
10 |
|
|
|
15 |
|
|
|
11 |
|
|
|
10 |
|
|
|
14 |
|
Investments accounted for using the equity method |
|
|
|
|
|
|
55 |
|
|
|
42 |
|
|
|
44 |
|
|
|
161 |
|
Investments other non current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221 |
|
|
|
238 |
|
Property, plant and equipment |
|
|
|
|
|
|
48,428 |
|
|
|
36,892 |
|
|
|
46,184 |
|
|
|
44,635 |
|
Accumulated depreciation of property, plant and equipment |
|
|
|
|
|
|
(25,037 |
) |
|
|
(19,073 |
) |
|
|
(23,160 |
) |
|
|
(21,356 |
) |
Goodwill, net |
|
|
|
|
|
|
2,628 |
|
|
|
2,002 |
|
|
|
2,273 |
|
|
|
2,112 |
|
Other intangible assets, net |
|
|
|
|
|
|
1,589 |
|
|
|
1,211 |
|
|
|
1,512 |
|
|
|
1,146 |
|
Prepaid pension assets |
|
|
30 |
(f) |
|
|
78 |
|
|
|
59 |
|
|
|
253 |
|
|
|
4,217 |
|
Other assets |
|
|
|
|
|
|
2,392 |
|
|
|
1,822 |
|
|
|
2,326 |
|
|
|
2,437 |
|
|
|
|
|
|
|
|
Total non current assets |
|
|
|
|
|
|
30,581 |
|
|
|
23,296 |
|
|
|
30,407 |
|
|
|
34,557 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
36,966 |
|
|
|
28,160 |
|
|
|
35,580 |
|
|
|
40,422 |
|
|
|
|
|
|
|
|
371
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Statement of financial position measured and classified per USGAAP
(continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
|
2,765 |
|
|
|
2,106 |
|
|
|
2,338 |
|
|
|
2,525 |
|
Borrowings short term debt |
|
|
|
|
|
|
463 |
|
|
|
353 |
|
|
|
870 |
|
|
|
644 |
|
Borrowings long term debt due within one year |
|
|
|
|
|
|
1,061 |
|
|
|
808 |
|
|
|
2,376 |
|
|
|
679 |
|
Income tax payable |
|
|
|
|
|
|
534 |
|
|
|
407 |
|
|
|
539 |
|
|
|
660 |
|
Provisions |
|
|
17 |
|
|
|
389 |
|
|
|
296 |
|
|
|
358 |
|
|
|
353 |
|
Revenue received in advance |
|
|
|
|
|
|
1,150 |
|
|
|
876 |
|
|
|
1,113 |
|
|
|
991 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
6,362 |
|
|
|
4,846 |
|
|
|
7,594 |
|
|
|
5,852 |
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
|
122 |
|
|
|
93 |
|
|
|
35 |
|
|
|
13 |
|
Derivative financial instruments |
|
|
|
|
|
|
859 |
|
|
|
654 |
|
|
|
390 |
|
|
|
549 |
|
Borrowings long term debt |
|
|
|
|
|
|
11,641 |
|
|
|
8,868 |
|
|
|
9,095 |
|
|
|
11,580 |
|
Deferred tax liability |
|
|
30 |
(i) |
|
|
2,281 |
|
|
|
1,737 |
|
|
|
1,861 |
|
|
|
3,011 |
|
Provisions |
|
|
17 |
|
|
|
836 |
|
|
|
637 |
|
|
|
778 |
|
|
|
814 |
|
Revenue received in advance |
|
|
|
|
|
|
496 |
|
|
|
378 |
|
|
|
534 |
|
|
|
576 |
|
|
|
|
|
|
|
|
Total non current liabilities |
|
|
|
|
|
|
16,235 |
|
|
|
12,367 |
|
|
|
12,693 |
|
|
|
16,543 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
22,597 |
|
|
|
17,213 |
|
|
|
20,287 |
|
|
|
22,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
|
|
|
14,367 |
|
|
|
10,945 |
|
|
|
15,291 |
|
|
|
18,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
equity 12,443,074,357 shares issued at 30 June 2005
(2004: 12,628,359,026 shares, 2003: 12,866,600,200 shares) (ix) |
|
|
18 |
|
|
|
5,793 |
|
|
|
4,413 |
|
|
|
6,073 |
|
|
|
6,433 |
|
Share loan to employees - 60,378,525 shares at 30 June 2005 (2004: 62,949,000
shares, 2003: 69,160,725 shares) |
|
|
30 |
(j) |
|
|
(155 |
) |
|
|
(118 |
) |
|
|
(174 |
) |
|
|
(198 |
) |
Stock held
by employee share plan trusts 20,216,091 shares at 30 June 2005 |
|
|
30 |
(r) |
|
|
(113 |
) |
|
|
(86 |
) |
|
|
(117 |
) |
|
|
|
|
(2004: 20,956,641 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital from employee share plans |
|
|
30 |
(j) |
|
|
396 |
|
|
|
302 |
|
|
|
382 |
|
|
|
333 |
|
|
|
|
|
|
|
|
Total share capital |
|
|
|
|
|
|
5,921 |
|
|
|
4,511 |
|
|
|
6,164 |
|
|
|
6,568 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (x) |
|
|
|
|
|
|
(689 |
) |
|
|
(525 |
) |
|
|
(435 |
) |
|
|
(554 |
) |
Retained earnings |
|
|
|
|
|
|
9,135 |
|
|
|
6,959 |
|
|
|
9,562 |
|
|
|
12,011 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
14,367 |
|
|
|
10,945 |
|
|
|
15,291 |
|
|
|
18,025 |
|
|
|
|
|
|
|
|
(ix) 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 2005 is 12,362,479,741 shares
(2004: 12,544,453,385 shares; 2003: 12,797,439,475
shares).
372
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Reconciliations to financial reports prepared
using USGAAP (continued)
(x) 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 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Foreign currency translation reserve. |
|
|
(710 |
) |
|
|
(475 |
) |
|
|
(644 |
) |
(tax effect) |
|
|
34 |
|
|
|
21 |
|
|
|
72 |
|
|
|
|
|
|
|
(676 |
) |
|
|
(454 |
) |
|
|
(572 |
) |
|
|
|
Derivative financial instruments |
|
|
(19 |
) |
|
|
(19 |
) |
|
|
(22 |
) |
(tax effect) |
|
|
6 |
|
|
|
6 |
|
|
|
7 |
|
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
(15 |
) |
|
|
|
Unrealised gain on available-for-sale
securities |
|
|
|
|
|
|
46 |
|
|
|
47 |
|
(tax effect) |
|
|
|
|
|
|
(14 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
33 |
|
|
|
|
Accumulated other comprehensive
loss (net of tax) |
|
|
(689 |
) |
|
|
(435 |
) |
|
|
(554 |
) |
|
|
|
Other comprehensive (loss)/income disclosure
Other comprehensive (loss)/income is calculated by
totalling movements in shareholders equity that
are not related to contributions from owners or
payments to owners.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Foreign currency translation reserve, after tax
of $13 million increase (2004: $51 million
decrease, 2003: $55 million increase) |
|
|
(222 |
) |
|
|
118 |
|
|
|
(491 |
) |
Derivative financial instruments after tax of
$nil (2004: $1 million decrease, 2003: $2
million decrease) |
|
|
|
|
|
|
2 |
|
|
|
3 |
|
Unrealised (loss)/gain on available-for-sale
securities, after tax of $4 million decrease
(2004: $2 million decrease, 2003: $22 million
increase) |
|
|
(7 |
) |
|
|
4 |
|
|
|
(50 |
) |
Realised (gain)/loss on sale of available-for-sale securities transferred to net income,
after tax of $10 million decrease (2004: $2
million increase, 2003: $5 million decrease). |
|
|
(25 |
) |
|
|
(5 |
) |
|
|
11 |
|
|
|
|
USGAAP other comprehensive (loss)/income |
|
|
(254 |
) |
|
|
119 |
|
|
|
(527 |
) |
|
|
|
The reclassification out of accumulated other
comprehensive (loss)/ income to net income was
determined on the basis of specific identification.
In fiscal 2005, the proceeds from sales of
available-for-sale equity securities were $141 million
(2004: $24 million, 2003: $7 million).
The gain recorded as part of other comprehensive
income/(loss) in relation to derivative and
nonderivative instruments that have been designated as
hedges of the foreign currency exposure of our net
investments in foreign operations for fiscal 2005 is $31
million (2004: $24 million loss; 2003: $11 million
gain).
Total comprehensive income disclosure
Total comprehensive income is calculated by adding net
income and other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
Net income per USGAAP |
|
|
4,172 |
|
|
|
1,381 |
|
|
|
3,450 |
|
USGAAP other comprehensive
(loss)/income |
|
|
(254 |
) |
|
|
119 |
|
|
|
(527 |
) |
|
|
|
USGAAP total comprehensive
income |
|
|
3,918 |
|
|
|
1,500 |
|
|
|
2,923 |
|
|
|
|
373
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP
30(a) Property, plant and equipment
Revaluations
Prior to 1 July 2000, AGAAP allowed property, plant and
equipment to be revalued upwards. Increases in revalued
amounts were recorded in an asset revaluation reserve,
unless they reversed a previous revaluation decrease
charged to the statement of financial performance.
Impairments (decreases) to asset values were recorded in
the statement of financial performance, unless they
reversed a previous increase still remaining in the asset
revaluation reserve.
Revaluations of property, plant and equipment are not
allowed under USGAAP, except for permanent impairments.
Including the broadband network described below, the net
adjustment included in the reconciliation to
shareholders equity to reduce revalued property, plant
and equipment to historical cost for revaluations and
impairments not allowed under USGAAP is $432 million for
fiscal 2005 (2004: $413 million; 2003: $401 million). For
fiscal 2005, net adjustments for depreciation and
disposals of $19 million expense (2004: $12 million
expense; 2003: $6 million benefit) has been included in
the reconciliation of net income to USGAAP.
USGAAP impairment loss reversal broadband network
In fiscal 1997, under AGAAP we wrote down the value
of our broadband network. We recognised an impairment
loss of $342 million in net income and $245 million was
adjusted against the asset revaluation reserve. Under
USGAAP, the initial future undiscounted cash flows
derived from our broadband network were greater than the
recorded value and continue to be as at 30 June 2005. The
reversal of the impairment loss has been adjusted for in
the reconciliations of net income and shareholders
equity to USGAAP and additional depreciation of $25
million was recorded in the reconciliation of net income
to USGAAP in fiscal 2005 (2004: $26 million; 2003: $62
million), included in the net adjustments above.
Depreciation expense
Depreciation expense for AGAAP and USGAAP has been
calculated using the straight line method of
depreciation. Under AGAAP, depreciation expense is based
on the recorded amount of the asset and is therefore
higher for assets that have been revalued upwards.
Depreciation expense has been adjusted to reflect
depreciation based on original cost in the
reconciliations of net income and shareholders equity to
USGAAP.
Indirect overheads included as part of the cost of constructed assets
Under AGAAP, before 1 July 1996 we recorded overhead
costs directly associated with the construction of our
communication assets
as part of the cost of those assets. We expensed all
indirect overhead costs as incurred. From 1 July 1996,
indirect overhead costs (as well as direct overhead
costs) associated with operations and management
personnel directly involved in the construction of our
communication assets have been recorded as part of the
cost of those assets. This policy is now the same as
USGAAP.
To reflect the current policy, as if it had always been
in place for USGAAP purposes, before 1 July 1996,
capitalised overheads with a net book value of $381
million (2004: $441 million, 2003: $515 million) have
been included in the reconciliation of shareholders
equity to USGAAP as at 30 June 2005. For fiscal 2005,
additional depreciation and disposals of $60 million
(2004: $74 million; 2003: $123 million) have been
included in the reconciliation of net income to USGAAP.
Borrowing costs included as part of the cost of constructed assets
Under AGAAP, before 1 July 1996, we expensed all
borrowing costs when incurred. From 1 July 1996,
borrowing costs relating to the construction of
property, plant and equipment for internal use are
recorded as part of the asset cost, consistent with
USGAAP.
To reflect the current policy, as if it had always been
in place for USGAAP purposes, before 1 July 1996,
capitalised interest with a net book value of $112
million (2004: $126 million, 2003: $144 million) have
been included in the reconciliation of shareholders
equity to USGAAP as at 30 June 2005. For fiscal 2005,
additional depreciation and disposals of $14 million
(2004: $18 million; 2003: $44 million) have been included
in the reconciliation of net income to USGAAP.
Sale of property sold as part of a sale and lease back transaction
Under AGAAP, in fiscal 2002 we classified some land and
buildings held for sale as other current assets. Under
USGAAP, usually assets held for sale are classified as
current assets. However, as these assets were part of a
sale and leaseback transaction, the land and buildings
remained in property, plant and equipment until the sale
was complete. In fiscal 2002, these assets were
reclassified, with a net increase to property, plant and
equipment of $435 million.
The property held for sale under AGAAP in fiscal 2002 was
sold in fiscal 2003. Under AGAAP the net gain was
recognised in net income.
Under USGAAP, any gains made on assets as part of a sale
and leaseback transaction must be deferred and recognised
over the period of the underlying leases. For fiscal
2003, the net gain reversed was $113 million. Of this
balance, a net gain of $12 million has been recognised in
fiscal 2005 in the reconciliations of net income and
shareholders equity to USGAAP (2004: $12 million).
374
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures
(continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(a) Property, plant and equipment (continued)
Profits/(losses) on the sale of assets
Under AGAAP, proceeds on sale of non current assets are
recorded as revenue from ordinary activities other
revenue, and the net book value of assets sold is
recorded as other operating expenses, with the net
impact representing the profit or loss on sale of non
current assets.
For USGAAP, the sale of non current assets is not
considered to be an operating activity and as a result
the net profit or loss on the sale of non current assets
is reclassified to other income below operating income.
AGAAP reported profits or losses on the sale of revalued
assets are based on revenue received less revalued net
book value. For USGAAP, profits or losses are based on
revenue received less historical net book value.
Adjustments are made to the reconciliation of net income
to USGAAP to record this difference in the profit or
loss on sale.
Asset retirement obligations
Asset retirement obligations exist on our general
purpose leased buildings and certain mobile tower
communication assets that are situated on land held
under operating leases. USGAAP requires us to recognise
the fair value of these legal obligations as a
liability, with the cost capitalised as part of the
asset carrying value. Our treatment under AGAAP of these
obligations is detailed in note 1.19(c).
We have determined that the difference in our AGAAP and
USGAAP accounting policies for these asset retirement
obligations is not material to us. Therefore, no
adjustment has been made to the USGAAP reconciliation.
30(b) Investments
Investments in joint venture entities and associated entities
For a description of the USGAAP treatment of our
investment in Reach, refer to note 30(n).
3GIS Partnership
In fiscal 2005, we entered into an arrangement with
Hutchison 3G Australia Pty Ltd (H3GA) to jointly own
and operate H3GAs existing third generation radio
access network (RAN) assets and fund future network
development. The 3GIS Partnership was established to
operate this network and commenced 31 December 2004.
The partners each made an initial investment of $1 but
will provide additional capital as required in the form
of interest free loans.
Under AGAAP, 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. Refer to note 1.11(c)
for further information.
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 our investment. For fiscal 2005, this
results in a USGAAP adjustment to reclassify $2 million
of property, plant and equipment to investments. There is
no material adjustment required to the reconciliation of
net income or shareholders equity to USGAAP.
Equity securities (joint venture entities and associated entities)
Under AGAAP, temporary changes in the fair values of debt
and equity securities are not required to be adjusted and
recorded in the financial statements. AGAAP however does
require permanent impairments in the value of debt and
equity securities to be recorded in the statement of
financial performance.
Under USGAAP, Statement of Financial Accounting Standards
No.115 (SFAS 115) Accounting for Certain Investments in
Debt and Equity Securities, we are required to account
for debt and equity securities based on our intention to
hold or sell the securities. Securities classified as
held-to-maturity are stated at cost unless there is a
decline in fair value that is considered to be
other-than-temporary. This reduction is recorded in the
statement of financial performance. Securities classified
as available-for-sale are recorded at fair value with
changes in fair value, other than a decline in fair value
that is considered to be other-than-temporary, recorded
in a separate component of shareholders equity
(accumulated other comprehensive income) until realised.
Realised gains and losses are then recorded in the
statement of financial performance.
375
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(b) Investments (continued)
Available-for-sale securities
The following is a summary of our available-for-sale
debt and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
Amortised |
|
|
|
|
|
|
unrealised |
|
|
|
Note |
|
|
Principal |
|
|
interest |
|
|
cost |
|
|
Fair value |
|
|
gain |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Marketable securities included in cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank bills and promissory notes |
|
|
8 |
|
|
|
1,323 |
|
|
|
1 |
|
|
|
1,324 |
|
|
|
1,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
Amortised |
|
|
|
|
|
|
unrealised |
|
|
|
Note |
|
|
Principal |
|
|
interest |
|
|
cost |
|
|
Fair value |
|
|
gain |
|
|
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Marketable securities included in cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank bills and promissory notes |
|
|
8 |
|
|
|
538 |
|
|
|
1 |
|
|
|
539 |
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed investments |
|
|
11 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCCW converting note US$47 million face value |
|
|
30 |
(l) |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealised gain (net of tax) on available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(c) Dividend payable recognition
Under USGAAP, provisions for dividends are only
recognised as liabilities if the dividends are formally
declared before balance date. The effect of this
adjustment is disclosed in the reconciliation of
shareholders equity to USGAAP. In fiscal 2003, due to
a change in AGAAP, AGAAP is now consistent with USGAAP
and this adjustment no longer required. Refer to note 7
for additional disclosures on dividends.
The dividends per share for USGAAP (including the
TESOP97 and TESOP99 options outstanding (refer to
note 30(j) below) as issued shares) in Australian
dollars for the last three years are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
¢ |
|
|
¢ |
|
|
¢ |
|
Dividends paid per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends paid per share
per USGAAP |
|
|
33.0 |
|
|
|
25.0 |
|
|
|
26.0 |
|
|
|
|
30(d) Minority interests (defined as outside equity
interests per AGAAP)
Under AGAAP, minority interests are included in
shareholders equity in Outside equity interests. Under
USGAAP, minority interests are disclosed as a separate
component of net assets rather than included in
shareholders equity. The effect of this adjustment has
been disclosed in the reconciliation of shareholders
equity to USGAAP.
30(e) Dealer commissions and bonuses classification
Under AGAAP, dealer commissions and bonuses 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. In the statement
of financial performance measured and classified under
USGAAP, we have reclassified $711 million of dealer
commissions and bonuses from goods and services purchased
to other operating expenses (2004: $496 million; 2003:
$379 million).
30(f) Retirement benefits
Pension costs/benefits (defined as superannuation expense
under AGAAP) for our defined benefit plans are based on
contributions payable to the plans for the year, at rates
determined by the actuary of the defined benefit plans.
Refer to note 22 for details of our superannuation plans.
Under AGAAP, where there has been a shortfall in prior
years of the net market value of our defined benefit
schemes assets when compared to members vested
entitlements, we have provided for the present value of
any shortfall, to the extent that the shortfall
represents a present obligation. We do not record a
pension asset where scheme assets are greater than
members vested entitlements.
Under USGAAP, pension costs/benefits for defined benefit
plans are accounted for under Statement of Financial
Accounting Standards No. 87 (SFAS 87) Employers
Accounting for Pensions and are calculated by an actuary
using the projected unit credit method. This method
includes current service cost, interest cost, return on
plan assets and amortisation of transition assets.
Aggregated unrecorded gains and losses of the plans
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.
We adopted SFAS 87 on 1 July 1992, as it was not feasible
to adopt SFAS 87 from its effective date of 1 July 1989.
The unrecognised transition asset on adoption of SFAS 87
for the Telstra Super Scheme was amortised from 1 July
1992 over 12 years, ending 30 June 2004. Where scheme
assets are greater than the present obligations relating
to members vested entitlements, the difference is
recognised as an asset in accordance with USGAAP.
We use the following measurement dates for our
defined benefit plans:
|
|
|
|
|
Measurement |
|
|
Date |
|
Telstra Super
|
|
30 June |
CSS
|
|
(i) |
HK CSL Retirement Scheme
|
|
31 May |
|
377
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(f) Retirement benefits (continued)
The effect of the adjustments required by SFAS 87 to
retirement benefit expense/gain has been disclosed in
the USGAAP reconciliations. If we had reported our net
periodic pension cost/ benefit and the funded status of
the defined benefit superannuation plans in accordance
with the accounting principles and actuarial assumptions
under USGAAP, the disclosures required are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Net periodic pension cost/(benefit) (all funds combined) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic pension cost for our defined
benefit superannuation plans are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost on benefits earned |
|
|
|
|
|
|
282 |
|
|
|
215 |
|
|
|
351 |
|
|
|
337 |
|
Interest cost on projected benefit obligation |
|
|
|
|
|
|
436 |
|
|
|
332 |
|
|
|
558 |
|
|
|
657 |
|
Expected return on assets |
|
|
|
|
|
|
(532 |
) |
|
|
(406 |
) |
|
|
(834 |
) |
|
|
(1,003 |
) |
Expenses and taxation |
|
|
|
|
|
|
16 |
|
|
|
12 |
|
|
|
59 |
|
|
|
74 |
|
Member contributions for defined benefits |
|
|
|
|
|
|
(21 |
) |
|
|
(16 |
) |
|
|
(109 |
) |
|
|
(113 |
) |
Amortisation of transition asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
(84 |
) |
Amortisation of fund loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
30 |
|
Transfers to HK CSL Retirement Scheme (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Settlement (gain)/loss (i) |
|
|
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
3,865 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
Net periodic pension cost/(benefit) per USGAAP |
|
|
|
|
|
|
178 |
|
|
|
135 |
|
|
|
3,970 |
|
|
|
(122 |
) |
Reverse amount expensed for AGAAP (labour expense) |
|
|
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
Total USGAAP adjustment retirement benefit expense/(gain) |
|
|
|
|
|
|
175 |
|
|
|
133 |
|
|
|
3,965 |
|
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used the following major assumptions to determine net periodic pension
cost/(benefit) for the years ended 30 June: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|
|
|
5.99 |
% |
|
|
5.99 |
% |
|
|
5.00 |
% |
|
|
6.50 |
% |
Expected rate of increase in future salaries |
|
|
|
|
|
|
3.97 |
% |
|
|
3.97 |
% |
|
|
3.49 |
% |
|
|
4.00 |
% |
Expected long-term rate of return on assets |
|
|
|
|
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
8.50 |
% |
|
|
|
|
|
|
|
In order to project the expected long term rate of
return on assets, estimates are prepared for the return
of each major asset class over the subsequent 10 year
period, or longer. Those 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 then weighted according to
the strategic asset allocation of total plan assets.
378
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(f) Retirement benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
|
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Note |
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Benefit obligations (all funds combined) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
|
|
|
|
|
6,409 |
|
|
|
4,882 |
|
|
|
10,249 |
|
|
|
9,537 |
|
Service cost |
|
|
|
|
|
|
282 |
|
|
|
215 |
|
|
|
351 |
|
|
|
337 |
|
Interest cost |
|
|
|
|
|
|
436 |
|
|
|
332 |
|
|
|
558 |
|
|
|
657 |
|
Transfers to HK CSL Retirement Scheme (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Member contributions |
|
|
|
|
|
|
191 |
|
|
|
146 |
|
|
|
81 |
|
|
|
122 |
|
Benefit payments |
|
|
|
|
|
|
(234 |
) |
|
|
(178 |
) |
|
|
(971 |
) |
|
|
(945 |
) |
Curtailment (gain)/loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
9 |
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(3 |
) |
|
|
(12 |
) |
Settlement of CSS (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,687 |
) |
|
|
|
|
Actuarial loss/(gain) |
|
|
|
|
|
|
410 |
|
|
|
312 |
|
|
|
(166 |
) |
|
|
464 |
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
|
|
|
|
|
7,487 |
|
|
|
5,704 |
|
|
|
6,409 |
|
|
|
10,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used the following major assumptions to determine benefit obligations
at 30 June: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|
|
|
5.48 |
% |
|
|
5.48 |
% |
|
|
5.99 |
% |
|
|
5.00 |
% |
Expected rate of increase in future salaries |
|
|
|
|
|
|
3.99 |
% |
|
|
3.99 |
% |
|
|
3.97 |
% |
|
|
3.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year (all funds combined) |
|
|
|
|
|
|
5,994 |
|
|
|
4,566 |
|
|
|
5,032 |
|
|
|
8,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets (all funds combined) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
|
|
|
|
7,147 |
|
|
|
5,444 |
|
|
|
11,546 |
|
|
|
12,208 |
|
Actual return on plan assets |
|
|
|
|
|
|
938 |
|
|
|
715 |
|
|
|
1,270 |
|
|
|
53 |
|
Transfers to HK CSL Retirement Scheme (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
Employer contributions |
|
|
|
|
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
8 |
|
Member contributions for defined benefits |
|
|
|
|
|
|
21 |
|
|
|
16 |
|
|
|
109 |
|
|
|
113 |
|
Transfers/member contributions for accumulation benefits |
|
|
|
|
|
|
191 |
|
|
|
146 |
|
|
|
81 |
|
|
|
122 |
|
Benefit payments |
|
|
|
|
|
|
(234 |
) |
|
|
(178 |
) |
|
|
(971 |
) |
|
|
(945 |
) |
Plan expenses |
|
|
|
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(15 |
) |
|
|
(13 |
) |
Foreign currency exchange rate changes |
|
|
|
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(13 |
) |
Settlement of CSS (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,832 |
) |
|
|
|
|
Contribution tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
8,042 |
|
|
|
6,127 |
|
|
|
7,147 |
|
|
|
11,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our weighted-average asset allocations by asset category at 30 June are as follows: |
|
Target |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Equity securities (iii) |
|
|
67.4 |
% |
|
|
61.9 |
% |
|
|
74.8 |
% |
|
|
55.0 |
% |
Debt securities (iii) |
|
|
10.3 |
% |
|
|
21.9 |
% |
|
|
13.2 |
% |
|
|
25.4 |
% |
Property (iii) |
|
|
17.3 |
% |
|
|
13.3 |
% |
|
|
10.0 |
% |
|
|
16.8 |
% |
Other (iii) |
|
|
5.0 |
% |
|
|
2.9 |
% |
|
|
2.0 |
% |
|
|
2.8 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
379
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports
prepared using USGAAP (continued)
30(f) Retirement benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Reconciliation of funded status of plan (all funds combined) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
(7,487 |
) |
|
|
(5,704 |
) |
|
|
(6,409 |
) |
|
|
(10,249 |
) |
Plan assets at fair value |
|
|
8,042 |
|
|
|
6,127 |
|
|
|
7,147 |
|
|
|
11,546 |
|
|
|
|
Funded status |
|
|
555 |
|
|
|
423 |
|
|
|
738 |
|
|
|
1,297 |
|
Unrecognised net transition liability/(asset) (iv) |
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
|
|
(79 |
) |
Unrecognised net actuarial (gain)/loss (iv) |
|
|
(481 |
) |
|
|
(367 |
) |
|
|
(489 |
) |
|
|
2,999 |
|
|
|
|
Prepaid pension asset at 30 June |
|
|
78 |
|
|
|
59 |
|
|
|
253 |
|
|
|
4,217 |
|
|
|
|
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
efficiencies.
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.
Expected Cash Flows (all funds combined)
We expect to contribute $3 million to our HK CSL
Retirement Scheme in fiscal 2006. Based on the latest
actuarial investigation, we do not expect to make any
contributions to Telstra Super during fiscal 2006. Refer
to note 22 for further information.
The following benefit payments, which reflect
expected future service, are expected to be paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
Year ended 30 June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 - |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2015 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Expected benefit
payments |
|
|
194 |
|
|
|
204 |
|
|
|
223 |
|
|
|
243 |
|
|
|
265 |
|
|
|
1,833 |
|
|
|
|
(i) On 17 June 2004, the Commonwealth paid Telstra
Super $3,125 million as settlement for the previous
transfers of CSS members to Telstra Super. As part of
the settlement arrangement, the Commonwealth has assumed responsibility for all
liabilities in respect of former and current Telstra
employees who remain in the CSS. Refer to note 22 for
further information.
As we have no further current ongoing obligations for
these CSS members, in fiscal 2004 we recorded a
settlement loss for USGAAP in relation to the CSS of
$1,145 million. In addition, we recognised the
previously unrecognised net actuarial loss in relation
to the CSS of $2,725 million.
(ii) On 1 December 2002, Hong Kong CSL Limited (HK CSL)
established a new scheme known as the HK CSL Retirement
Scheme. Previously, HK CSL participated in the Pacific
Century CyberWorks (PCCW) Retirement Scheme, the scheme
of its previous immediate parent. The assets attributable
to HK CSL of the previous scheme were transferred to the
HK CSL Retirement Scheme.
(iii) The CSS was a notional fund that did not hold
physical managed assets. This notional fund accumulated
the same returns as that earned by Telstra Super. As
such, for the purposes of disclosing our weighted
average asset allocations by asset category, the asset
allocations of the CSS for fiscal 2003 were assumed to
be the same as the asset allocations of Telstra Super.
(iv) Settlements recorded in net periodic pension
cost/benefit have effected the unrecognised net
transition liability/(asset) and the unrecognised net
actuarial (gain)/loss as follows: (a) unrecognised
transition liability/(asset); 2005: $nil; 2004: $nil;
2003: $1 million gain.
(b) unrecognised net actuarial gain/loss; 2005: $3
million gain; 2004: $2,725 million loss; fiscal 2003:
$26 million gain.
380
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(g) Employee entitlements Long Service Leave
Our employee entitlement provisions include a liability for long service leave. Refer to note
1.19(a) for a definition of long service leave. The assumptions used to calculate this liability
for AGAAP are consistent with those used under SFAS 87 for USGAAP.
30(h) Enterprise bargaining agreements
During fiscal 2005 Telstra had six separate business unit enterprise agreements in operation which
provided staff covered by these agreements with a 2% salary increase in January 2005. The nominal
expiry date of these enterprise agreements was 22 June 2005. In June 2005, Telstra and the unions
reached in-principleagreements to enter into a new enterprise agreement (EA) to replace the six
expired agreements. For the new agreement to take effect, it would need to be approved by a
majority of voting employees and certified by the Australian Industrial Relations Commission
(AIRC).
Under the proposed agreement, EA employees will receive a pay increase of 2.5% each year over a
three year period and retain continuity of long service leave and maternity leave arrangements.
There are minimal changes to other existing terms and conditions of employment. It is proposed that
the first increase will be paid from the first pay period on or after certification of the
agreement.
The proposed new EA and the Retail Shop Agreement will cover approximately 53% of full time staff.
30(i) Income tax
Under AGAAP, timing differences are recorded in the statement of financial position as deferred tax
assets and liabilities using the liability method of tax effect accounting. Future income tax
benefits relating to tax losses and timing differences are not recorded as an asset unless the
benefit is considered virtually certain of being realised.
Under USGAAP, deferred tax assets and liabilities are created for all temporary differences between
the accounting and tax basis of assets and liabilities that will reverse during future taxable
periods, including tax losses. Deferred tax assets are reduced by a valuation allowance if, in the
opinion of management, it is more likely than not that some portion, or all of the deferred tax
asset, will not be realised. The ultimate realisation of deferred tax assets is dependent upon the
generation of future taxable profits during the period in which those temporary differences and tax
loss carryforwards become deductible. Management considers the scheduled reversal of deferred tax
liabilities and projected future taxable income in making this assessment. We increase or decrease
our deferred tax balances for income tax effect of accounting differences included in our
reconciliations of net income and shareholders equity to USGAAP.
For AGAAP, we classify all deferred tax balances as non current. For USGAAP, the classification
between current and non current is based on the statement of financial position 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 statement of financial position measured and
classified per USGAAP.
Under AGAAP and USGAAP we do not create deferred tax assets or liabilities for temporary
differences relating to investments where there is no intention of disposing of the investment, or
where we are incapable of realising any benefit or incurring any obligations due to tax law
restrictions.
For AGAAP, fair value adjustments in a business combination, including the recognition of
identifiable assets, are not tax effected. Under USGAAP, basis differences arising from such fair
value adjustments are
treated as temporary differences and tax effected as part of the acquisition accounting, if the
basis difference results in taxable or deductible amounts in future years when the related asset or
liability is recovered or settled.
During fiscal 2005, we recognised a number of identifiable intangible assets as a result of our
acquisitions. For USGAAP, we have recorded a deferred tax liability of $71 million for the
temporary difference between the carrying value of these intangible assets and their tax basis,
with a corresponding increase to goodwill on acquisition. We have also recognised a deferred
tax liability of $143 million based on the determination of the tax consequences associated with
the recognition of identifiable intangible assets on other recent acquisitions, with a
corresponding increase to goodwill on acquisition. The reversal of these temporary differences has
resulted in a decrease to income tax expense of $6 million for fiscal 2005.
381
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(i) Income tax (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Future income tax benefit (deferred tax assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
33 |
|
Foreign exchange translation, hedge and other finance costs |
|
|
164 |
|
|
|
125 |
|
|
|
134 |
|
|
|
238 |
|
Employee entitlements |
|
|
279 |
|
|
|
213 |
|
|
|
297 |
|
|
|
252 |
|
Revenue received in advance |
|
|
160 |
|
|
|
122 |
|
|
|
60 |
|
|
|
49 |
|
Inventory valuation |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
Provisions |
|
|
111 |
|
|
|
85 |
|
|
|
66 |
|
|
|
99 |
|
Marketable securities |
|
|
17 |
|
|
|
13 |
|
|
|
89 |
|
|
|
|
|
Carried forward tax losses |
|
|
227 |
|
|
|
173 |
|
|
|
207 |
|
|
|
210 |
|
Other |
|
|
138 |
|
|
|
105 |
|
|
|
211 |
|
|
|
212 |
|
|
|
|
Total gross deferred tax assets under USGAAP |
|
|
1,096 |
|
|
|
836 |
|
|
|
1,106 |
|
|
|
1,102 |
|
Valuation allowance |
|
|
(313 |
) |
|
|
(238 |
) |
|
|
(247 |
) |
|
|
(251 |
) |
|
|
|
Total net deferred tax assets under USGAAP |
|
|
783 |
|
|
|
598 |
|
|
|
859 |
|
|
|
851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (deferred tax liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
2,429 |
|
|
|
1,850 |
|
|
|
2,351 |
|
|
|
2,366 |
|
Foreign exchange translation, hedge and other finance costs |
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
Prepaid pension cost |
|
|
23 |
|
|
|
18 |
|
|
|
76 |
|
|
|
1,265 |
|
Prepayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Expenditure accruals |
|
|
90 |
|
|
|
69 |
|
|
|
82 |
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Other |
|
|
228 |
|
|
|
174 |
|
|
|
|
|
|
|
61 |
|
|
|
|
Total deferred tax liabilities under USGAAP |
|
|
2,770 |
|
|
|
2,111 |
|
|
|
2,520 |
|
|
|
3,696 |
|
|
|
|
Net deferred tax liability under USGAAP |
|
|
(1,987 |
) |
|
|
(1,513 |
) |
|
|
(1,661 |
) |
|
|
(2,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Represented by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGAAP future income tax benefit non current |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
AGAAP deferred income tax non current |
|
|
(1,885 |
) |
|
|
(1,436 |
) |
|
|
(1,807 |
) |
|
|
(1,814 |
) |
USGAAP/AGAAP income tax differences |
|
|
(104 |
) |
|
|
(79 |
) |
|
|
144 |
|
|
|
(1,031 |
) |
|
|
|
Net deferred tax liability under USGAAP |
|
|
(1,987 |
) |
|
|
(1,513 |
) |
|
|
(1,661 |
) |
|
|
(2,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows for the USGAAP statement of financial
position: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset (future income tax benefit) |
|
|
294 |
|
|
|
224 |
|
|
|
203 |
|
|
|
169 |
|
Current deferred tax liability (deferred income tax) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
Net current deferred tax asset (future income tax benefit) |
|
|
294 |
|
|
|
224 |
|
|
|
200 |
|
|
|
166 |
|
|
|
|
Non current deferred tax asset (future income tax benefit) |
|
|
489 |
|
|
|
374 |
|
|
|
656 |
|
|
|
682 |
|
Non current deferred tax liability (deferred income tax) |
|
|
(2,770 |
) |
|
|
(2,111 |
) |
|
|
(2,517 |
) |
|
|
(3,693 |
) |
|
|
|
Net non current deferred tax liability (deferred income tax) |
|
|
(2,281 |
) |
|
|
(1,737 |
) |
|
|
(1,861 |
) |
|
|
(3,011 |
) |
|
|
|
|
|
|
(1,987 |
) |
|
|
(1,513 |
) |
|
|
(1,661 |
) |
|
|
(2,845 |
) |
|
|
|
As at 30
June 2005, our foreign operations have operating loss carryforwards of $13 million that
will expire in fiscal 2026, 2027, and 2028. We have established a valuation allowance of $11
million due to our uncertainty over our ability to utilise these operating loss carryforwards.
382
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(i) Income tax (continued)
Our foreign operations have capital loss carry forwards of $2 million that will expire in 2007. We
have established a valuation allowance of $2 million due to our uncertainty over our ability to
utilise these capital loss carryforwards.
Additionally, our domestic and foreign operations have both operating ($214 million) and capital
loss carryforwards ($196 million) that do not have an expiration date. We have established a
valuation allowance to fully provide for these loss carryforwards due to the uncertainty over our
ability to utilise these loss carryforwards.
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 |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Net income before income tax expense and minority
interests consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
5,970 |
|
|
|
4,549 |
|
|
|
1,896 |
|
|
|
3,089 |
|
Foreign |
|
|
82 |
|
|
|
62 |
|
|
|
73 |
|
|
|
1,994 |
|
|
|
|
Net income before income tax expense and minority interest |
|
|
6,052 |
|
|
|
4,611 |
|
|
|
1,969 |
|
|
|
5,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit) consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
1,745 |
|
|
|
1,329 |
|
|
|
1,635 |
|
|
|
1,537 |
|
Foreign |
|
|
45 |
|
|
|
34 |
|
|
|
36 |
|
|
|
2 |
|
|
|
|
Total current income tax expense |
|
|
1,790 |
|
|
|
1,363 |
|
|
|
1,671 |
|
|
|
1,539 |
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
89 |
|
|
|
68 |
|
|
|
(1,077 |
) |
|
|
(154 |
) |
Foreign |
|
|
1 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(26 |
) |
|
|
|
Total deferred income tax expense/(benefit) |
|
|
90 |
|
|
|
69 |
|
|
|
(1,078 |
) |
|
|
(180 |
) |
|
|
|
Income tax expense, net |
|
|
1,880 |
|
|
|
1,432 |
|
|
|
593 |
|
|
|
1,359 |
|
|
|
|
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 |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
US$m |
|
|
$m |
|
|
$m |
|
|
Expected income tax expense |
|
|
1,815 |
|
|
|
1,382 |
|
|
|
591 |
|
|
|
1,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of different rates of tax on overseas income |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(15 |
) |
|
|
(30 |
) |
Research and development concessions |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
Share of net (profit)/loss from joint venture entities and
associated entities |
|
|
(28 |
) |
|
|
(21 |
) |
|
|
11 |
|
|
|
38 |
|
Loss on sale of non current assets |
|
|
(28 |
) |
|
|
(21 |
) |
|
|
(65 |
) |
|
|
(34 |
) |
Non deductible depreciation and amortisation |
|
|
15 |
|
|
|
11 |
|
|
|
27 |
|
|
|
30 |
|
Reduction in the value of investments and intercompany receivables |
|
|
100 |
|
|
|
76 |
|
|
|
158 |
|
|
|
64 |
|
Assessable foreign source income not included in accounting profit |
|
|
4 |
|
|
|
3 |
|
|
|
18 |
|
|
|
43 |
|
Under/(over) provision of tax in prior years |
|
|
2 |
|
|
|
2 |
|
|
|
24 |
|
|
|
(28 |
) |
Effect of reset tax values on entering tax consolidation |
|
|
|
|
|
|
|
|
|
|
(58 |
) |
|
|
(201 |
) |
Other adjustments |
|
|
15 |
|
|
|
12 |
|
|
|
(91 |
) |
|
|
(42 |
) |
|
|
|
Actual income tax expense for USGAAP |
|
|
1,880 |
|
|
|
1,432 |
|
|
|
593 |
|
|
|
1,359 |
|
|
|
|
383
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(j) Employee share plans and compensation expenses
Our employee and executive share plans are described in note 19. AGAAP does not require certain
employee compensation and option expenses to be recorded in the statement of financial performance
for our employee share plans.
Under USGAAP, we have adopted Statement of Financial Accounting Standards No. 123 (SFAS 123)
Accounting for Stock Based Compensation. Under this method, compensation expense is calculated
based on the fair value of options on the grant date and recognised over the associated service
period, which is usually the vesting period. USGAAP requires that shares issued under TESOP97 and
TESOP99 in conjunction with non-recourse loans be accounted for as options. The outstanding
balance of the loans for TESOP97 and TESOP99 provided to employees is deducted from shareholders
equity rather than classified as a receivable. The amount for fiscal 2005 is $155 million (2004:
174 million, 2003: $198 million). In addition to options, restricted shares, performance rights
and deferred shares issued under the Telstra Growthshare executive compensation scheme are also
accounted for as options.
In fiscal 2005, a net adjustment to reverse $2 million in compensation expense for USGAAP was
recognised in the reconciliation of net income (2004: $nil; 2003:$nil). A life to date expense of
$396 million is recorded as additional paid in capital in total shareholders equity for USGAAP
(2004: $382 million; 2003: $333 million). The increase of $49 million in fiscal 2004 relates to
the consolidation of the Telstra Growthshare Trust and the recognition of contributions to the
trust as additional paid in capital. Refer to note 30(r).
There is no income tax effect on the additional compensation expense for USGAAP as it is a
permanent difference (non taxable) for TESOP97, TESOP99 and Growthshare schemes.
TESOP General
Options allocated to employees under the TESOP schemes all vested immediately upon grant and will
expire at the earlier of repayment of the loan balance or the termination of employment. Employee
compensation expense has been recognised on inception of the TESOP97 scheme (fiscal 1998 and
subsequent loyalty share issues) and TESOP99 scheme (fiscal 2000 and subsequent loyalty share
issues). Dividends on both TESOP schemes are not recorded as further compensation expense as their
forecasted value was included when calculating the initial option valuations.
For fiscal 2005, 2004 and 2003, only the TESOP97 options are dilutive for the USGAAP earnings per
share calculation as the exercise price of the TESOP99 options was above the average Telstra share
price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Number |
|
|
Number |
|
|
Number |
|
|
TESOP97 |
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
beginning of year |
|
|
48,327,000 |
|
|
|
54,332,125 |
|
|
|
63,473,375 |
|
Options exercised |
|
|
(2,484,375 |
) |
|
|
(6,005,125 |
) |
|
|
(9,141,250 |
) |
|
|
|
Options outstanding at end
of year |
|
|
45,842,625 |
|
|
|
48,327,000 |
|
|
|
54,332,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TESOP99 |
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
beginning of year |
|
|
14,622,000 |
|
|
|
14,828,600 |
|
|
|
14,965,500 |
|
Options exercised |
|
|
(86,100 |
) |
|
|
(206,600 |
) |
|
|
(136,900 |
) |
|
|
|
Options outstanding at end
of year |
|
|
14,535,900 |
|
|
|
14,622,000 |
|
|
|
14,828,600 |
|
|
|
|
For TESOP97, the weighted average exercise price of the option at 30 June 2005, 30 June 2004 and 30
June 2003 was $2.66.
For TESOP99, the weighted average exercise price of the option at 30 June 2005, 30 June 2004 and 30
June 2003 was $5.99.
Telstra Growthshare General
The Telstra Growthshare options issued under all schemes become vested options when the performance
hurdles have been reached and the executive pays the exercise price per share. The Growthshare
restricted share options, performance right options and deferred share options allocated to
employees under all schemes vest when the performance hurdles have been reached or period of
service completed.
For USGAAP, compensation expense is measured in the year that the options are granted less any
compensation expense paid under AGAAP based on calculated option values for Growthshare options,
restricted share options, performance right options and deferred share options. An allowance is
made for expected resignations and cancellations when calculating the various option values.
For fiscal 2005 and 2004, only the deferred share options are considered dilutive for the USGAAP
earnings per share calculation. For fiscal 2003, the options, restricted share options,
performance right options and deferred share options were not dilutive for earnings per share
calculations. For the details of Telstra Growthshare options granted, lapsed and outstanding, as
well as the valuation methodology and assumptions regarding Telstra Growthshare issues, refer to
note 19.
384
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(k) Redundancy and restructuring provisions
Redundancy and restructuring disclosures for fiscal 1997 program
The disclosures required by USGAAP for the redundancy and restructuring provision recorded by us
are as follows:
In fiscal 1997, we approved a plan to reduce the number of employees by approximately 25,500 to
approximately 51,000 employees by 30 June 2000. In June 1998, we also approved a three year plan,
to 30 June 2001, which included an additional reduction of approximately 2,000 employees by
redundancy. We effected the reduction in employees through a combination of natural attrition and
outsourcing (approximately 6,700 employees) and voluntary redundancy offers and involuntary
terminations (approximately 20,800 employees). Reductions have occurred primarily in sales and
service areas, communication assets, broadband rollout construction areas and field operations and
maintenance staff.
The total estimated cost of the fiscal 1997 redundancy program was $1,320 million including
estimated severance and award payments of $1,043 million and estimated career and transition costs
of $277 million. There has been no reversal of costs no longer required to the statement of
financial performance.
Career transition costs include payments to employees who are in the outplacement process and
amounts paid to third parties for the outplacement program.
In future periods, no additional redundancies or payments are expected. The provision balance is
$nil as at 30 June 2005 (2004: $2 million, 2003: $3 million).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Number |
|
|
Number |
|
|
Number |
|
|
Expected redundancies |
|
|
|
|
|
|
22 |
|
|
|
80 |
|
|
|
|
We have made the following payments which have been charged against the provision for redundancy
and restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra Group |
|
|
|
As at 30 June |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Career transition and other
employee costs |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
The impact of redundancies has been taken into consideration in the SFAS 87 calculation in note
30(f) Retirement benefits.
30(l) Derivative financial instruments and hedging activities
Our risk management policies and objectives of entering into derivative financial instruments have
been disclosed in note 29, Additional financial instruments disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as
amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. SFAS 133 requires us to recognise all of our
derivative instruments as either assets or liabilities in the statement of financial position at
fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For those derivative instruments
that are designated and qualify as hedging instruments, we must designate the hedging instrument,
based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation.
For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the
exposure to changes in the fair value of an asset or a liability or an identified portion thereof
that is attributable to a particular risk), 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, are recognised
in other income/ expense as part of net income during the period of the change in fair values. For
derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the
exposure to variability in expected future cash flows that is attributable to a particular risk),
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. For derivative instruments that are designated and qualify as a hedge of a net
investment in a foreign currency, the gain or loss is that reported in other comprehensive income
as part of the cumulative translation adjustment to the extent it is effective.
385
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(l) Derivative financial instruments and hedging activities (continued)
For derivative instruments not designated as hedging instruments, the gain or loss is recognised in
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 AGAAP, realised gains and
losses on termination of these hedges are recognised as a net cost of the equipment acquired.
We are not able to identify specific forward foreign exchange contracts with specific capital
expenditure contracts to meet the designation criteria in SFAS 133. 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 gain of $3 million in other income per USGAAP
for the forward foreign exchange contracts outstanding at 30 June 2005 (2004: $1 million loss;
2003: $5 million gain). We also recorded an additional adjustment, net of tax, in other income
per USGAAP to reverse net realised foreign exchange gains/losses capitalised in property, plant and
equipment under AGAAP, however the amount was $nil in fiscal 2005 (2004: $3 million loss, 2003: $1
million gain).
We enter into interest rate swaps to manage our exposure to interest rate risk relating to our
outstanding short-term commercial paper. SFAS 133 does not allow us to consider the interest rate
swaps used to manage our interest rate exposure as hedges. 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 loss of $85 million, before tax, as an expense in
other income per USGAAP for changes in fair value of interest rate swap contracts outstanding at 30
June 2005 (2004: $158 million gain; 2003: $128 million loss).
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. During fiscal 2005, 2004 and 2003, the ineffective portion of our hedging instruments
(inclusive of the time value of money) was taken to other income/expense in the statement of
financial performance.
During the year ended 30 June 2003, we reclassified $17 million of losses, net of tax, from
accumulated other comprehensive income to other income. At 30 June 2003 there were no remaining
losses recorded in accumulated other comprehensive income related to the repayment of borrowings
that were hedged by interest rate and cross currency swaps in cash flow hedging relationships prior
to the adoption of SFAS 133.
PCCW Converting Note
As a part of our strategic alliance with PCCW, we purchased a US$750 million convertible note
issued by PCCW in February 2001. This convertible note was convertible at our option into PCCW
common stock at a conversion price of HK$6.886 per share. This note was redeemed on 28 June 2002
in consideration for the remaining 40% interest in CSL and a new converting note with a face value
of US$190 million.
During the year ended 30 June 2003 we redeemed US$143 million of this converting note in return for
entering into a capacity prepayment agreement with Reach Limited as discussed in note 30(n).
Under AGAAP, the initial values of the converting notes are recorded at face value in other
non-current receivables. The converting note was carried at the face value, adjusted for accrued
interest and any provision for permanent diminution considered necessary. Any foreign exchange
gains and losses on translation of the converting note to A$ were recorded in the statement of
financial performance 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 with an adjustment to other
comprehensive income for a net realised loss on sale of $7 million after tax.
The note was classified as an available-for-sale security and was disclosed in note 30(b).
386
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(m) Sale of Global Wholesale Business to Reach Ltd (Reach)
In fiscal 2001, as a part of the strategic alliance with PCCW, a joint venture entity, Reach, was
formed through the combination of our international wholesale business and certain other wholesale
assets together with certain PCCW assets. Under AGAAP, the investment in the joint venture entity
was recognised at its cost of acquisition, being the fair value of the assets transferred net of
cash received and including acquisition costs. The gain on sale of the Global Wholesale Business,
measured as the difference between the cost of the investment and the net book values of the net
assets transferred, was deferred to the extent of our ownership interest retained in the joint
venture entity, in this case being 50%.
Under USGAAP, investments in joint venture entities should be recorded at the net book value of the
assets and liabilities transferred, reduced by the amount of any cash received. Where the
resultant carrying value is a negative amount, the excess credit is recognised as an adjustment to
the amount of goodwill on other components of the interdependent transactions in this case a $30
million reduction on the CSL goodwill (refer to note 30(o)). Also, there were differences in the
fair valuation of the net assets. These related to pre-1996 capitalised interest, assembled work
force and other fair value adjustments.
The total effect of these differences reduces shareholders equity under USGAAP by $882 million as
at 30 June 2005 (2004: $882 million; 2003: $882 million).
30(n) Equity accounting and write down adjustments for Reach Ltd (Reach)
USGAAP adjustments made on the sale of the Global Wholesale Business to Reach in 30(m) above, will
result in ongoing differences in the reconciliations of net income and shareholders equity to
USGAAP.
Under AGAAP, 50% of the profit after tax was deferred and accounted for in the investment carrying
value. The deferred gain was to be recognised in the statement of financial performance on a
straight line basis over a period of 20 years. For fiscal 2003, this adjustment was $22 million up
to the date of the write down of Reach (refer below) and was reversed for USGAAP. Under AGAAP
there is no further recognition of this amount due to the write down.
For USGAAP equity accounting, there was a calculation of notional goodwill at inception that was
required to be amortised over the life of the investment. This goodwill was determined by
comparing the investment carrying value to 50% of the net assets/(liabilities) of Reach. This
amount, similar to AGAAP, was not separately recognised in the statement of financial position,
however, it was included in the investment carrying amount. This notional goodwill has been
written off with the write down of the Reach investment (refer below).
Write down of Reach investment
As discussed in note 3, as at 31 December 2002, we wrote down the entire carrying amount of our
investment in Reach. In accordance with Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock, where there is evidence that would indicate
a loss in value of an investment that is other than a temporary decline, the loss in value should
be recognised. Such factors include, but are not limited to, a current fair value of an investment
that is less than its carrying amount and the inability of the investee to sustain an earnings
capacity that would justify the carrying amount of the investment.
A discounted cash flow model was used to calculate the fair value of our investment in Reach and as
a result the carrying amount was written down to zero. For AGAAP, this resulted in a write down of
$965 million. However, due to GAAP differences discussed above and in note 30(o), under USGAAP the
write down of the investment was $203 million. Therefore, an additional net adjustment of $762
million was recognised in the reconciliations of net income and shareholders equity to USGAAP.
Refer to note 3 for further explanation of the write down made under AGAAP.
Under AGAAP, equity accounting is suspended where the cumulative share of losses and reserve
movements have reduced the participating equity investment to zero. In fiscal 2003 we ceased
equity accounting our Reach investment under AGAAP due to the investment being written down to
zero.
Under USGAAP, equity accounted losses are required to be recognised in net income to the extent
that we have other non-participating investments in the equity accounted entity (i.e. preference
shares or loans).
387
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(n) Equity accounting and write down adjustments for Reach Ltd (Reach) (continued)
Other non-participating investments in Reach
In April 2003 we made a capacity prepayment of $230 million (US$143 million) to Reach. This
advance accrued interest on a compounding basis at a market reference rate and was to be repaid
through the provision of capacity in the future at market prices. This was recorded as a
receivable under AGAAP. In April 2005 we swapped this capacity prepayment for an indefeasible
right of use (IRU) over half of Reachs international cable capacity. Refer to notes 9 and 14 for
further details.
Under USGAAP, the capacity prepayment was, and the IRU is, considered to be a non-participating
investment in Reach. As such we have continued to equity account our share of the net deficit and
losses of Reach under USGAAP as an adjustment to the adjusted basis of these assets.
During fiscal 2004, our share of equity accounted losses and net assets of Reach exceeded the
balance of the capacity prepayment and as such we have ceased equity accounting for Reach under
USGAAP. Equity accounting was suspended when our share of losses and net assets reduced the
capacity prepayment to zero.
The USGAAP adjustment to recognise our share of equity accounted losses of Reach in fiscal 2004, up
to the suspension of equity accounting, was $267 million (2003: $82 million). The adjustment to
recognise our share of the accumulated other comprehensive income of Reach in fiscal 2005 is $130
million (2004: $130 million gain; 2003: $22 million loss).
The capacity prepayment balance was recorded as a receivable under AGAAP and was restated at the
spot rate at year end. Foreign currency translation differences were recorded in the statement of
financial performance. For USGAAP these translation differences have been reversed since the
suspension of equity accounting. For fiscal 2005, $21 million of foreign currency losses recorded
under AGAAP have been reversed for USGAAP (2004: $17 million gain).
The IRU balance is recorded as an other asset under AGAAP. We have recorded an additional $14
million to this IRU under our commitment to fund half of Reachs committed capital expenditure for
the period until 2022. Refer to note 14 for further information.
Under USGAAP, we have continued to recognise our share of equity accounted losses against this
additional IRU amount. The balance of our investment in Reach, including the IRU, for USGAAP at 30
June 2005 is $nil (2004: $nil).
During fiscal 2004, we, together with our joint venture partner PCCW, provided a US$311 million
loan to Reach. Our share of the loan at 30 June 2005 is $232 million (2004: $226 million). This
loan is considered to be impaired for both AGAAP and USGAAP purposes and has been fully provided
for. As the adjusted basis of this loan under USGAAP is zero, we have not continued equity
accounting for Reach against this loan.
The total net adjustment in the reconciliation of net income to USGAAP in fiscal 2005 for all of
these differences is a decrease of $8 million (2004: $264 million decrease; 2003: $665 million
increase). The total net adjustment included in the reconciliation of shareholders equity to USGAAP is $576
million (2004: $584 million; 2003: $696 million).
30(o) Consolidation adjustment for Telstra CSL Limited (CSL)
There are several adjustments that need to be made for the consolidation of CSL for USGAAP
purposes.
For AGAAP, gains/losses on a hedge for the purchase of CSL are included in the cost of the
acquisition, thereby effecting the determination of goodwill. For USGAAP, gains/losses on hedges
of a purchase business combination are recognised in net income. Accordingly, in fiscal 2001,
hedging losses of $30 million that were included in the cost of acquisition of CSL for AGAAP, have
been recognised in net income under USGAAP.
For AGAAP, purchase price allocations in an acquisition accounted for as a business combination are
not tax effected. The tax effect of basis differences arising from purchase price allocations
(fair value adjustments) will be recognised in net income as those basis differences reverse. For
USGAAP, such basis differences are treated as temporary differences and tax-effected as part of the
acquisition accounting. As part of the acquisition, a deferred tax asset of $33 million was
recorded for these basis differences, with a corresponding decrease to goodwill.
For AGAAP, acquisition costs of $999 million were written off on acquisition of CSL in January
2001. USGAAP did not allow such a writeoff, unless it could be supported by an analysis of the
undiscounted cash flows of the entity. As a result of an analysis of undiscounted cash flows
relating to CSL, a goodwill write-off was not supportable under USGAAP. Accordingly, the goodwill
write-off was reversed and is carried forward as a difference in the reconciliation of
shareholders equity to USGAAP. This amount was also amortised in fiscal 2002 for USGAAP. For
fiscal 2003, $309 million of goodwill was recorded as an impairment loss under USGAAP, based on the
transitional goodwill impairment test. Refer to note 30(q) for further information as to the
accounting requirements and basis of the impairment.
388
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(p) Fair Value and General Reserve adjustments
In AGAAP, when we acquire a controlled entity, we are required to restate the net identifiable
assets of that controlled entity to fair value. To the extent we have an equity accounted
ownership interest in the company prior to consolidation, we are required to recognise our share of
the reserve created on consolidation. In USGAAP, this fair value adjustment is offset against
goodwill on consolidation.
In AGAAP, the effect of dilutions of ownership due to equity transactions conducted by third
parties are recorded in a reserve. In USGAAP, this is treated as a sale of ownership interest and
taken to net income. In fiscal 2005, the adjustment to net income was $5 million loss (2004:
$nil, 2003: $2 million loss).
In fiscal 2002, we had a share of a foreign associated entitys general reserve credit of $2
million. For USGAAP purposes this reserve was transferred to the foreign currency translation
reserve. In fiscal 2004 we disposed of the foreign associated entity and, under AGAAP, transferred
our share of the entitys general reserve and foreign currency translation reserve to retained
earnings. Under USGAAP, the total amount transferred of $35 million has been adjusted against our
profit recorded on the disposal of the entity.
30(q) Goodwill and other intangible asset adjustments
Under USGAAP, goodwill is no longer amortised but reviewed for impairment annually, or more
frequently if certain indicators or triggers arise. Goodwill is tested for impairment at a
reporting unit level and we have assigned goodwill to reporting units in accordance with the net
goodwill balances by legal entity included in note 13.
We completed the initial step of the transitional impairment test within six months of adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS
142), using a discounted cash flow technique to calculate the fair value of the reporting units to
identify any impairment in the carrying value of goodwill. As a result we recorded an impairment
loss of $309 million relating to the USGAAP carrying value of goodwill in CSL as a cumulative
effect of a change in accounting principle in fiscal 2003.
At 30 June 2003, we identified a further impairment in the USGAAP carrying value of the goodwill in
CSL. The fair value of CSL was determined using a discounted cash flow technique. As a result, we
recognised an additional impairment loss of $85 million.
Under AGAAP, goodwill is still amortised over its useful life and we have reversed the goodwill
amortised of $146 million for the year ended 30 June 2005 (2004: $125 million; 2003: $178 million)
in the reconciliations of net income and shareholders equity to USGAAP.
As a result of the tax timing differences related to intangible assets recently acquired,
additional goodwill has been recognised under USGAAP. Refer to note 30 (i).
389
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(q) 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 Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telstra |
|
|
|
|
|
|
|
|
Business & |
|
Telstra |
|
|
|
|
|
|
Government |
|
International |
|
Other |
|
Total |
|
|
$m |
|
$m |
|
$m |
|
$m |
|
Carrying amount of goodwill (USGAAP) at
30 June 2003 |
|
|
50 |
|
|
|
2,012 |
|
|
|
50 |
|
|
|
2,112 |
|
Additional goodwill recognised |
|
|
23 |
|
|
|
|
|
|
|
186 |
|
|
|
209 |
|
Foreign currency translation adjustment |
|
|
2 |
|
|
|
(50 |
) |
|
|
|
|
|
|
(48 |
) |
|
|
|
Carrying amount of goodwill (USGAAP) at
30 June 2004 |
|
|
75 |
|
|
|
1,962 |
|
|
|
236 |
|
|
|
2,273 |
|
Additional goodwill recognised |
|
|
372 |
|
|
|
2 |
|
|
|
163 |
|
|
|
537 |
|
Foreign currency translation adjustment |
|
|
(6 |
) |
|
|
(176 |
) |
|
|
|
|
|
|
(182 |
) |
|
|
|
Carrying amount of goodwill (USGAAP) at
30 June 2005 |
|
|
441 |
|
|
|
1,788 |
|
|
|
399 |
|
|
|
2,628 |
|
|
|
|
Intangible assets subject to amortisation
Our intangible assets still subject to amortisation are brandnames, customer bases, and patents,
trademarks and licences. The carrying amount of these intangibles are disclosed in note 13. 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 |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Estimated aggregate
amortisation expense |
|
|
100 |
|
|
|
90 |
|
|
|
72 |
|
|
|
54 |
|
|
|
54 |
|
|
|
|
Intangible assets not subject to amortisation
On 5 March 2004, we acquired 100% of the share capital of Trading Post (Australia) Holdings Pty
Ltd. As part of this acquisition we recognised $448 million of mastheads. These mastheads are not
amortised under AGAAP or USGAAP as we have determined that they have indefinite lives. Our
mastheads are disclosed in note 13.
Translation of goodwill and other intangible assets
Goodwill and other intangible assets recognised as a result of the acquisition of a controlled
foreign entity are translated at their historical foreign currency translation rate under AGAAP as
they arise in $A. Under USGAAP, using the current rate method, translation is performed at the
spot rate at year end. Amortisation of intangible assets subject to amortisation is translated
using the weighted average rate. Adjustments have been made to restate amortisation at the
weighted average exchange rate and to adjust the ending goodwill and other intangible asset
balances for fluctuations in the functional currency of the controlled foreign entity.
The total net adjustments included in the reconciliation of shareholders equity to USGAAP
resulting from the decrease to the ending balance of goodwill and other intangibles is $704 million
(2004: $514 million; 2003: $480 million). The net adjustments above resulted in an increase to
amortisation for USGAAP in fiscal 2005 of $1 million (2004: $3 million; 2003: $nil). From fiscal
2003, goodwill under USGAAP is no longer amortised.
390
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(r) Consolidation of variable interest entities
AGAAP 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 AGAAP.
Under USGAAP, we have adopted FASB Interpretation No. 46 revised December 2003 (FIN 46),
Consolidation of Variable Interest Entities, in accordance with the effective dates outlined in
FIN 46. In general, 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. |
FIN 46 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.
We have identified the following variable interest entities for which we are considered to be the
primary beneficiary and as such consolidate under USGAAP:
|
|
Telstra Employee Share Ownership Plan Trust (TESOP97) |
|
|
|
Telstra Employee Share Ownership Plan Trust II (TESOP99) |
|
|
|
Telstra Growthshare Trust |
Under AGAAP we do not consolidate or equity account these entities. For further information
regarding TESOP97, TESOP99 and the Telstra Growthshare Trust, refer to note 19.
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 24 and 30(b).
Telstra Growthshare Trust
The Telstra Growthshare Trust has purchased $113 million worth of shares in Telstra Corporation
Limited at 30 June 2005 (2004: $117 million). This represents a total of 20,216,091 shares (2004:
20,956,641 shares). The purchase of these shares has been fully funded by Telstra Corporation
Limited. Under USGAAP these shares are recorded as a reduction in total share capital under the
heading of stock held by employee share plan trusts. These shares are not considered to be
outstanding for the purposes of computing basic and diluted earnings per share.
Cumulative Trust contributions made by Telstra Corporation Limited to the Telstra Growthshare Trust
from commencement up to 30 June 2005 totalled $65 million (2004: $49 million). These contributions
were recorded as compensation expense under AGAAP and prior to the adoption of FIN 46 were reversed
against additional paid in capital for USGAAP purposes. These contributions are used by the Trust to
purchase Telstra shares on market to underpin the issue of restricted shares, performance right and
deferred share options. On consolidation of the Trust, these contributions are recorded against
additional paid in capital under USGAAP.
Telstra Corporation Limited provides a loan to the Telstra
Growthshare Trust to purchase shares on market to underpin the issue of options. The loan balance
at 30 June 2005 is $45 million (2004: $65 million). On consolidation of the Trust, this loan is
eliminated, together with any associated interest.
30(s) Arrangements that contain leases
Under USGAAP, 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.
Based on the requirements of Emerging Issues Task Force Issue No. 01-8 (EITF 01-8), Determining
Whether an Arrangement Contains a Lease, these arrangements are split into their 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.
In accordance with EIFT 01-8, some of our solutions management contracts entered into after 1 July
2003 are considered to contain capital leases. As such, at 30 June 2005 we have reclassified $24
million from property, plant and equipment to lease receivable. There is no material impact on our
revenue or net income as a result of these leases.
All of our solutions management contracts for AGAAP purposes, and those entered into prior to 1
July 2003 for USGAAP purposes, are accounted for as service arrangements.
391
Telstra Corporation Limited and controlled entities
Notes to the Financial Statements (continued)
30. United States generally accepted accounting principles disclosures (continued)
Notes to the reconciliations to financial reports prepared using USGAAP (continued)
30(s) Arrangements that contain leases (continued)
The future minimum lease payments to be received for each of the five succeeding fiscal years is as
follows:
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|
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Telstra Group |
|
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|
Year ended 30 June |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
Total future minimum lease
payments |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
|
|
1 |
|
Less: Unearned income |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Future minimum lease
payments receivable |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
1 |
|
|
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|
30(t) Recently issued Australian accounting standards
A number of new accounting standards have been issued by the Australian Accounting Standards Board
(AASB) that have not yet been adopted for AGAAP. A summary of the standards appears in note 1.3.
We will also be required to adopt the Australian equivalents of International Financial Reporting
Standards (A-IFRS), as issued by the AASB, for the half-year ending 31 December 2005 and year
ending 30 June 2006. A summary of the significant areas of impact of adopting A-IFRS appears in
note 1.4.
Some of these standards, once adopted, will result in certain currently existing adjustments in the
reconciliations of net income to USGAAP and shareholders equity to USGAAP to be no longer
required.
30(u) Recently issued United States accounting standards
Share-Based Payments
In December 2004, the Financial Accounting Standards Board in the US (FASB) issued Statement of
Financial Accounting Standards No. 123 Revised (SFAS 123R), Share-Based Payment. SFAS 123R
requires entities to recognise an expense for the issue of employee stock options and similar
awards based on their fair value. SFAS 123R is applicable to us from 1 July 2005.
Under USGAAP, we have adopted the original version of Statement of Financial Accounting Standards
No.123 (SFAS 123), Accounting for Stock Based Compensation. As such, it is not anticipated that
the adoption of SFAS 123R will have a material impact on our financial position, results of
operation or cash flows.
392
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 228 to 392 of Telstra Corporation Limited
and the Telstra Group: |
(i) comply with the Accounting Standards, Corporations Regulations and Urgent Issues Group
Consensus Views;
(ii) give a true and fair view of the financial position as at 30 June 2005 and performance, as
represented by the results of the operations and cash flows, for the year ended 30 June 2005;
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 S295A of the Corporations Act 2001; |
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(c) |
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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 23(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 23(a). |
For and on behalf of the board
Donald McGauchie
Chairman
Date: 11 August 2005
Melbourne, Australia
393
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 2005 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 statement of financial position, statement of financial
performance, statement of cash flows, statement of changes in shareholders equity, 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 2005. 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 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.
Audit procedures have been performed to assess 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 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:
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examining, on a test basis, information to provide evidence supporting the amounts and other
disclosures in the financial report, and |
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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
generally accepted accounting principles compared to United States of America generally accepted
accounting principles, which is presented in note 30 to the financial statements. I have audited
note 30 in order to form an opinion whether in all material respects, it presents fairly, in
accordance with Accounting Standards and other mandatory financial reporting requirements in
Australia and United States of America generally
accepted accounting principles, the major differences between Australian and United States of
America generally accepted accounting principles.
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.
Audit procedures were performed 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
undertake as disclosed in the notes to the financial statements. The provision of these services
has not impaired my independence.
394
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: |
|
(i) |
|
giving a true and fair view of the financial position of the Telstra Entity and
the Telstra Group as at 30 June 2005 and of their performance for the year ended
on that date; and |
|
(ii) |
|
complying with Accounting Standards in Australia and the Corporations
Regulations 2001; and |
(b) |
|
other mandatory professional reporting requirements in Australia. |
Further, in my opinion, note 30 to the financial statements presents fairly the major differences
between Australian and United States of America generally accepted accounting principles.
Ian McPhee
Auditor-General
Date: 11 August 2005
Canberra, Australia
395
Telstra Corporation Limited and controlled entities
Report of Independent Registered Public Accounting Firm to the Shareholders and Board of Directors
of Telstra Corporation Limited
This report is included solely for the purpose of incorporation in Telstra Corporation Limiteds
Annual Report 2004 on Form 20-F as required by the United States Securities Exchange Act of 1934
and the rules and regulations promulgated there under.
We have audited the accompanying consolidated balance sheets of Telstra Corporation Limited and its
subsidiaries and the unconsolidated balance sheets of Telstra Corporation Limited as of 30 June
2005 and 2004, and the related consolidated and unconsolidated statements of income, shareholders
equity and cash flows for each of the three years in the period ended 30 June 2005, all expressed
in Australian dollars. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with Australian Auditing Standards and the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an audit of the Companys internal
controls over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Telstra Corporation Limited and its subsidiaries
at 30 June 2005 and 2004 and the unconsolidated financial position of Telstra Corporation Limited
and the related consolidated and unconsolidated results of their operations and cash flows for each
of the three years in the period ended 30 June 2005, in conformity with Australian generally
accepted accounting principles.
Australian generally accepted accounting principles vary in certain significant respects from
United States of America generally accepted accounting principles. The application of the latter
would have affected the determination of consolidated net income expressed in Australian dollars
for each of the three years ended 30 June 2005, and the determination of consolidated shareholders
equity, also expressed in Australian dollars, at 30 June 2005, 30 June 2004 and 30 June 2003, to
the extent summarised in note 30 to the consolidated financial statements.
Ernst & Young
Date: 11 August 2005
Melbourne, Australia
396
Telstra Corporation Limited and controlled entities
Corporate Social Responsibility
At Telstra we believe that corporate social responsibility is a values-based approach to how we do
business, leading us beyond legal compliance to make a positive
contribution to the industries and communities in which we participate.
Corporate Social
Responsibility (CSR) reporting is managed by the Community Relations Group of Corporate Relations,
part of the Public Policy and Communications business unit. However, all parts of the business have
accountability for their own CSR activities.
This year, we participated in the second Australian
Business in the Community Corporate Responsibility Index, overseen in Australia by the St James
Ethics Centre. We were placed sixth out of 26 participating companies and received an almost five
percent increase on our previous years score due to better reporting practices. Our score was
90.21 percent. We also regularly participate in the FTSE4Good and a number of ethical investment
surveys and indices.
Our activity over the year included:
The community
Telstra people demonstrated tremendous generosity in donating and raising funds for the Indian
Ocean tsunami disaster. Telstra and our employees donated $1,561,280.27 to Asian tsunami relief aid
funds. In addition, we provided approximately $250,000 of services, which included establishing and
staffing call centres for aid agencies, fund-raising drives, providing extra phone lines, waiving
call costs where appropriate and providing staff volunteer support.
Telstra Friends, our 4,000-strong volunteer network, donated more than 12,000 hours at 251
community events and raised in excess of $192,000 for charities. This year we renewed our
sponsorship commitment with Telstra Child Flight helicopter retrieval service for $1.5 million over
the next two years, which will assist in providing intensive care transportation for seriously ill
babies and children in NSW and ACT. We also ran a fundraising appeal in partnership with Child
Flight, which raised more than $117,000.
Now in its fourth year, the Telstra Foundation continues
to support Australian children and young people to reach their potential and build stronger and
more cohesive communities. Through the Foundations Community Development Fund and the Telstras
Kids Fund, we supported 855 community projects and provided grants to the value of $4.4 million.
Environment
Our environment performance is reported in the Environment section of this annual report.
Workplace
In October 2004, Telstra was awarded the Australian Human Resources Institute (AHRI) National Award
for Excellence in People Management in our sector.
Over the fiscal year we introduced a program, Mental Health Creating a supportive workplace, to
raise awareness of mental health issues and how to assist by providing support in the workplace.
Telstra also supported a number of health and wellbeing awareness programs, including National Skin
Cancer Action week. Telstra employees celebrated International Womens Day with a series of
lunchtime speakers sessions, International Day for People with a Disability, Harmony Day and
NAIDOC Week.
397
Telstra Corporation Limited and controlled entities
Corporate Social Responsibility
We launched an innovative Life and Career transition program to support employees on individual
contract who leave due to retrenchment. Telstra also enhanced flexible leave options for employees
on individual contracts, including the ability to purchase additional leave, the ability for
employees to take career breaks and provided paid leave for all primary carers. We introduced the
new Telstra Business Principles, which set out employee work practices, principles and standards of
behaviour, a new code of conduct and the provision of simple tools for employees and managers to
resolve issues through a new Internal Resolution Process.
We made a commitment in fiscal 2003 to recruit 150 Aboriginal and Islander trainees over three
years. We recruited 60 in fiscal 2005.
Our representation of women in management increased from
19.86 percent in fiscal 2004 to 21.1 percent in fiscal 2005.
Marketplace
This year, Telstra again provided over $160 million in benefits to low-income Australians through a
range of concessions and products and services. A 2005 Low Income Measures Assessment Committee
(LIMAC) survey showed an overall improvement in access to telecommunications for low-income
transient and homeless people and indigenous Australians. On 20 June 2005, Telstra launched a new
service called BudgetPay, which allows customers to spread their estimated yearly home phone costs
over equal fortnightly or monthly payments.
398
Telstra Corporation Limited and controlled entities
Occupational Health and Safety
We believe that workplace disease and injury is preventable and we are committed to
providing a safe workplace that is free from injury and disease. 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 eight 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 the 2004-2005 fiscal year we have:
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completed more than 80 external occupational health and safety audits across office and field based
areas throughout Australia, taking the total to over 660 since the audit program commenced in
December 1997; |
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built on our successful office health, safety and environment planning to assist
managers in achieving safe workplaces; |
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extended our employee wellbeing program to raise awareness
of mental health issues in workplaces and at home with: |
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an extensive intranet site and booklet; |
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an interactive online program to assist managers address mental health issues at the workplace; and |
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after-hours awareness sessions for Telstra staff and their partners; |
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commenced a major survey
of driving safety behaviour to assist us in developing vehicle safety initiatives; and |
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implemented an enhanced online incident notification form which incorporates a motor vehicle claim
form, hazard notification and environmental incident notification capability. |
As a result of the continuous improvement through the Telstra Groups activities, during the
2004-2005 fiscal year:
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Lost-Time Injuries (LTIs) reduced by 25% to 199; |
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Lost-Time Injury Frequency Rate (measured by the number of LTIs per million hours worked)
reduced from 4.4 to 3.2; and |
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the mix of open workers compensation claims changed with a decrease
in Lost Time claims from approximately 60% to 50% and a corresponding increase in Medical Cost
claims from 40% to 50%. The number of open claims remained fairly static at 2,471. |
In line with
Commonwealth OHS Reporting, the following work-related incidents were reported in the 2004-2005
fiscal year:
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9 employees were absent from work as a result of an incident for more than a month; |
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52 employees required emergency medical treatment or treatment in a hospital; and |
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288 dangerous occurrences were reported. These are work-related incidents that could have
caused death, serious injury or incapacity to a person, but did not. |
Our focus remains on keeping
our people healthy and safe and we are committed to further improvements.
399
Telstra Corporation Limited and controlled entities
Environment
We aim to achieve a sustainable method of operating that integrates environmental, social and
economic considerations.
We are dedicated to setting the standard for environmental
performance in our industry by pursuing worlds best practice in environmental management. As an
organisation, we are open and responsive to the environmental concerns of employees, shareholders,
the wider community and Government. We regularly monitor, audit and publicly report on our
environmental progress. Key environmental reports produced in the 2004 2005 fiscal year include:
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The Telstra Public Environment Report; |
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The Telstra National Packaging Covenant Annual Report; |
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The Telstra Greenhouse Challenge Progress Report; |
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Telstra Carbon Disclosure Project; and |
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The National Environmental Protection Measures Report (contaminated sites, diesel and waste). |
We aim to improve the environmental performance of our staff, contractors and customers by
minimising reliance on transport through the use of online, audio and visual communications and by
replacing paper-based and resource-intensive ways of transferring information. We also work with
stakeholders to improve management of environmental issues arising from the building and
maintenance of our network.
Telstra initiatives in the 2004 2005 fiscal year include the
following:
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Introducing the Energy Impact Statement (EIS) for land and building capital works. This
process ensures energy efficiency is considered within the project delivery stage thereby
optimising savings in energy and greenhouse gas and reducing Telstras impact on the
environment; |
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Since 1968, Telstra has been proactive in the restoration and rehabilitation of the
Perth International Telecommunications Centre (ITC) site to ensure current and future
development of environment values. This years projects included developing a plan to
protect and conserve a Banksia attenuata woodlands, classified as a threatened ecological
community, and working with a local environment management company and students from
Perths Newman College to rehabilitate an old access road into the ITC site; |
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An increase in pit water recycling through a system that collects water in our street
pits and treats it for re-use in council parks and sports fields. In fiscal 2005, Telstra
recycled approximately 11 million litres from plants in Port Melbourne and Geelong in
Victoria, Paramatta in Sydney and Crestmead in Brisbane; |
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Reducing waste to landfill by expanding our recycling program to include hard hats. As
hard hats expire every two years, it is estimated that approximately 1,500 hard hats will
be recycled annually; and |
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Telstras subsidiary, Sensis has demonstrated its commitment towards environmental
sustainability by signing a Sustainability Covenant with the Victorian government. The
Covenant outlines key projects to reduce Sensis own environmental impacts and support the
efforts of its customers and consumers. Similar commitments are also being pursued in other
states. |
400
Telstra Corporation Limited and controlled entities
Environment
We continued:
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At Sensis, to support the Australian communitys environmental commitment and efforts
through the Sensis Directory Recycling Program. In 2004, 79% of old directories were
recycled through the Program, through kerbside and commercial paper collections, recovering
over 32,300 tonnes of paper; |
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To regularly review our processes to reduce resource use. Telstras customer service
programs are being enhanced to save paper and envelopes, as well as the energy costs
associated with delivery of information packs and bills. Telstras billing options include: |
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ordering a single bill (a consolidated account), |
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online billing for Internet services;
and |
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optional electronic bill and email notification for fixed and mobile customers. |
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Our Green Purchasing and Vendor Award programs that encourage our suppliers and
contractors to achieve sound environmental performance; |
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More than a decades sponsorship of the Banksia Awards, the premier environmental
awards in Australia that recognise community members for positive contributions to the
environment; and |
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To sign up our employees with salary sacrifice vehicles to Greenfleet. Greenfleet is a
not-for-profit environmental organisation that specialises in offsetting the environmental
impacts of greenhouse gas emissions from vehicles through tree-planting programs. |
More information on Telstras environmental management system, policy and performance is available
at www.telstra.com.au/environment.
401
Telstra Corporation Limited and controlled entities
Freedom of Information
Freedom of Information Act 1982 (Cwth)
This statement is made in accordance with section 8 of the Freedom of Information Act 1982 (Cwth)
(FOI Act). The FOI Act gives a right of access, subject to exemptions and exceptions, to documents
of the Telstra Entity. We are exempt from the operation of the FOI Act in relation to documents in
respect of our commercial activities.
Functions
The particulars and functions of the Telstra Entity are set out in detail in this annual report.
From time to time, the Telstra Entity may make decisions regarding the supply of telecommunications
services and matters incidental, ancillary or complementary to the supply of telecommunications
services that may affect members of the public.
Organisation
An outline of our organisation is given under Information on the Company Organisational
structure.
Consultative arrangements
Consultative arrangements exist between us, a number of groups with specific interests, as well as
a wide range of groups including:
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the Telstra Consumer Consultative Council (residential, Small Office and Home
Office customers); |
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our Disability Forum and Disability Equipment Program Customer Advisory Group
(customers with a disability); and |
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the Low Income Measures Assessment Committee (low income Australians). |
We also liaise with:
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the National Farmers Federation (rural and regional customers); and |
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the Australian Telecommunications Users Group (business and general). |
Categories of documents
We produce and/or retain numerous documents, including documents that are available to the public
free of charge. Documents available to the public free of charge include our Customer Service
Charter, Our Customer Terms, product and service brochures and our annual report. These and certain
other categories of documents are available from our website, www.telstra.com.
The categories of documents that we produce and/or retain relate to the provision of telephone
lines and customer premises equipment to homes and businesses, the provision
of local, long distance and international telephone calls, the provision of payphones and provision
of mobile, data, Internet and online services. There are also documents relating to wholesale
services provided to other carriers and carriage service providers.
402
Telstra Corporation Limited and controlled entities
Freedom of Information
Freedom of information requests
Initial enquiries concerning requests for access to documents or amendment of personal records
under the FOI Act may be directed to:
Telstras Information Access Unit
Locked Bag 5691
Melbourne Vic 3001
or:
Information Access Unit
Telstra Corporation Limited
Level 38
242 Exhibition Street
Melbourne Vic 3000
Telephone enquiries should be directed to the Information Access Manager on (03)
9632 3376.
403
Telstra Corporation Limited and controlled entities
Glossary
1xRTT (One Times Radio Transmission Technology): a 3G development of CDMA
technology for high speed packet switched data
2.5G: technology designed to expand the bandwidth
and data handling capacity of existing mobile telephony systems such as GSM using GPRS
3G: third generation technology designed to further expand the bandwidth and functionality of
existing mobile telephony systems beyond 2.5G
ABA: Australian Broadcasting Authority
ACA: Australian Communications Authority
ACCC: Australian Competition and Consumer Commission
Access line: a fixed or wireless local access connection between a customers premises and a
carriers local switch
ACIF: Australian Communications Industry Forum
ACMA: Australian
Communications and Media Authority
ACT: Australian Capital Territory
ADR: American depositary
receipt
ADS: American depositary share
ADSL (Asymmetric Digital Subscriber Line): a technology for
transmitting digital information at a high bandwidth on existing phone lines
AGAAP: generally
accepted accounting principles in Australia
ARPANSA (Australian Radiation Protection and Nuclear Safety Agency): a Commonwealth Government
agency responsible for protecting the health and safety of people and the environment from the
harmful effects of radiation
ARPU: average
revenue per user
ASX: Australian Stock Exchange Limited
ATM (Asynchronous Transfer Mode): a high
bandwidth, low delay technology for transmitting voice, data and video signals
Bandwidth: the
capacity of a communication link
Broadband network: a network to support subscription television
and online services
Carriage service provider: a person that supplies a telecommunications service
to the public using Carrier network infrastructure
Carrier: a licensed owner of certain specified
transmission infrastructure that is used to supply telecommunications carriage services to the
public; any person holding a carrier licence
CDMA (Code Division Multiple Access): a mobile
telephone system based on digital transmission
Churn (where expressed as a rate): the rate at which
subscribers to a service disconnect from the service. Churn is usually expressed as total
disconnects for a period divided by the average number of customers for that period
404
Telstra Corporation Limited and controlled entities
Glossary
Churn (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 and a churn relates to a change in the legal entity responsible for a
telecommunications service or account
Communications Minister: the Commonwealth Minister for
Communications, Information Technology and the Arts
Commonwealth: Commonwealth of Australia
Corporations Act and Australian Corporations Act: Corporations Act 2001 (Cwth)
CPE: customer premises equipment
CSG:
customer service guarantee
CSL: Hong
Kong CSL Limited
DDAS: digital data
access service
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
e-commerce: e-commerce includes buying and selling electronically over a network
EFTPOS: electronic
funds transfer at point of sale
EME: electromagnetic energy
EVDO (Evolution Data Optimised):
additional service for mobiles supporting high speed packet data transmission
FTTP (Fibre to the
Premises): infrastructure technology delivering telephony, broadband data, video and digital
subscription television services to customer premises on optical fibre platforms
Frame relay: a
packet switching technology for voice, data and video signals which uses packets of varying length,
or frames. Frame relay can be used with any data protocol
Government: the Government of the
Commonwealth of Australia
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. The devices can 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
IN: intelligent network
INP: inbound number portability
405
Telstra Corporation Limited and controlled entities
Glossary
IP: Internet protocol
IPND: Integrated Public Number Database
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. An ISP is also likely to provide help desk, web hosting and email services to the end
user. An ISP may connect to the Internet via their own backbone or via services acquired from an
Internet access provider
LAN (local area network): a short distance data communications network
used to link computers and other equipment
MAN: metropolitan area network
MLPS: multi-protocol
label switching
MNP: mobile number portability
Number portability: the ability of end users to keep
their telephone number when they change their telephone service provider
PABX (Private Automated
Branch Exchange): telephone equipment on a customers premises seen as terminal equipment on the
public network
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.
Preselection 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
REACH: Reach Ltd, a 50:50 joint venture with PCCW
Limited
RDN: routed data network
Reseller: non-carrier providers of telecommunications services
SDN: switched data network
SIO: services in operation
SME: small and medium enterprises
SMS: short
messaging service
SSS: spectrum sharing service
TCW: Telstra Country Wide®
Telecommunications Act:
Telecommunications Act 1997 (Cwth)
Telstra or Telstra Group: Telstra Corporation Limited and its
controlled entities as a whole
Telstra: a registered trade mark of the Telstra Entity
Telstra Act:
Telstra Corporation Act 1991 (Cwth)
406
Telstra Corporation Limited and controlled entities
Glossary
Telstra Entity: Telstra Corporation Limited
TIO: Telecommunications Industry Ombudsman
TPA:
Trade Practices Act 1974 (Cwth)
TSLRIC: total
service long run incremental cost
ULL (Unconditioned Local Loop): one or more twisted copper pairs between the exchange and the
network boundary at a customers premises
US: United States of America
USGAAP: 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
VoBB: Voice over broadband
VoIP: Voice over Internet Protocol
VPN: virtual private network
WAN:
wide area network
WAP: wireless application protocol
WDM: wave division multiplexing
WHO: World
Health Organisation
Wireless Local Loop: a range of radio technologies used to provide fixed access to customers in
lieu of copper
xDSL: term used to describe various forms of digital subscriber line technologies
that can provide very high speed service using existing copper lines
: Trade Mark of Telstra Corporation Limited ABN 33 051 775 556
®: Registered Trade Mark of Telstra Corporation Limited ABN 33 051 775 556
# : RiskMetrics is a registered Trade Mark of Benfield Greig Australia Pty Ltd
*: CHESS is a registered Trade Mark of McDonnell Information Systems Group Plc
^: Trading Post is a registered trade mark of Research Resources Pty Ltd.
^: CitySearch is a registered trade mark of CitySearch Australia Pty Ltd.
^: Iridium is a registered Trade Mark of Iridium Satellite LLC
^: Gregorys is a registered Trade mark of Universal Publishers Pty Ltd.
^: UBD is a registered trade mark of Universal Publishers Pty Ltd.
^: LinkMe is a trademark of LinkMe Pty Ltd.
^: Foxtel Digital is a trade mark of Twentieth Century Fox Film Corporation a Delaware
Corporation.
^: Foxtel Box Office is a registered trade mark of Twentieth Century Fox Film
Corporation.
^: Foxtel IQ is a trade mark of Twentieth Century Fox Film Corporation.
407
Telstra Corporation Limited and controlled entities
Total
Year Financial Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
A$m |
|
A$m |
|
A$m |
|
A$m |
|
A$m |
|
Sales revenue |
|
|
22,161 |
|
|
|
20,737 |
|
|
|
20,495 |
|
|
|
20,196 |
|
|
|
18,679 |
|
Total revenue from ordinary activities (including interest) |
|
|
22,760 |
|
|
|
21,335 |
|
|
|
21,700 |
|
|
|
20,928 |
|
|
|
23,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
|
10,771 |
|
|
|
10,175 |
|
|
|
9,170 |
|
|
|
9,483 |
|
|
|
9,834 |
|
Profit before income tax expense |
|
|
6,269 |
|
|
|
5,848 |
|
|
|
4,928 |
|
|
|
5,446 |
|
|
|
6,297 |
|
Net profit available to Telstra Entity shareholders |
|
|
4,447 |
|
|
|
4,118 |
|
|
|
3,429 |
|
|
|
3,661 |
|
|
|
4,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared for the fiscal year |
|
|
4,978 |
|
|
|
3,284 |
|
|
|
3,474 |
|
|
|
2,830 |
|
|
|
2,445 |
|
Dividends declared per share (cents per share) |
|
|
40.0 |
|
|
|
26.0 |
|
|
|
27.0 |
|
|
|
22.0 |
|
|
|
19.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
36,310 |
|
|
|
34,993 |
|
|
|
35,599 |
|
|
|
38,219 |
|
|
|
38,003 |
|
Gross debt |
|
|
13,330 |
|
|
|
11,854 |
|
|
|
12,272 |
|
|
|
13,726 |
|
|
|
13,990 |
|
Net debt |
|
|
11,790 |
|
|
|
11,167 |
|
|
|
10,972 |
|
|
|
12,268 |
|
|
|
12,505 |
|
Shareholders equity |
|
|
14,881 |
|
|
|
15,361 |
|
|
|
15,422 |
|
|
|
14,106 |
|
|
|
13,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure and investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including capitalised interest) |
|
|
4,219 |
|
|
|
3,757 |
|
|
|
3,437 |
|
|
|
3,777 |
|
|
|
7,712 |
|
Operating cash flows less investing cash flows (free cash flow) |
|
|
4,354 |
|
|
|
4,163 |
|
|
|
4,565 |
|
|
|
3,840 |
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
20.4 |
% |
|
|
19.4 |
% |
|
|
16.3 |
% |
|
|
17.5 |
% |
|
|
21.6 |
% |
Return on average equity |
|
|
29.4 |
% |
|
|
26.8 |
% |
|
|
23.2 |
% |
|
|
26.8 |
% |
|
|
32.7 |
% |
EBIT interest cover (times)(1) |
|
|
8.5 |
|
|
|
8.3 |
|
|
|
6.4 |
|
|
|
7.0 |
|
|
|
9.0 |
|
EBITDA
interest cover (times)(1) |
|
|
13.0 |
|
|
|
12.9 |
|
|
|
10.2 |
|
|
|
10.7 |
|
|
|
12.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross debt to capitalisation(2) |
|
|
47.3 |
% |
|
|
43.6 |
% |
|
|
44.3 |
% |
|
|
49.3 |
% |
|
|
50.5 |
% |
Net debt to capitalisation(3) |
|
|
44.2 |
% |
|
|
42.1 |
% |
|
|
41.6 |
% |
|
|
46.5 |
% |
|
|
47.7 |
% |
Net debt to EBITDA (times)(1) |
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
|
(1) |
|
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA)
reflects our net profit prior to including the effect of interest revenue, borrowing costs, income
taxes, depreciation and amortisation. Similarly, earnings before interest and income tax expense
(EBIT) reflects our net profit prior to including the effects of interest revenue, borrowing costs
and income taxes. EBITDA and EBIT are not USGAAP measures of income or cash flow from operations
and should not be considered as 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. EBITDA and EBIT are useful to investors because analysts and other members of the
investment community largely view them as key and widely recognised measures of operating
performance. |
|
(2) |
|
Based on gross debt (total current and non current interest-bearing liabilities
including cross currency swap hedge receivables) as a percentage of gross debt plus shareholders
equity. |
|
(3) |
|
Based on net debt (gross debt including cross currency swap hedge receivables less
liquid interest-bearing assets) as a percentage of net debt plus shareholders equity. |
408
Item 19. Exhibits
|
|
|
Telstra Corporation Limited Constitution*
|
|
Exhibit 1 |
|
|
|
Employment Contract Sol Trujillo
|
|
Exhibit 4.1 |
|
|
|
Waiver to CEO Contract Sol Trujillo
|
|
Exhibit 4.1A |
|
|
|
Employment Contract John Stanhope
|
|
Exhibit 4.2 |
|
|
|
Employment Contract Michael Rocca
|
|
Exhibit 4.3 |
|
|
|
Employment Contract Deena Shiff
|
|
Exhibit 4.4 |
|
|
|
List of Subsidiaries
|
|
Exhibit 8 |
|
|
|
Rule 13a-14(a) Certifications
|
|
Exhibit 12 |
|
|
|
Rule 13a-14(b) Certifications
|
|
Exhibit 13 |
|
|
|
Consent of Ernst & Young
|
|
Exhibit 15 |
|
|
|
* Incorporated by reference to Telstras Annual Report on Form 20-F for the fiscal year
ended June 30, 2003. |
SIGNATURE
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.
|
|
|
|
|
|
|
|
|
TELSTRA CORPORATION LIMITED
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Douglas Gration |
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Douglas Gration |
|
|
|
|
Title:
|
|
Company Secretary |
|
|
Dated: October 6, 2005
Exhibit Index
|
|
|
Telstra Corporation Limited Constitution*
|
|
Exhibit 1 |
|
|
|
Employment Contract Sol Trujillo
|
|
Exhibit 4.1 |
|
|
|
Waiver to CEO Contract Sol Trujillo
|
|
Exhibit 4.1A |
|
|
|
Employment Contract John Stanhope
|
|
Exhibit 4.2 |
|
|
|
Employment Contract Michael Rocca
|
|
Exhibit 4.3 |
|
|
|
Employment Contract Deena Shiff
|
|
Exhibit 4.4 |
|
|
|
List of Subsidiaries
|
|
Exhibit 8 |
|
|
|
Rule 13a-14(a) Certifications
|
|
Exhibit 12 |
|
|
|
Rule 13a-14(b) Certifications
|
|
Exhibit 13 |
|
|
|
Consent of Ernst & Young
|
|
Exhibit 15 |
|
|
|
* Incorporated by reference to Telstras Annual Report on Form 20-F for the fiscal year
ended June 30, 2003. |