Telstra 2007 Annual Report Download - page 245

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
(a) Financial assets, financial liabilities and gearing (continued)
The gearing ratios were as follows:
The net interest expense was as follows:
The effective yield (effective interest rate) on our net debt at 30 June
2007 was 7.17% (2006: 6.98%) for the Telstra Group and 7.21% (2006:
6.94%) for the Telstra Entity.
Unless there is evidence t o suggest otherwise, financial assets and
financial liabilities with a short term to mat urity are considered to
approximat e net fair value.
The reported balance of our borrowings and derivative instruments
excludes accrued interest which is recorded in current ‘t rade and other
receivables’ and current ‘trade and other payables’ in the balance
sheet.
Offshore loans comprise debt raised overseas. The difference between
the fair value and carrying value arises from the mixed measurement
bases where only part of the foreign currency borrowing portfolio is
carried at fair value with the remaining part at amortised cost. Refer
to note 2.14 for furt her information.
The carrying amount of offshore loans are denominated in the
following currencies:
(b) Risks and mitigation
The risks associated with our main financial instruments and our
policies for minimising these risks are detailed below.
Market risk
Market risk is the risk that the fair value or future cash flows of our
financial instruments will fluctuate because of changes in market
prices. Components of market risk to which we are exposed are
discussed below.
(i) Interest rate risk
Interest rate risk refers to the risk that the value of a financial
instrument or cash flows associated with the instrument will fluctuate
due to changes in market interest rates.
Interest rate risk arises from interest bearing financial assets and
liabilities that we use. Non derivative interest bearing assets are
predominant ly short term liquid assets. Our int erest rat e liability risk
arises primarily from long term foreign debt issued at fixed rates
which exposes us to fair value interest rate risk. Our borrowings which
have a variable interest rate attached give rise to cash flow interest
rate risk.
34. Financial and capital risk management (continued)
Ta ble C Telst ra Group Telstra Entity
As at 30 June As at 30 June
2007 2006 2007 2006
$m $m $m $m
Net debt . . . . . . . 14,587 13,024 15,245 13,625
Total equity . . . . . 12,580 12,834 12,153 12,117
Total capital . . . . 27,167 25,858 27,398 25,742
Gearing ratio . . . . 53.7% 50.4% 55.6% 52.9%
Ta ble D Telstra Group Telstra Entity
2007 2006 2007 2006
Note $m $m $m $m
Finance income . . . . . 6 (57) (74) (47) (71)
Interest on borrowings . 7 1,064 974 1,086 990
Net interest on
borrowings . . . . . . . . . 1,007 900 1,039 919
Tabl e E Tel st ra Group Telstra Entity
As at 30 June As at 30 June
2007 2006 2007 2006
$m $m $m $m
Australian dollar. . . . 493 245 493 245
Euro . . . . . . . . . . . 7,018 6,336 7,018 6,336
United States dollar. . 906 1,028 906 1,028
United Kingdom pound 471 487 471 487
Japanese yen. . . . . . 387 472 387 472
New Zealand dollar . . 181 164 181 164
Swiss francs. . . . . . . 285 326 285 326
Singapore dollar . . . . 77 84 77 84
9,818 9,142 9,818 9,142