Telstra 2007 Annual Report Download - page 38

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Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2007
Other expenses
Our other expenses increased by 11.2% to $4,924 million in fiscal 2007. The increase in other expenses in the
current year includes $76 million relating to a full year of expenses attributable to the merger of CSL with
New World PCS, the consolidation of expenses from SouFun in the current fiscal year, and the impact of
Adstream which was acquired in the second half of the prior fiscal year. This increase is partially offset by
the divestment of Australian Administrative Services in August 2006 of $8 million.
The movement in the significant categories of other expenses is discussed below.
The largest component within this expense category is service contracts and other agreements. The
expense increased by 18.6% to $2,177 million in the fiscal year ended 30 June 2007, largely driven by the
following factors:
• costs associated with transformational initiatives of $242 million largely associated with the IT
transformation, the IP enablement of our network, and supply chain management, which amounted to
a year on year increase of $193 million; and
• volume based increases totalling approximately $110 million including increased activations,
recontracts and billing enquiries following the launch of the Next GTM network and other revenue
initiatives, as well as payments to Brightstar for management of our Channel Logistics Operations
centre. A payment is made to Brightstar on the volumes of handsets shipped out from the centre to
various sales channels.
Our promotion and advertising costs increased by 18.5% to $422 million during the fiscal year mainly due to
increased spend related to the launch of the Next GTM network and the Telstra Next IPTM network, as well as
more marketing activity to stimulate growth of wireless and other BigPond® related products. Another
driver for the increase is expenditure used to drive print and online White Pages® and YellowTM usage and to
promote Trading Post in a highly competitive environment. This is partly offset by spend in the prior fiscal
year associated with the Commonwealth Games, which was not incurred in fiscal 2007.
General and administration expenses increased by 19.8% to $949 million in fiscal 2007 driven by increases in
IT - software costs, training costs, electricity, as well as the impact of a number of reclassifications. Our IT -
software costs have increased during fiscal 2007 largely driven by the IT transformation, additional
purchases of software licenses and the associated price adjustments. Training costs have increased mainly
due to our focus on training and equipping our field staff in order to better service and satisfy customer
needs, which is an important part of the transformation. Also contributing to the increase is higher
electricity and property maintenance costs associated with running multiple networks, including the new
Next GTM network, as well as cost associated with running the Internet Data Centres. Furthermore, there
were changes in booking practices during fiscal 2007 following improved invoicing procedures, which have
seen costs previously booked to Service Contracts and Agreements now reclassified as accommodation and
information technology costs totalling $41 million. The increases have been partially offset by lower IT
costs arising out of the re-negotiation of an IT vendor contract as part of the transformation strategy.
Other expenses
Year ended 30 June
2007 2006 Change 2007/2006
$m $m $m (% change)
Property, motor vehicle and IT rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 598 (6) (1.0%)
Net foreign currency conversion losses/(gains) . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) 2(9)(450.0%)
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8225.0%
Service contracts and other agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,177 1,836 341 18.6%
Promotion and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422 356 66 18.5%
General and administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949 792 157 19.8%
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392 506 (114) (22.5%)
Impairment and diminution expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 329 60 18.2%
Total other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,924 4,427 497 11.2%