Telstra 2007 Annual Report Download - page 76

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Telstra Corporation Limited and controlled entities
Directors’ Report
Net finance costs increased by $154 million or 16.5% in fiscal 2007, primarily due to higher levels of debts
driven by the cash requirements to fund the capital expenditure associated with our transformation. Our
borrowings have also been affected by higher effective interest rates. The net debt gearing level at 53.7%
remains within the financial parameters set by the Board.
Income tax expense increased by $36 million or 2.6% to $1,417 million in fiscal 2007 mainly as a result of t he
higher profit. The effective tax rate in the current year was 30.2% compared with the prior year rate of 30.3%.
The effective tax rate is consistent with the Commonwealth statutory marginal income tax corporate rate
of 30.0%.
Financial condition
We continued to maintain a strong financial position, as demonstrated by us generating free cash flow of
$2,899 million. During fiscal 2007, we continued to develop our core infrastructure network through
ongoing operational transformation. In addition, we acquired SouFun for $337 million and paid a total of
$3,479 million to shareholders as dividends in fiscal 2007.
As part of our ongoing operational transformation, we have continued to apply the one factory
methodology to consolidate and simplify the way we operate at all levels of the business. Previously, we
had invested in multiple platforms in our exisiting networks. We intend using economies of scale to ensure
rationalisation of the number of operational platforms. We are currently implementing new business
support systems and operational support systems to deliver simplificiation of our current processes and new
capababilities cost effectively.
We continue to implement market based management to improve our customers experience and bring more
value to our customers.
During fiscal 2007, our credit rating outlook remained unchanged. Our credit ratings are as follows:
We reported a strong free cash flow position and we continue to source cash through ongoing operating
activities and through careful capital and cash management.
Our cash flow before financing activities (free cash flow) position remains strong despite declining to $2,899
million in the year from $4,579 million in the prior year. This decline was driven by higher levels of cash used
in investing activities as we undertake our network and information technology platform transformation
and a decline in operating performance.
Cash used in investing activities was $5,621 million, representing an increase of $1,647 million over the prior
year. The increase is mainly attributable to capital expenditure on our transformation activities.
Our cash used in financing activities was $2,757 million, resulting from the payment of the dividend and the
refinancing of our maturing debt, offset by net proceeds from borrowings received from a number of our
private placements.
Dividends, investor return and other key ratios
Our basic earnings per share increased to 26.3 cents per share in fiscal 2007 from 25.7 cents per share in the
prior year. The increase was due to higher profit in fiscal 2007.
The directors have declared a final fully franked dividend of 14 cents per ordinary share ($1,740 million),
bringing declared dividends per share for fiscal 2007 to 28 cents per share. The dividends will be franked at
a tax rate of 30%. The record date for the final dividend will be 24 August 2007 with payment being made on
21 September 2007. Shares will trade excluding entitlement to the dividend on 20 August 2007.
Long term Short term Outlook
Standard & Poors AA1negative
Moodys A2 P1 negative
Fitch A+ F1 negative