Telstra 2003 Annual Report Download - page 32

P.30
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 2003.
Principal activity
Telstra’s 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
Telstra’s net profit for the year was $3,429 million (2002: $3,661
million). This was after:
•deducting income tax expense of $1,534 million
(2002: $1,796 million); and
•allowing for net losses attributable to outside equity interests
in controlled entities of $35 million (2002: $11 million).
Earnings before interest and income tax expense was $5,723
million, representing a 7.9% decrease from the prior year’s result of
$6,216 million.
Earnings per share decreased by 6.3% from 28.5 cents per share in
fiscal 2002 to 26.6 cents per share in the current year. Year on year
results have been impacted by a number of factors as described
below.
Review of operations
Profit before income tax expense for fiscal 2003 declined by 9.5%
from the prior year to $4,928 million primarily due to the write off of
the investment in our 50% owned joint venture REACH Ltd (REACH),
amounting to $965 million. The investment was written down 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.
During the year, we continued to develop our full service
telecommunications model and focus on cost control. We have seen
growth in many areas of the business including mobiles, internet
and IP products, advertising and directories and intercarrier services.
Sales revenue increased by $299 million to $20,495 million in fiscal
2003. The increase was mainly due to the inclusion of TelstraClear
Limited (TelstraClear) revenue for the full twelve months,
contributing $548 million to revenue. TelstraClear was acquired in
December 2001 and therefore only seven months of sales revenue
was included in fiscal 2002, amounting to $294 million.
Total revenue (excluding interest revenue) increased by $814 million
to $21,616 million in fiscal 2003, which included revenue from the
sale of assets and investments of $859 million compared with $302
million in the prior year. The sale of assets in fiscal 2003 included
revenue from the sale of seven office properties of $570 million.
Operating expenses (before borrowing costs and share of net losses
of associates and joint venture entities) increased by $363 million to
$14,868 million. The increase was due mainly to:
•the inclusion of TelstraClear expenses of $609 million for a
full year, compared with $364 million in the prior year; and
•the carrying value of assets and investments sold during
the year of $661 million, compared with $307 million in the
prior year.
Net borrowing costs increased by 3.2% to $795 million in fiscal
2003 primarily due to reduced interest received from the PCCW
converting note. The original note in fiscal 2002 amounted to
US$750 million compared to a US$53 million converting note we
now hold as at 30 June 2003.
Income tax expense decreased by 14.6% to $1,534 million in
fiscal 2003, giving an effective tax rate of 31.1%. The income tax
expense benefited from the introduction of tax consolidation
legislation from 1 July 2002. The benefit to income tax expense
was $201 million and resulted from the net increase in the tax
value of tax depreciable assets.
Our free cash flow increased by 18.9% to $4,565 million as a result
of higher proceeds from asset and investment sales and a decrease
in capital expenditure. Operating capital expenditure declined by
6.6% to $3,261 million due to tight control of our capital expenditure
program. Proceeds from the sale of property, plant and equipment
increased by $603 million to $797 million mainly as a result of the
sale of seven office properties. Investment expenditure amounted
to only $71 million in fiscal 2003, which included the acquisition of
the remaining 41.6% of share capital in TelstraClear for $25 million
to give us a 100% ownership interest.
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
Telstra’s operations, the results of those operations or the state of
Telstra’s affairs other than:
directors’ report