Telstra 2005 Annual Report Download - page 28

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
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 $4,447 million (2004: $4,118 million).
This result was after deducting:
• net borrowing costs of $736 million (2004: $712 million); and
• income tax expense of $1,822 million (2004: $1,731 million).
Earnings before interest and income tax expense was $7,005 million,
representing an increase of $445 million or 6.8% on the prior year’s result
of $6,560 million.
After adjusting to allow like-for-like comparisons with the year ended
30 June 2004, net profit for the year increased by 4.6% to $4,349 million
(2004: $4,156 million) and earnings before interest and income tax expense
increased by 3.0% to $6,888 million (2004: $6,690 million).
Review of operations
Financial performance
Our total revenue (excluding interest revenue) increased by 6.5% or
$1,377 million to $22,657 million. This included total revenues of
$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 $932 million to $15,652 million. Operating expenses for
the year ended 30 June 2005 included expenses of the controlled entities
we acquired during the year of $566 million.
Excluding the impact of our newly acquired controlled entities and
adjusting for other items to allow like-for-like comparisons with the prior
year, our total revenues increased by 3.5% to $21,670 million and operating
expenses (before borrowing costs and income tax expense) increased by
3.7% to $14,782 million.
Total revenue (excluding interest revenue) growth was attributable to:
• mobile goods and services – $319 million or 8.3%;
• internet and IP solutions revenue – $364 million or 35.9%;
• advertising and directories revenue – $244 million or 18.2%; and
• pay TV bundling – $109 million or 70.8%.
Mobile goods and services revenue increased largely due to the
performance of mobile’s 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:
• the roll out of high speed wireless services (EV-DO);
• the i-mode® alliance with more than 200 content sites; and
• the growth in the use of mobile data products, including
BlackBerry* devices.
Internet and IP solutions revenue increased during the year due to:
• growth in the number of subscribers to our BigPond® broadband
product; and
• 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 TV 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 $275 million or 3.4% as the market continues to move towards
new products and services to satisfy requirements.
Total operating expenses (before borrowing costs and income tax expense)
growth of $932 million was mainly attributable to:
• labour – $475 million or 14.8%; and
• goods and services purchased – $593 million or 16.7%.
Labour costs increased in fiscal 2005 mainly due to the following:
• staff taken on as a result of our newly acquired controlled entities;
• annual salary increases due to enterprise agreements and annual
salary reviews;
• increased use of casual staff to improve customer service and account
management; and
• 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 TV in particular.
Goods and services purchased increased due to the following:
• purchases of pay TV services to enable us to provide bundled products;
• higher cost of goods sold due to increased handset sales volumes and
growth in broadband modem sales;
• higher handset subsidies due to the promotions offered in prior periods;
and
• increased usage commissions due to higher prepaid mobile recharge
commissions.
Depreciation and amortisation costs grew by 4.2% to $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.
directors’ report
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