Telstra 2005 Annual Report Download - page 30

28
Cash used in investing activities was $3,809 million, representing an increase
of $539 million over the prior year. The increase is mainly attributable to
capital expenditure to upgrade our telecommunications networks, eliminate
components that are no longer useful and improve the systems used
to operate our networks. Investment expenditure in fiscal 2005 totalled
$590 million compared with the prior year of $668 million, which was mainly
for the acquisition of the KAZ Group, the Damovo Group, and the PSINet
Group. Total cash flow before financing activities (free cash flow) increased
to $4,354 million compared with $4,163 million in fiscal 2004.
Our cash used in financing activities was $3,512 million, resulting from
the funding of dividend payments and the share buy-back, offset by net
proceeds from borrowings received from a number of our bond issues.
Investor return and other key ratios
Our earnings per share increased to 35.5 cents per share in fiscal 2005
from 32.4 cents per share in the prior year. This increase is due to improved
earnings and a reduction in the number of shares on issue as a result of the
off market share buy-back completed during fiscal 2005.
We have declared a final fully franked dividend of 14 cents per ordinary
share ($1,742 million) and a fully franked special dividend of 6 cents per
ordinary share ($747 million) to be paid with the final dividend, bringing
declared dividends per share for fiscal 2005 to 40 cents per share. The prior
year declared dividends amounted to 26 cents per share. The dividends
paid in fiscal 2005 were 33 cents per share compared with dividends paid
in fiscal 2004 of 25 cents per share. We also returned $750 million to
shareholders through an off market share buy-back. Other relevant
measures of return include the following:
• Return on average assets – 2005: 20.4% (2004: 19.4%)
• Return on average equity – 2005: 29.4% (2004: 26.8%)
Return on average assets is higher in fiscal 2005 primarily due to the
increased profit previously discussed. Return on average equity is also
attributable to higher profits and to the reduced shareholders’ equity
resulting from the share buy-back and increased dividend payments
in fiscal 2005.
Strategy
We offer a full range of telecommunications products and services
throughout Australia and various telecommunications services in certain
overseas countries. Our strategy to move forward as the Australian market
leader in the industry, involves the management of the following:
• migration of customer demand from traditional products and services,
particularly PSTN, to the emerging products and services of the
business, in particular mobiles and broadband internet services;
• cost and productivity improvements;
• continual improvement of customer service levels; and
• alignment of investment with revenue growth drivers.
The effective management of these business areas will require a market
based management approach and a change in how the company
operates. It also requires a regulatory environment that allows us to
compete on an equal basis.
We do face a series of business operating issues that will impact the
future results of our Company. These issues range from the potential full
privatisation of the Company, regulatory issues, including regulated price
caps, and establishing the appropriate business structure to drive future
growth.
Growth in sales revenues was led by mobiles, Internet and IP Solutions,
solutions management, and advertising and directory services. We continue
to focus on maximising revenues from our higher margin traditional
products such as PSTN, while managing the shift in customer demand to
our lower margin emerging products such as broadband. We have aligned
our investment strategies with the new growth areas and continue to focus
on identifying cost efficiencies to protect operating margins as far as
possible, whilst at the same time improving our customer service levels.
We continue to increase ordinary dividends to our shareholders. In addition,
we have improved returns to our shareholders through special dividends
and share buy-backs as part of our capital management strategy. Since
fiscal 2004, we have adopted the following capital management policies:
• declaration of ordinary dividends of around 80% of net profit after tax
(before any unusual items such as write downs of assets and
investments); and
• the return of $1,500 million to shareholders each year until fiscal 2007
through special dividends and/or share buy-backs, subject to
maintaining our target financial parameters.
Industry dynamics
The Australian telecommunications industry is continually changing.
In recent times, we have seen the number of mobile handsets in the
Australian market continue to grow, as well as the use of mobile services.
Most households continue to maintain a basic access line, however PSTN
products are increasingly being substituted by wireless products.
The broadband sector is in a significant growth phase as the demand for
high speed internet access accelerates. We have seen large increases in
broadband subscribers in the last two to three years and a steady fall in
prices as providers compete for market share.
Advances in technology continue to underline the telecommunications
industry. In recent years, we have seen various new product offerings
released to the market, including the provision of high-speed wireless
services, third generation (3G) mobile services and other mobile offerings
such as i-mode®. Voice services over IP (VoIP) is another area of change
for which the industry is preparing. We have recently successfully
commissioned and commenced testing our next generation VoIP platform
that we believe will offer value added broadband services to our customers
in the future. We continue to be at the forefront of these, and other,
technology advancements as we have devoted substantial capital to
upgrade our telecommunications networks to meet customer demand,
particularly for the new product and growth areas.
We are well positioned to focus on these areas of new customer demand
by providing a broad range of innovative products with creative and
competitive pricing structures.
Sale of the Commonwealth’s remaining interest
The Commonwealth Government has reiterated its commitment to the
sale of the Commonwealth’s remaining shares in us. Telstra’s Board and
management support the sale by the Commonwealth of the remaining
shares in Telstra to complete the privatisation process, but recognise that
the decision is one for the Commonwealth to make. The full privatisation of
the Company will depend upon a number of factors, including the passing
of appropriate legislation through Parliament and market conditions.
directors’ report continued