Telstra 2006 Annual Report Download

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25 September 2006
The Manager
Company Announcements Office
Australian Stock Exchange
4th Floor, 20 Bridge Street
SYDNEY NSW 2000
Office of the Company Secretary
Level 41
242 Exhibition Street
MELBOURNE VIC 3000
AUSTRALIA
Telephone 03 9634 6400
Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra Corporation Limited 2006 Annual Review
In accordance with the listing rules, I attach an announcement for release to the market.
Yours sincerely
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

Table of contents

  • Page 1
    ... 4th Floor, 20 Bridge Street SYDNEY NSW 2000 Office of the Company Secretary Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA Telephone 03 9634 6400 Facsimile 03 9632 3215 ELECTRONIC LODGEMENT Dear Sir or Madam Telstra Corporation Limited 2006 Annual Review In accordance with the...

  • Page 2
    annual review 2006 no one else...

  • Page 3
    ... the date made. Message to shareholders Risk factors Financial review Transformation strategy update Regulation Senior management team and executive officers Business unit summary Corporate social responsibility Board of directors Directors' report Remuneration report Concise financial report Five...

  • Page 4
    ... to page 7 of this annual review for a detailed explanation of the risks faced by Telstra. We are pleased to report that our transformation plan is on track, on budget and on time. The investments we are making today to improve shareholder value in the future are substantial and made the fiscal 2006...

  • Page 5
    ... performance in Yellow Pages® online and non-metropolitan books and Sensis' emerging businesses. We are tackling the decline in our fixed line (PSTN) revenues by integrating services, customer win back programs and introducing value based subscription pricing plans. This strategy helped slow the...

  • Page 6
    ...We are executing the strategy to deliver capabilities like no other telecommunications company anywhere in the world. Telstra has a number of advantages; we have leading market share, which means we have scale. We have the most complete set of assets. We have fixed, we have mobile, we have broadband...

  • Page 7
    ... (business support systems for customer relationship management, customer care and billing). • Signed six year contract with IBM to bring together the operation and management of all Telstra's internal IT systems • Automated end-to-end ordering process for IP products for business and corporate...

  • Page 8
    ... of Australia's small office / home office (SOHO) and small to medium enterprises (SME) with Telstra fixed line, mobiles, broadband, data and online solutions; • Telstra Operations, responsible for the co-ordination and execution of the company's multi-year business improvement and transformation...

  • Page 9
    ... with the Government during the sales process to help ensure its success. oUTLook We will continue to transform Telstra into a company focused on delivering innovative, value based products, services and solutions to customers. We are also determined to build sustainable shareholder value and this...

  • Page 10
    risk factors risk factors the journey to the New telstra is not without significant risks that could affect us all. We face several risks, whether they be regulatory, transformation related or from the general market or operating conditions. Additionally, some risks may be unknown to us and other ...

  • Page 11
    ... for our shareholders and could benefit our competitors. Mandated access A key part of our transformation strategy involves to Telstra networks building a new, nationwide wireless (3GSM 850) network. The ACCC may hold a public inquiry at any time into whether compulsory competitor use of this...

  • Page 12
    ... âˆ' competitors may in time offer similar services and capabilities; and • âˆ' suitable handsets may be unavailable. Key personnel The success of our transformation strategy is highly dependent on key personnel at Telstra. Our CEO and a number of key members of his senior management team have...

  • Page 13
    ... cash flows that enable us to invest in and develop our business. risk impact The decline will continue and may accelerate. If we are unable to arrest the rate of decline, manage costs and grow alternative revenue sources in newer lower-margin products and services such as mobiles and broadband...

  • Page 14
    ... • Second half sales revenue up 3.9%. • Retail broadband revenue up 58%, mobiles revenue up 6.1% and Sensis revenue up 6.9%. • PSTN revenue decline slowed in the second half, down 6.7% for the year. • Operating expenses were up 13.8%; excluding transformation costs operating expenses were up...

  • Page 15
    ...to $21.0 billion. sales revenue grew 3.9% in the second half following continued growth in broadband, mobiles and Sensis. To stabilise the decline in fixed line (PSTN) we introduced new product plans tailored to specific customer segments. operating expenses (before finance costs, income tax expense...

  • Page 16
    ...improve the customer experience as a result of our transformation. We predominantly used our free cash flow to: • pay dividends to our shareholders of $4.9 billion, representing 40 cents per share (this included two special dividends totalling 12 cents per share); and • pay finance costs of $940...

  • Page 17
    transformation strategy update Transforming Telstra is a journey for us all The journey to the New Telstra is a shared journey across all levels of the organisation. All of Telstra's workforce are working hard to transform your company. We have launched a new vision and new cultural priorities ...

  • Page 18
    transformation strategy update www.telstra.com 15

  • Page 19
    ...five business segments and started to launch new offers into the market. We launched subscription based pricing offers across the popular HomeLine® fixed line (PSTN) products, a direct result of listening to our customers. Aisling and her segment launched 'My Prepaid Online'. "Our research insights...

  • Page 20
    ... Account Director with Telstra Enterprise and Government (TE&G). He works with one of Telstra's largest customers, Australia Post, to deliver solutions to align with its business needs across our product portfolio of voice, data, mobiles and services. The new IP Core platform will be 77 times faster...

  • Page 21
    transformation strategy update "Customers from outback Australia and in the capital cities will have access to the latest mobile network features, services and products including wireless broadband, content downloads and video calls." Vince Boffa technology infrastructure manager, 3gSm development,...

  • Page 22
    ...for Telstra Wholesale on the transformation project, and his key focus is to drive change in how products are defined in the new systems and capturing product impacts from network rationalisation. Wholesale is leading the way in simplifying systems, by further developing the online ordering, billing...

  • Page 23
    transformation strategy update "We are working towards a more flexible workforce that is better equipped to serve and satisfy our customers' busy lifestyles." kerry davut Senior Alerts Consultant telstra operations workforce excellence initiatives cUsToMer BeNeFiTs • flexible work hours, aligned...

  • Page 24
    ... significantly diminish shareholder value by increasing Telstra's costs and reducing the opportunity for Telstra to earn revenue and grow, and undermine the development of a sustainably competitive and financially healthy industry. We face substantial regulatory risks in our business which have...

  • Page 25
    ...indicated access prices which are well below our estimates of the costs of supply. This regulation slows or diverts investment that would otherwise be used to improve our customers' experience, earn a competitive return for shareholders and provide infrastructure and advanced services that Australia...

  • Page 26
    ... deprives Australia of the significant benefits of widespread high speed broadband services. This investment is being made in a highly competitive market but the ACCC has the power to mandate a mobile roaming service for our competitors to use our network. Such declaration would deprive Telstra of...

  • Page 27
    ...of managing director of products, Wireless & mobility, where she was accountable for the development and lifecycle management of telstra's wireless and mobility products and networks. in her previous position as Chief of marketing for telstra retail, holly was accountable for the strategic direction...

  • Page 28
    ... Since joining telstra in 1967, John has held a range of senior financial management positions including general manager, Strategy and finance - Special Business products; general manager, finance and Business planning - Network products; and executive general manager - Business Support Services. in...

  • Page 29
    ... Melbourne Commonwealth Games BigPond provided Telstra mobile customers with 3G and online services including live video streams, news, event information and athlete profiles. • âˆ'Cross Product Delivery - BigPond is working to deliver cross platform content offerings to drive BigPond broadband...

  • Page 30
    ... experience on mobile phones to meet our customers' increasing use of data services. • âˆ'The Melbourne 2006 Commonwealth Games showcased new and innovative developments on 3G mobile networks, such as Live TV broadcasts. • âˆ'The launch of HomeLine® subscription pricing plans for fixed lines...

  • Page 31
    ...live outside the distance limitations of ADSL. eNTerPrise & GoVerNMeNT overvieW Telstra Enterprise and Government (TE&G) is the leading provider of information communication and technology (ICT) services and solutions in Australia and New Zealand, providing unique and integrated voice, data, mobile...

  • Page 32
    ...staff focused on serving the business market. This consolidation incorporates a range of functions including a business-focused marketing team, as well as a sales and service workforce serving our customers via account management, dedicated contact centres, shops, dealers and resellers. • âˆ'Using...

  • Page 33
    ... the cross-company Program Office, Telstra Services, Network and Technology, Wireless, IT Services, Product Management, Procurement, Strategic Supplier Relations, Credit Management and the Billing Directorate. key role iN implemeNtiNg trANSformAtioN StrAtegy Telstra Operations is playing a key role...

  • Page 34
    ..., One2Free and New World Mobility - with each brand targeting different customer segments through a unique portfolio and market position. soUFUN overvieW On 31 August 2006, we purchased a 51 per cent shareholding in SouFun, China's leading real estate and home furnishing web site. Telstra made the...

  • Page 35
    ...® plan, for local and STD calls made on their mobile service; • a âˆ' one-off credit of $50 for Telstra mobile customers who do not have a fixed line phone and whose homes have been destroyed by bushfires; and • t âˆ' he suspension and reconnection at no cost of one fixed home phone and BigPond...

  • Page 36
    ... in senior management has improved from 21.1% in fiscal 2005 to 23.71% in fiscal 2006. Telstra employees celebrated International Women's Day through a series of Women Speaker Forums across the nation. Telstra also holds Foundation Partner member status with the Serious Women's Business Conference...

  • Page 37
    ...) Age 54 chief executive officer Experience: mr trujillo joined telstra as Ceo on 1 July 2005. mr trujillo has spent his career in the communications sector where he managed fixed line, wireless, broadband and directory businesses and served as a leader in the shift to market-based management...

  • Page 38
    ...(2003- ); director, Williamson Community leadership program limited (2004- ); victorian Councillor, Australian institute of Company directors; member, New Zealand Accounting Standards review Board and investment Committee of unisuper ltd. former: Chairman, Centre for eye research Australia ltd (1996...

  • Page 39
    ...long term shareholder value. The financial performance of the Company in fiscal 2006 was impacted by the investment in this transformation and provision for future restructuring. as increased revenue from mobile handset sales. 3G services were launched and take up has been very promising. Data usage...

  • Page 40
    ... the third year of the capital management policy would not occur. Refer to the strategy section below for further details. We reported a strong free cash flow position, which enabled the company to pay increased dividends and fund the acquisition of a number of new entities. We continue to source...

  • Page 41
    ... new product offerings released to the market, including the provision of high-speed wireless services, 3G mobile services. Voice services over IP (VoIP) is another area of change for which the industry is preparing. (1) Information current as at 10 August 2006, refer to page 6 for the updated...

  • Page 42
    ... structure, operations and corporate compliance obligations. Any sale by the Commonwealth of its remaining interest will require our management's time and resources. During fiscal 2006, the following dividends were paid: dividend date declared date paid dividend per share Total dividend Final...

  • Page 43
    ...' and officers' insurance policy prohibits disclosure of the premium payable under the policy and the nature of the liabilities insured. detAilS ABout direCtorS ANd exeCutiveS Changes to the directors of Telstra Corporation Limited during the financial year and up to the date of this report were...

  • Page 44
    ... statements; • financial information system design and implementation services; • appraisal or valuation services, fairness opinions, or contribution in kind reports; • actuarial services; • internal audit services; • management function or human resources; • broker or dealer, investment...

  • Page 45
    ... positions and will stand for election at the 2006 annual general meeting. A brief biography for each of the directors as at 10 August 2006 is presented on pages 34 to 35. direCtorS' meetiNgS Each director attended the following Board and committee meetings during the year as a member of the Board...

  • Page 46
    directors' report direCtor ANd SeNior exeCutive ShAreholdiNgS iN telStrA As at 10 August 2006: Directors direct interest Number of shares held indirect interest(1) Total Donald G McGauchie Solomon D Trujillo Belinda J Hutchinson Catherine B Livingstone Charles Macek John W Stocker Peter J Willcox ...

  • Page 47
    ... was to reward the CEO and senior executives on the delivery of transformational and operational outcomes in line with the key elements of the new business strategy. An additional objective of the review was to link the successful delivery of the transformation to future shareholder wealth creation...

  • Page 48
    ... remuNerAtioN StrAtegy Our remuneration strategy for the CEO and senior executives includes performance measures that are aligned to the key elements of Telstra's new business strategy. The senior executive remuneration strategy has been repositioned to drive the delivery of the transformation...

  • Page 49
    ... term operating cost saving benefits that enable investment in transformation initiatives. To deliver on the wireless strategy that enables mobile revenue growth, reduces cost and optimises the mobile business. To achieve an increase in Telstra's retail broadband marketshare. STI (Cash) 3G - 850...

  • Page 50
    ...the creation of value and executive reward, the Committee initiated a review of the linkage between the remuneration strategy and business strategy. Any changes to the remuneration strategy as a result of this review will be reported to shareholders. If the minimum performance level is not achieved...

  • Page 51
    ... 2006 of up to a maximum of $3 million, of which $1.5 million was paid on commencement of employment. The initial $1.5 million was paid subject to the successful delivery of the new business strategy and transformation plan for the company. This payment was disclosed in the 2005 Remuneration Report...

  • Page 52
    ...shareholders through dividends and special dividends each year. Our total dividends paid per share each fiscal year for the last five years is shown in Figure 11 on page 50. Market value of shares During fiscal 2006 Telstra's daily closing share price has fluctuated between a low of $3.63 and a high...

  • Page 53
    ...'s remuneration strategy aligns with the new business strategy by assigning clear transformational and operational targets with longer term objectives which will deliver increases in shareholder wealth. As stated in our remuneration strategy, a significant proportion of the CEO and senior executives...

  • Page 54
    ... the details of the annual STI for fiscal 2006, and Figure 19 on page 53 sets out the amortised value of the CEO and senior executive allocations under the LTI plans. remuneration received in fiscal 2006 The remuneration of our key management personnel (excluding nonexecutive directors) are set out...

  • Page 55
    ... Accrued short term super- Termination long service incentive deferred other annuation(5) benefits leave shares(6) shares(7) equity(8 Total ($) Solomon Trujillo - Chief Executive Officer Bruce Akhurst - Chief Executive Officer, Sensis Kate McKenzie - Group Managing Director, Telstra Wholesale...

  • Page 56
    ... value of all LTI instruments detailed as other equity in the remuneration table. The valuations used in current year disclosures are based on the same underlying assumptions as the previous year. Please refer to note 31 for details on our employee share plans. (2) Where a vesting scale is used...

  • Page 57
    ...,846 384,589 403,578 - - (1) This represents the accounting value at grant date of performance rights granted in fiscal 2006. (2) Total Remuneration is the sum of short term benefits, post employment benefits and share based payments detailed in Figure 19 on page 53. 54 www.nowwearetalking.com.au

  • Page 58
    ...unvested equity instruments which have not been exercised or lapsed as at 30 June 2006, or in the case of Dr Switkowski, the date of cessation with Telstra. (4) The number of instruments that vested during fiscal 2006 relate to the September 2002 Deferred Shares and had not been exercised at 30 June...

  • Page 59
    ...the Board implemented significant changes to the executive management team. In addition to Solomon Trujillo joining Telstra as the Chief Executive Officer, a number of key executives were recruited to drive the major transformational changes required under the new business strategy. Where executives...

  • Page 60
    ...benefits made following the 2005 Annual General Meeting and prevailing market rates for directors' fees. Following these increases the Board and Committee fees payable to directors in fiscal 2006 are set out below. Board fees chairman director Board $450,000 $130,000 committee fees Board members...

  • Page 61
    ... of the company; • subjects the value of the retirement benefit to movement in Telstra's share price and dividend payments; and • maintains the principle that this payment be made when the director retires, rather than provide an early cash payout of the retirement benefits at the time these...

  • Page 62
    ... non-executive directors in fiscal 2006. Figure 24: Non-executive directors - details of remuneration Termination benefits equity settled share-based payments direct share ($) Total ($) Name short term employee benefits Nonsalary monetary (1) and Fees benefits(2) ($) ($) Post-employment benefits...

  • Page 63
    ...performance, financial position and cash flow activities of Telstra as the financial report. Further financial information can be obtained from the full financial report contained in the "Annual Report 2006" which is available, free of charge, upon request to Telstra. 60 www.nowwearetalking.com.au

  • Page 64
    ... as full an understanding of the financial performance, financial position and cash flow activities of Telstra as the financial report. Further financial information can be obtained from the full financial report contained in the "Annual Report 2006" which is available, free of charge, upon request...

  • Page 65
    ...performance, financial position and cash flow activities of Telstra as the financial report. Further financial information can be obtained from the full financial report contained in the "Annual Report 2006" which is available, free of charge, upon request to Telstra. 62 www.nowwearetalking.com.au

  • Page 66
    ... Dividends received Net cash used in investing activities operating cash flows less investing cash flows cash flows from financing activities Proceeds from borrowings Proceeds from Telstra bonds Repayment of borrowings Repayment of Telstra bonds Repayment of finance lease principal amounts Staff...

  • Page 67
    ...accounting policies we used in preparing the concise financial report of Telstra Corporation Limited and its controlled entities (referred to as the Telstra Group) are included in the full financial report contained in the "Annual Report 2006". Adoption of international Financial reporting standards...

  • Page 68
    ... publications, directory assistance, and online products and services. Telstra international (Tint.) consists of the following offshore business operations: • CSL New World is responsible for our operations in Hong Kong that mainly generate revenues from the mobiles market; • International Head...

  • Page 69
    ... internet products, BigPond brand and marketing, services and content, contact services, customer relations and associated functions, for broadband and dial-up delivery. Telstra Media is responsible for: • the management of our investment interest in the FOXTEL partnership; and • the development...

  • Page 70
    ... financial report 3. SegmeNt iNformAtioN (CoNtiNued) Tc&c $m TB $m Te&G $m TW $m sensis $m Tint. $m To $m elimiother(a) nations $m $m Total $m Telstra Group Year ended 30 June 2006 Revenue from external customers Add inter-segment revenue Total segment revenue Segment result under A-ifrS Share of...

  • Page 71
    ...3,529 226 4,046 35,211 36 12 21,553 (a) Revenue for the other segment relates primarily to revenue earned by Telstra Media from our share of FOXTEL cable subscriber revenue and for services provided to FOXTEL. The Asset Accounting Group is the main contributor to the segment result for this segment...

  • Page 72
    ... as disclosed on the face of our income statement is detailed below: Telstra Group Year ended 30 June 2006 2005 ¢ ¢ dividends declared per ordinary share Interim dividend paid Special dividend paid with the interim dividend Final dividend declared (iii) Special dividend to be paid with the final...

  • Page 73
    ... managing operations; and • delivering of integrated services to our customers. We also announced several key decisions and commitments regarding our systems, processes and products which will impact the future performance of the Company. For the year ended 30 June 2006, we have recorded a number...

  • Page 74
    ... in future years: • our operations; • the results of those operations; or • the state of our affairs; other than: dividend declaration On 10 August 2006, the directors of Telstra Corporation Limited declared a fully franked final dividend of 14 cents per ordinary share. The record date for...

  • Page 75
    Concise financial report independent Audit report to the members of telstra Corporation limited SCope The concise financial report and directors' responsibility The concise financial report comprises the income statement, balance sheet, statement of cash flows, statement of recognised income and ...

  • Page 76
    ... finance costs and income taxes. We believe EBITDA and EBIT are useful to investors and analysts and other members of the investment community largely view them as key and widely recognised measures of operating performance. (5) Dividends declared in 2006 include a 6 cent special dividend paid with...

  • Page 77
    ... Dividend yield telStrA'S fACtS - AS At 30 JuNe 2006 Telstra maintained a strong balance sheet and generated strong cash flows for the year. more than Standard & Poor's $36 billion of assets $22 billion of sales revenue $4 billion of free cash flow 49 thousand workforce $4 billion...

  • Page 78
    ... delivery of voice, data and video services. Australian equivalent of International Financial Reporting Standards Generally accepted accounting principles in Australia Australian Securities and Investment Commission Australian Stock Exchange Limited Code Division Multiple Access - a mobile standard...

  • Page 79
    ... (1) Including the 211,629 listed shares held by the Commonwealth. totAl retAil ShAreholderS holdiNg leSS thAN 100,000 ShAreS) AS At 1 SeptemBer 2006 shareholders by state Number of shareholders Number of shares shareholder breakdown as at 1 september 2006 9Pb EPLWLYO ;]TaL_P  :_SP...

  • Page 80
    ...3000 Australia David Anderson General Manager Ph: +61(3) 9634 8014 email: [email protected] The Telstra share registrar Link Market Services Limited PO Box A942 Sydney South NSW 1234 Australia Websites Telstra's investor relations home page: www.telstra.com.au/abouttelstra/investor...

  • Page 81
    Visit Telstra Investor Relations at www.telstra.com.au/abouttelstra/investor or visit our interactive advocacy website at www.nowwearetalking.com.au