Telstra 2006 Annual Report Download - page 16

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Labour expense grew 13.1% to $4.4 billion due to:
redundancy expense of $348 million, split between
normal course of business redundancy costs of
$178 million and current year transformation related
redundancy costs of $170 million. These costs were
associated with the reduction of our workforce by
3,859 staff (excluding the impact of the CSL New World
merger in Hong Kong); total workforce now 49,443;
$186 million included in the overall restructuring and
redundancy provision associated with making a further
2,600 staff reductions over the next two years; and
excluding redundancy costs, labour expense was up 1.7%
mainly due to salary increases.
Goods and services purchased grew 12.3% to $4.7 billion due to:
cost of goods sold increased driven by mobile marketing
campaigns;
mobile handsets subsidies increased as we compete
aggressively in the market; and
network payments increased driven by volume increases
of domestic mobile and SMS terminating on other
carriers’ networks.
Other expenses grew 16.0% to $4.4 billion. Excluding
transformation related costs, other expenses grew 12.5% to
$4.3 billion. The main drivers of other expenses include:
maintenance costs associated with the existing 3G
network;
higher consultancy costs due to transformation activities;
increased market research due to a focus on
understanding customer needs; and
costs associated with property rationalisation,
cancellation of server leases, and the decommissioning of
certain IT platforms and operational and business support
systems.
Depreciation and amortisation costs grew by 15.8% to
$4.1 billion as we have accelerated depreciation and
amortisation on our CDMA network, switching systems,
certain business and operational support systems and
related software totalling $422 million. Excluding accelerated
depreciation and amortisation the increase would have
been 3.9%.
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The increase in total assets of $964 million was mainly
due to the net impact of the following:
a $731 million increase in property, plant and equipment,
following assets acquired in the CSL New World Mobility
merger and additional capital expenditure on our
transformation, offset by depreciation expense;
a $782 million increase in superannuation assets
following recognition of actuarial gains on the Telstra
Superannuation Scheme; offset by
an $859 million decrease in cash and cash equivalents to
pay dividends and interest on our borrowings.
The increase in total liabilities of $1.8 billion was due to:
a $930 million increase in total borrowings to fund our
various working capital and business requirements as part
of transformation and two special dividend payments;
and
an increase of $860 million in other liabilities, such as
trade and other payables following additional accrued
expenditure in the rollout of the wireline and wireless
networks and IT systems.
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The decline in free cash ow to $4.6 billion was due to:
a $234 million decline in cash ow generated by our core
business following the decline in our xed line revenues
and higher levels of expenditure as we commenced
our transformation in the second half and increased
marketing activity to drive revenue;
a $164 million increase in tax paid during the year due to
an instalment rate correction by the Australian Taxation
Ofce; and
a $246 million increase in investing cash ows generated
mainly as a result of increased spend on building and
upgrading our networks and systems to improve the
customer experience as a result of our transformation.
We predominantly used our free cash ow 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 nance costs of $940 million to our debt holders.
These payments totalled $5.9 billion, $1.4 billion higher than
our free cash ow. This excess was funded mainly by an
increase in our net debt (borrowings less cash on hand) of
$1.3 billion.
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  
   
Labour  3,858 13.1
Goods and services purchased  4,211 12.3
Other expenses  3,815 16.0
Total operating expenses  11,884 13.8
Depreciation and amortisation  3,529 15.8
Total expenses  15,413 14.2
  
   
Current assets  5,582 (703)
Property, plant and equipment  22,891 731
Total non current assets  29,629 1,667
Total assets  35,211 964
Total liabilities  21,553 (1,790)
Net assets/Equity  13,658 (826)
  
   
Net cash provided by operating
activities  8,960 (398)
Capital expenditure  (4,129) (174)
Free cash ow  5,194 (644)
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