Slide 1: Telstra Corporation Limited Transition to A-IFRS
Telstra Corporation Limited Transition to A-IFRS John Stanhope Chief Financial Officer Page 1
Slide 2: Cautionary statement
Cautionary statement ___The figures presented today are our current best estimate of the consequences for Telstra of adopting A-IFRS – accordingly, they remain subject to change ___All amounts are preliminary and unaudited, but reflect the work-in-progress of our IFRS project team, and are based on
Slide 3: Agenda
Agenda ___Key messages ___A-IFRS implementation timeline ___Financial impacts and significant changes in policy ___Sensitivities ___Summary ___Questions
Slide 4: A-IFRS at Telstra – key messages
A-IFRS at Telstra – key messages ___No impact on Telstra’s strategy and business performance: ___Management decisions are not affected by A-IFRS ___Telstra’s operations are not impacted ___Under A-IFRS there is likely to be increased volatility in earnings ___A-IFRS will not significantly affect net
Slide 5: A-IFRS implementation timeline
A-IFRS implementation timeline ___Formal IFRS project team to manage convergence to A-IFRS ___Our first set of A-IFRS financial statements will be for the half-year ended 31 December 2005, and for the financial year ended 30 June 2006 A-IFRS – Half A-IFRS – Full Telstra to start year year recording
Slide 6: The move to A-IFRS
The move to A-IFRS ___A-IFRS is not optional, has the force of law, and Telstra is required to apply it from 1 July 2005 ___There are two components to the move: ___Transitional adjustment ___The effect of adjusting the existing AGAAP numbers to reflect the position as if A-IFRS had always been appl
Slide 7: Key transition impacts
Key transition impacts ___Known estimable impacts reported in 31 December 2004 half-year financial statements ___No change to these estimated impacts to date Transition date 1 July 2003 1 July 2004 $ million $ million (unaudited) (unaudited) AGAAP total equity 15,422 15,361 Total reduction in equity
Slide 8: Ongoing impact — financial highlights
Ongoing impact — financial highlights Six months to 31 December 2004 Increase/(decrease) AGAAP A-IFRS 31 December 2004 $ million $ million $ million (unaudited) (unaudited) (unaudited) Income statement Sales Revenue 11,275 11,275 - Total income 11,382 11,360 (22) Total expenses 5,845 5,871 26 EBITDA
Slide 9: Significant changes in policy
Significant changes in policy ___Telstra’s high impact areas on convergence: ___Share-based payment ___Business combinations ___Income taxes ___Employee benefits ___Borrowing costs ___Impairment of assets ___Financial instruments Page 9
Slide 10: AASB Share-Based Payment
AASB 2 “Share-Based Payment” ___Cease recording an expense when funding provided to the trust to purchase Telstra shares that underpin certain equity instruments issued ___Recognise expense for all share-based remuneration, determined with reference to the fair value of the equity instruments issued
Slide 11: AASB Business Combinations
AASB 3 “Business Combinations” ___Elimination of goodwill amortisation will reduce expenses and increase earnings ___Impairment testing on goodwill to be performed at each reporting date. Recognise impairment charge immediately in income statement if it occurs ___Deferred tax balances are to be reco
Slide 12: AASB Income Taxes
AASB 112 “Income Taxes” ___Income tax on the profit for the year comprises current and deferred taxes. ___Tax expense is generally recognised in the income statement, except: ___items recognised directly in equity, tax is in equity ___business combinations, tax is in goodwill ___Generally recognise
Slide 13: AASB Employee Benefits
AASB 119 “Employee Benefits” ___An expense will be recognised when the service cost exceeds expected asset return ___The service components of the superannuation costs will be an additional expense recognised in the income statement. This expense will occur irrespective of whether cash contributions
Slide 14: AASB Impairment of Assets
AASB 136 “Impairment of Assets” ___Property, plant and equipment, goodwill, intangibles etc will be reviewed at each reporting date to determine whether there are indications of impairment. If indications exist, the asset is tested for impairment by comparing recoverable amount to its carrying value
Slide 15: AASB Financial Instruments - Recognition and Disclosure
AASB 132 and AASB 139 Financial Instruments -Recognition and Disclosure ___Application of AASB 132/139 is required to be applied prospectively from 1 July 2005, and comparative information does not need to be restated ___No change to Telstra’s business and risk management objectives and policies ___
Slide 16: Financial Instruments – Areas that will Create Volatility
AASB 132 and AASB 139 Financial Instruments – Areas that will Create Volatility Changes in the measurement basis of the following financial instruments will create volatility in profit and/or equity: Available-for-sale Measurement Impact Key Variables that financial assets basis - Equity (if impaire
Slide 17: Financial Instruments - Hedging Overview
AASB 132 and AASB 139 Financial Instruments -Hedging Overview Fair value hedges Cash flow hedges Net investment in foreign entities Used for: ___Foreign exchange ___In conjunction with fair ___Hedge against and interest rate risk value hedges exposure to foreign on foreign borrowings currency risk _
Slide 18: Sensitivities – Potential Financial Instruments Ongoing Impact
Sensitivities – Potential Financial Instruments Ongoing Impact ___The Financial Instruments Standards are applicable to Telstra from 1 July 2005. The potential impact on the income statement and balance sheet is 6 mths to summarised below: What if analysis 31/12/04 Adverse proportional movement of 1
Slide 19: Sensitivities – Potential Impacts
Sensitivities – Potential Impacts ___An expense will be recognised under AASB 119 for defined benefit schemes irrespective of whether cash contributions are being made ___Net pension cost for the six months to 31 December 2004 recognised in the A-IFRS income statement was $86 million ___A 1% movemen
Slide 20: Overview of ongoing impact
Overview of ongoing impact ___Sales revenue – no change, underlying business not impacted ___Operating expenses – additional labour expense due to the impact of defined benefit schemes, partially offset by the reclassification of the book value on non-current assets disposed to Other Income ___EBITD
Slide 21: Target financial parameters
Target financial parameters Six months to 31 Increase/ December 2004 (decrease) AGAAP A-IFRS 31 Dec. 2004 Target (unaudited) (unaudited) (unaudited) Payout ratio (ordinary dividends declared) 80% 74.5% 72.9% -1.6% Gearing — Net Debt 45-55% 44.0% 45.2% 1.2% Interest Cover — EBITDA/ Greater Net Intere
Slide 22: A-IFRS at Telstra – key messages
A-IFRS at Telstra – key messages ___No impact on Telstra’s strategy and business performance: ___Management decisions are not affected by A-IFRS ___Telstra’s operations are not impacted ___Under A-IFRS there is likely to be increased volatility in earnings ___A-IFRS will not significantly affect net
Slide 23: Appendix
Appendix Page 24
Slide 24: Restated Income Statement
Restated Income Statement Six months to 31 December 2004 Increase/(decrease) Presentation Accounting Total A-IFRS AGAAP adjustments adjustments adjustments A-IFRS $ million $ million $ million $ million $ million (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Income Revenue (excluding i
Slide 25: Income
Income Six months to 31 December 2004 $ million $ million $ million $ million (unaudited) (unaudited) (unaudited) (unaudited) Sales Other Other Total Revenue Revenue Income Income AGAAP revenue 11,275 107 — 11,382 A-IFRS adjustments — Improvement/(reduction) Presentation AASB 116 — Proceeds on sale
Slide 26: Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Six months to 31 December 2004 $ million (unaudited) AGAAP earnings before interest, tax, depreciation and amortisation 5,537 A-IFRS adjustments — Improvement/(reduction) Presentation Income adjustments (22) AASB 116 — Book value
Slide 27: Net Profit After Tax (NPAT)
Net Profit After Tax (NPAT) Six months to 31 December 2004 $ million (unaudited) AGAAP net profit after tax available to Telstra entity shareholders 2,337 A-IFRS adjustments — Improvement/(reduction) Presentation EBIT adjustments - - Accounting EBIT adjustments 69 AASB 2 — Elimination of interest re
Slide 28: Earnings per Share
Earnings per Share Six months to 31 December Basic Diluted cents cents (unaudited) (unaudited) AGAAP earnings per share 18.6 18.6 A-IFRS adjustments — Improvement/(reduction) NPAT adjustments 0.4 0.4 AASB 2 — Weighted average number of shares held by Growthshare Trust and under TESOP loans 0.1 0.1 A
Slide 29: Restated Balance Sheet
Restated Balance Sheet Six months to 31 December 2004 Increase/(decrease) Presentation Accounting Total A-IFRS AGAAP adjustments adjustments adjustments A-IFRS $ million $ million $ million $ million $ million (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Current assets 6,070 (537) 5 (
Slide 30: Net Debt
Net Debt Six months to 31 ___Net debt is defined as December 2004 total current and non $ million current borrowings (unaudited) less liquid interest- bearing assets AGAAP net debt 11,972 ___From 1 July 2005, A-IFRS adjustments — Increase/(decrease) AASB 139 will impact Presentation on net debt as t
Slide 31: Restated Cash Flow Statement
Restated Cash Flow Statement Six months to 31 December 2004 Improvement/(reduction) Presentation Accounting Total A-IFRS AGAAP adjustments adjustments adjustments A-IFRS $ million $ million $ million $ million $ million (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Cash flows from oper
Slide 32: Hedging of interest rate risk (AGAAP)
Hedging of interest rate risk Under current AGAAP – portfolio hedging in place to achieve fixed float ratio + Domestic borrowings NET AUD + Foreign Currency borrowings DEBT Int erest +/-Cross Currency Swaps Fixed Rate -Cash / Short Term Investments Floating Swap = NET DEBT Profile Portfolio per targ
Slide 33: Hedging of interest rate risk (A-IFRS)
Hedging of interest rate risk Under AASB 139 – no portfolio hedge, individual hedging relationships are established = Underlying Debt + Domestic borrowings + Domestic borrowings + AUD interest rate swap = Debt with Fixed Float ratio +Foreign Currency borrowings = Underlying Debt +/-Cross Currency Sw
Slide 34: Borrowings denominated in foreign currency
Borrowings denominated in foreign currency (not translation hedges) Objective: Obtain the best AUD funding with desired fixed:float ratio outcome Often borrowings sourced from overseas markets give the best result (pricing, maturity) Eg. EUR long term borrowing – pay fixed EUR hedged to pay fixed /
Slide 35: Telstra group revenue result for the quarter ended 31 March 2005
The following details the Telstra group revenue result for the quarter ended 31 March 2005. Footnotes: All percentages relate to growth on prior corresponding period (PCP) All statistical data represents management’s best estimates and excludes all Telstra internal usage statistics (1) Underlying re
Slide 36: Narrowband subscribers v. Revenue
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Slide 37: Broadband subscribers v. Revenue
amis Eigpond Broadband subscribers v. Revenue
Slide 38: 04/05 Third Quarter Market Update April 2005
04/05 Third Quarter Market Update 20 April 2005
Slide 39: 04/05 Third Quarter Market Update April 2005
04/05 Third Quarter Market Update 20 April 2005
Slide 40: ISDN Revenue
ISON Revenue
Slide 41: Advertising & Directories
Advertising & Directories Reported advertising and directories revenues, including revenue generated by Trading Post, increased by $72 million for the quarter and $196 million for the nine month period. After excluding Trading Post revenues, underlying advertising and directories revenue increased b
Slide 42: 04/05 Third Quarter Market Update April 2005
04/05 Third Quarter Market Update 20 April 2005