Slide 1: ASX cover letter: T3 Institutional Investor Presentation, New York
9 October 2006 Office of the Company Secretary The Manager Level 41 242 Exhibition Street Company Announcements Office MELBOURNE VIC 3000 Australian Stock Exchange AUSTRALIA 4th Floor, 20 Bridge Street Telephone 03 9634 6400 SYDNEY NSW 2000 Facsimile 03 9632 3215 ELECTRONIC LODGEMENT Dear Sir or Mad
Slide 2: T3 Institutional Investor Roadshow Presentation
T3 Institutional Investor Roadshow Presentation
Slide 3: Disclaimer
Disclaimer • The issue of this confidential presentation has been authorized by Telstra Corporation Limited (ACN 051 775 556) (the “Company”) in connection with a proposed offering (the “T3 Share Offer”) of shares in the form of instalment receipts (the “Securities”) of the Company by the Commonweal
Slide 4: Disclaimer cont'd
Disclaimer cont’d • These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward-looking statements. Such forward-
Slide 5: Contents
Contents Telstra 3 Share Offer overview T3 Investor Roadshow Who is Telstra? Transformation overview and update 1 year on Financial performance FY07 outlook and strategic management objectives to FY10 Appendix 4
Slide 6: Telstra Share Offer overview
Telstra 3 Share Offer overview 5
Slide 7: Offer structure summary
Offer structure summary Securities offered Ordinary shares of Telstra Corporation Limited (Shares) represented by Instalment Receipts (IRs) Payment for Shares will be made in two instalments over 18 months Instalment Receipts (IRs) IRs issued to purchasers of Shares prior to full payment Holders of
Slide 8: Institutional offer overview
Institutional offer overview Institutional offer Institutional investors in Australia and New Zealand; structure Qualified Institutional Buyers (or QIBs) (as defined in Rule 144A under the US Securities Act of 1933 (US Securities Act) in the US pursuant to Rule 144A under the US Securities Act; Inst
Slide 9: Indicative timeline
Indicative timeline 20 Nov 15-17 Nov Conditional and Institutional deferred settlement bookbuild 0900 trading commences 15 Nov to 1800 on ASX and NZSX 17 Nov (Sydney time) Pricing and 24 Nov 9 Oct allocations expected Institutional Offer launch to be announced Offer Settlement and Closing October No
Slide 10: Future Fund
Future Fund The Commonwealth will transfer any unallocated Telstra shares to the Future Fund After a 2 year escrow period, the Future Fund will be required to sell down the shares over the medium term to a level consistent with its investment strategy (at least below 20%) The Future Fund is an inves
Slide 11: Institutional syndicate structure
Institutional syndicate structure Selling Shareholder & Bookrunner The Commonwealth of Australia Joint Global Co-ordinators Co-Lead Managers POWL Manager Citigroup, Credit Suisse, Daiwa, JPMorgan, Daiwa Lehman Brothers and Morgan Stanley Co-Managers Commonwealth Securities and RBC 10
Slide 12: Telstra – key selling points
Telstra – key selling points Unmatched fully integrated business model — Wireline, wireless, broadband, directories/search/advertising, pay TV — Highest market shares and most recognised brands Management team's comprehensive transformation plan - on track and starting to deliver benefits — Comprehe
Slide 13: Who is Telstra?
felstra Who is Telstra?
Slide 14: Telstra – the leading player with scale
Telstra – the leading player with scale Australia’s leading telecommunications and information services company Telstra offers a full suite of communications services — Wireline – unparalleled reach to customers across Australia — Wireless - recently launched one of the world’s most advanced wireles
Slide 15: Main Players in the Australian Market
Main Players in the Australian Market Fixed Advertising & Wireless Fixed Broadband Pay TV Line Directories Telstra 9 9 9 9 9 Optus 9 9 9 8 9 Vodafone Australia 8 9 8 8 8 Hutchison Australia 8 9 8 8 8 Primus 9 8 9 8 8 TCNZ (Aust. Operation) 9 8 9 8 8 iiNet 8 8 9 8 8 Telstra is the only fully integrat
Slide 16: Sales Drivers – 2005/06
Sales Drivers – 2005/06 Movement - 05/06 Drivers of Actual – 05/06 Growth A$m Revenue Growth A$m % 284 Mobiles 4,972 6.1 267 Retail Broadband 730 58 200 Wholesale Broadband 461 77 126 Sensis (Adv & Directories) 1,711 7.9 98 Internet Direct & IP Solutions 428 29 58 Solutions Management 989 6.2 (82) S
Slide 17: Transformation overview and update 1 year on
Transformation overview and update 1 year on
Slide 18: Our transformation program
Our transformation program Focusing on customers Using market based management to create product and service offerings tailored to the needs and lifestyles of our customers Building Australia’s next Constructing a state-of-the-art IP core generation communications network to deliver new, innovative
Slide 19: Our transformation program
Our transformation program Understand our customers’ needs better than anyone Best delivery networks with our “One Factory” Best content and services through those networks A new ‘economic model’ that is more attractive than today 18
Slide 20: 2006 – we've been busy
2006 – we’ve been busy Customer Service experience improved Business Acquired China growth vehicle for Sensis (SouFun) Experience Brand attribution increased from 50% to 72% Portfolio New World Merger solidifies CSL position as 42% of Telstra consumers using 3+ products #1 HK mobile operator Meeting
Slide 21: Our vision is enabled by true differentiation
Our vision is enabled by true differentiation Best delivery Superior content Deepest customer networks and services understanding Superior NEXT G 3G Foxtel, Sensis, BigPond, Richest needs-based network Trading Post, Soufun customer segmentation Robust IP / MPLS core Unique ability to access, Largest
Slide 22: Turned on the best wireless network – NEXT G
Turned on the best wireless network in Australia / the world – NEXT G Maximum peak 3GSM 3G coverage 3G services/ network speed (Mbps) (km2) products (#) > 1.6M sq km 14.4Mbps 100 50 3.6Mbps 384 kbps* < 10,000 sq km Next best Telstra Telstra end Next best Telstra Next best Telstra competitor today Q1
Slide 23: Creating the best infrastructure
Creating the best infrastructure One Factory Network IT Simplification Single IP/MPLS core Billing and Network Customer Care platform exits Multi-service edge Operational Systems Best access Support Systems decommissioning (Wireless, Fibre, DSL, HFC) Data centres Product set streamlining 22
Slide 24: Superior portfolio of content and services
Superior portfolio of content and services Content Services EXISTING: Voice Other SMS Email IP apps calls ENHANCED: Enhanced MMS Transactions voice services Interactivity Video Mobility NEW: Telephony File sharing Blogs Adserving Unique user experience through an integrated suite of content and serv
Slide 25: We are evolving to a new digital telco economic model
We are evolving to a new digital telco economic model Old PSTN telco New Digital Telco Physical elements Software defined Products delivered Services delivered manually electronically Limited leverage Low marginal cost 24
Slide 26: Transformation Tracking Record
Transformation Tracking Record Wireless 80% Wireline 20% IT 15% MBM 60% Products, content, services 30% Organisation 50% 20% time elapsed, but on average 35% complete 25
Slide 27: Financial performance
felstra Financial performance
Slide 28: FY06 Highlights
FY06 Highlights Earnings at Top end of EBIT guidance… …through high calorie growth Acceleration of revenue growth Mobile —Total revenue growth of 3.9% in 2H vs — Strong growth in 3G subscribers 1.5% in 1H (+297 k) with significant ARPU uplift relative to 2G (+34%) —Slowed PSTN decline to 5.8% in 2H
Slide 29: Full Year Results – Half Year Trends
Full Year Results – Half Year Trends 1 Reported (A$ billions) 1H06 % ∆* 2H06 % ∆* FY06 % ∆* Sales Revenue 11.5 1.5 11.3 3.9 22.8 2.7 Total Income 11.6 1.9 11.5 4.0 23.1 2.9 Operating Expenses 6.3 6.8 7.2 20.7 13.5 13.8 EBITDA 5.3 (3.4) 4.3 (14.1) 9.6 (8.4) EBITDA Margin (%) 46.1% (2.5) 38.1% (7.7) 4
Slide 30: Unaudited FY07 August YTD Reported Performance
Unaudited FY07 August YTD Reported Performance Sales Revenue up 3.3% Costs up 10% Retail 41.3% Broadband Labour -3.6% International 17.8% Goods & Sensis (Adv & Services 18.7% Directories) 10.6% Mobiles 9.0% Other 14.5% Other -1.4% D&A 10.6% PSTN -5.9% EBIT down -8.6% PSTN decline stabilised Labour –
Slide 31: FY07 August YTD Performance - Expense Growth
Unaudited FY07 August YTD Reported Performance - Expense Growth Goods and services purchased up 18.7% Other 14.5% Handset 114% subsidies Service Contracts and Agreements 23% COGS 44% Other Accommodation 10% 11% Network -4.5% Other 7% Payments Increased mobiles COGS Transformation initiatives Increas
Slide 32: FY07 outlook and strategic management objectives to FY10
FY07 outlook and strategic management objectives to FY10
Slide 33: FY 2007 outlook
FY 2007 outlook Guidance on Reported Numbers Revenue Growth of 1.5% to 2% Depreciation & Similar to FY06 incl accelerated D & A of $300m to Amortisation $350m EBIT Growth in range of +2% to +4% Cash operating capex Range A$5.4bn to A$5.7bn due to transformation Current intention is 28 cents (A$) per
Slide 34: FY07 Half on Half EBIT Growth Profile
FY07 Half on Half EBIT Growth Profile A$3,489m 1H -17% to -20% FY 1H Reported Yellow Transformation D&A Underlying 1H Reported = EBIT 05/06 Pages Performance EBIT 06/07 2% to 4% 2H 37% to 40% A$5,497m FY Reported Yellow Transformation D&A Underlying FY Reported EBIT 05/06 Pages Performance EBIT 06/0
Slide 35: Strategic management objectives through FY10
Strategic management objectives through FY10 Management objectives Management objectives* – November 2005 - October 2006 Revenue Growth 2.0% to 2.5% pa to FY10 2.0% to 2.5% pa to FY10 New product revenue 20% to 30% of new revenue growth In excess of 30% Sales Revenue FY10 Costs Flat to 2010 2.0% to
Slide 36: New economic model – revenue framework
New economic model – revenue framework NB Applications and Services IPTV / HDTV (mobile or fixed) — Fixed and mobile call completion Video calling (GSM 2100 → 3GSM 850) — Mobile SMS and MMS Other Content and Applications — Call connect — Big Pond Apps & Services Narrow Band Transaction services — Se
Slide 37: Strategic management objectives
Strategic management objectives Free Cash Flow (Based on A-IFRS) 8 FY10 7 Management Objective 6 A$6b - A$7b 5 4 3 2 1 0 FY05 FY06 FY10 Reinvention and reengineering expected to drive Free cash flow growth 36
Slide 38: Financial Parameters
Financial Parameters Target Jun 06 Debt Servicing 1.7 – 2.1 1.4 Gearing 55% - 75% 50.4% – net debt Interest cover >7 times 10.2 37
Slide 39: Regulation
Regulation Telstra is one of the most highly regulated companies in Australia ACCC has broad powers to determine: — which Telstra services competitors can access, and — the terms and conditions under which Telstra provides access Key Regulatory issues Access Conduct Unconditioned Local Loop Competit
Slide 40: Summary
felstra Summary
Slide 41: What's coming in FY 2007
What’s coming in FY 2007 Continue wireless upgrade path Transformation IP/MPLS core and multi-service edge turned up milestones: Deliver Broadband across all access platforms First release of transformed IT capability Top line growth ahead of plan Financial Changing the economics of the business per
Slide 42: Creating a world class company
Creating a world class company Not just best in country, but one of the best in the world Stimulating revenue while taking out costs Growing revenues with attractive margins Real differentiation in our networks, our content and services, and our ability to meet customers’ needs Creating superior eco
Slide 43: Appendix
felstra Appendix
Slide 44: EBIT and Restructuring Redundancy Provision
EBIT and Restructuring Redundancy Provision -6.9% Restructuring & Redundancy Provision 05/06 A$100m A$6,459m (A$m) A$422m CDMA migration 107 Decommissioning costs 58 -14.6% Lease / contract penalties 44 A$427m A$5,924m (A$157m) A$170m Other 32 Total restructuring provision 241 Redundancy provision 1
Slide 45: Operating Expenses
Operating Expenses Operating Expenses Labour 14,000 13.8% • Redundancy 13,750 A$612m A$13,521m (A$114m) 13,500 (A$427m) Cost of goods purchased 9.2% 13,250 • Increased sales revenue from A$519m A$12,979m 13,000 marketing activity 12,750 • Handset subsidies 12,500 A$506m • Network payments 12,250 Oth
Slide 46: Depreciation & Amortisation
Depreciation & Amortisation A$4,087m Accelerated A$3,529m Depreciation A$422m Accelerated depreciation 2005/06 A$653m Amortisation A$744m and amortisation (D & A) (A$m) Strategic review service life changes Depreciation - Network related 262 A$2,876m A$2,921m - Software 160 Total accelerated D & A 4
Slide 47: Cash Capital Expenditure
Cash Capital Expenditure A$4,255m1 Transformation Capex 2005/06 20% A$338m International 1 (A$ m) A$3,539m % +21 Wireline 634 A$279m A$1,348m Transformation Wireless 455 OSS / BSS 159 Other (incl. network fixes) 100 -21% Total Transformation Capex 1,348 A$3,260m Business A$2,569m as usual • No trans
Slide 48: International
International CSL New World TelstraClear SouFun HK$ FY05 FY06 %∆ NZ$ FY05 FY06 %∆ • SouFun acquired for A$342m Income 676 693 2.5 (US$254m) Income 4,308 4,831 12.1 • SouFun is China’s leading real EBITDA 1,272 1,390 9.3 EBITDA 122 124 1.6 estate and home furnishing EBIT (19) (20) 5.3 Internet busine
Slide 49: Australian Telecoms Market – by revenue
Australian Telecoms Market – by revenue Voda TCNZ Aust Ops Aust 3.3% 5.4% Optus Hutch Aust 20.0% 2.5% iiNet 0.69% Amcom Commander Powertel 0.09% 2.1% 0.54% Macquarie 0.69% Other 3.3% Unwired Telstra Primus Aust 63.3% 1.3% 0.06% 2006 (Jun): Telstra, TCNZ Aust Ops, Commander, Macquarie, iiNet, Amcom,
Slide 50: Telstra market share
Telstra market share Telstra share of Telstra share of Telstra share of PSTN market Mobiles market retail broadband (Revenue) (Subscribers) (Subscribers) 71% 68% 67% 46% 45% 43% 44% 41% 41% 04 05 06 04 05 06 04 05 06 Telstra share of Telstra share of media advertising Pay TV (Subscribers) 58% 60% 60