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Telstra
Annual
Report
2019
We believe it’s people who give
purpose to our technology
So we’re committed to staying close
to our customers and providing them
the best experience
And delivering the best tech
On the best network
Because our purpose is to build
a connected future so everyone
can thrive
Our values
Trust each
other to deliver
Better
together
Find your
courage
Make the
complex simple
Show
you care
Our 2019 reporting suite
We take our reporting
obligations seriously and
we provide concise and
up to date information
about your company
online.
In 2019 this information
includes our Annual
Report, our Corporate
Governance Statement
and our Bigger Picture
Sustainability Report.
Our 2019 Annual Report
Our Annual Report describes our
strategy, financial performance and
remuneration practices.
The sections of our Annual Report titled
Chairman and CEO message, Strategy
and performance, Our material risks,
Outlook, and Full year results and
operations review comprise our
operating and financial review (OFR)
and form part of the Directors’ report.
Our OFR, Directors’ report and
Financial report were released to the
ASX on 15 August 2019 in the document
titled ‘Financial results for the year
ended 30 June 2019’ which is available
at telstra.com/investor.
Telstra Corporation Limited
ABN 33 051 775 556
Our 2019 Corporate Governance
Statement
Our 2019 Corporate Governance
Statement (CGS) provides detailed
information about governance at
Telstra and together with our 2019 ASX
Appendix 4G (which cross references
the ASX Corporate Governance
Principles & Recommendations
to information in our CGS and
on our website), is available at
telstra.com/governance.
Our Bigger Picture 2019
Sustainability Report
Our Bigger Picture 2019 Sustainability
Report, which provides an in-depth look
at Telstra’s approach and performance
in relation to our most material social
and environmental topics, is available
at telstra.com/sustainability/report.
FY19 Financial performance
FY19 highlights
Chairman and CEO message
Strategy and performance
Our material risks
Outlook
Full year results and operations review
Board of Directors
Senior management team
Sustainability
Governance at Telstra
Directors’ report
2
3
4
7
12
14
16
26
28
30
30
31
• Message from the Remuneration Committee Chairman 36
• Remuneration report
Financial report
• Financial statements
• Notes to the financial statements
• Directors’ declaration
Shareholder information
Reference tables
Glossary
Indicative financial calendar
38
73
75
81
168
174
176
179
180
FY19 Financial performance
FY19 highlights
FY19 highlights | Telstra Annual Report 2019
Reported results
Total Income1
Down 3.6 per cent
$27.8 billion
Earnings Before Interest, Tax
Depreciation and Amortisation (EBITDA)
Down 21.7 per cent
$8.0 billion
Net Profit After Tax (NPAT)
Down 39.6 per cent
$2.1 billion
FY19 reported performance in line with market expectations
1 Total Income excludes finance income
378,000
Net retail postpaid
mobile services
$456 million
(down 6.0 per cent)
Underlying fixed costs
More than
$1.9 billion
returned to
shareholders
Total FY19 dividends
16 cents
per share
fully franked
Australia’s first
5G network
Radically simplified plans
1800
20
Helped
approximately
1 million
customers in
vulnerable
circumstances
stay connected
Mobile: 2.5
million km2
NB loT^: 3.5
million km2
Even more coverage
New
rewards
program for
customers
22%
Calls to
contact centres
Provided digital
capability training to
almost 36,000 people
40%
Emissions intensity
since 2017
^ Narrowband Internet of Things
5
Chairman and CEO message
Chairman and CEO message | Telstra Annual Report 2019
Our financial results
Our full year results for financial year
2019, which were in line with guidance
and market expectations, showed strong
progress against the T22 strategy.
On a reported basis, Total Income1
decreased 3.6 per cent to $27.8 billion,
EBITDA decreased 21.7 per cent to $8.0
billion, and NPAT decreased 39.6 per cent
to $2.1 billion. On a guidance basis2, Total
Income1 decreased 2.6 per cent to $27.8
billion, EBITDA (excluding restructuring
costs) decreased 11.4 per cent to $9.4
billion. Underlying EBITDA3 decreased
11.2 per cent to $7.8 billion.
The largest reason for the decline in
EBITDA was the impact of the nbn, with
Telstra absorbing around $600 million of
negative recurring EBITDA headwind4 in
the period. Underlying EBITDA decreased
approximately 4 per cent if you exclude
the in-year nbn headwind. To date we
estimate the nbn has adversely impacted
EBITDA by approximately $1.7 billion, and
estimate we are around 50 per cent of the
way through the recurring financial
impact of the nbn.
We saw continued customer growth,
with 378,000 net retail postpaid mobile
services added, including 181,000 from
Belong, taking retail mobile postpaid
handheld services to 8.2 million. We also
added more than 230,000 wholesale
MVNO mobile prepaid and postpaid
services and 107,000 net new fixed-line
retail bundle and data services, including
51,000 from Belong.
Our Internet of Things (IoT) business
exceeded industry growth rates, with
revenue growth of 19.4 per cent. On
average 2,000 things are being connected
to our IoT networks every day including
vehicles, machines, infrastructure, smart
meters and a wide array of other sensors.
While we continued to grow our
customers, we also significantly reduced
our costs, with a $456 million (6 per cent)
reduction in underlying fixed costs.
Notwithstanding the intense competitive
environment and the challenging
structural dynamics of our industry,
it is a year in which we believe we can
start to see the turning point in the
fortunes of the company from the
changes we have embraced.
For FY19, the Board resolved to pay
a total fully franked final dividend of
8 cents per share, comprising a final
ordinary dividend of 5 cents per share
and a final special dividend of 3 cents
per share. Combined with the total
interim dividend paid in February 2019,
shareholders will receive a total dividend
of 16 cents per share for FY19, returning
more than $1.9 billion to shareholders.
The ordinary dividend represents a 59
per cent payout ratio on FY19 underlying
earnings5, while the special dividend
represents a 63 per cent payout ratio of
FY19 net one-off nbn receipts6. The FY19
ordinary dividend is below the payout
ratio of 70 to 90 per cent of underlying
earnings, which is one of the principles
in our capital management framework.
In our updated Capital Management
Framework7 underlying earnings now
explicitly exclude guidance adjustments8
as well as net one-off nbn receipts.
In determining the FY19 final ordinary
dividend, the Board has taken into
account a number of factors including
the overall capital management
framework objectives, including
maintenance of financial strength
and retaining financial flexibility.
World-class networks
We continue to invest in our world-class
networks and this year we began rolling
out 5G, the next generation of
telecommunications technology. We were
the first to launch 5G in Australia and the
first telco to begin offering 5G handsets
here. To begin with, we are building out
our 5G coverage in 10 cities nationally,
with more locations to follow.
5G is much more than just a faster
smartphone – it will be a key connectivity
technology enabling extraordinary new
opportunities in fields like the Internet of
Things, cloud computing, big data,
machine learning and artificial
intelligence – all areas where we
continue to build our expertise and
capabilities for the future.
Our mobile footprint stretches out to
more than 2.5 million square kilometres,
vastly more than any other mobile
network in Australia, and coverage
extends to 99.5 per cent of the
Australian population.
Delivering more connectivity and better
networks in a country as large and as
sparsely populated as Australia is no
easy thing, but Telstra continues to
lead. So far we have erected 600
mobile base stations as part of the
Federal Government’s Mobile Black
Spot Program, and by the end of the
program we will build around 800
stations – four times more than
the rest of the industry combined.
We are pioneering the use of new and
more affordable technologies like small
cell technology and mobile repeaters to
increase coverage on the road. We will
never be able to provide coverage to
every last Australian, but our
commitment is that we will work
cooperatively with governments and
other stakeholders, and will do our
absolute best to bridge the gap between
city and country better than anyone else.
Simpler and more
customer focused
We have greatly simplified our structure
and ways of working to empower our
people and serve our customers.
Re-engineering how we operate and
removing complexity and management
layers has meant a reduction in the size
of our workforce particularly as nbn co,
a company which did not exist several
years ago, progressively becomes the
wholesale provider of fixed broadband
services in Australia, a role previously
held by Telstra. The reality is it is not
possible for Telstra to continue to operate
with the same number of employees after
the nbn network is rolled out as it had
before nbn co-existed.
Around 75 per cent of the net 8,000 direct
workforce role reductions we announced
as part of our T22 strategy have now been
identified. We have also made progress
on our target to create 1,500 new roles in
areas like cyber security and software
engineering.
The impact our T22 strategy has on our
people is the hardest of the changes we
are making and we have seen that
reflected in our employee sustainable
engagement figure, which declined this
year by 10 per cent. To support our people
through the change, we are investing up
to $50 million in a transition program that
provides a range of services to help
people move into new roles.
You can read more about the T22 strategy
and the progress we are making in the
Strategy and performance section.
In the past year, the Australian corporate
landscape has undergone a seismic
readjustment as customers, regulators
and investors have publicly reminded
large organisations of the value they
place on companies being transparent,
ethical and accountable in all their
dealings.
We understand and respect the long-
standing responsibilities we have as part
of the community. We were one of three
Australian companies recognised on the
global CDP 2018 Climate A List for our
efforts to address climate change. This
year we also helped around one million
vulnerable people to stay connected,
which is part of our 2020 target to enable
1.5 million people to connect or thrive
online. We know we have more work to do
Dear Shareholders,
This has been an incredibly important year for Telstra, a year
where we embraced the many changes we need to ensure our
continued success in the future, while staying true to our purpose
and core values.
Already we are a very different, much simpler and more customer
focused organisation than we were a year ago.
In the year since we launched T22 – in June 2018 – we have taken
some great strides toward becoming a company that is easier to
interact with, improving our service and offering fewer and more
flexible products. All of this is supported by our investment to
deliver Australia’s largest, fastest, smartest, and safest next
generation networks and new technology to deliver a market-
leading customer experience.
Through T22 we have radically simplified our products and
services by reducing more than 1,800 Consumer and Small
Business plans to just 20 in-market core fixed and mobile plans.
In the past year, we have also introduced new no lock-in mobile
plans with no excess data charges in Australia and launched our
customer loyalty program, Telstra Plus, which rewards members
with points that can be put towards the latest devices,
accessories and entertainment.
For our business customers, we continue to be the best one-stop
shop for all business-to-business technology needs. We have
made progress on our ambition to provide modular, curated,
self-service and simplified products to customers and have
launched and enhanced Connected Workplace to selected
customers, built on our new technology stack.
While we are making good progress on our T22 strategy,
we continue to feel the significant impact of the rollout of the
nbnTM on our earnings and profit, and competition in the mobile
market remains high.
6
7
Strategy and
performance
and we are committed to continuously
improving the way we serve and support
potentially vulnerable customers. Our
Bigger Picture 2019 Sustainability Report
provides more information on these and
other initiatives. You can read more at
telstra.com/sustainability/report9.
Leadership renewal
We continue to review and renew the
composition of the Board to ensure we
have the right balance of experience,
expertise and fresh thinking. Our thanks
to retiring directors Russell Higgins, Trae
Vassallo, Jane Hemstritch and Steven
Vamos for their enormous contributions
and welcome to Niek Jan van Damme
(previously a member of the Deutsche
Telekom Board of Management) and
Eelco Blok (who has more than 30 years’
experience at Dutch-based landline and
mobile telecommunications company
KPN). While the composition of the Board
has changed over the year, we remain
focused on achieving our 40 per cent
target for female non-executive directors.
You can read more about the Board’s
composition in the Board of Directors
section.
In the management team, Michael
Ackland was appointed to lead the
Consumer and Small Business function,
Christian von Reventlow now leads
Product & Technology, Michael Ebeid
leads Enterprise, and Nikos Katinakis
leads Networks and IT. Robyn Denholm
also stepped down as Chief Financial
Officer (her contribution as Telstra’s CFO
and COO were enormous) and has been
replaced by Vicki Brady, formerly Group
Executive, Consumer and Small Business.
Our year ahead
Our business is well positioned for the
era in which we are about to head – the
2020s. Returning to growth will take time.
However, we have great confidence that
our strategy can arrest the decline in our
earnings and create opportunities for
growth.
While the reported financial trends in
FY19 were challenging, underlying trends
are expected to improve over the course
of FY20.
Telstra released guidance for FY2010, with
Total Income11 in the range of $25.7 to
$27.7 billion, underlying EBITDA12 in the
range of $7.3 to $7.8 billion, restructuring
costs of around $300 million, capital
expenditure of $2.9 to $3.3 billion, and
free cash flow after operating lease
payments13,14 of $3.4 to $3.9 billion.
(less nbn net cost to connect
Telstra expects net one-off nbn DA
receipts15
(C2C)) of $1.6 billion to $2.0 billion.
Telstra also expects FY20 to be the
biggest in-year nbn headwind16 to date,
with $800 million to $1 billion expected
from the recurring impact of the nbn.
The clearest view of future financial
performance of the business is provided
by looking at underlying EBITDA,
excluding the recurring in-year headwind
of the nbn, which in FY20 is expected to
grow by up to $500 million.17
You can read more about the year ahead
in the Outlook section.
A year of challenge and
important change
To sum up, FY19 was a year in which we
met guidance, achieved strong subscriber
growth in both fixed and mobile, and built
significant momentum behind our T22
strategy.
The progress we made this year is
the result of the combined efforts of
many people, including our dedicated
employees who serve our customers and
help us return value to our shareholders.
We are still closer to the start of T22 than
the finish, but we are confident we are
moving at speed toward fulfilling our
purpose to build a connected future
so everyone can thrive. We are confident
we have the right strategy to create
sustained value for our customers,
our shareholders and our employees
well into the future.
On behalf of everyone at Telstra, thank
you for your support and we wish you a
happy and healthy year ahead.
John P Mullen, Chairman
Andrew R Penn,
CEO and Managing Director
1. Excluding finance income.
2.
This guidance assumed wholesale product
price stability and no impairments to
investments or core assets, and excluded any
proceeds on the sale of businesses, mergers
and acquisitions and purchase of spectrum.
The guidance also assumed the nbn™ rollout
and migration in FY19 was broadly in
accordance with the nbn Corporate Plan 2019.
The guidance was provided on the basis of
AASB15. Capex was measured on an accrued
basis and excluded expenditure on spectrum
and externally funded capex.
FY19 Underlying EBITDA excluded net one-off
nbn DA receipts less nbn net cost to connect
(C2C), and guidance adjustments.
In-year nbn headwind defined as the net
negative recurring EBITDA impact on our
business based on management best estimates.
Underlying earnings is defined as net profit
after tax from continuing operations excluding
net one-off nbn receipts and guidance
adjustments (see notes 6 & 8 below).
‘net one-off nbn receipts’ is defined as net
one-off nbn Definitive Agreement (nbn DA)
receipts (consisting of Per Subscriber Address
Amount (PSAA), Infrastructure Ownership
and Retraining) less nbn net cost to connect
less tax.
See FY19 management presentation materials
for updated Capital Management Framework
which has been lodged with the ASX and
available on Telstra’s Investor website at
www.telstra.com.au/aboutus/investors.
Guidance adjustments include one-off
restructuring costs, impairments in and to
investments or property, plant and equipment
and intangible assets, proceeds on the sale of
businesses, mergers and acquisitions and
purchase of spectrum.
This report will be available online from
30 August 2019.
3.
4.
5.
6.
7.
8.
9.
10. This guidance assumes wholesale product
price stability and no impairments in and to
investments or property, plant and equipment
and intangible assets, and excludes any
proceeds on the sale of businesses, mergers
and acquisitions and purchase of spectrum.
The guidance also assumes the nbn rollout and
migration in FY20 is broadly in accordance with
the nbn Corporate Plan 2019. Guidance is
provided on the basis of AASB16 leases and
assumes impacts consistent with management
estimates and current interpretation of the
standard. Capex is measured on an accrued
basis and excludes expenditure on spectrum
and externally funded capex and capitalised
leases under AASB16 Leases.
11. Excluding finance income.
12. Underlying EBITDA excludes net one-off
nbn DA receipts less nbn net C2C, guidance
adjustments and includes amortisation of
mobile operating lease costs.
13. FY20 free cash flow defined as operating cash
flows less investing cash flows less operating
leases (reported in financing cash flow under
AASB16 leases).
14. FY20 free cash flow guidance includes ~$1b
working capital increase including from exit of
mobile lease plans, remaining outflows from
restructuring costs announced in May 2019,
and an increase in nbn receivables.
15. ‘net one-off nbn receipts’ is defined as net
one-off nbn Definitive Agreement (nbn DA)
receipts (consisting of Per Subscriber Address
Amount (PSAA), Infrastructure Ownership
and Retraining) less nbn net cost to connect
less tax.
16. In-year nbn headwind defined as the net
negative recurring EBITDA impact on our
business based on management best
estimates including key input of the nbn
corporate plan 2019.
17. This estimate is based on the midpoint
($900m) of expected in-year nbn headwind
(defined in note 16 above).
8
9
Strategy and performance
Strategy and performance | Telstra Annual Report 2019
The four pillars of the strategy are:
Pillar 1: Radically simplify our
product offerings, eliminate
customer pain points and create
all digital experiences
We have delivered a game-changing
overhaul of the way we develop and
sell our Consumer and Small Business
products by creating simple, flexible
ways for customers to choose the best
value connectivity, devices and services
for them.
We have kept our promise to simplify
our product range by reducing more
than 1,800 Consumer and Small
Business plans to just 20 in-market
core fixed and mobile plans.
In FY19, Telstra became the first major
telco in Australia with no lock-in plans
across fixed and mobile. We also
launched build-your-own mobile plans,
giving our customers freedom and
flexibility. Pain points, such as excess
mobile data usage charges, are also a
thing of the past across all our new
domestic mobile plans with more than
820,000 customers already enjoying the
freedom of no excess data usage charges
in Australia.
Our customers can now add their choice
of a great range of entertainment options,
add-on BYO mobile plans, pick from an
expanded range of accessories and
devices with no upfront charges and
add innovative technology solutions
like Smart Home onto their core mobile
or home broadband plans.
Our support for small business
customers also underwent a major
revamp. As well as no lock-in contracts
and no excess data charges in Australia
on new mobile and tablet plans, we
launched a host of more dedicated
support services. This included a new
24/7 tech support service, training
thousands more dedicated small
business specialists across the country
and rolling out our new Telstra Business
Technology Centres – a new national
premium Information and
Communications Technology (ICT)
channel for small business customers
with more complex technology needs.
As well as flexibility, simplicity and choice,
our customers told us they wanted to be
rewarded and recognised for their loyalty.
We listened, and now our millions of loyal
customers can access Telstra Plus – a
new rewards program giving them the
opportunity to earn discounts on new
technology as well as bonus
entertainment and more. More than
770,000 customers have already enrolled
and begun earning points since Telstra
Plus launched in April 2019.
We are on track to halve the number of
Enterprise plans by 2022 and we have
released Connected Workplace to
selected customers. Connected
Workplace is a simple, streamlined
way for our business customers (with
between 20 and 200 employees) to get
all the communications, data and
connectivity solutions an office needs
at a fixed price per-user, per-month.
Telstra also continues to develop leading
products of its own, such as the Telstra
Smart Modem 2.0, Telstra TV, Telstra
Track and Monitor and award-winning
Telstra Locator.
Customers increasingly prefer to use
digital channels to interact with us. This
creates great opportunities for us to
deliver a better experience. During the
year we refreshed our Telstra 24x7 App,
adding additional features and making it
simpler for customers to self-manage
their account and services.
Our Digital experience now accounts for
16.8 per cent of sales as well as more
than 53 per cent of service transactions,
which include account management and
billing related enquiries.
Simpler products and processes and
more ways for customers to self-serve
saw calls to our Consumer and Small
Business call centres drop significantly,
with nearly 7.7 million (22 per cent) fewer
calls in FY19. Call volumes also reduced
by 9 per cent with our Enterprise
customers.
Pillar 2: Establish a standalone
infrastructure business unit to drive
performance and set up optionality
post the nbn rollout
On 1 July 2018, we created Telstra
InfraCo, a standalone infrastructure
business unit within Telstra, to provide
greater visibility to the market of the
value of this business and create more
optionality in the future.
Telstra InfraCo controls assets with a
book value of around $11 billion and is
responsible for network infrastructure
assets such as data centres and
exchange buildings, most of our fibre
network, the copper and hybrid fibre
coaxial (HFC) networks, international
subsea cables, exchanges, poles, ducts
and pipes.
Establishing Telstra InfraCo as a separate
business unit, with its own segment
reporting in our financial accounts, allows
us to drive greater efficiency in the
operation of our infrastructure assets and
provides investors with greater visibility of
the value of those assets and the returns
they generate.
Telstra InfraCo serves three customer
segments, with more than 200 customers
in total, including Wholesale in Australia;
nbn co; and the broader Telstra
organisation.
Pillar 3: Greatly simplify our
structure and ways of working
to empower our people and
serve our customers
A critical part of delivering on our T22
commitments is changing how we work
to allow our people to collaborate more
quickly and easily so that they can deliver
better and faster outcomes for our
customers.
We have made good progress on our
commitment to remove hierarchies and
silos and redesign our organisation from
the ground up.
We have removed three management
layers already and are on track to reduce
up to four management layers in the
organisation.
Our new Global Business Services
function has been operational through
FY19, providing a point of consolidation
for many of our large scale “back of
house” processes and functions using
technology to reduce costs for large
repeatable functions.
We are ahead of plan with our direct
workforce reductions, with around
75 per cent of the net 8,000 roles now
announced. The decision to accelerate
these changes was made carefully and
deliberately to, in part, provide our people
certainty about the future. This resulted
in an increase in Telstra’s forecasted total
FY19 restructuring costs from around
$600 million to approximately
$800million. While not all impacted
employees left the organisation before
the end of FY19, consultation concluded
in mid-June and therefore the relevant
restructuring costs were brought forward
from FY20 to FY19. Total remaining
restructuring costs from T22 initiatives
are expected to be in the vicinity of $350
million with around $300 million in FY20.
We are supporting our people through
the change. This includes our standard
redundancy packages and an up to $50
million transition program that provides
a range of services to help people move
into a new role.
We are transitioning across our
organisation to an Agile at scale model –
a suite of practices and mindsets that are
enabling us to work more collaboratively
and transparently and respond faster and
more easily to the changing needs of our
customers.
11
We have taken major
steps forward and built
great momentum for
the next phase of our
T22 transformation.
It has been more than twelve months
since Telstra embarked on its T22
strategy – a major transformation that
is enabling us to respond to a rapidly
changing environment and continue to
lead the Australian telco market. T22 is
about simplifying our operations and
products, improving the experience of
our people and customers, reducing our
costs and structuring the business to
maximise the value of our assets.
A lot has happened in the past year
and we have made good progress.
Telstra is already a company that is
easier to interact with, offering better
service and simpler, more flexible
products, delivered with world-class
technology. Telstra InfraCo, our new
standalone infrastructure business unit,
is operational. We are working and doing
business differently under a simplified
structure and new ways of working and
we have made significant progress on our
ambition to implement industry-leading
cost reduction and portfolio management
programs.
T22 is underpinned by our multi-billion
dollar strategic investment program to
digitise and automate our systems and
deliver the networks for the future,
including 5G, which became a reality
with our launch this year.
This is just the start and there remains
much to do. Our values and our renewed
purpose – to build a connected future so
everyone can thrive – continue to guide
us as we deliver T22 and beyond.
10
We are also investing in critical
capabilities needed for the future
such as software engineering,
DevOps (development and operations
collaboration practices) and automation
by opening our Innovation and Capability
Centre (ICC) in Bangalore.
This centre means we can scale crucial
skills and access a greater resource pool.
Longer term, we want to see these skills
being further developed right here in
Australia and we are establishing a
partnership program with a small
number of universities to develop
specific capabilities.
Pillar 4: Industry-leading
cost reduction programs
and portfolio management
Our cost reduction and portfolio
management programs are well
underway and remain on track to
reach our net cost out target of
$2.5 billion by the end of 2022.
We have already delivered around $1.17
billion of our commitment and we are
targeting a further reduction in fixed
costs in FY20 of $660 million. Under the
strategic investment in digitisation
announced in 2016, we are well
progressed in building new IT platforms
and retiring many of our legacy systems.
This has resulted in a non-cash
impairment and a write down of the
value of our legacy IT assets for FY19
of approximately $500 million. Further
details on our new digital platforms
are provided below.
In line with our T22 strategy to monetise
up to $2 billion of assets by the end of
FY20, we reached an agreement to sell
three international data centres in
Europe and Asia to global private equity
firm I-Squared Capital, the owners of
HGC Global Communications.
The agreement is subject to a number
of conditions precedent and if these are
satisfied, Telstra expects the transaction
to be completed in first half of FY20,
with estimated proceeds from sale of
approximately $160 million. This is in
addition to the sale of our Edison
Exchange in Brisbane’s CBD and
other opportunities which continue
to be developed**.
T22’s four pillars are enabled
by a program of up to $3
billion of strategic
investments, announced
in 2016, to transform our
network and digital
capabilities.
Australia’s largest, fastest, safest,
smartest and most reliable next
generation network
The 5G future arrived in FY19 and
Telstra has been a global leader in
its development, testing, rollout and
product range.
5G is expected to deliver ultrafast
speeds, ultra-low latency (less lag
between a request for data being sent
and received) and greater bandwidth
that will transform the way we live and
work by enabling all sorts of future
applications and technologies.
We have started rolling out 5G in 10 cities
around Australia and we expect our 5G
coverage to increase almost five-fold in
area and reach into at least 35 Australian
cities over the next twelve months.
The rollout of 5G coverage is in its early
stages with the current footprint being in
CBD locations and selected regional
centres where more than four million
people live, work or visit every day.
Our network leadership has resulted in
exclusive access to the world’s first 5G
smartphones and devices.
We have also continued to grow our
mobile network, launching our 10,000th
mobile network site and building around
600 new mobile base stations under the
Federal Government’s Mobile Black Spot
Program since its inception. Nationally,
our mobile footprint now stretches out to
more than 2.5 million square kilometres,
at least 1 million square kilometres
more than any other mobile network
in Australia. The rollout of 5G will
complement and increase the
capabilities of Internet of Things
(IoT) beyond the limitations of
existing 4G standards.
Telstra has also deployed advanced IoT
technology. Our leading mobile footprint
is why we can offer more than 3.5 million
square kilometres of Narrowband IoT
coverage and around 3 million square
kilometres of Cat M1 coverage, and we
are now focussing on harnessing its
potential to introduce connected
solutions to solve everyday problems,
such as analytic sensors and track and
monitor – from fleet vehicles to the
family pet. We saw continued positive
momentum in this area in FY19.
Telstra has invested around $8 billion
over the past five years to 30 June 2019
to enhance the capacity, capability and
reach of Telstra’s mobile network.
We continue to lead the market in a
number of key speed and other quality
benchmarks, with our networks
recognised in the 2018 SpeedtestTM
Awards by OoklaTM as well as P3,
Systemics, and every Netflix survey
since February 2018.
We also grew our subsea cable network to
more than 400,000 kilometres – enough to
circle the world 10 times – including a
number of large capacity purchases on
new-generation cables. Telstra has the
largest subsea cable network in the Asia
Pacific, which enables much of the
information our customers consume and
share to be transmitted. Through our
continued investment we are well placed
to meet our customers’ growing demand
for data, as well as adding diversity and
resiliency to our network.
We will continue to work to build and
develop the networks for the future
so that we can seek to provide our
customers with the largest, fastest,
smartest and safest next generation
networks.
Strategy and performance | Telstra Annual Report 2019
New digital platforms
Digitisation remains crucial to achieving
our strategy to radically simplify our
product offerings, eliminate customer
pain points and create great digital
experiences.
Telstra is continuing to invest in
digitisation to replace our legacy tools
and complex manual processes with
fully-automated, world-class
digital applications.
Our new digital platforms are enabling
the simplification of our business,
which will lead to improved customer
experience and reduced costs.
They will cover the full customer lifecycle
and underpin our ability to move to a new,
simplified product suite.
Functionality on our new Salesforce
customer relationship management
(CRM) system is being progressively
rolled out. This system allows us to
remove complexity for our Consumer and
Small Business frontline employees by
servicing customer needs from one
console. This will make it easier and
faster for our people to process
transactions, manage an account or fault,
recommend additional products and
services and undertake a host of other
interactions. Salesforce is now
also the single portal for Telstra
Enterprise and our partners to manage
our sales opportunities and has helped
increase our sales pipeline by 27 per cent
over the past 12 months.
We have also established key
personalisation capabilities using our Big
Data platform and the Marketing Cloud
feature of the new Salesforce platform,
which collectively enable us to deliver
highly targeted and personalised
communications.
We have achieved significant momentum
for our Enterprise customers with
approximately 6,000 customers
onboarded to our Telstra Connect
platform. Telstra Connect brings together
more than 50 active portals into one to
improve our customer experience and it
is becoming our single digital channel for
business to business (B2B) customer
interactions.
Our B2B Digital Transformation, which
is automating and simplifying processes
across the full Enterprise customer
lifecycle, has also automated more than
170 processes, allowing our people to
focus on more valuable tasks.
T22
Strategic
pillars
Enabled
by our up
to $3b
investment
program
Delivering
Radically simplify
our product
offerings, eliminate
customer pain
points and create
all digital
experiences
Establish a
standalone
infrastructure
business unit to
drive performance
and set up
optionality post the
nbn rollout
Greatly simplify our
structure and ways
of working to
empower our
people and serve
our customers
Industry leading
cost reduction
program and
portfolio
management
New digital platforms
Australia’s largest, fastest, safest, smartest and most reliable next generation network
Market
leading
customer
experience
Simplified
products,
business
and
operating
model
Extended
network
superiority
and 5G
leadership
Achieve
Global High
Performance
Norm in
employee
engagement
Net cost
productivity
of $2.5bn
by FY22
Post-nbn
ROIC > 10%1
** Since the release of our OFR on 15 August 2019, which was lodged with the ASX in the document titled “Financial results for the year ended 30 June 2019”, Telstra
announced that it had established an unlisted property trust to own 37 of its exchange properties and had reached an agreement to sell a 49% stake, realising
proceeds of $700 million. Further information is available in our ASX announcement dated 16 August 2019 and in the transcript of the analyst conference held on
16 August 2019 (which was lodged with the ASX on 21 August 2019) which are available at telstra.com/investor.
1 Post-nbn defined as FY23 and beyond on AASB16 basis
12
13
Our material risks
Our material risks | Telstra Annual Report 2019
Privacy and cyber security
At Telstra the privacy and security of our
customers’ data is critical and front of
mind in everything we do. Cyber threats
are constantly evolving, including from
foreign groups targeting individuals and
companies based in Australia and
sophisticated phishing scams and
cyber-attacks targeting the critical
infrastructure that we manage.
The privacy and security of customer
and corporate information may be
compromised in many ways, including a
breach to our IT systems and our vendors’
systems, unauthorised or inadvertent
release of information or human error.
Should our systems be compromised,
it would impact our customers’ trust,
damage our brand and reputation,
and potentially significantly disrupt
our operations.
We have a number of strategies to
manage these cyber threats, including
enterprise wide cyber drills designed to
test the level of staff compliance and
vigilance, reviews of third party security
to confirm it meets our standards, and
development of policies and procedures.
We regularly update our privacy
statement and privacy procedures
including in consideration of how societal
expectations and technological changes
affect the way we collect, store and use
personal information.
Health, safety, wellbeing and
environment
The nature of the infrastructure we
maintain and the activities we undertake
involve a level of inherent Health, Safety,
Wellbeing and Environmental (HSWE)
risk. This includes risks to employees,
members of the public and environmental
hazards associated with our work, our
products and services and the facilities
in which we operate. Failure to manage
these risks effectively could also impact
our reputation with stakeholders and
customers and expose us to regulatory
action or litigation. We have a
comprehensive system and processes
in place to responsibly manage our risks
and to actively monitor safety outcomes
and build employee awareness. We also
have a Mental Health and Wellbeing
Strategy to address workplace mental
health and wellbeing risks including
those associated with change and
transformation. Our approach to
managing HSWE risk incorporates
broader considerations of our safety
culture, including managing workplace
aggression and drug and alcohol use,
how we manage environmental hazards
and those that may arise from use of our
products such as electromagnetic energy.
Resilience
Our competitive advantage is driven
through the scale, speed and resilience
of our network. The importance of our
network is further emphasised by our
customers’ need to be always connected,
and this dependency is greater now than
ever before. If this growing reliance is not
met, for example during periods of
network congestion or prolonged
network disruptions, the impacts can be
frustrating and disruptive. We are also
cognisant of the responsibilities we have
in providing critical infrastructure and
important products and services to our
customers. When we get this wrong it
can have severe ramifications for our
customers, and may undermine their
trust in us and impact our brand and
reputation.
The threats to our ability to maintain
resilience and continuity of key
processes and systems include
equipment failure, natural disasters,
malicious attacks, loss of key third party
service providers, and human errors.
Given the breadth and complexity of our
underlying infrastructure, we also expect
our exposure to climate change related
risks will increase over time in line with
the frequency and intensity of extreme
weather events.
To manage these risks, we have a number
of capabilities, strategies and plans that
seek to prevent, respond to and recover
from network or critical service
disruptions. We are also implementing
a cross company Integrated Resilience
approach to better manage end-to-end
resilience of key products and services.
Our 5G technology is being developed
and built, among other things, to satisfy
our customers’ demand for fast mobile
data speeds and lower latency which is
being completed under increasing
regulatory and government scrutiny.
Major regulatory change and
stakeholder engagement
Regulatory or policy changes may directly
impact our strategy and business model,
as well as increase complexity and the
cost of doing business. As the leading
provider in a heavily-regulated industry,
our products and services and the ways
in which we deliver them, are subject to
ongoing scrutiny from a range of regulators
and agencies. We proactively maintain
relationships with relevant regulatory
stakeholders and policy makers,
community groups and industry in an
effort to ensure fair and balanced policy
and regulatory decisions.
We understand the importance of clear,
transparent and timely communications
with our stakeholders (including
customers, shareholders, investors,
government and regulators) to ensure
we acknowledge their views and
maintain good relationships with them.
We recognise if we are not successful in
doing so, it may adversely affect our
ability to execute our strategy. We also
understand the relationship between
business and society is changing in a
heightened regulatory environment in
light of the findings from the Hayne Royal
Commission. Increasing stakeholder
expectations, coupled with a decline in
trust in business means it is critical we
continue to conduct business in a
responsible manner consistent with our
stakeholders’ expectations.
The key regulatory matters currently
relevant to Telstra relate to nbn network
customer experience, spectrum allocation,
regulatory reform, pricing of regulated
services and regulatory compliance.
As with any regulatory or policy changes,
these matters may directly impact our
strategy and business model as well as
raise the risk of additional regulatory
cost and complexity being imposed on
our business.
Further detail about our risk management
framework and how we manage our risks
is provided in our 2019 Corporate
Governance Statement available at
www.telstra.com/governance.
Further information about our
sustainability related risks is provided
in our Bigger Picture 2019 Sustainability
Report, available at www.telstra.com/
sustainability/report.
Telstra operates in an
environment that is constantly
evolving and facing rapid change,
therefore it is important that we
have frameworks in place to
identify, measure and monitor
the most material risks to our
organisation, and to leverage
our opportunities. The following
describes the material risks
that could affect Telstra,
including any material exposure
to economic, environmental and
social sustainability risks, and
how we seek to manage them.
These risks are not listed in any
order of significance, nor are
they all encompassing. Rather
they reflect the most significant
risks identified at a whole-of-
entity level through our risk
management process.
Transformation and competition
The impacts of the nbnTM network rollout
and the intensified competition across
the industry has seen us launch the T22
strategy which aims to simplify our
business, reduce our cost base and
maximise the value of our infrastructure.
We are now a year into this strategy and
have made good progress addressing
customer pain points, digitising customer
experiences, setting up Telstra InfraCo
and simplifying our structure and ways of
working. Digitisation of our systems and
processes is a key enabler of our T22
strategy allowing us to further simplify
our products and achieve our efficiency
goals. The T22 strategy has also changed
the way we sell our products, increasing
the risk that our new market propositions
fail to meet the needs of our customers.
As we execute on our T22 strategy, it is
essential that we continue to effectively
manage our risks and avoid inadvertently
undermining our critical processes,
controls or obligations. Throughout this
period of change, we are focused on
maintaining effective formal structures
of governance and leadership to
effectively identify and manage the
transformation risks, including the
Digitisation program. While we have
set a clear path for Telstra, failure to
implement the appropriate systems and
processes, and put the correct people in
place, would severely impact on our
ability to achieve our T22 goals.
To mitigate this risk, we are committed
to ensuring our people have access to
the right tools and technology to help
successfully deliver the transformation.
People and culture
To be successful in achieving our T22
strategy, it is imperative that we attract,
develop and retain a workforce capable
of delivering our objectives through our
new ways of working. Our people and our
ability to maintain our desired culture
are also integral to operating at the
standards expected by our stakeholders
and community. Our Culture and
Capability program is focused on building
an agile and enabled culture, centred on
simplicity and accountability and driven
by strong leadership. We have had
additional focus on the Responsible
Business components of our
sustainability strategy this year,
including initiatives that further
improve our culture and the way we
conduct our business.
Our workforce continues to be
impacted as we progress through the
transformation changes. To assist with
the transition, we have invested in a new
operating model and organisational
change teams to train and uplift capability.
A transition program is also in place to
provide outplacement support for
employees leaving Telstra.
14
15
Outlook | Telstra Annual Report 2019
Outlook
Significant work over the past twelve months has seen
strong progress on our T22 strategy. Notwithstanding the
intense competitive environment and the challenging
structural dynamics of our industry, underlying trends
are expected to improve over the course of FY20.
While good progress on T22 has been made there
remains much to do to ensure we continue to lead
the Australian telecommunications market.
In the coming year the transition of customers to
the nbnTM network and competition in Australia’s
mobile market are expected to continue to impact
revenues and profit.
We will monitor how our new and existing
customers respond to our efforts to simplify
and provide better value products and remove
pain points and we look forward to announcing
further initiatives that will set us apart from our
competitors over the next year ahead.
The migration of our existing customers to the
new plans and technology stack is underway,
which in turn will allow us to accelerate the
decommissioning of old products and technology.
The next twelve months will be an important
period in our plan to monetise up to $2 billion of
assets and we look forward to providing further
updates on our progress. We have achieved good
momentum in reducing our costs and this will
remain a focus as we target a further reduction
in underlying fixed costs this year.
Re-engineering how we work and do business
will remain a significant focus this year as we
embed new ways of working. While the majority
of our major cross-company restructures and
organisational design work is behind us, we will
continue to see change in our workforce as part of
our investments in digitisation, new technology
and reduced activity within the business.
All this will occur amid a continually challenging
environment.
With the rollout of the nbn network expected to
be complete by the end of the 2020 calendar year,
and with many premises still to connect, the next
twelve months will be a critical period and we
expect continued pressure on our earnings.
Telstra expects a FY20 headwind of $800 million
to $1 billion from the recurring impact of the nbn,
the biggest in-year nbn headwind1 to date.
nbn co has also begun directly targeting the
business sector as an infrastructure provider,
which could also further impact our business.
We will continue to advocate for a reduction in
nbn wholesale prices to help ensure the long-term
sustainability of the industry.
Competition in the Australian mobile market is
expected to remain strong and dynamic, but also
full of opportunity. Leading in 5G is an integral
part of T22 and our next generation network will
continue to expand, with 5G coverage growing
from the 10 cities across Australia where it is
currently being rolled out to reach into at least 35
in the next year ahead. Performance should also
further improve with the activation of additional
device and network feature enhancements. More
5G-enabled handsets and devices are expected to
hit the market and we also look forward to seeing
the development of new applications made
possible by this revolutionary technology.
While we believe our customers will value the
freedom, flexibility and simplicity of our new
plans, and encourage them to consider Telstra as
their go-to for more of their communication and
technology needs, such fundamental changes
can take time to translate into financial results.
We expect mobile post-paid Average Revenue
Per User (ARPU) to continue to decline into FY20
as a result of competitive pricing dynamics in
the market and the decline of out-of-bundle
revenue, while fixed ARPU will also continue to
be impacted by intense competition as the nbn
rollout progresses.
We have faced many challenges and know there
will be many more ahead, but we remain very
positive about Telstra’s prospects for the future.
Guided by our purpose – to build a connected
future so everyone can thrive – we will remain
bold and determined to do everything we possibly
can to transform Telstra from being a leader in the
old world, to being the leader in the new world of
telecommunications in Australia.
Further information in relation to our Outlook is
provided in the Chairman and CEO message.
1. In-year nbn headwind defined as the net negative recurring EBITDA impact on our business based on management best estimates
including key input of the nbn Corporate Plan 2019.
16
17
Full year results and
operations review
Summary financial results
Revenue (excluding finance income)
Total income (excluding finance income)
Operating expenses
Share of net profit/(loss) from joint ventures and associated entities
EBITDA
Depreciation and amortisation
EBIT
Net finance costs
Income tax expense
Profit for the period
Profit attributable to equity holders of Telstra
Capex1
Free cashflow
Earnings per share (cents)
FY19
$m
25,259
27,807
19,835
12
7,984
4,282
3,702
630
923
2,149
2,154
4,140
3,068
18.1
FY18
restated
Change
$m
25,848
28,841
18,622
(22)
10,197
4,470
5,727
588
1,582
3,557
3,591
4,717
4,695
30.2
%
(2.3)
(3.6)
6.5
n/m
(21.7)
(4.2)
(35.4)
7.1
(41.7)
(39.6)
(40.0)
(12.2)
(34.7)
(40.1)
1. Capex is defined as additions to property, equipment and intangible assets including capital lease additions, excluding expenditure on spectrum, measured on an
accrued basis. Capex excludes externally funded capex.
Full year results and operations review | Telstra Annual Report 2019
Reported results
Our FY19 results show our focus on building value and growth, improved customer experience, and ongoing momentum in our cost
reduction efforts, while also reflecting the impact of the nbn rollout and competitive headwinds.
For commentary on our key results and market context, please refer to the Chairman and CEO message. Detail on our FY19 highlights
and progress against our T22 strategy can be found in Strategy and performance. FY18 results have been restated to account for the
adoption of AASB15 – refer to Note 1.5 in the Financial Report for further detail. The definition of “underlying earnings” now excludes
guidance adjustments – refer to the dividend discussion below for further detail.
Results on a guidance basis1
Total income3
EBITDA excluding restructuring costs
Net one-off nbn DA receipts less
nbn net cost to connect
Restructuring costs
Capex
Free cashflow
FY19
$27.8b
$9.4b
$1.6b
$0.8b
$4.1b
$3.2b
FY19 Guidance2
$26.2b to $28.1b
$8.7b to $9.4b
$1.5b to $1.7b
~$0.8b4
$3.9b to $4.4b
Lower end of $3.1b to $3.6b5
1. This guidance assumed wholesale product price stability and no impairments to investments or core assets, and excluded any proceeds on
the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance also assumed the nbn™ rollout and migration in
FY19 was broadly in accordance with the nbn Corporate Plan 2019. The guidance was provided on the basis of AASB15. Capex was measured
on an accrued basis and excluded expenditure on spectrum and externally funded capex. Refer to the Guidance versus reported results
schedule. This reconciliation has been reviewed by our auditors.
2. FY19 guidance revised on 6 September 2018 after nbn co released the nbn Corporate Plan 2019.
3. Total income excludes finance income.
4. Revised to be around $0.8b on 29 May 2019.
5. Revised to be at the lower end of $3.1b to $3.6b on 14 February 2019.
FY19
FY19
FY19
FY18
restated
Guidance versus reported results1
Reported
results $m
Adjustments
$m
Guidance
basis $m
Guidance
basis $m
Total income2
EBITDA
Free cashflow
27,807
7,984
3,068
(3)
27,804
1,3823
118
9,366
3,186
28,542
10,568
4,873
1. This guidance assumed wholesale product price stability and no impairments to investments or core assets, and excluded any proceeds
on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance also assumed the nbn™ rollout and migration
in FY19 was broadly in accordance with the nbn Corporate Plan 2019. The guidance was provided on the basis of AASB15. Capex was
measured on an accrued basis and excluded expenditure on spectrum and externally funded capex. Refer to the Guidance versus
reported results schedule. This reconciliation has been reviewed by our auditors.
2. Total income excludes finance income.
3. FY19 EBITDA guidance adjustments include $801 million restructuring costs and $493 million asset impairment. Refer to the Guidance
versus reported results schedule.
On 15 August 2019, the Directors of Telstra Corporation Limited resolved to pay a fully franked final dividend of 8 cents per share,
comprising a final ordinary dividend of 5 cents and a final special dividend of 3 cents. Shares will trade excluding entitlement to
the dividends from 28 August 2019 with payment on 26 September 2019.
The total dividend for FY19 is 16 cents per share, fully franked, including 10 cents ordinary and 6 cents special. The ordinary
dividend represents a 59 per cent payout ratio on FY19 underlying earnings1 while the special dividend represents a 63 per cent
payout ratio of FY19 net one-off nbn receipts2. The FY19 ordinary dividend is below the payout ratio of 70 to 90 per cent of
underlying earnings which is one of the principles in our capital management framework. In our updated capital management
framework, underlying earnings now explicitly exclude guidance adjustments as well as net one-off nbn receipts. In determining
the FY19 final ordinary dividend, the Board has taken into account a number of factors including the overall capital management
framework objectives including maintenance of financial strength and retaining financial flexibility. Our FY19 underlying earnings
were $2,019 million while net one-off nbn receipts were $1,129 million.
1. “underlying earnings” is defined as net profit after tax from continuing operations excluding net one-off nbn receipts (as defined in footnote 2) and guidance
adjustments (as defined in footnote 3).
2. “net one-off nbn receipts” is defined as net one-off nbn Definitive Agreement (nbn DA) receipts (consisting of Per Subscriber Address Amount (PSAA),
Infrastructure Ownership and Retraining) less nbn net cost to connect less tax.
3. Guidance adjustments include one-off restructuring costs, impairments in and to investments or property, plant and equipment and intangible assets,
proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum.
18
19
Segment performance
We report segment information on the same basis as our internal
management reporting structure as at reporting date. Segment comparatives
reflect organisational changes that have occurred since the prior reporting
period to present a like-for-like view.
Income related to recurring nbn Infrastructure Service Agreement (ISA) amounts
and nbn commercial works are included in Telstra InfraCo. One-off nbn DA and
ISA amounts are included in Other Segments, and non-nbn commercial works
are included in Telstra Enterprise.
Segment total income
11%
8%
0%
FY19
51%
FY18
restated
Change
30%
Total external income
Telstra Consumer and Small Business
Telstra Enterprise
Networks and IT
Other Segments
Telstra InfraCo including internal access charges
Internal access charges
Total
FY19
$m
$m
14,271
14,498
8,243
8,217
70
2,166
4,948
(1,891)
75
2,788
3,263
–
27,807
28,841
%
(1.6)
0.3
(6.7)
(22.3)
51.6
n/m
(3.6)
11%
10%
0%
29%
FY18
50%
Telstra Consumer
and Small Business
Telstra Enterprise
Networks and IT
Other Segments
Telstra InfraCo ex
internal access charges
Telstra Consumer and Small Business
Telstra Consumer and Small Business
income decreased by 1.6 per cent to
$14,271 million, largely impacted by a
6.3 per cent decline in fixed as a result
of ongoing standalone fixed voice decline.
Mobile services revenue decreased by
2.3 per cent as declining Average
Revenue Per User (ARPU) offset customer
net additions. Network Applications and
Services (NAS) revenue continued to
grow, increasing by 13.9 per cent,
primarily driven by growth in unified
communications.
Telstra Enterprise
Telstra Enterprise income increased by
0.3 per cent to $8,243 million as growth
in international offset a decline in
domestic. Telstra Enterprise domestic
income decreased by 2.1 per cent as
growth in NAS and mobility was offset
by industry ARPU decline in Data & IP
and ongoing decline in ISDN. Telstra
Enterprise international income grew
by 9.0 per cent mainly due to growth in
higher margin Data & IP and a positive
impact from the depreciation of the
Australian dollar (AUD).
Networks and IT
Networks and IT is responsible for the
overall planning, design, engineering
architecture and construction of Telstra
networks, technology and information
technology solutions. It primarily
supports the revenue generating
activities of other segments. Networks
and IT income decreased by 6.7 per cent
to $70 million.
Telstra InfraCo
Telstra InfraCo income excluding internal
access charges decreased by 6.3 per
cent to $3,057 million due to expected
declines from Telstra Wholesale fixed
legacy and nbn commercial works, partly
offset by increased recurring nbn DA
receipts. Including internal access
charges, income increased by 51.6 per
cent to $4,948 million. Internal access
charges were recognised from 1 July
2018 following the establishment of
Telstra InfraCo as a standalone business
unit, therefore there were no access
charges in FY18.
Telstra InfraCo is now fully operational as
a standalone infrastructure business unit
within Telstra. We report it separately to
provide greater visibility to the market
of the performance and the value of our
infrastructure assets. Telstra InfraCo
controls assets with a book value of
around $11 billion and is responsible
for key network assets including data
centres and exchanges, most of our fibre
network, the copper and hybrid fibre
coaxial networks, international subsea
cables, poles, ducts and pipes.
Other Segments
Certain items of income and expense
relating to multiple reportable segments
are recorded by our corporate areas and
included in the Other Segments category.
This category also includes Product and
Technology, Global Business Services
(GBS) and New Business (including
Telstra Health). Income declined by
22.3 per cent mainly due to lower PSAA
receipts in line with the nbnTM network
rollout, and a $299 million benefit in
FY18 relating to the fair value gain on
the Foxtel and Fox Sports Australia
merger and conversion of the loan to
our Foxtel joint venture into investment.
Full year results and operations review | Telstra Annual Report 2019
Product performance
Product revenue breakdown
14%
9%
14%
10%
4%
3%
7%
FY19
Key product revenue
42%
Mobile
Fixed
Data & IP
NAS
21%
Global connectivity
FY19
$m
FY18
restated
$m
10,545
10,380
5,223
2,358
3,477
1,700
5,765
2,556
3,627
1,569
Change
%
1.6
(9.4)
(7.7)
(4.1)
8.3
4%
4%
6%
EBITDA margins1
FY19
%
2H19
%
1H19
%
FY18
restated %
FY18
22%
40%
Mobile
Fixed (including nbn
cost to connect)
Data & IP
NAS
Global connectivity
34
19
63
10
19
33
16
62
16
19
35
22
64
2
19
38
30
64
10
19
1. The data in this table includes minor adjustments to historic numbers to reflect changes in product
hierarchy. Product EBITDA restated due to accounting changes and review of fixed cost allocation
methodologies to products. Mobile and fixed restated to include International network costs previously
included in Other.
Mobile
Fixed
Data & IP
NAS
Global connectivity
Media
Other
On a reported basis, total income
(excluding finance income) declined by
3.6 per cent to $27,807 million. On a
guidance basis, total income (excluding
finance income) declined by 2.6 per cent
to $27,804 million in line with FY19
guidance and market expectations.
Income continues to be impacted by
competitive pressure across all products
and markets, accelerated decline in
legacy products and services, and
negative impacts from the nbnTM network
rollout. The decline has been partly offset
by continued growth in mobile and fixed
customer services.
More detail on each of the products are
outlined below.
20
21
Mobile
Domestic mobile
retail customer services
(millions)
18.3
17.4
17.7
FY17
FY18
FY19
Mobile revenue increased by 1.6 per cent
to $10,545 million with growth across
hardware, postpaid handheld, Internet of
Things (IoT) and wholesale, partly offset
by prepaid handheld and mobile
broadband declines.
Retail customer services increased
by 622,000, bringing the total to 18.3
million. We now have 8.2 million postpaid
handheld retail customer services, an
increase of 378,000 including 181,000
from Belong.
Postpaid handheld revenue increased
by 1.2 per cent to $5,294 million due to
continued net add momentum, partly
offset by 3.1 per cent ARPU decline from
$56.53 to $54.77 resulting from lower
out of bundle revenue, Minimum Monthly
Commitment (MMC) decline, and an
increasing mix of lower Belong customer
ARPU causing dilution. ARPU declines are
expected to continue into FY20 largely
due to a further decline of approximately
$200 million in out of bundle revenue.
Prepaid handheld revenue declined by
13.5 per cent to $829 million impacted by
lower ARPU, increased competition, and
migration to postpaid, Belong and
wholesale. ARPU decline of 8.7 per cent
from $22.75 to $20.76 was compounded
by a 49,000 reduction in unique users.
Mobile broadband revenue decreased
by 14.0 per cent to $673 million after
a decline in ARPU and reduction of
266,000 customer services in postpaid
and prepaid.
IoT revenue grew by 19.4 per cent to
$203 million, increasing customer
services by 561,000 due to the
introduction of new IoT products
including Telstra Locator, and the launch
of a commercial vehicle product and
digital water metering solution.
Wholesale services revenue increased
6.3 per cent to $201 million. Wholesale
customer services increased by 230,000,
bringing the total to 1.2 million.
Mobile hardware revenue increased
by 10.0 per cent to $3,106 million
largely due to devices sold at a higher
price per unit.
Mobile EBITDA margin declined by
3.9 percentage points to 34 per cent
due to lower services revenue and
hardware margin, partly offset by
fixed cost reduction.
Fixed
Fixed revenue declined by 9.4 per cent
to $5,223 million, impacted by nbn
migration, competition and ongoing
legacy decline.
Bundles and standalone data revenue
declined by 0.3 per cent to $3,290 million
due to a 3.0 per cent ARPU decline from
$77.37 to $75.07 caused by lower value
added services and voice billed usage.
MMC revenue grew with bundle and
standalone data revenue now more than
98 per cent MMC. There were 107,000
retail bundles and standalone data net
subscriber additions including 51,000
from Belong, bringing the total bundles
and standalone data customers to
3.7 million.
Standalone voice revenue decreased
by 25.7 per cent to $881 million with
lower services in operation (SIO) and
usage due to standalone voice line
abandonment and migration to bundles.
ARPU declined by 1.2 per cent from
$44.16 to $43.62. There were 542,000
retail standalone voice net subscriber
losses taking total standalone voice
customers to 1.4 million.
We continue to lead the nbn market
with a total of 2,605,000 nbn
connections, an increase of 659,000.
Our nbn market share is now 49 per cent
(excluding satellite). The Telstra Smart
Modem is now being utilised by 44 per
cent of our fixed data consumer base,
providing a better experience on the
nbn and improved churn outcomes.
Other retail fixed revenue, which includes
platinum, once off revenue (hardware
and professional installation fees),
payphones directory assistance and
fixed interconnect, decreased by 8.2
per cent to $247 million.
Fixed (including nbn cost to connect)
EBITDA margin declined by 10.2
percentage points to 19 per cent due
to high margin revenue reduction,
growing network payments to nbn co
and nbn migration costs, partly offset
by fixed cost reduction.
Data & IP
Data & IP revenue decreased by 7.7
per cent to $2,358 million reflecting
competitive pricing pressures,
technology shifts, and legacy product
declines especially in ISDN, despite
continued growth in IP based Virtual
Private Network (IPVPN) service volumes.
IPVPN revenue, which includes IPMAN/
Ethernet MAN, IPWAN and nbn, declined
by 6.4 per cent to $996 million as SIO
growth in fibre and nbn access was
outweighed by declines in legacy copper
services and continued competitive
pressure on yield.
ISDN revenue decline accelerated, down
17.8 per cent to $387 million due to
service rationalisation of legacy products
and customer migrations to equivalent
voice products within the NAS portfolio.
Other data and calling products revenue
decreased by 4.5 per cent to $975 million
including a 2.6 per cent decline in
wholesale. Enterprise internet growth of
10.2 per cent was offset by declines in
legacy inbound calling and data products,
and media solutions.
Data & IP EBITDA margin declined by
0.9 percentage points to 63 per cent
reflecting declining revenue on high
margin products including ISDN and
pricing pressure in IPVPN. Margins will
increasingly be impacted by the resale
of nbn at lower margins.
Network Applications and Services (NAS)
NAS revenue declined by 4.1 per cent
to $3,477 million impacted by lower
nbn commercial works and integrated
services. Excluding nbn commercial
works, revenue grew by 2.0 per cent
with 13.9 per cent growth in Small
Business and 0.8 per cent growth in
domestic Enterprise due to a higher
mix of annuity revenue.
Managed network services revenue
decreased by 4.0 per cent to $648 million,
reflecting a decline in non-recurring
revenue within managed data networks,
partly offset by a 31.9 per cent growth in
security services.
22
Unified communications revenue
increased by 14.0 per cent to $1,009
million due to increased calling and
collaboration annuity revenue reflecting
new service growth and fixed migration,
in addition to growth in Enterprise
professional services revenue.
Cloud services revenue growth of 0.5 per
cent to $430 million includes increased
annuity revenue from public cloud
services offset by lower professional
services and customer premises
equipment.
Industry solutions revenue declined by
13.8 per cent to $1,184 million largely due
to a reduction in nbn commercial works.
Integrated services revenue declined
by 22.3 per cent to $206 million mainly
from a decline in consulting and project
management, and timing of project
revenues.
NAS EBITDA margin declined by 0.6
percentage points to 10 per cent reflecting
a change in revenue mix including a decline
in nbn commercial works revenues and
contract timing impacts. NAS has
historically seen seasonality in periods
which was evident in FY19 with a 2.5 per
cent margin in 1H19 and a 15.5 per cent
margin in 2H19. The strong performance
in 2H19 reflected better revenue mix.
Global connectivity
Global connectivity represents the
international business of Telstra
Enterprise. Revenue grew by 2.1 per
cent in constant currency (CC) terms
with growth in more profitable Data
& IP products offset by declining legacy
voice revenues.
Fixed revenue increased by 0.1 per cent
(CC), performing solidly in a declining
market. Data & IP revenue grew by 3.2
per cent (CC) from existing and new
capacity, while NAS revenue increased by
0.3 per cent with growth in professional
services, cloud services and unified
communications, offset by pricing
pressure in co-location.
Global connectivity EBITDA margin
increased by 0.9 percentage points to 19
per cent reflecting continued profitable
revenue growth and cost productivity.
Full year results and operations review | Telstra Annual Report 2019
Media
Media revenue excluding cable decreased by 7.2 per cent to $797 million due to the
performance of Foxtel from Telstra, which declined by 5.4 per cent to $664 million and
had 60,000 subscriber exits, reflecting a broader industry transition from Broadcast
to IPTV. There are now 1,546,000 Telstra TV devices in the market, an increase of
256,000. Sports Live Pass users increased by 757,000 to 3,058,000 across AFL, NRL,
Netball and FFA, with most users receiving the service as part of their mobile
subscription.
Other
Other revenue includes recurring revenue related to nbn co access to our
infrastructure (nbn DA), and revenue from other products such as late payment fees
and revenue from Telstra Health and Telstra Software.
Other income includes gains and losses on asset and investment sales (including
assets transferred under the nbn DAs), income from government grants under the
Telstra Universal Service Obligation Performance Agreement (TUSOPA), income from
nbnTM network disconnection fees (PSAA), subsidies and other miscellaneous items.
The decrease in other income of 14.9 per cent is largely due to a decline in one-off
PSAA which decreased by 9.5 per cent to $1,611 million and a $299 million benefit in
FY18 relating to Foxtel (refer to Other Segments in Segment performance), partly
offset by a 4.3 per cent increase in ISA income to $387 million in line with the
progress of the nbn network rollout. The decline in PSAA receipts from the nbn
reflects nbn migrations in the period.
Expense performance
In June 2018, we announced we would target a $2.5 billion annual reduction in
underlying fixed costs by FY22 compared with underlying fixed costs of ~$8.3 billion
in base year FY16. We have delivered against our cost ambitions for the year and are
in line with the run rate required for our net productivity target with underlying fixed
costs declining by 6.0 per cent or $456 million. We have now achieved around $1.2
billion of annual cost out since FY16.
Operating expenses1
Sales costs
– nbn payments
– other
FY19
$m
FY18
restated
$m
8,831
8,125
1,351
941
7,480
7,184
One-off nbn DA and nbn cost to connect
503
445
$m
706
410
296
58
Fixed costs
– underlying2
– other3
Guidance basis
Restructuring
Other guidance adjustments4
9,116
9,439
(323)
7,105
7,561
(456)
2,011
1,878
18,450
18,009
801
584
286
327
133
441
515
257
Reported basis
19,835
18,622
1,213
Change
%
8.7
43.6
4.1
13.0
(3.4)
(6.0)
7.1
2.4
n/m
n/m
6.5
23
+$584m $19,835m
+$801m
+$296m
+$58m
-$456m
+$410m
$18,009m
Partly
supported
+$283m
increase in
mobile
hardware
revenue
+$133m $18,450m
-6.0%
cost out
+2.4%
Guidance
basis
+6.5%
Reported
basis
FY18
Guidance
basis
Sales
costs – nbn
payments
Sales costs
– other
One-off nbn
DA and nbn
cost to
connect
Fixed costs
– underlying2
Fixed costs
– other3
FY19
Guidance
basis
Restructuring
Other
guidance
adjustments4
FY19
Reported
basis
1. Restated due to accounting changes and review of fixed costs – underlying and other inclusions. Sales and fixed costs exclude costs associated with one-off
nbn DA and nbn cost to connect.
2. Fixed costs – underlying was ~$8.3b in FY16 and targeted to decline by our net cost productivity target of $2.5b by FY22.
3. Fixed costs – other includes items supporting revenue growth including relevant NAS costs, mobile lease, and product impairment.
4. Other guidance adjustments include $493 million asset impairment and $91 million M&A expenses. Refer to the Guidance versus reported results schedule.
On a guidance basis, the rate of total operating expense growth has continued to
slow with 1.9 per cent growth in 2H19 compared with 3.0 per cent in 1H19. In FY20,
we expect total operating expenses excluding restructuring costs and impairments to
decline, with reductions in underlying fixed to offset nbn network payments and other
variable costs.
Our progress on achieving our productivity target is reported through the operating
expenses table on the previous page. The following detail provides commentary on
the operating expenses as disclosed in our statutory accounts.
Operating expenses
Labour
Goods and services purchased
Other expenses
Total
FY18
restated
Change
FY19
$m
5,279
9,138
5,418
$m
5,207
8,338
5,077
19,835
18,622
%
1.4
9.6
6.7
6.5
Total operating expenses increased by
6.5 per cent to $19,835 million largely
due to increased restructuring costs
associated with reshaping our workforce
and recognised asset impairments,
partly offset by fixed cost reduction.
Sales costs, which are direct costs
associated with revenue and customer
growth, increased by 8.7 per cent.
This was due to a $410 million increase in
nbn access payments and a $296 million
increase in variable costs which partly
supported mobile hardware revenue
growth of $283 million. Other fixed costs
increased by 7.1 per cent while one-off
nbn DA and nbn cost to connect grew
13.0 per cent in line with the progress
of the nbnTM network rollout. These
increases were partially offset by the
$456 million reduction in underlying fixed
costs from our productivity program.
24
Full year results and operations review | Telstra Annual Report 2019
Labour
Total labour expenses increased by 1.4
per cent or $72 million to $5,279 million.
Redundancy costs increased by $479
million largely as a result of the T22
strategy restructure, partially offset by
a $407 million decrease in salary costs
due to lower headcount and reduced
labour substitution.
Total full time staff and equivalents (FTE)
decreased by 14.0 per cent or 4,855 to
29,769. We expect to realise the full
financial benefits of these FTE
reductions in FY20.
Goods and services purchased
Total goods and services purchased
increased by 9.6 per cent or $800 million
to $9,138 million.
Cost of goods sold, which includes
mobile handsets, tablets, cellular Wi-Fi,
broadband modems and NAS hardware,
increased by 6.2 per cent or $220 million
to $3,771 million as mobile hardware
costs increased due to more expensive
handsets being sold.
Network payments increased by 23.1
per cent or $524 million to $2,791 million,
including a $410 million increase in nbn
access payments as customers migrate
across to nbn services. Offshore network
payments were $117 million higher mainly
due to higher offshore network traffic.
Other goods and services purchased
costs increased by 2.2 per cent or $56
million to $2,576 million mainly due to an
$87 million increase in service contracts
and agreements in support of NAS
services.
Other expenses
Total other expenses increased by 6.7 per
cent or $341 million to $5,418 million.
Impairment expenses increased by 23.6
per cent or $151 million largely due to a
$493 million non-cash impairment of our
legacy IT assets as a result of making
good progress in standing up our new
IT platforms as part of our T22 strategy.
Service contracts and other agreements
expenses declined by 5.2 per cent or $87
million driven lower by productivity and
cost reduction programs, while other
expenses increased by 10.0 per cent
or $277 million including mobile
lease plans.
Depreciation and amortisation
Depreciation and amortisation decreased
by 4.2 per cent or $188 million to $4,282
million. Review of asset service lives during
the year resulted in a $253 million decrease
in depreciation expense and a $130 million
decrease in amortisation expense.
Foreign currency impacts
For the purposes of reporting our
consolidated results, the translation of
foreign operations denominated in
foreign currency to AUD increased our
expenses by $125 million across labour,
goods and services purchased, and other
expenses. This foreign exchange impact
was offset by a $135 million sales revenue
increase resulting in a favourable EBITDA
contribution of $10 million.
Net finance costs
Net finance costs increased by 7.1 per
cent or $42 million to $630 million due to
an increase in net borrowing costs of $30
million and other net finance cost impacts
of $12 million. The increase in net
borrowing costs was primarily from a
reduction in interest revenue from our
joint venture loan asset to Foxtel
Management Pty Ltd which was converted
to an equity instrument in FY18, an
increase in finance lease interest costs,
and refinancing short term debt with long
term debt. Our gross borrowing yield
remains flat at 4.9 per cent. The increase
in other net finance costs was largely from
non-cash market valuation adjustments
on our financial instruments.
Summary statement of cash flows
Net cash provided by operating activities
Net cash used in investing activities
– Capital expenditure (before investments)
– Other investing cash flows
Free cashflow
Net cash used in financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the period
FY19
$m
6,683
(3,615)
(4,370)
755
3,068
(3,088)
(20)
620
4
604
FY18
restated
Change
$m
8,606
(3,911)
(4,932)
1,021
4,695
(5,015)
(320)
936
4
620
%
(22.3)
7.6
11.4
(26.1)
(34.7)
38.4
93.8
(33.8)
n/m
(2.6)
25
Financial position
Capital expenditure and cash flow
Free cashflow generated from operating
and investing activities was $3,068
million representing a decline of $1,627
million or 34.7 per cent. This was largely
due to lower EBITDA including increased
restructuring costs and working capital,
partly offset by lower cash capital
expenditure and tax paid.
Net cash provided by operating activities
decreased by 22.3 per cent to $6,683
million mainly due to a decrease in one-
off nbn receipts in line with the progress
of the nbnTM network rollout and an
increase in payments to suppliers and
employees. This was partly offset by a
reduction in income taxes paid. The
decrease in net cash used in investing
activities primarily reflects lower capital
expenditure for the period. The $1,927
million decrease in net cash used in
financing activities reflects higher
funding from borrowings and lower
dividend paid.
Our accrued capital expenditure for the
year on a guidance basis was $4,140
million or 17.0 per cent of sales revenue.
We have now completed our strategic
investment program which we announced
in August 2016, having invested $2.6
billion building the networks of the
future and digitising the business.
We are now moving the ongoing
initiatives and investments into
business as usual of our mid-term
capex to sales ratio of 14 per cent.
On a guidance basis free cashflow was
$3,186 million. Performance against
guidance has been adjusted for free
cashflow associated with M&A activity
($89 million) and spectrum ($29 million).
Financial
settings
Debt
servicing1
Gearing2
Interest
cover3
FY19
Actual
FY19
Comfort
zone
1.8x
1.3 to 1.8x
50.3%
50% to
70%
10.5x
>7x
1. Debt servicing ratio is calculated as net debt/
EBITDA.
2. Gearing ratio is calculated as net debt/total net
debt plus equity.
3. Interest cover is calculated as EBITDA/net interest
on borrowings.
Debt position
Our gross debt position was $15,331
million comprising borrowings of $17,253
million and net derivative assets of
$1,922 million. Gross debt declined by
0.2 per cent or $37 million due to a $47
million debt reduction from financing
cash outflow and a $9 million bank
overdraft reduction, offset by a $19
million increase in finance leases and
other non-cash revaluation impacts on
our borrowings and derivatives. Financing
cash outflow comprises debt issuance of
$1,570 million less debt repayments of
$1,617 million.
Debt issuance
10 year EUR bond
1 year AUD floating rate note
7 year bilateral loan facility
Other current loans
Total
Debt repayments
Bonds
Short term commercial
paper (net)
Revolving bank facilities
(net)
Loans
AUD private placements
Finance leases
Total
$m
959
300
300
11
1,570
$m
(752)
(537)
(200)
(39)
(10)
(79)
(1,617)
Net debt decreased by 0.1 per cent or
$12 million to $14,727 million, comprising
the reduction in gross debt and a $25
million reduction in cash and cash
equivalents. Net of bank overdraft our
cash decreased by $16 million.
We remain within our comfort ranges for
all our credit metrics. Our gearing ratio is
at 50.3 per cent (30 June 2018: 50.2 per
cent), debt servicing is 1.8 times (30 June
2018: 1.5 times), and interest cover is
10.5 times (30 June 2018: 14.0 times). On
an adjusted basis, excluding restructuring
costs from EBITDA, our debt servicing
would be 1.7 times at 30 June 2019.
Summary statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity
Return on average assets (%)
Return on average equity (%)
30 Jun 19
1 Jul 18
restated1
Change
$m
7,303
35,286
42,589
9,553
18,506
28,059
14,530
14,530
8.8
14.8
$m
7,202
35,432
42,634
8,785
19,293
28,078
14,556
14,556
13.8
25.0
%
1.4
(0.4)
(0.1)
8.7
(4.1)
(0.1)
(0.2)
(0.2)
(5.0)pp
(10.2)pp
Full year results and operations review | Telstra Annual Report 2019
Statement of financial position
Our balance sheet remains in a strong
position with net assets of $14,530
million.
Current assets increased by 1.4 per cent
to $7,303 million. Assets classified as
held for sale increased by $121 million
and derivative financial assets increased
by $104 million reflecting an increase in
derivatives maturing within 12 months
associated with hedges of our offshore
bonds, partly offset by a $108 million
reduction in trade and other receivables.
Non-current assets decreased by 0.4 per
cent to $35,286 million. Intangible assets
declined by $712 million mainly due to a
$493 million non-cash impairment and
write down of the value of our legacy IT
assets as a result of good progress on our
T22 strategy. This was partly offset by a
$224 million increase in property, plant
and equipment driven by mobile and
Network 2020 investment, and a $186
million increase in derivative financial
assets due to foreign currency
movements and other valuation impacts
arising from measuring to fair value,
offset by reclassification of some
derivatives to current assets.
Current liabilities increased by 8.7 per
cent to $9,553 million. Borrowings
increased by $587 million resulting from
an increase in term debt maturing within
12 months, offset by a reduction in short-
term borrowings. Debt maturing within
12 months largely comprises a €1 billion
Euro bond and an AUD 300 million
floating rate note. Contract liabilities
and other revenue received in advance
increased by $125 million.
Non-current liabilities decreased by 4.1
per cent to $18,506 million. Contract
liabilities and other revenue received
in advance declined by $410 million.
Borrowings decreased by $285 million
reflecting a reclassification to current
liabilities of debt maturing within the
next 12 months and repayment of
revolving bank facilities, offset by term
debt issuance, foreign currency and other
valuation impacts.
1. Opening balance of 1 July 2018 used versus 30 June 2018 due to AASB9 restatements going through opening balances only.
26
27
Board of Directors
John P Mullen
Andrew R Penn
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
John P Mullen
Age 64, BSc
Non-executive Director since July 2008,
Chairman effective 27 April 2016 and last
re-elected in 2017. Chairman of the
Nomination Committee and previously
Chairman of the Remuneration Committee
(2009-2016). John has extensive experience in
international transportation and logistics, with
more than two decades in senior positions
with some of the world’s largest transport and
infrastructure companies. He has lived or
worked in 13 countries over this time.
John is currently Executive Chairman of the
Toll Group and a director of Brookfield
Infrastructure. From 2011 to 2017 John was
Chief Executive Officer of Asciano, Australia’s
largest ports and rail operator. Prior to this,
John spent 15 years with DHL Express, a
US$20b company employing over 140,000
people in 220 countries, serving as the global
Chief Executive Officer from 2005 to 2009.
Prior to DHL, John spent ten years with the
TNT Group, with four years from 1991 to 1994
as Chief Executive Officer of TNT Express
Worldwide based in the Netherlands. Former
directorships include Brambles Ltd and
Macquarie Airports Corporation. John was also
Chairman of the US National Foreign Trade
Council in Washington from 2008 to 2010.
Directorships of listed companies (past three
years) and other directorships/appointments:
Director, Brookfield Infrastructure Partners L.P
(from 2017), Asciano Ltd (2011-2016). Other:
Chairman, Toll Group (from 2016), Australian
National Maritime Foundation (from 2015).
Councillor, Australian National Maritime
Museum (from 2016). Director Kimberley
Foundation Australia Limited (from 2016).
Member, UNICEF Task Force on Workplace
Gender Discrimination and Harassment (from
2018) and UNSW Business School Advisory
Council (from 2005).
Andrew R Penn
Age 56, MBA (Kingston), AMP (Harvard), FCCA,
HFAIPM
Chief Executive Officer and Managing Director
since 1 May 2015. Andy Penn became the CEO
and Managing Director of Telstra, Australia’s
largest telecommunications company, on 1 May
2015. At Telstra Andy is leading an ambitious
change program transforming Telstra to be
positioned to compete in the radically changing
technology world of the future with 5G at its core.
Andy has had an extensive career spanning
40 years across 3 different industries –
telecommunications, financial services
and shipping. He joined Telstra in 2012 as
Chief Financial Officer. In 2014 he took on
the additional responsibilities as Group
Executive International.
Prior to Telstra, Andy spent 23 years with AXA
Asia Pacific Holdings, part of the AXA Group,
one of the world’s largest insurance and
investment groups. His time at AXA included
the roles of Chief Executive Officer 2006-2011,
Chief Financial Officer 2000-2002, Chief
Executive Asia and Chief Executive Australia
and New Zealand. At AXA, Andy was
instrumental in building one of the most
successful Asian businesses by an Australian
company that was sold to its parent in 2011
for more than A$10bn.
Other directorships/appointments:
Board Director of the Groupe Speciale Mobile
Association (GSMA) (from 2018), Patron, on
behalf of Telstra, of the National and Torres
Straights Islanders Arts Awards (NATSIAA), Life
Governor of Very Special Kids (from 2003) and
an Ambassador for the Amy Gillet Foundation.
He serves on the advisory boards of both
The Big Issue Home for Homes and Juvenile
Diabetes Research Foundation.
Eelco Blok
Age 62, MS, BBA
Non-executive Director appointed 15 February
2019. Member of the Nomination Committee.
Eelco has almost 35 years of telecommunications
experience at Dutch-based landline and mobile
telecommunications company, KPN, where
he was CEO for seven years until April 2018.
Eelco started his career in Finance at KPN
before becoming responsible for several
businesses including Carrier Services,
Corporate Networks and Network Operations.
In 2006 he was appointed a member of the
KPN Board of Management, where he was
consecutively responsible for the Fixed
Division, Business Market – Wholesale –
Operations and Mobile International. He was
appointed CEO in April 2011.
From 2011 to 2017 Eelco was co-chairman of
the Dutch National Cyber Security Council,
an advisory body of the Dutch government.
He was also a Director for the international
association GSMA from 2017 to April 2018.
Directorships of listed companies (past three
years) and other directorships/appointments:
Member of the Supervisory Boards of Post
NL (from 2017), Signify NV (from 2017) and
Koninklijke VolkerWessels N.V (from 2019).
Director, OTE Group (from 2019). Other: Advisor,
Reggeborgh Groep BV (from 2018). Member,
Dutch Sports Council, an advisory Board of
the Dutch Government (from 2019).
Roy H Chestnutt
Age 60, BSc, BA, MBA
Non-executive Director appointed 11 May
2018 and elected on 16 October 2018. Member
of the Audit & Risk Committee and the
Nomination Committee. Roy has more than
30 years of direct telecommunications
experience. Most recently he was Executive
Vice President, Chief Strategy Officer for
Verizon Communications and has held
leadership positions with other leading firms
including Motorola, Grande Communications,
Sprint-Nextel and AirTouch. Roy’s last six years
with Verizon included almost five as head of
strategy responsible for the development and
implementation of Verizon’s overall corporate
strategy, including business development, joint
ventures, strategic investments, acquisitions
and divestitures.
Roy has been a Director for international
industry association GSMA and is a former chair
of the Chief Strategy Officers Group including
25 global strategists from the world’s leading
wireless carriers. He is also a senior advisor
at Blackstone and VMware Inc, and a board
member for Saudi Telecom and Digital Turbine.
Directorships of listed companies (past three
years) and other directorships/appointments:
Director, Boingo Wireless, Inc (from 2019),
Saudi Telecom (from 2018) and Digital Turbine
Inc (from 2018). Other: Non-executive Partner,
Delta Partners.
Craig W Dunn
Age 55, BCom, FCA
Non-executive Director appointed 12 April
2016. Chairman of the Audit & Risk Committee
and member of the Nomination Committee.
Craig is a highly regarded business leader
with more than 20 years’ experience in
financial services, pan-Asian business
activities and strategic advice for government
and major companies.
Craig was Chief Executive Officer and
Managing Director of AMP from 2008 to 2013
and held various roles at AMP in a 13-year
career, including Managing Director of AMP
Financial Services, Managing Director for AMP
Bank and head of Corporate Strategy and M&A.
Previously he was at Colonial Mutual Group
from 1991 to 2000, including Managing
Director for EON CMB Life Insurance in
Malaysia and senior roles in Group Strategy,
M&A and Finance. He has also served as a
member of the Federal Government’s Financial
System Inquiry in 2014 and the Consumer and
Financial Literacy Taskforce.
Directorships of listed companies (past three
years) and other directorships/appointments:
Director, Westpac (from 2015). Other: Chair, ISO
Blockchain Standards Committee (from 2017).
Chairman, The Australian Ballet (from 2015
(Director from 2014)) and Co-Chair, the
Australian Government Fintech Advisory Group
(from 2016). Director, Financial Literacy
Australia Limited (from 2012). Member, ASIC
External Advisory Panel (from 2015).
Peter R Hearl
Age 68, B Com (UNSW), MAIM, FAICD,
Member – AMA
Non-executive Director since 15 August 2014,
last re-elected in October 2017. Chairman of
the Remuneration Committee and member of
the Nomination Committee. Peter is an
experienced company director with substantial
international experience as a senior executive
in the fast moving consumer goods sector.
Peter served in senior executive roles with
Yum! Brands Inc from 1997 to 2008, including
global Chief Operations and Development
Officer for Yum! Brands from 2006 until 2008
and President of Pizza Hut from 2002 to 2006.
He previously worked for PepsiCo Inc in Sydney
and London reaching regional vice-president
level, as well as in various roles with Exxon in
the United States and Australia.
Directorships of listed companies (past three
years) and other directorships/appointments:
Director, Santos Ltd (from 2016), Treasury Wine
Estates (2012-2017) and Goodman Fielder Ltd
(2010-2015). Other: Member, UNSW’s
Australian School of Business Alumni Leaders
Group and honorary member of The Stepping
Stone Foundation Investment Committee (from
2018). Previously honorary Chairman of the US-
based UNSW Study Abroad-Friends and US
Alumni Inc.
Nora L Scheinkestel
Age 59, LLB (Hons), PhD, FAICD
Non-executive Director since August 2010 and
last re-elected in 2016. Member of the Audit &
Risk Committee (previously Chairman Audit &
Risk Committee 2012-2019), the Nomination
Committee and the Remuneration Committee.
Nora is an experienced company director with
a background as a senior banking executive in
international and project financing. She has
served as Chairman and Director in a range of
companies across various industry sectors and
in the public, private and government arena.
She is also an Associate Professor in the
Melbourne Business School at Melbourne
University and a former member of the
Takeovers Panel. In 2003, Nora was awarded
a centenary medal for services to Australian
society in business leadership.
Directorships of listed companies (past three
years) and other directorships/appointments:
Chairman, Atlas Arteria Limited (from 2015
(Director from 2014), Director, Atlas Arteria
International Limited (from 2015), OceanaGold
Corporation (from 2018), AusNet Services Ltd
(from 2016), Stockland Group (2015-2018). Other:
Trustee, Victorian Arts Centre Trust (from 2017).
Board of Directors | Telstra Annual Report 2019
Margaret L Seale
Age 58, BA, FAICD
Non-executive Director since May 2012 and
last re-elected in 2018. Member of the Audit
and Risk Committee and the Nomination
Committee. Margie has more than 25 years’
experience in senior executive roles in
Australia and overseas, including in consumer
goods, global publishing and the transition
of traditional business models to adapt and
thrive in a digital environment, and in sales
and marketing.
Margie was Managing Director of Random
House, Australia (with managerial
responsibility for Random House New Zealand)
and President, Asia Development for Random
House Inc, the global company. She was Chief
Executive Officer of The Macquarie Dictionary
and Lansdowne Publishing (1997-1999), and
also of the Juvenile Diabetes Research
Foundation (1994-1997). She served on the
boards of Penguin Random House Australia/
New Zealand as non-executive Director then
Chair (2000-2016), the Australian Publishers’
Association, the Powerhouse Museum, the
Sydney Writers Festival and on the Council
of Chief Executive Women, chairing its
Scholarship Committee (2011-2012).
In 2015 Margie founded a philanthropic
literary travel company, Ponder & See, which
funds writers’ festivals and writers through
creating literary trips or experiences for
interested readers. She donates funds and
time to create, organise and lead the trips.
Directorships of listed companies (past three
years) and other directorships/appointments:
Director, Westpac Banking Corporation (from
2019), Scentre Group Limited (from 2016),
Ramsay Health Care Limited (2015-2018),
Bank of Queensland Limited (2014-2018).
Other: Director, Australian Pacific (Holdings)
Pty Limited (from 2018).
Niek Jan van Damme
Age 58, Drs.
Non-executive Director appointed
16 October 2018. Member of the Remuneration
Committee and the Nomination Committee.
Mr van Damme has almost 20 years direct
telecommunications experience, with the
first part of his career focusing on brand and
category management in a range of businesses
including consumer goods and retail. Most
recently he was a member of the Deutsche
Telekom Board of Management, where he
was responsible for fixed line and mobile
communications in Germany.
Niek Jan has held leadership positions with
other leading firms including Ben Nederland,
later T-Mobile Netherlands, a challenger
mobile brand, where he was the Chairman
of the Managing Board.
At Deutsche Telekom he led the merger of
mobile and fixed line business, laying the
foundation for making Deutsche Telekom the
leading operator in converged services. He also
led a major network modernisation program
with the establishment of a new IP core, and
high 4G network investments.
28
29
Senior management team
A number of new and
previously announced
appointments to our
senior management
team were made over
the past 12 months
as part of our new T22
topline organisational
structure.
Andrew Penn, Chief Executive Officer.
Andy became the CEO and Managing
Director of Telstra, Australia’s largest
telecommunications company, on 1 May
2015. At Telstra Andy is leading an
ambitious change program transforming
Telstra to be positioned to compete in
the radically changing technology world
of the future with 5G at its core. Andy
has had an extensive career spanning
40 years across 3 different industries -
telecommunications, financial services
and shipping. He joined Telstra in 2012 as
Chief Financial Officer. In 2014 he took on
the additional responsibilities as Group
Executive International.
Further detail about Andy can be found in
the Board of Directors section.
Vicki Brady, Chief Financial Officer and
Group Executive, Strategy & Finance.
The Finance and Strategy team guides
the company’s financial performance and
reporting, leads the development of and
progress against its corporate strategy,
and oversees its risk and internal audit
capabilities, with the aim of delivering
shareholder value over the long term.
Michael Ackland, Group Executive,
Consumer & Small Business.
Consumer and Small Business brings
together Telstra’s core domestic activities
covering consumer, business, sales, fixed
and mobiles, and services over the nbn.
Alexandra Badenoch, Group Executive,
Transformation & People.
Transformation and People leads the
delivery of Telstra’s company-wide T22
transformation strategy so we deliver
on our commitments to our customers,
shareholders and to employees by
simplifying our organisational structure
and transforming how we work to
become more customer focused,
agile and collaborative.
David Burns, Group Executive, Global
Business Services.
Global Business Services (GBS) is
creating a radically simplified business
model and bringing together support
services, service operations and
enablement functions which were
previously delivered separately
throughout the company. GBS creates
value by driving a consistent and
relentless approach to improving
customer experience, efficiency, and
service levels through a radically
simplified model.
Michael Ebeid AM, Group Executive,
Enterprise.
Enterprise is responsible for revenues in
excess of $8bn and managing a growing
business that delivers connectivity,
platforms, applications and tailored
industry solutions to Telstra’s enterprise
and government customers. It is also
responsible for Telstra’s international
operations and the largest subsea cable
network in the Asia Pacific region.
Nikos Katinakis, Group Executive,
Networks & IT.
Networks & IT is responsible for
managing and operating all of Telstra’s
technology and security infrastructure,
and ensuring Telstra delivers next
generation network technologies to
create the largest, smartest, safest
and most reliable networks in the
world, as well as delivering new digital
platforms and capabilities to enable
digital experiences for our customers.
Carmel Mulhern, Group General Counsel
and Group Executive, Legal & Corporate
Affairs.
Legal and Corporate Affairs is
responsible for providing legal advice
to Telstra’s Board, CEO and senior
management as well protecting and
enhancing Telstra’s reputation with
responsibility for communications,
government relations, sustainability,
regional affairs, regulatory and
compliance.
Brendon Riley, CEO, Telstra InfraCo.
Telstra InfraCo is responsible for driving
greater efficiency in the operation of
Telstra’s key infrastructure assets as
well as driving growth in the wholesale
market, while creating more optionality
for the future. Brendon Riley is also
responsible for the Telstra Health
business, which is separate to Telstra
InfraCo.
Christian von Reventlow, Group
Executive, Product & Technology.
The Product & Technology team
understands emerging technology trends
and is responsible for delivering Telstra’s
product and technology roadmap, including
creating and delivering brilliant products
and solutions for all of Telstra’s customers,
as well as driving profitable growth. The
team has accountability for Telstra’s
product strategy and lifecycle, and
technology and innovation where products
are incubated and brought to scale.
30
31
Directors’
Report
Sustainability
Telstra’s Sustainability Strategy
Our goal is to embed social and environmental
considerations into our business in ways that create
value for the company and our stakeholders.
Our Sustainability Strategy responds to the topics that are most material
for our business, the areas in which we have the expertise to make a
meaningful impact, and where we see opportunities to use innovative,
tech-based solutions to help address societal challenges and
opportunities whether they be emerging or major.
Our Bigger Picture 2019 Sustainability
Report, available online at telstra.com/
sustainability/report, provides a
transparent overview of our progress and
performance in relation to our material
topics in FY19. The report also details the
work we are undertaking in support of the
United Nations’ Sustainable Development
Goals (SDGs).
We want everyone to thrive in a digital world.
Responsible business
Digital futures
Environmental solutions
We will be a sustainable,
globally trusted company
that people want to
work for and with.
We will foster strong,
inclusive communities that
are empowered to thrive
in a digital world.
We will use technology to
address environmental challenges
and help our suppliers, customers
and communities do the same.
Governance at Telstra
We are committed to excellence in corporate governance, transparency and accountability.
This is essential for the long term performance and sustainability of our company, and to
protect and enhance the interests of our shareholders and other stakeholders.
Our governance framework plays an
integral role in supporting our business
and helping us deliver on our strategy.
It provides the structure through which
our strategy and business objectives
are set, our performance is monitored,
and the risks we face are managed.
It includes a clear framework for
decision making and accountability
across our business and provides
guidance on the standards of
behaviour we expect of each other.
We comply with the third edition
of the ASX Corporate Governance
Council’s Corporate Governance
Principles and Recommendations.
Our 2019 Corporate Governance
Statement, which provides
detailed information about
governance at Telstra, is
available on our website at
telstra.com/governance.
32
Shareholders
Telstra Board
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
Chief Executive Officer
Our People
Our governance framework
includes:
• open, clear and timely
communications with our
shareholders;
• a skilled, experienced, diverse
and independent Board, with a
Board Committee structure
suited to our needs;
• clear delegation, decision
making and accountability
frameworks;
• robust systems of risk
management and assurance;
• Telstra Values, Code of Conduct
and policy framework which
explain what we stand for as an
organisation and how we will
conduct ourselves as we work
together to deliver our strategy.
33
Directors’ Report
Directors’ Report | Telstra Annual Report 2019
In accordance with a resolution of the Board, the Directors
present their report on the consolidated entity (Telstra Group)
consisting of Telstra Corporation Limited (Telstra) and the
entities it controlled at the end of, or during the year ended,
30 June 2019. Financial comparisons used in this report are of
results for the year ended 30 June 2019 compared with the
restated results for the year ended 30 June 2018.
The historical financial information included in this Directors’
Report has been extracted from the audited Financial Report
accompanying this Directors’ Report.
Principal activity
Our principal activity during the financial year was to provide
telecommunications and information services for domestic and
international customers. There has been no significant change
in the nature of this activity during the year.
Review and results of operations
Information on the operations and financial position for the
Telstra Group is set out in the Operating and Financial Review
(OFR), comprising the Chairman and CEO’s message, Strategy
and performance, Our material risks, Outlook and Full year
results and operations review sections accompanying this
Directors’ Report.
Dividend
The objectives of our Capital Management Framework are
maximising returns for shareholders, maintaining financial
strength and retaining financial flexibility. The objectives
of the Capital Management Framework are supported by
the following principles:
• maintain balance sheet settings consistent with an A band
credit rating;
• pay a fully-franked ordinary dividend of 70 to 90 per cent
of our underlying earnings, which is calculated as net profit
after tax excluding net one-off nbn receipts and guidance
adjustments;
• target capex/sales ratio of around 14 per cent excluding
spectrum from FY20 (capex is measured on an accrued basis
and excludes expenditure on spectrum and externally funded
capex and capitalised leases under AASB 16); and
• maintain flexibility for portfolio management and to make
strategic investments.
In addition to the ordinary dividend, we intend to return in the
order of 75 per cent of net one-off nbn receipts to shareholders
over time via fully-franked special dividends.
As discussed in the Chairman and CEO message, under our
Capital Management Framework, the definition of underlying
earnings has been updated and now explicitly excludes
guidance adjustments as well as net one-off nbn receipts.
Guidance adjustments include one-off restructuring costs,
impairments in and to investments or property, plant and
equipment and intangible assets, proceeds on the sale of
businesses, mergers and acquisitions and purchase of
spectrum. “Net one-off nbn receipts” is defined as the net
nbn one-off Definitive Agreement receipts (consisting of Per
Subscriber Address Amount, Infrastructure Ownership and
Retraining) less nbn net cost to connect less tax. The definition
of underlying earnings has been updated to align with market
practice and provide consistency across our reporting.
The dividend is subject to no unexpected material events,
and is subject to Board discretion having regard to financial
and market conditions, business needs and maintenance of
financial strength and flexibility consistent with our Capital
Management Framework.
On 14 February 2019, the Directors resolved to pay an interim fully
franked dividend for the financial year 2019 of 8 cents per ordinary
share, comprising an interim ordinary dividend of 5 cents per
share and an interim special dividend of 3 cents per share.
On 15 August 2019, the Directors resolved to pay a final fully
franked dividend of 8 cents per ordinary share ($951 million),
comprising a final ordinary dividend of 5 cents per share and a
final special dividend of 3 cents per share. The record date for
the final dividend will be 29 August 2019, with payment to be
made on 26 September 2019. Shares will trade excluding
entitlement to the final dividend on 28 August 2019.
Further information regarding FY19 dividends is set out in the
Chairman and CEO message and the Full Year Results and
Operations Review accompanying this Directors’ Report.
The Dividend Reinvestment Plan (DRP) continues to operate
for the final dividend for financial year 2019. The election date
for participation in the DRP is 30 August 2019.
Dividends paid during the year were as follows:
Dividend
Date
resolved
Date
paid
Fully franked
dividend
per share
Total dividend
($ million)
Total final dividend for the year ended 30 June 2018
16 Aug 2018
27 Sept 2018
11.0 cents
1,308
Total interim dividend for the year ended 30 June 2019
14 Feb 2019
29 Mar 2019
8.0 cents
951
Significant changes in the state of affairs
Details of Directors and executives
There were no significant changes in the state of affairs of
our company during the financial year ended 30 June 2019.
Changes to the Directors of Telstra Corporation Limited during
the financial year and up to the date of this report were:
Business strategies, prospects and likely developments
The OFR sets out information on Telstra’s business strategies
and prospects for future financial years, and refers to likely
developments in Telstra’s operations and the expected results
of those operations in future financial years. Information in the
OFR is provided to enable shareholders to make an informed
assessment of the business strategies and prospects for future
financial years of the Telstra Group. Detail that could give rise to
likely material detriment to Telstra (for example, information
that is commercially sensitive, is confidential or could give a
third party a commercial advantage) has not been included.
Other than the information set out in the OFR, information
about other likely developments in Telstra’s operations and the
expected results of these operations in future financial years
has not been included.
Events occurring after the end of the financial year
The Directors are not aware of any matter or circumstance
that has arisen since the end of the financial year that, in their
opinion, has significantly affected, or may significantly affect
in future years, Telstra’s operations, the results of those
operations or the state of Telstra’s affairs, other than the final
dividend for the financial year 2019 and that the DRP will
continue to operate in respect of that dividend. Refer to note
7.5, Events after reporting date, of the 2019 Full-year Financial
Report for details.
• Niek Jan van Damme was appointed as a non-executive
Director effective 16 October 2018.
• Russell A Higgins retired as a non-executive Director on
16 October 2018. Mr Higgins (BEc, FAICD) joined the Board
in September 2009 and was a member of the Audit & Risk
Committee and Remuneration Committee.
• Steven M Vamos retired as a non-executive Director on
16 October 2018. Mr Vamos (BEng(Hons)) joined the Board
in September 2009 and was a member of the Nomination
Committee and Remuneration Committee.
• Trae A N Vassallo retired as a non-executive Director on
16 October 2018. Ms Vassallo (BSc, MSc, MBA(Stanford))
joined the Board in October 2015.
• Jane S Hemstritch resigned as a non-executive Director on
15 January 2019. Ms Hemstritch (BSc(Hons), FAICD, FICAEW)
joined the Board in August 2016 and was a member of the
Remuneration Committee.
• Eelco Blok was appointed as a non-executive Director
effective 15 February 2019.
Information about our Directors and Senior Executives is
provided as follows:
• names of our current Directors and details of their
qualifications, experience, special responsibilities, periods
of service and directorships of other listed companies are
set out in the Board of Directors section accompanying this
Directors’ Report; and
• details of Director and Senior Executive remuneration are
set out in the Remuneration Report, which forms part of the
Directors’ Report.
34
35
Board and Committee meeting attendance
Details of the number of meetings held by the Board and its Committees during financial year 2019, and attendance by Board
members, are set out below:
John P Mullen
Andrew R Penn
Eelco Blok2
Roy H Chestnutt
Niek Jan van Damme2
Craig W Dunn
Peter R Hearl
Jane S Hemstritch3
Russell A Higgins3
Nora L Scheinkestel
Margaret L Seale
Steven M Vamos3
Trae A N Vassallo3
Board
Audit and Risk
Committees1
Nomination4
Remuneration
a
12
12
4
12
9
12
12
6
3
12
12
3
3
b
11
12
3
11
9
12
12
6
3
12
12
3
2
a
–
–
–
4
–
6
–
–
2
6
6
–
–
b
(2)
(6)
–
4
–
6
–
–
2
6
6
–
–
a
6
6
2
4
4
4
6
1
–
4
4
1
–
b
6
6
2
4 (2)
4
4 (2)
6
1 (2)
(1)
3 (2)
3 (2)
1
(1)
a
–
–
–
–
5
–
8
3
3
5
–
3
–
b
(6)
(7)
–
–
5
–
8
3
3
4
–
3
–
Total number of meetings held
12
6
6
8
Column a: number of meetings held while a member.
Column b: number of meetings attended.
1. Committee meetings are open to all Directors to attend. Where a Director has attended a meeting of a Committee of which he or she was not a member, this is indicated by ( ).
2. Niek Jan van Damme was appointed as a non-executive Director effective 16 October 2018. Eelco Blok was appointed as a non-executive Director effective 15 February 2019.
3. Russell Higgins, Steven Vamos and Trae Vassallo ceased as non-executive Directors on 16 October 2018. Jane Hemstritch ceased as a non-executive Director on 15 January 2019.
4. All Directors became a member of the Nomination Committee effective 18 October 2018.
Director shareholdings in Telstra
Details of Directors’ shareholdings in Telstra as at
15 August 2019 are shown in the table below:
Number of
shares held1
101,159
1,385,048
75,000
43,000
–
70,073
70,000
91,000
106,769
121,067
253,500
40,000
15,793
Director
John P Mullen
Andrew R Penn2
Eelco Blok
Roy H Chestnutt
Niek Jan van Damme
Craig W Dunn
Peter R Hearl
Jane S Hemstritch
Russell A Higgins
Nora L Scheinkestel
Margaret L Seale
Steven M Vamos
Trae A N Vassallo
36
1. The number of shares held refers to shares held either directly or indirectly by
Directors as at 15 August 2019 or, if earlier, as at the date of cessation as a Director.
Shares in which the Director does not have a relevant interest, including shares held
by the Directors’ related parties (including relatives), are excluded. Refer to the
Remuneration Report tables for total shares held by Directors and their related parties
directly, indirectly or beneficially as at 30 June 2019. The numbers above include
175,000 shares held by a related party of Margaret Seale and 479 shares held by a
related party of Russell Higgins. In both cases, the Director has a relevant interest.
2. Andrew Penn also holds 383,554 Performance Rights.
Company Secretary
Sue Laver
BA, LLB (Hons) (Monash), GAICD
Sue was appointed Company Secretary of Telstra Corporation
Limited effective 1 February 2018.
Sue is a senior legal and governance professional with over
20 years’ experience advising senior management and boards.
Sue reports to the board and her duties include continuous
disclosure compliance, corporate governance and
communication with Telstra’s 1.4 million shareholders.
Sue joined Telstra in 1997 and has served in senior legal roles
throughout the company including as Deputy Group General
Counsel, and General Counsel roles across the company
including: Dispute Resolution, HR, Finance, Risk and Compliance,
Media and Telstra Country Wide. She holds a Bachelor of Law
(Hons) and a Bachelor of Arts from Monash University.
Directors’ Report | Telstra Annual Report 2019
Directors’ and officers’ indemnity and insurance
(a) Constitution
Telstra’s constitution provides for it to indemnify, to the
maximum extent permitted by law:
• certain officers of Telstra and its related bodies corporate
(“Telstra Officers”), for any liability and legal costs they
incur in that capacity; and
• Telstra Officers and certain employees asked by Telstra to be
an officer of a company that is not related to Telstra, for any
liability they incur as an officer of that company, as if that
liability had been incurred in the capacity as a Telstra Officer.
Telstra’s constitution also allows for it to indemnify,
to the maximum extent permitted by law:
• certain employees of Telstra and its related bodies corporate,
for any liability they incur in that capacity; and
• certain other officers of Telstra’s related bodies corporate,
for any liability they incur in that capacity.
(b) Deeds of indemnity in favour of directors, officers,
employees and consultants
Telstra has also executed deeds of indemnity in favour of
(amongst others):
• Directors and secretaries of Telstra (past and present);
• certain senior managers and employees of Telstra and its
wholly-owned subsidiaries and partly-owned companies
(including, for example, in relation to particular projects); and
• certain Telstra Group senior managers, employees and other
persons that act as nominee directors or secretaries (at
Telstra’s request) for entities, including wholly-owned
subsidiaries and partly-owned companies of Telstra,
in each case as permitted under Telstra’s constitution and
the Corporations Act 2001 (the Act).
The deeds in favour of Directors of Telstra also give Directors
certain rights of access to Telstra’s books and require Telstra to
maintain insurance cover for the Directors.
(c) Directors’ and officers’ insurance
Telstra maintains directors’ and officers’ insurance policies
that, subject to some exceptions, provide worldwide insurance
cover to past, present and future directors, secretaries and
officers and certain employees of Telstra and its subsidiaries
and, in certain limited circumstances, other entities. Telstra has
paid the premiums for the policies. The directors’ and officers’
insurance policies prohibit disclosure of the premiums payable
under the policies and the nature of the liabilities insured.
Environmental regulation and performance
Telstra, as a minimum, seeks to be compliant with all applicable
environmental laws and regulatory obligations relevant to its
operations. Where instances of non-compliance may occur,
Telstra has procedures requiring that internal investigations
are conducted to determine the cause of the non-compliance
and to ensure that any risk of recurrence is minimised.
Telstra’s procedures further require that the relevant
government authorities are notified of any environmental
incidents (where applicable) in compliance with statutory
requirements. Telstra complies with notices issued
by government authorities and regulators.
(a) Prosecutions or convictions
Telstra has not been prosecuted for, or convicted of, any
significant breaches of environmental regulation during
the financial year.
(b) Energy and greenhouse emissions
In Australia, Telstra is subject to the reporting requirements of
the National Greenhouse and Energy Reporting Act 2007, which
requires Telstra to report its annual Australian greenhouse gas
emissions, energy consumption and energy production. Telstra
has implemented systems and processes for the collection and
reporting of data and has, in accordance with our obligations,
reported to the Clean Energy Regulator on an annual basis.
The next report is due on 31 October 2019 and will again be
supported with an independent assurance report.
In the United Kingdom, Telstra is subject to the Energy Savings
Opportunity Scheme (ESOS) Regulations 2014. Telstra qualifies
for ESOS and must carry out energy savings assessments every
four years. These assessments are audits of the energy used by
our buildings, network facilities and transport to identify cost-
effective energy saving measures. Telstra has met our
obligations under ESOS for the first compliance period ended
5 December 2015. Telstra has an obligation for a second ESOS
audit to be completed by the next qualification date on
5 December 2019. At this time, the audit has been completed
and the findings of the report are being assessed prior to them
being accepted.
For more information on environmental performance,
including environmental regulation, refer to the Bigger
Picture 2019 Sustainability Report, which is available
online at telstra.com/sustainability/report.
Non-audit services
During financial year 2019, Telstra’s auditor, Ernst & Young (EY),
has been employed on assignments additional to its statutory
audit duties. Details of the amounts paid or payable to EY for
audit and non-audit services provided during the year are
detailed in note 7.2 to the financial statements in our 2019
Financial Report.
The Directors are satisfied, based on advice provided by the
Audit & Risk Committee that the provision of non-audit services
during financial year 2019 is consistent with the general
standard of independence for auditors imposed by the Act and
that the nature and scope of each type of non-audit service
provided did not compromise the auditor independence
requirements of the Act for the following reasons:
• all EY engagements, including non-audit services, were
approved in accordance with the external auditor services
policy adopted by Telstra and subject to confirmation by both
management and EY that the provision of these services does
not compromise auditor independence;
• the external auditor services policy clearly identifies
prohibited services, which include reviewing or auditing
the auditor’s own work or EY partners or staff acting in a
managerial or decision-making capacity for Telstra; and
• the provision of non-audit services by EY is monitored by
the Audit & Risk Committee via periodic reporting to the
Audit & Risk Committee.
A copy of the auditor’s independence declaration is set out in
the Auditor’s Independence Declaration to the Directors of
Telstra Corporation Limited and forms part of this report.
37
Message from the
Remuneration
Committee Chairman
Dear Fellow Shareholders,
On behalf of your company’s Remuneration Committee,
I am pleased to present Telstra’s FY19 Remuneration Report.
FY19 was a watershed year for Telstra. Under the CEO’s
leadership, your company embarked upon the first year of
a major strategic transformation program, called “T22”.
T22 completes the digital rebuild of the company’s core
systems, dramatically streamlining our operations to
provide our customers with easily understood and easily
accessible products and services, supported by both
state of the art networks and technology, as well as
dramatic improvements in both our productivity and
decision making. All of this is designed to deliver great
customer experiences and industry leading capital
efficiency by the 2022 horizon of T22 and beyond.
This transformation is believed to be the most
ambitious transformation program being undertaken by
any legacy telecommunications company in the world
today. We have made strong progress over FY19 and have
equally ambitious plans for FY20.
FY19 was also a critically important year for Telstra,
in that we passed the half-way mark of the migration
to the nbn™ network which as you are aware, has had a
significant adverse impact on Telstra’s profitability and
dividends. FY19 has also been impacted by a highly
competitive market. The impact of the nbn will still be
felt in FY20, but in FY20 we expect Telstra’s underlying
EBITDA, excluding the in-year nbn headwind, to grow
as outlined in the Chairman and CEO’s message in the
Directors’ Report.
During FY19 we have made strong progress on T22 and
delivered financial performance in line with expectations
and the Executive Variable Remuneration Plan (EVP)
targets published in October 2018. We believe that the
material rise in Telstra’s share price during the year has
been influenced by factors including shareholders’
confidence in the success of the T22 program to date and
the remuneration outcomes for the Chief Executive Officer
(CEO) and Group Executives reflect this context, with EVP
outcomes above target.
Enhancing Our Remuneration Framework
The Telstra Board spent a great deal of time designing
what we believe is a remuneration structure best suited to
reflect the interests of the company, its shareholders and
its management. While we continue to strongly believe
that our EVP remains the most appropriate mechanism to
reward performance, your Remuneration Committee and
Board took very seriously the “first strike” received
against Telstra’s FY18 Remuneration Report. As a result,
throughout FY19 we undertook a process of significant
consultation with both major shareholders and
shareholder advisory companies (proxy advisors) to truly
understand the concerns and develop appropriate,
sustainable enhancements to the EVP that address these
concerns without undermining the integrity of what we
absolutely believe is the best structure for the company.
Therefore, effective for FY20, we have made the following
changes to the EVP:
• An increase in the weighting of “Financial” to “Strategic”
performance metrics from a 50:50 to 60:40 ratio.
• A reduction in the CEO’s maximum EVP opportunity
from 400% of Fixed Remuneration to 300%.
• A reduction in all Group Executive’s maximum EVP
opportunity from 360% of Fixed Remuneration to 300%.
• An increase in the proportion of EVP delivered in equity
from 35% Cash: 65% Equity (26% Restricted Shares:
39% Performance Rights) to 25% Cash: 75% Equity
(35% Restricted Shares: 40% Performance Rights).
• An increase in the vesting period of the Restricted
Shares from a 2 year (100% “cliff” vesting) to a 4 year
period (pro-rata vesting).
• Strengthening the already challenging “2nd performance
hurdle” on the Performance Rights from a 100% “cliff”
vest where Telstra’s Relative Total Shareholder Return
(RTSR) ranks at the 50th percentile of ASX 100
(excluding resources companies) to a sliding scale of
50% vesting at the 50th percentile of RTSR rising to
100% vesting at the 75th percentile. The 2nd
performance hurdle for Performance Rights will
continue to be assessed over a total 5 year period from
the start of the performance year.
• Clawback (Malus) Events have also been expanded to
cover conduct that may negatively impact Telstra’s
standing, reputation or relationship with its key
regulators and behaviour that has resulted in a material
breach of Telstra’s risk management framework.
In addition, to enhance the long-term alignment with
shareholders, we have significantly increased the
shareholding obligations for the CEO. The CEO will now
be required to hold 200% of Fixed Remuneration in Telstra
shares within 5 years of appointment. Finally, for the
Chairman of Telstra we have doubled the shareholding
obligation. The Chairman will now be required to hold
200% of the non-executive Director annual base fee,
within 5 years of appointment as Chairman.
• Continued network leadership and the launch of the
nation’s first 5G network.
• The establishment of “InfraCo” and its operation as a
standalone infrastructure business unit within Telstra
with “InfraCo” financial performance separately
provided to the market to give a greater understanding
of the value of its assets.
Disappointments in FY19 include our failure to hit the EVP
“threshold” performance target on Free Cash Flow and a
dip in our Employee Engagement Score in the face of the
very significant organisational change which occurred
throughout FY19. Overall, however, this has been a strong
first year of our T22 turnaround program.
Leading Edge Transparency
In October 2018, to provide greater transparency to all
shareholders, Telstra provided the actual metrics and
performance levels that would be used in assessing
EVP outcomes for FY19. We have continued to increase
the transparency of information to shareholders to
enable an informed view of performance and reward
given the challenging headwinds and the extent of the
transformation program being led by our executive team.
The Remuneration Report provides detailed information
on both performance outcomes for FY19 and the metrics
and performance levels that will be applied in FY20.
FY19 performance was assessed against the robust
targets outlined in the shareholder letter of October 2018.
The Board has determined the appropriate FY19 CEO EVP
outcome to be 111.8% of target (55.9% of the maximum
opportunity). The outcome was objectively determined by
measurement against the targets in accordance with our
governance framework (Section 2.2(e) of the Remuneration
Report). Rewards will be delivered under the FY19 EVP
structure with 26% of the total award allocated in the
form of Restricted Shares deferred for 2 years and
39% allocated in the form of Performance Rights.
The Performance Rights are subject to measurement
against a RTSR 2nd performance hurdle in June 2023.
We continue to experience the ongoing headwinds from
the progressive nationalisation of our fixed line business
via the government owned nbn. To date we estimate the
nbn has adversely impacted EBITDA by $1.7 billion
representing around 50 per cent of the estimated
financial impact. Despite this and given a highly
competitive mobile market, management has made
strong progress against most of the T22 Financial and
Strategic measures. FY19 performance highlights include:
• Delivering against our EVP Total Income target and
meeting EBITDA threshold.
• Better than target productivity outcome through our
Net Opex reduction.
• A material increase in our episode NPS score to +25.
• A reduction in Consumer and Small Business (C&SB)
in market fixed and mobile plans from 1,800 to 20
during FY19.
• A reduction in our active Enterprise plans from a
baseline of 651 to 517.
• A significant increase in the C&SB Sales being made
digitally from 6.2% in FY18 to 16.8% in FY19.
Strengthened Executive Team
During FY19 we reorganised the structure of our business
and strengthened the management team with the
appointment of three new talented executives bringing
global capability in technology, digital and business
leadership. We also appointed five executives to Group
Executive roles leading critical functions including the
newly established “InfraCo”. To execute our T22 strategy
and deliver value to our customers, shareholders and
communities we require access to the best executive
talent and capability. Engaging and appropriately
rewarding this high calibre leadership team is critical
to the execution of Telstra’s strategy.
Remuneration Committee’s Ongoing Focus
We will continue to drive the structure of Telstra’s
executive remuneration practices to promote:
• Strategic Alignment to support the delivery of our
T22 strategy.
• High standards of sustainable performance against
critical strategic and operational objectives.
• Long-term decision-making fostering effective
stewardship, sound risk management and the
generation of sustainable, long-term shareholder value.
• Shareholder alignment so that reward outcomes reflect
the returns delivered to long-term shareholders.
• Attraction and retention of executive talent enabling
Telstra to compete in the global talent market.
• Effective Governance ensuring reward structures are
simple, transparent and clearly linked to sustainable
performance.
We look forward to continuing conversations with our
stakeholders and welcome your feedback on our
remuneration framework to ensure it also meets the
standards and expectations you have of our unique
organisation.
We urge you to read the full report in detail and strongly
recommend your endorsement of it.
Peter R. Hearl
Remuneration Committee
Chairman
38
39
Remuneration
Report
This report details the remuneration
framework and outcomes for
Key Management Personnel (KMP)
of the Telstra Group for the year
ended 30 June 2019 (FY19).
Contents
1.0
1.1
1.2
1.3
2.0
2.1
2.2
3.0
3.1
3.2
3.3
3.4
4.0
4.1
4.2
5.0
5.1
5.2
6.0
First Strike in 2018
Our response to stakeholder feedback
Why the EVP remains appropriate
Specific issues raised and our response
Policy
Key Management Personnel
Remuneration policy, strategy and governance
Senior Executive remuneration
Remuneration structure
FY19 EVP outcomes
FY17 LTI plan outcomes
Detailed remuneration and interests in Telstra shares
Non-executive Director remuneration
Remuneration structure
Detailed remuneration and interests in Telstra shares
Looking forward to FY20
Enhancements to the FY20 EVP
FY20 EVP Performance measures and targets
Glossary
Remuneration Report | Telstra Annual Report 2019
Remuneration at Telstra and FY19 Remuneration Outcomes – Key Highlights
The following table includes the key highlights and remuneration outcomes for FY19, as well as key remuneration changes
applicable to future financial years.
Key area of focus
or outcome
First Strike
in 2018 and
changes to
the FY20 EVP
Where to find more
information
On our response
to the ‘first strike’
and why the
EVP remains
appropriate:
section 1.0
On the changes
to the FY20 EVP:
section 5.1
Highlights / Details
We received a ‘first strike’ against our FY18 Remuneration Report at last year’s Annual General
Meeting (AGM). The Board took that very seriously. As a result, the Board completed a comprehensive
review of our executive remuneration framework, including our Executive Variable Remuneration
Plan (EVP).
The Chairman of the Board and the Chairman of the Remuneration Committee engaged throughout
the year with stakeholders to seek feedback and consider opportunities to further enhance the
effectiveness of our reward structure. During FY19, a total of 44 shareholder and stakeholder
meetings were held including 9 meetings with shareholder advisory companies.
Following that review and considering the feedback received, the Board believes the EVP remains
an appropriate mechanism to reward the CEO and Group Executives. However, having regard to
feedback provided by our stakeholders the Board recognises that there are certain enhancements
that should be made to the EVP to ensure it continues to best meet the overall objectives of Telstra’s
remuneration policy outlined in section 2.2.
Those enhancements are summarised below and will be implemented for the FY20 EVP. They did
not apply to the FY19 EVP because the FY19 EVP had commenced before Telstra received its first
strike, and seeking to amend the FY19 EVP while it was in operation would have created complexity
and disruption.
• The weighting of financial performance measures within the primary performance measures has
been increased to 60% (previously 50%) with the remaining 40% covering customer, strategic and
transformation performance measures.
• The maximum award opportunity has been significantly reduced: We have reduced the maximum
EVP opportunity for the CEO and Group Executives to 300% of Fixed Remuneration (from 400%
and 360% respectively).
• More shares, less cash: The CEO and Group Executives will now receive 75% (previously 65%) of
their EVP award in the form of Restricted Shares and Performance Rights.
• The Restricted Shares will now be eligible to vest in four equal tranches, with 25% eligible to vest
each year over the four years following the end of the initial performance period.
• We have changed the performance condition for the Performance Rights making it more
challenging for the Performance Rights to vest. Vesting will now be determined on a straight line
scale, with 50% of the Performance Rights vesting if Telstra’s RTSR ranks at the 50th percentile of
a comparator group (previously 100%), up to 100% of the Performance Rights vesting if Telstra’s
RTSR ranks at the 75th percentile of the comparator group. No Performance Rights vest if
Telstra’s RTSR ranks below the 50th percentile when compared with the comparator group.
This performance condition will continue to be assessed over a total five year period from
the start of the initial performance period.
• Claw-back Events (Malus) have also been expanded (for both the FY19 and FY20 EVP) to include
conduct that may negatively impact on Telstra’s standing, reputation or relationship with its key
regulators and behaviour that has resulted in a material breach of Telstra’s risk management
framework.
FY19 EVP
outcome
The FY19 EVP outcome was 111.8% of target (or 55.9% of maximum) based on the assessment of
the primary performance measures.
Section 3.2
After taking into account individual performance, the average total FY19 EVP outcome for current
Senior Executives, as a percentage of maximum opportunity was 55.9%, with 39% of the total FY19
EVP outcome still subject to a future RTSR performance condition, measured over a five year
performance period through to the end of FY23.
Our remuneration structure links financial rewards directly to employee contributions and company
performance.
The FY19 full year results showed solid performance in financial outcomes and significant progress
on the delivery of our T22 strategy.
Telstra’s performance against target on the Total Income, EBITDA, Net Opex Reduction and our
strategic performance measures was strong. However, we did not achieve our FCF and People
Capability & Engagement performance measures resulting in no award being provided in relation
to these components.
Telstra’s Total Return over FY19 was 57.7%. Total Return incorporates price change and dividends
for the period 1 July 2018 to 30 June 2019 with dividends assumed to be reinvested and total return
compounded daily.
The FY17 LTI plan was tested on 30 June 2019 and while it would have met one of the two
performance measures, the Board exercised its discretion not to vest that component of the
FY17 LTI Plan resulting in no awards vesting under the plan.
Section 3.3
FY17 LTI plan
outcome
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41
1.0 First Strike in 2018
1.1 Our response to shareholder feedback
At our 2018 AGM, 61.98% of votes cast were against the
adoption of the FY18 Remuneration Report, constituting
a ‘first strike’ under the Corporations Act. Shareholder
participation in the resolution was 40.7% of Telstra’s total
shares on issue, resulting in 25.2% of Telstra’s total shares
on issue being cast against the resolution.
• Long-term decision-making: As the majority of a Senior
Executive’s EVP outcome is provided as Restricted Shares
and Performance Rights that remain at risk for a period of
time after they are allocated, the EVP requires leadership and
effective stewardship over the longer term promoting a focus
on sound risk management and the generation of sustainable,
long-term shareholder value.
Issues Raised
EVP Structure
It is easier to achieve pay outcomes under
a combined incentive plan (as opposed to
a traditional STI/LTI incentive structure)
The Board has undertaken a comprehensive review of Telstra’s
executive remuneration framework and engaged with
shareholders, proxy advisers and other stakeholders to
understand their concerns around our remuneration policy
and practice. The Board has listened and taken all comments
on board in an effort to try and get the balance right between
supporting shareholders’ interests, and appropriate
performance based remuneration, while at the same time
motivating, incentivising and retaining our executive talent
to implement our ambitious T22 strategy.
1.2 Why the EVP remains appropriate
Following its review, the Board believes the EVP remains an
appropriate mechanism to align performance and reward
for the CEO and Group Executives through our industry and
business cycles and directly links reward to the delivery of our
T22 strategy. The initial variable reward outcomes under the
EVP are based on a rigorous assessment by the Board of
performance against robust measures in a performance year.
In FY19, 65% of the initial EVP outcome (increasing to 75% in
FY20) is comprised of equity which is subject to ongoing
requirements of service, conduct and performance. The Board
believes that significant Senior Executive equity participation
reinforces the ultimate focus on shareholder value creation
through the delivery of our T22 strategy over the medium to
longer term. The Board believes that the EVP remains effective
as it promotes the following:
• Strategic Alignment: The EVP supports the delivery of our T22
strategy and the investment lead times in our industry.
• High standards of sustainable performance: The EVP requires
leading performance against critical strategic objectives,
as well as operational performance against robust annual
performance measures. The Board assesses the proposed
outcome in the context of Telstra’s performance, customer
experience and shareholder expectations and each Senior
Executive’s performance and contribution. This includes
an assessment of the effective management of risk in
accordance with our risk management framework.
This determines an initial EVP outcome, a significant
proportion of which is provided in the form of Performance
Rights that are subject to a separate long term performance
measure assessed over a five year period. This approach
encourages strong financial performance in the near term
without compromising the requirements of building a
sustainable, long-term business.
• Shareholder alignment: As the majority of variable
remuneration is provided in the form of Restricted Shares
and Performance Rights it helps align actual pay outcomes
with returns delivered to long-term shareholders.
• Attraction and retention: We operate in a highly competitive
global market for the talent required to lead Telstra through
constant innovation, re-invention and disruption. The EVP
seeks to provide appropriate reward opportunities to enable
Telstra to compete in the global talent market.
• Effective Governance: The Remuneration Committee and
the Board actively evaluate performance results relative to
performance metrics, progress toward strategic objectives
and a range of additional factors including shareholder
expectations and customer experience to determine the
appropriate, balanced remuneration outcome. Our plan design
enables further consideration before any award deferred from
a prior performance period vests, ensuring that both the initial
and final award reflect appropriate sustainable performance.
Throughout the course of FY19 the Board has considered
feedback provided by our stakeholders and made changes
to address their areas of concern (see section 5.0 for further
information). These demonstrate a clear commitment to
ensuring our EVP supports our long-term shareholders’
interests and expectations.
The Board has concentrated on making enhancements to the
FY20 EVP structure rather than creating further disruption and
complexity by amending the FY19 EVP, which was in place prior
to the 2018 AGM. The Board believes this is the right thing to do
for the company and is in the interest of both our shareholders
and Senior Executives.
1.3 Specific issues raised and our response
The following table summarises the issues raised by our
shareholders and proxy advisors at our 2018 AGM and as
part of our review process, and includes our responses to
those concerns.
Maximum opportunity considered
excessive and a high portion of
award provided in cash
The inclusion of the Dividend Equivalent
Payment (DEP) which is payable if
Performance Rights vest.
Remuneration Report | Telstra Annual Report 2019
Response
In a traditional STI/LTI construct, an executive receives their LTI grant (for example 200% of Fixed
Remuneration) at the beginning of each year, irrespective of annual performance. Under Telstra’s
EVP the performance against the primary performance measures in the prior year dictates the
number of Performance Rights (equivalent to LTI in a standard STI/LTI construct) that are
granted. As an example, if the EVP outcome for a given year is 50% of maximum, then the
Performance Rights granted will also only be 50% of maximum.
Under the EVP, Performance Rights will only vest at the end of a five year performance period if
a further RTSR performance condition has been achieved. This means executives have a double
hurdle, with performance measured over both the initial performance period and the five year
RTSR performance period, making it considerably more challenging for Senior Executives to
obtain variable remuneration than was the case under the previous STI/LTI structure.
Nonetheless, we have listened to shareholders and have introduced a more challenging second
hurdle by tightening the RSTR performance condition through the use of a sliding vesting scale
as explained further below.
Having considered feedback, the Board has enhanced the FY20 EVP by strengthening its alignment
with shareholders’ interests, and delivery of the T22 strategy through the following key changes:
• The weighting of financial performance measures within the primary performance measures
has increased to 60% (previously 50%) with the remaining 40% covering customer, strategic
and transformation performance measures.
• The maximum opportunity for all Senior Executives has been reduced to 300% of Fixed
Remuneration (previously it was 400% for the CEO and 360% for Group Executives).
• The cash component of the FY20 EVP has been reduced from 35% to 25% of a Senior
Executive’s EVP outcome.
• The overall portion of a Senior Executive’s EVP outcome delivered in equity has increased and
is now 75% (previously 65%), with 35% provided in Restricted Shares and 40% provided in
Performance Rights.
• The Restricted Shares will be eligible to vest in four equal tranches, with 25% eligible to
vest each year over the four years following the end of the initial performance period.
The Performance Rights are eligible to vest 5 years from the start of the initial performance
period subject to the RTSR performance condition.
• The secondary performance hurdle applying to the Performance Rights, has been strengthened
by introducing a sliding vesting scale as opposed to ‘cliff vesting’ as described below.
Applicable to both the FY19 and FY20 EVPs, our claw-back (malus) framework has also been
enhanced to drive greater executive accountability and focus on sustainable performance.
We have introduced new Claw-back Events which focus on conduct that may negatively impact our
reputation with key regulators or result in a material breach of our risk management requirements.
For Performance Rights that vest following satisfaction of the RTSR performance condition,
a cash payment equivalent to the dividends paid by Telstra during the period between allocation
of the Performance Rights and vesting will be made at or around the time of vesting. This is
known as a Dividend Equivalent Payment (DEP). A minority of stakeholders believe Senior
Executives should not receive this payment.
After lengthy consideration, the Board has decided to retain the DEP on the basis that our
approach enhances the alignment of executive remuneration with the shareholder experience
over the performance period by balancing considerations of both price and yield. To reiterate,
DEPs are only paid if the RTSR performance condition is met on the Performance Right
component of the EVP.
42
43
Issues Raised
Pay for Performance
Response
The FY18 performance measure targets
were considered not sufficiently
demanding and performance outcomes
were therefore not aligned with
shareholders’ expectations
Last year, the Board reduced the EVP outcome for Senior Executives by 30% as it recognised
that our overall performance had been disappointing. The Board believed the 30% reduction
was an appropriate reduction to balance the achievements of the management team with the
experience of shareholders. Despite this action, we understand that some shareholders still felt
that the remuneration outcomes were too high.
In setting the FY19 performance measure targets the Board sought to ensure the targets were
sufficiently demanding and aligned with market guidance provided by Telstra. In October 2018,
we took the step of providing all shareholders with detailed information on the FY19 EVP
performance measure targets and the rationale for adopting those targets. In addition, as part
of our FY19 half year results released in February 2019, we provided the market with an update
on how performance was tracking relative to each target. This step was taken to inform all
shareholders of the performance expectations and reward alignment for FY19.
We listened to feedback that vesting 100% of the Performance Rights where Telstra’s RTSR ranks
at the 50th percentile of the comparator group, was not sufficiently challenging.
Whilst the Board considers the current 50th percentile ‘cliff vesting’ to be a challenging
performance measure as it is the second part of a double hurdle, to enhance our pay for
performance alignment and delivery of long term shareholder value, the Board decided to change
this element of the EVP structure for FY20. Vesting will now be determined on a straight-line
vesting scale, with 50% of the Performance Rights vesting if Telstra’s RTSR ranks at the 50th
percentile of the comparator group, up to 100% of the Performance Rights vesting if Telstra’s RTSR
ranks at the 75th percentile of the comparator group. No Performance Rights vest if Telstra’s RTSR
ranks below the 50th percentile when compared with the comparator group.
In an effort to address this feedback in October 2018, the Chairman released a letter to
shareholders, which included additional detail on the FY19 EVP performance measure targets
and the rationale for adopting those targets. In addition, as part of our FY19 half year results
released in February 2019, we provided the market with an update on how performance was
tracking relative to each target.
In the interest of continuing to be transparent, we have included our FY20 EVP performance
measures and targets in this report (as set out in section 5.0)
In the four years since appointment in May 2015, the CEO has received only one Fixed
Remuneration increase of 2.8% on 1 October 2017. In determining that increase, the Board took
into consideration the fixed remuneration of CEOs at other ASX listed companies of similar size,
complexity and market capitalisation. The CEO’s Fixed Remuneration has remained unchanged
for FY19 and we do not anticipate any further increases for FY20.
Assessing performance on the
Performance Right component of
the EVP, with vesting occurring if RTSR
ranks at the 50th percentile (referred to
as ‘cliff vesting’)
Disclosure
Lack of transparency with respect to
the FY19 EVP performance measures
CEO Fixed Remuneration
FY18 increase not in line with shareholder
expectations and considered excessive
relative to other employees
Remuneration Report | Telstra Annual Report 2019
2.0 Policy
2.1 Key Management Personnel (KMP)
Telstra’s KMP are assessed each year and comprise the Directors of the company and Senior Executives. The term “Senior
Executives” refers to the CEO and those executives with authority and responsibility for planning, directing and controlling
the activities of the company and the Group, directly or indirectly. Each KMP held their position for the whole of FY19,
unless stated otherwise.
Effective 1 October 2018, we reorganised the structure of our business and implemented a new topline organisation structure
and leadership team as an important step in delivering our T22 strategy. As a result of these organisational changes, our KMP
recognised during FY19 were:
Non-executive Directors
Senior Executives
Current
John P Mullen
Current
KMP Position
Andrew Penn
Chief Executive Officer & Managing Director (CEO)
Eelco Blok from 15/02/19
Michael Ackland
Group Executive (GE) Telstra Consumer & Small Business (C&SB) from 11/09/18
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Nora L Scheinkestel
Margaret L Seale
Alex Badenoch
GE Transformation & People (T&P) from 1/10/18
Vicki Brady*
David Burns
GE C&SB from 1/7/18 to 10/09/18
GE Global Business Services (GBS) from 30/07/18
Michael Ebeid AM
GE Telstra Enterprise (TE) from 1/10/18
Nikos Katinakis
GE Networks & IT from 15/10/18
Niek Jan van Damme from 16/10/18 Brendon Riley
GE and CEO Telstra InfraCo from 1/10/18, formerly GE TE from 1/07/18 to 30/09/18
Christian Von Reventlow GE Product & Technology from 1/11/18
Former
Former
Jane S Hemstritch until 15/01/19
Warwick Bray
Chief Financial Officer (CFO) from 1/7/18 to 30/09/18
Russell A Higgins AO until 16/10/18
Robyn Denholm
Steven M Vamos until 16/10/18
CFO from 1/10/18 to 30/06/19, formerly Chief Operations Officer
from 1/07/18 to 30/9/18
Trae A N Vassallo until 16/10/18
Will Irving
GE Telstra Wholesale from 1/07/18 to 30/09/18
* Between 11/09/2018 and 1/07/2019 when she commenced as CFO, Vicki Brady was on leave.
2.2 Remuneration policy, strategy and governance
Our remuneration policy is designed to:
• support our strategy and reinforce our culture and values
• link financial rewards directly to employee contributions
and company performance
• provide market competitive remuneration to attract,
motivate and retain highly skilled employees
• achieve remuneration outcomes of internal consistency
• ensure employees performing at similar levels in similar roles
are remunerated within a broadly similar range
• ensure that all reward decisions are made free from bias and
support diversity within Telstra
• support commercially responsible pay decisions
Our governance framework for determining Senior Executive
remuneration includes the aspects outlined below.
(a) The Remuneration Committee
The Remuneration Committee monitors and advises
the Board on remuneration matters and consists only of
independent non-executive Directors. It assists the Board
in its responsibilities by reviewing and advising on Board
and Senior Executive remuneration, giving due consideration
to the law and corporate governance principles.
The Remuneration Committee also reviews and makes
recommendations to the Board on Telstra’s overall
remuneration strategies, policies and practices, and monitors
the effectiveness of Telstra’s overall remuneration framework
in achieving Telstra’s remuneration strategies.
As noted earlier, the governance of Senior Executives’
remuneration outcomes has been a significant focus of the
Remuneration Committee and the Board this past financial
year. Further detail about the Remuneration Committee and
its responsibilities is provided in our Corporate Governance
Statement available at telstra.com/governance.
(b) Annual remuneration review
The Remuneration Committee and the Board review
Senior Executive remuneration annually to ensure there is
a balance between fixed and at risk pay, and that it reflects
both short and long term performance objectives aligned to
Telstra’s strategy.
Fixed Remuneration is usually reviewed annually taking
into account:
• the employee’s level of skill, experience and scope of
responsibilities
• business performance, scarcity of talent, economic climate
and market conditions
• consistency with increases elsewhere within Telstra
• external comparator groups (which are used for reference
purposes only) made up of companies of similar size and
complexity to Telstra
The Remuneration Committee and Board reviews the CEO’s fixed
and variable remuneration and the CEO undertakes a similar
exercise in relation to other Senior Executives. The results of the
CEO’s annual review of other Senior Executives’ performance and
remuneration are subject to Remuneration Committee and Board
review and approval.
44
45
(c) Engagement with consultants
During FY19, Telstra did not seek a remuneration
recommendation from a remuneration consultant
in relation to any of our KMP.
(d) Engagement with shareholders and stakeholders
The Chairman of the Board and the Chairman of the
Remuneration Committee engage throughout the year with
stakeholders to seek feedback and consider opportunities to
further enhance the effectiveness of our reward structure with
a commitment to ensure we are focused on the alignment of
the interests of our executives with the generation of long term
shareholder value. During FY19, a total of 44 shareholder and
stakeholder meetings were held including 9 meetings with
shareholder advisory companies.
(e) Incentive design and performance assessment
The Remuneration Committee oversees the process of setting
robust measures and targets to encourage strong Senior
Executive performance and behaviour that is aligned to our
values. The FY19 EVP performance measures are summarised
in section 3.1(c).
For each primary performance measure, no EVP outcome is
awarded unless a threshold level of performance is achieved.
If the primary performance measure targets are achieved
we award 50 per cent of the total maximum potential.
The maximum level is only paid if there is significant over
achievement of targets on all primary performance measures.
At the end of each financial year, the Board reviews the
company’s results, including the financial statements which
are audited by Ernst & Young (EY) our external auditor and the
results of the other non-financial performance measures which
are audited by Telstra’s Group Internal Audit. The Employee
Engagement Score (EES) is reviewed by EY. The Board
determines the outcome of the EVP and any legacy LTI plan
on foot, by assessing performance against each performance
measure.
Each Senior Executive’s EVP outcome is ultimately at the
discretion of the Board. In considering whether to exercise its
discretion and change the outcome provided by the assessment
of the primary performance measures, the Board assesses
whether the proposed outcome is appropriate, including in
the context of Telstra’s performance, customer experience
and shareholder expectations. The Board also takes into
account each Senior Executive’s performance and individual
contribution during the year to determine their individual EVP
outcome.
(f) Share Ownership Policies
Telstra has in place an Executive Share Ownership Policy which
applies to the CEO and Group Executives. The intent of the
policy is to align the interests of the CEO and Group Executives
with the interests of our long term shareholders.
Under the policy, the CEO and Group Executives are required to
hold Telstra shares to the value of 100 per cent of their Fixed
Remuneration within five years of their first appointment to
Group Executive level. Commencing in FY20 the share
ownership requirement has increased to 200 per cent of Fixed
Remuneration for the CEO. Any Restricted Shares held by
Senior Executives are included in calculating their shareholding
for the purposes of this policy. Senior Executives must obtain
Board or, in certain circumstances, CEO or Chairman approval
before they sell shares if they have not yet met their share
ownership requirements under the policy.
Those Senior Executives who have held a Group Executive
position for at least five years have met the shareholding
requirement as at 30 June 2019. Progress is monitored on an
ongoing basis. For information on Senior Executives’ interests
in Telstra Shares and how they are progressing against the
shareholding requirement, refer to section 3.4. As at 30 June
2019, the CEO held Telstra shares to the value of 223 per cent of
his Fixed Remuneration based on the Telstra closing share price
of $3.85 on that date.
To align the interests of non-executive Directors with those of
our shareholders, non-executive Directors are required to hold
Telstra shares to the value of at least 100 per cent of the annual
non-executive Director base fee, within five years of their
appointment. The value of such shares is based on their price
at the time of acquisition. Progress is monitored on an ongoing
basis. As at the date of this report, all non-executive Directors
have met this minimum holding requirement with the exception
of two Directors who have been on the Board for 15 months or
less. In August 2019, the policy was amended to include a
higher minimum holding requirement for the Chairman of the
Board, being at least 200 per cent of the annual non-executive
Director base fee within five years of appointment as Chairman.
Directors’ shareholdings as at 15 August 2019 are set out in the
Directors’ Report.
(g) Restrictions and governance
All KMP must comply with Telstra’s Securities Trading Policy,
which includes a requirement that Telstra securities can only
be traded during specified trading windows and with prior
approval. KMP must also consider how any proposed dealing
in Telstra securities could be perceived by the market and must
not deal if the proposed dealing could be perceived as taking
advantage of their position in an inappropriate way.
They are also prohibited from:
• speculative dealing in Telstra securities for short term gain,
using Telstra securities as collateral in any financial
transactions (including margin loan arrangements),
or engaging in stock lending arrangements using their
Telstra shares; and
• entering into any hedging arrangement that limits the
economic risk of holding Telstra securities (including
those held under Telstra equity plans).
This helps align our KMP’s interests with shareholders’
interests.
KMP are required to confirm on an annual basis that they
comply with our Securities Trading Policy, which assists
in monitoring and enforcing our policy.
Remuneration Report | Telstra Annual Report 2019
3.0 Senior Executive remuneration
3.1 FY19 Remuneration Structure
The following diagram illustrates the remuneration framework that applied to our Senior Executives during FY19.
Attract, motivate
and retain highly
skilled people
Fixed
Remuneration
Reinforce our culture
and values
Reward achievement
of financial and
strategic objectives
Align to long term
shareholder value
creation
Executive Variable
Remuneration Plan (EVP)
Cash
Equity
Base salary
plus superannuation
FY19 EVP outcome based on communicated financial, strategic, customer and
transformation priorities. Performance over the financial year is measured against stretching
financial and non-financial performance targets set at the start of the financial year.
• Set based on skills,
capabilities, experience
and performance
• 35% of the FY19 EVP
outcome is cash
• 26% of the FY19 EVP
outcome is deferred as
Restricted Shares
• Subject to claw-back and
forfeiture
• 39% of the FY19 EVP
outcome is allocated in
Performance Rights
subject to a Relative Total
Shareholder Return (RTSR)
performance condition
• Subject to claw-back
and forfeiture
Recognises sustainable performance in the medium to longer term
Market competitive
base reward
Rewards annual
performance, providing
specific focus on
strategic priorities
Recognises the criticality
of strategic non-financial
measures as drivers of
longer-term value creation
Focuses on achieving
longer-term superior
performance for
stakeholders
(a) FY19 Remuneration mix for Senior Executives
The graph below shows the FY19 remuneration mix for Senior Executives expressed as a percentage of Fixed Remuneration (FR).
CEO
100%
Fixed Remuneration
70%*
EVP Cash
52%*
EVP Restricted Shares
78%*
EVP Performance Rights
EVP at Target = 200% of Fixed Remuneration comprised of:
Total Equity = 130% of Fixed Remuneration
Other Senior
Executives**
100%
Fixed Remuneration
63%*
EVP Cash
46.8%*
EVP Restricted Shares
70.2%*
EVP Performance Rights
EVP at Target = 180% of Fixed Remuneration comprised of:
Total Equity = 117% of Fixed Remuneration
* The percentages shown are calculated from the 35% Cash, 26% Restricted Share and 39% Performance Right components of the FY19 EVP multiplied by the FY19 EVP
target opportunity for the CEO (200% of FR) and other Senior Executives (180% of FR).
** Warwick Bray - former CFO and Will Irving - former GE Telstra Wholesale ceased employment for a Permitted Reason while participating in the FY19 EVP. As disclosed
in our FY18 Remuneration Report they will be allocated Cash Rights in lieu of Restricted Shares and Performance Rights under the FY19 EVP. The Cash Rights will be
subject to the same time conditions and performance measures as those applying to the FY19 Restricted Shares and Performance Rights (except that the Cash Rights
granted to Will Irving in lieu of the Performance Rights will not be subject to an RTSR performance condition due to constraints under the SSU). In addition they will
also be entitled to receive the FY19 EVP cash component, pro-rated for their length of service during the year. As Robyn Denholm resigned from Telstra, she forfeited
her FY19 EVP award.
46
47
(b) Current Senior Executive Fixed Remuneration and contract details
The following table summarises the Fixed Remuneration, notice and termination payment provisions that apply under the ongoing
service contracts for current Senior Executives.
Name
Andrew Penn
Title
CEO
Michael Ackland
GE C&SB
Alex Badenoch
Vicki Brady
David Burns
Michael Ebeid AM
GE T&P
CFO
GE GBS
GE TE
Nikos Katinakis
GE Networks & IT
FR as at
15 August 2019
Notice period
Termination
payment
$2,390,000
$1,000,000
$930,000
$1,200,000
$1,000,000
$1,150,000
$1,100,000
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
12 Months*
6 months
Brendon Riley
GE & CEO Telstra InfraCo
$1,400,000
Christian Von Reventlow
GE Product & Technology
$1,100,000
* Brendon Riley has a 12 month termination payment clause in his contract that was negotiated upon commencing employment at Telstra in February 2011.
Telstra’s current policy is to provide for a six month termination payment in executive contracts.
Upon notice being given, Telstra can require a Senior Executive to work through the notice period, or may terminate employment
immediately by providing payment in lieu of notice, or a combination of both. Any payment in lieu of notice is calculated based on
the Senior Executive’s Fixed Remuneration as at the date of termination.
There is no termination payment if termination is for serious misconduct, or for redundancy (unless the severance payment under
Telstra’s redundancy policy would be less than the termination payment, in which case the termination payment applies instead).
(c) FY19 EVP Structure
The CEO and all Group Executives participated in the FY19 EVP. The construct of the FY19 EVP is illustrated in the diagram below:
EVP Equity Allocated (65%)
EVP Cash Paid
(35%)
2019
AGM
FY19
Results
Release
FY19 EVP Initial
Performance
Period
1 July 2018 to
30 June 2019
Restricted Shares
Restricted Shares
End of restriction 30 June 2021
Performance Rights
Performance
Rights
Final RTSR Test
30 June 2023
FY19 EVP Performance Rights RTSR Performance Period
1 July 2018 to 30 June 2023
FY19
FY20
FY21
FY22
FY23
FY24
Jul
Jun
Aug
Oct
Nov
Jun
Jul
Jun
Jul
Jun
Jul
Jun
Jul
Remuneration Report | Telstra Annual Report 2019
The table below outlines the key features of the FY19 EVP. We have made a number of further enhancements to the EVP structure
for FY20 (refer to section 5.0).
EVP design
attributes
Reward
opportunity
Initial
performance
period
Primary
Performance
Measures
Detail
CEO: 200% of FR at target; 400% of FR at maximum (reduced to 300% in FY20)
Group Executives: 180% of FR at target; 360% of FR at maximum (reduced to 300% in FY20)
1 year (1 July 2018 to 30 June 2019)
The amount earned by a Senior Executive under the EVP (EVP outcome) is determined by the Board based on the performance
of Telstra against the following performance measures during the Initial Performance Period.
The performance measures operate independently and each measure has a defined performance threshold, target and
maximum. The total EVP outcome is therefore the total sum of each performance measure outcome.
The Board selected the following performance measures for the FY19 EVP as they provide the critical link between achieving
the outcomes of Telstra’s T22 strategy, Telstra’s Corporate Plan and increasing shareholder value.
In setting the performance measures for FY19, the Board sought to ensure the targets were robust and sufficiently demanding,
taking into account the key deliverables and milestones outlined in our T22 strategy, planned financial outcomes contained
within our Corporate Plan and guidance as announced on 16 August 2018. FY19 was a very material year in the migration to the
nbn™ network and its negative impact on Telstra’s financial results. The financial targets were set to reflect the significant and
progressive negative impact of the roll out of the nbn network and the intense competition in the market impacting on average
revenues per user (ARPU). The FY19 targets were also set taking into account an expected 2-3% decline in total mobile and fixed
market revenue. All targets were evaluated against the range of market guidance with targets approximating the midpoint of that
guidance and maximum performance equal to or above the maximum guidance range. It remains the Board’s view that the
targets were robust and demanding in the face of an exceptionally challenging market.
The primary performance measures and targets for FY19 were as follows.
Performance
Measures
(12.5% equal
weighting)
Why chosen
FY18
Baseline^
Threshold
Target
Max
FY19
• Key indicator of financial performance
• Ensures continued focus on customer
retention and growth
• The FY19 target was set taking
into account the reduction in income
from the expected negative impact of
the roll out of the nbn network on legacy
revenue (including lower fixed voice and
Integrated Services Digital Network (ISDN)
revenue) and an expected 2-3% decline in
total mobile and fixed market revenue
• Key indicator of financial performance
• Ensures appropriate focus on profit and
cost to deliver
• A strong indicator of underlying company
profitability
• The FY19 target was set taking into
account the reduction in EBITDA from
the expected negative impact of the roll
out of the nbn network (including lower
legacy revenue and additional network
payments) and an expected 2-3% decline
in total mobile and fixed revenue.
A reduction in underlying core fixed
costs was also taken into account
• Key indicator of financial performance
• Appropriate for a capital intensive
business
• Critical in managing the company’s ability
to pay a dividend and maintain balance
sheet strength
• The FY19 target was set taking into
account the expected decline in EBITDA
from the negative impact of the roll out of
the nbn network and intense competition
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
5
–
l
a
i
c
n
a
n
F
i
Total Income
excluding
finance income
EBITDA
excluding
restructuring
costs
Free Cash
Flow (FCF)
excluding
spectrum
$29,042m
$27,064m
$27,564m
$28,500m
$10,407m
$8,993m
$9,193m
$9,493m
$4,808m
$3,313m
$3,513m
$3,913m
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49
EVP design
attributes
Primary
Performance
Measures
(continued)
Detail
Performance
Measures
(12.5% equal
weighting)
Why chosen
FY18
Baseline^
Threshold
Target
Max
FY19
Net Opex
Reduction
(Underlying
core fixed
cost reduction)
• Active reduction of our costs will be
key to competing and delivering strong
financial performance in an increasingly
competitive market
• Delivering significant absolute cost
reduction aligns with intent to drive
productivity and reduce costs
• A key driver of business success and our
ability to differentiate in an increasingly
competitive market
Episode NPS
(improvement in
Episode NPS
points)
• Key to generating increased share
of wallet from existing customers,
maintaining a price premium,
and attracting new customers
–
$388m
$438m
$513m
+19
points
+21
points
+24
points
+27
points
Product
Portfolio
Simplification
Number of
active plans
• Will increase the simplicity,
transparency and satisfaction
that our customers experience
and allow the delivery of material
cost reductions
%
0
5
(
B
S
&
C
)
g
n
i
t
h
g
e
w
i
%
0
5
(
E
T
)
g
n
i
t
h
g
e
w
i
400
products
40
products
30
products
20
products
651
products
570
products
549
products
527
products
Digital
Delivery
C&SB Digital
Sales
Transactions /
Total
Transactions
ratio
People
Capability
& Engagement
Maintenance
of employee
engagement
score (EES)
from FY18
• Improves customer experience
• Supports our cost reduction focus
• Enables delivery of strong financial
results
6.2%
11.3%
14.0%
16.5%
• Focusses on our employee engagement
• Supports our ability to have both the key
leadership and technical talent required
to deliver on our ambitious strategy
74
n/a
74
76
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
5
-
n
o
i
t
a
m
r
o
f
s
n
a
r
T
&
r
e
m
o
t
s
u
C
,
c
i
g
e
t
a
r
t
S
^ Baseline refers to FY18 results (as per the letter to shareholders dated 11 October 2018) that provide a comparison for FY19 performance.
Due to the provisions of the SSU, the former GE Telstra Wholesale is assessed against the following primary performance
measures: Telstra Wholesale Income, Telstra Wholesale EBITDA and Telstra Wholesale NPS.
Remuneration Report | Telstra Annual Report 2019
EVP design
attributes
Secondary
Performance
Measures
Board’s
discretion to
determining
the EVP
outcome
EVP outcome
– Cash vs
equity balance
Equity
allocation
methodology
Detail
In addition to the EVP primary performance measures (which are assessed over the initial performance period), 39% of the EVP
outcome (in the form of Performance Rights) only vests if at the end of the five year performance period on 30 June 2023, the
RTSR performance condition has been achieved. This means executives have a double hurdle, with performance measured over
both the initial performance period and the five year RTSR performance period.
RTSR measures the performance of an ordinary Telstra share (including the value of any cash dividend and other shareholder
benefits paid during the period) relative to the performance of ordinary securities issued by the other companies in the
comparator group over the RTSR performance period.
The Board believes that RTSR is an appropriate secondary performance measure because it links executive reward to Telstra’s
share price and dividend performance relative to companies in the ASX100 (excluding resources companies) over the long term.
The Performance Rights will only vest if Telstra’s RTSR ranks at the 50th percentile or greater against a comparator group
comprising the ASX100 (excluding resource companies) as at 1 July 2018 over the five year performance period. For FY20
we have introduced a sliding RTSR vesting scale where vesting will be determined on a straight line scale, with 50% of the
Performance Rights vesting if Telstra’s RTSR ranks at the 50th percentile of a comparator group, up to 100% of the Performance
Rights vesting if Telstra’s RTSR ranks at the 75th percentile of the comparator group. No Performance Rights vest if Telstra’s
RTSR ranks below the 50th percentile when compared with the comparator group.
For the purposes of RTSR performance testing for the FY19 EVP, the average market value of Telstra shares against which RTSR
performance will be determined at the testing date of 30 June 2023, is $2.76 and was calculated by reference to Telstra’s daily
closing share price over the 30 day period to 30 June 2018. Telstra measures the RTSR percentile ranking to two decimal places
and rounds up to the nearest whole number if the two decimal places are .50 or above and rounds down to the nearest whole
number if the two decimal places are below .50. If the RTSR performance condition is not satisfied, all of the FY19 EVP
Performance Rights will lapse.
Due to the provisions of the SSU, Cash Rights allocated in lieu of Performance Rights to the former GE Telstra Wholesale will not
be subject to a RTSR performance condition.
Each Senior Executive’s EVP outcome is ultimately at the discretion of the Board after taking into account matters which
may include whether the proposed outcome is appropriate in the context of Telstra’s performance, customer experience
and shareholder expectations, and the individual’s performance and contribution during the year.
The EVP outcome is made up of a combination of cash (35%), Restricted Shares (26%) and Performance Rights (39%).
This results in a 35:65 ratio of cash to equity. On vesting of a Performance Right, Telstra has discretion to provide the holder
with a share or a cash amount equivalent to the value of a share at vesting. In FY20, the cash component of the EVP outcome
will be reduced to 25% and the equity component increased to 75%.
Opportunity
Outcome
Award
35% Cash
No. of Instruments
Allocated
FR
$
X
Target EVP
Opportunity
%
X
Primary
performance
measure
Result %
=
FY19 EVP
Outcome
(Subject
to Board
discretion)
26% Restricted Shares
No. of Restricted Shares
39% Performance Rights
(Subject to RTSR)
No. of Performance Rights
(Subject to RTSR)
÷
VWAP
=
The number of Restricted Shares and Performance Rights to be granted is based on the dollar value of the EVP outcome,
multiplied by 26% for Restricted Shares and 39% for Performance Rights, and then divided by the five day volume weighted
average share price (VWAP) of Telstra shares commencing on the day after the FY19 results announcement (ie a face value
allocation methodology).
Issue/exercise
price
As the Restricted Shares and Performance Rights form part of a Senior Executive’s variable remuneration, no amount is
payable by the Senior Executive on grant of the Restricted Shares or on grant or vesting of the Performance Rights. Both
the Restricted Shares and any shares to be provided on the vesting of Performance Rights will be purchased on-market.
Restriction and
performance
periods for
equity
Restricted Shares: Restriction Period ending 30 June 2021. (From FY20, Restricted Shares will be eligible to vest in four equal
tranches, with 25% eligible to vest each year for the four years following the end of the initial performance period.)
Performance Rights: In addition to the initial performance period, the Performance Rights will be subject to a challenging
RTSR performance condition over a five year performance period from 1 July 2018 to 30 June 2023. (From FY20, the secondary
performance measure will be more challenging through the introduction of the sliding RTSR vesting scale.)
In certain limited circumstances, such as a takeover event where 50% or more of all issued fully paid shares in Telstra are
acquired, the Board may exercise discretion to accelerate vesting of Performance Rights and accelerate the end of the
Restriction Period of Restricted Shares.
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51
EVP design
attributes
Dividends
Leaver
Detail
Restricted Shares: Participants receive dividends on Restricted Shares during the Restriction Period consistent with other
Telstra shareholders.
Performance Rights: No dividends are paid on Performance Rights prior to vesting. For any Performance Rights that ultimately
vest following satisfaction of the RTSR performance condition, a cash payment equivalent to the dividends paid by Telstra
during the period between allocation of the Performance Rights and vesting will be made at or around the time of vesting,
subject to applicable taxation (Dividend Equivalent Payment).
Before the Restricted Shares and Performance Rights are allocated: If a Senior Executive ceases employment for a Permitted
Reason, the Senior Executive is eligible for a pro-rata EVP outcome based on the proportion of time employed during the initial
performance period. The Senior Executive will receive a grant of Cash Rights (or, at the Board’s discretion, cash, if the Senior
Executive ceases employment due to death, total and permanent disablement or certain medical conditions) in lieu of
Performance Rights and Restricted Shares. On vesting, a Cash Right entitles the executive to a cash payment equivalent to the
value of a share at the end of the applicable Restriction Period or performance period and dividends paid between the date the
Cash Right is allocated and the end of the applicable Restriction Period or performance period. Where the Senior Executive
receives Cash Rights, there is no change to the restriction and performance periods, or the RTSR performance condition. If the
Senior Executive ceases employment for any other reason, their EVP entitlement is forfeited. The Cash Rights are subject to
the same conditions as the equity awards provided to continuing executives which ensures equal treatment for all executives
and that departing executives continue to make decisions that are aligned to the long term interests of our shareholders.
After the Restricted Shares and Performance Rights are allocated: If a Senior Executive ceases employment for a Permitted
Reason after the equity is allocated, Restricted Shares and Performance Rights that have been allocated will remain on foot.
There is no change to the restriction and performance periods, or the RTSR performance condition. If the Senior Executive
ceases employment for any other reason, their EVP entitlement is forfeited.
Claw-back
(malus)
The Board has discretion to claw-back Performance Rights and Restricted Shares if certain Claw-back Events occur during the
performance period or Restriction Period. Claw-back Events include fraud, gross misconduct or material breach of obligations
by the Senior Executive or behaviour that brings Telstra into disrepute, may negatively impact Telstra’s long term financial
strength or causes a significant deterioration in Telstra’s financial performance. Our Claw-Back Events have also been
expanded to cover conduct that may negatively impact on Telstra’s standing, reputation or relationship with its key regulators
and behaviour that has resulted in a material breach of Telstra’s risk management framework.
In addition to the Claw-back Events outlined above, the Board has full discretion to claw-back unvested awards if it determines
the awards constitute an inappropriate benefit.
At the 2019 AGM to be held on 15 October 2019, we will seek shareholder approval for the Restricted Shares and Performance
Rights to be allocated to the CEO under the FY19 EVP.
The details of each EVP performance measure and outcome for FY19 are provided in section 3.2.
(d) Financial performance
The table below provides a summary of Telstra’s key financial results over the past five financial years. A summary of how those
results have been reflected in the EVP and LTI remuneration outcomes is provided in sections 3.2 and 3.3.
Financial Performance
Earnings1
Total Income2
EBITDA2
Net Profit3
Shareholder Value
Share Price ($)4
Total Dividend Paid Per Share (cents)5
FY19
$m
27,807
7,984
2,154
3.85
19.0
FY18
$m
28,841
10,197
3,591
2.62
26.5
FY17
$m
28,205
10,679
3,891
4.30
31.0
FY16
$m
27,050
10,465
5,780
5.56
31.0
FY15
$m
26,112
10,553
4,231
6.14
30.0
1. Total Income, EBITDA and Net Profit for FY18 have been restated due to the adoption of AASB 15 “Revenue from Contracts with Customers”. Refer to Note
1.5 – Adoption of new accounting standards in the Financial Report. As a result, the FY18 and FY19 results are prepared under this new standard and FY15-FY17
are prepared under the superseded revenue standard.
2. When there is a discontinued operation for the year, Total Income and EBITDA include only results from continuing operations. There have been no discontinued
operations since FY16.
3. Net Profit attributable to equity holders of the Telstra entity includes results from continuing and discontinued operations (i.e. this includes the Autohome Group
and the Sensis Group for FY16 and FY15).
4. Share prices are as at 30 June for the respective year. The closing share price for FY14 was $5.21.
5. We currently pay dividend to equity holders of the Telstra Entity twice a year, an interim and a final dividend. The amounts included in this table relates to dividends
paid during the financial year. Therefore, for each respective year, the amount includes the dividend paid for the previous year final dividend and the current year interim
dividend. Refer to Note 4.1 in the Financial Report for further information.
52
Remuneration Report | Telstra Annual Report 2019
3.2 FY19 EVP outcomes
(a) Overall FY19 EVP outcomes
The Board actively evaluates performance against the EVP performance measures. The Board maintains absolute discretion to
ensure Senior Executive remuneration outcomes are appropriate in the context of Telstra’s performance, our customer experience
and shareholder expectations. In connection with the FY19 EVP, positive outcomes were achieved for three out of four financial
measures, and customer experience was improved as measured through Episode NPS. The overall performance demonstrated strong
delivery against our corporate plan and T22 strategy. Our results were in line with market guidance. FY19 results were impacted by
the nbn™ network rollout. The performance outcome was 111.8% of the target opportunity (55.9% of maximum) under the FY19 EVP.
Performance Measure
Measures
Target
Result
Financial
Result as
a % of
Target
EVP
Outcome
$27,564m $28,186m
166%
20.8%
Total Income
excluding
finance income
($m)
$9,193m
$9,087m
73%
9.2%
EBITDA
excluding
restructuring
costs ($m)
$3,513m
$2,862m
0%
0%
$438m
$453m
121%
15.1%
Free Cash
Flow (FCF)
excluding
spectrum ($m)
Net Opex
Reduction
(Underlying
core fixed cost
reduction $m)
Additional Information
The target was set at approximately the midpoint of FY19 guidance as at
16 August 2018, as disclosed in our October 2018 Letter to Shareholders.
Total Income of $27,807m was reported by Telstra for FY19. Adjusted for the
factors outlined below, Total Income was $28,186m, which for the purpose
of the EVP performance measure is between target and maximum.
To ensure the FY19 EVP outcome appropriately reflected the performance
of Senior Executives, the Board approved a net adjustment of $379m to the
reported result comprising:
• an increase of $250m for NBN Transaction adjustments to ensure no windfall
gain or loss.
• an increase of $129m to adjust for the impact of adopting the new
accounting standard AASB 15 “Revenue from Contracts with Customers.”
The target was set at approximately the midpoint of FY19 guidance as at
16 August 2018, as disclosed in our October 2018 Letter to Shareholders.
FY19 EBITDA excluding restructuring costs (per the metric definition) was
$8,785m, comprising of FY19 Reported EBITDA of $7,984m and restructuring
costs of $801m. Adjusted for the factors outlined below, EBITDA was $9,087m
which for the purpose of the EVP performance measure is between threshold
and target.
To ensure the FY19 EVP outcome appropriately reflected the performance of
Senior Executives, the Board approved a net adjustment of $302m comprising:
• an increase of $499m comprising $493m for the impairment of legacy IT
assets and associated work in progress as announced on 29 May 2019
and $6m relating to other investments over the period.
• a decrease of $69m for the NBN Transaction adjustments to ensure no
windfall gain or loss.
• a decrease of $128m to adjust for the impact of adopting the new accounting
standard AASB 15 “Revenue from Contracts with Customers.”
The target was set at approximately the midpoint of FY19 guidance as at
16 August 2018, as disclosed in our October 2018 Letter to Shareholders.
FCF of $3,068m was reported by Telstra for FY19. Adjusted for the factors
outlined below, FCF was $2,862m which for the purpose of the EVP
performance measure fell below threshold.
To ensure the FY19 EVP outcome appropriately reflected the performance
of Senior Executives, the Board approved a net adjustment of $206m to the
reported result comprising:
• an increase of $29m to exclude spectrum payments in line with the metric
definition.
• a decrease of $239m for NBN Transaction adjustments to ensure no windfall
gain or loss.
• an increase of $4m relating to the net cash outflow from M&A activity and
other investments over the period.
As outlined in the FY19 Full Year Results and Operations Review, net operating
expenditure (opex) reduction was $456m ($7,105m in FY19 reduced from
$7,561m in FY18). The definition of net opex for the purposes of the Full Year
Results and Operations Review was updated after the EVP targets were set to
include more categories of costs. For the purposes of the EVP, the Net Opex
Reduction result was determined to be $453m, consistent with how the EVP
target was set. The result was audited by Telstra’s Group Internal Audit.
This result was driven by excellent progress in delivering significant absolute
cost reduction across the organisation, and ensures we are on track to meet
our $2.5 billion cost reduction target under our T22 strategy.
53
Performance Measure
Measures
Target
Result
Result as
a % of
Target
EVP
Outcome
Customer, Strategic and People measures
Episode NPS
(Improvement in
Episode NPS
points)
+24
+25
133%
16.7%
30
20
200%
12.5%
549
517
200%
12.5%
14.0%
16.8%
200%
25%
Additional Information
The overall Episode NPS result for Telstra is a weighted average calculation of
the survey results from Telstra business segments – 65% Consumer and Small
Business (combined calculation) and 35% Enterprise (Telstra Enterprise
Australia only).
The overall Episode NPS result was above target and was audited by Telstra’s
Group Internal Audit.
The result increased significantly driven by excellent progress in key customer
experiences including:
• initiating company wide improvement programs focused on improving
customer experience, such as the introduction of a dedicated team to
manage live chat orders.
• increasing our customer value proposition by launching new plans and
eliminating customer pain-points such as excess data charges in Australia.
• increasing our level of service. We now offer our customers the ability to
tailor their plans to meet their needs.
• servicing 248,105 moves during FY19. During this time, new approaches and
tools were adopted to generate a more consistent moving home experience
and to improve customer experience, which provided greater visibility of the
move progress and quicker resolution of connectivity issues.
The FY19 Product Portfolio Simplification was achieved by the following:
• C&SB: We launched our radically simplified product proposition and we now
have 20 core connectivity plans in market for our C&SB customers (compared
to 1,800 plans previously, comprising 1,400 legacy and 400 active). Our
mobile customers can now enjoy month-to-month plans with no lock in
contracts, no excess data charges in Australia across mobile phone and
broadband services, flexibility in how mobile handsets can be purchased and
the ability to customise plans.
• TE: We have made excellent progress toward our T22 target of halving the
number of Telstra Enterprise products by FY21. In FY19, we exceeded the
target and reduced our active products to 517 in FY19. The TE products that
were discontinued over the period included products covering IP and Private
Network, Cloud, Internet of Things (IoT) value added services, mobile
applications and Apps & Services.
FY19 Digital Delivery increased significantly driven by excellent progress in key
customer digital experiences as a result of the following:
• We introduced month-to-month plan constructs with a guided and simplified
experience to help customers understand our plans and make a selection.
• Marketing, search and media coverage resulted in an increase of online
traffic. Specific sales campaigns provided strong growth in online sales such
as Click Frenzy offers, and the Samsung S10 5G trade in offer which allowed
customers who purchased a Samsung S10+ to trade in/upgrade their device
to the S10 5G device.
• Bundled product and service activations online improved by 36% year on year.
• Due to digital campaign activity and live chat support, online nbn migration
was strong.
• FY19 re-contract sales improved by 45% year on year, driven predominately
by the deployment of express check out and the clearance shopping
experience.
74
67
0%
0%
The People Capability & Engagement measure was not achieved as the result
was below target.
111.8% 55.9% of the maximum EVP opportunity
Product
Portfolio
Simplification
(Number of
active plans)
Digital Delivery
(C&SB Digital
Sales
Transactions /
Total
Transactions
ratio)
People
Capability &
Engagement
Simplification
(Employee
Engagement
Score)
Total
54
Remuneration Report | Telstra Annual Report 2019
The graph below shows the FY19 EVP and previous EVP and STI plan outcomes as a percentage of the target opportunity relative
to the performance of Telstra’s share price over the past five years. The performance in the initial performance period for the FY19
EVP is measured against a scorecard similar to how performance was measured under the previous EVP and STI plans, albeit the
measures and weightings have changed. We believe that including the historical EVP and STI outcomes in this graph provides a
useful comparison. The FY19 performance outcome reflects significant progress against the T22 transformation and delivery of
financial results in line with expectations.
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
)
$
(
e
c
i
r
P
e
r
a
h
S
a
r
t
s
l
e
T
122%
81%
82.6%
43.6%
Performance
Rights (RTSR)
29.1%
Restricted
Shares
39.1%
Cash
111.8%
27.5%
Performance
Rights (RTSR)
18.4%
Restricted
Shares
24.7%
Cash
70.6%
140%
120%
100%
80%
60%
40%
20%
0%
1
t
e
g
r
a
T
f
o
%
t
u
o
y
a
P
P
V
E
/
I
T
S
FY15 STI2
30/06/2015
FY16 STI2
30/06/2016
FY17 STI2
30/06/2017
FY18 EVP
30/06/2018
FY19 EVP
30/06/2019
Historical STI
EVP Cash
EVP Restricted Shares
EVP Performance Rights (RTSR)
Telstra Share Price
1. The average EVP/STI outcomes as a percentage of target is shown for all KMP for the relevant period.
2. Excludes LTI plan awards which were previously granted at the maximum opportunity of 200% of Fixed Remuneration for the CEO and 160% of Fixed Remuneration for Group Executives.
3.3 FY17 LTI plan outcomes
The performance period for the FY17 LTI plan concluded on
30 June 2019. The details of the FY17 LTI plan outcome against
the two equally weighted performance measures, Relative Total
Shareholder Return (RTSR) and Free Cashflow Return On
Investment (FCF ROI) are provided below.
(a) RTSR
The results of the RTSR performance measure were calculated
by an external provider and audited by Telstra’s Group Internal
Audit team. The RTSR vesting result was based on Telstra
ranking at the 14th percentile of the global telecommunications
companies peer group. This outcome was below the threshold
for vesting and resulted in no vesting for the RTSR component
of the FY17 LTI plan.
(b) FCF ROI
As disclosed in our FY18 Remuneration Report, when testing
the FCF ROI measure, any reward would reflect the Board’s
assessment of management’s performance in delivering against
the strategic investment program (both the costs and benefits of
the program). In 2016, we announced an additional investment of
up to $3 billion over three years on our networks for the future
and digitisation to transform our business and drive
improvements in customer experience. These investments
have driven improvements in our network superiority, digital
capabilities, customer experience and have become a key
enabler of our T22 transformation strategy. You can read
more about the investment we made in networks and digital
capability in the Strategy and Performance section of our FY19
Annual Report.
FCF ROI adjustments
Consistent with prior years, when assessing the FCF ROI
performance the Board considered a range of potential impacts
to reported results. These included spectrum purchases and
other acquisitions and divestments, gains or losses due to the
timing of the nbn™ network rollout, other significant out of plan
business developments and material regulatory or legislative
changes. Through this assessment, the Board sought to ensure
there were no windfall gains or losses and that the outcome
reflected the Board’s assessment of management’s
performance in delivering against the FCF ROI targets.
The Board concluded a detailed assessment of performance
under the FY17 LTI plan taking into account both the cost
and benefits of the strategic investment program. The Board
concluded that management had delivered the program
outcomes above the expectations established in 2016 and
provided critical capabilities which have been crucial to the
delivery of the T22 program.
An adjustment to the FCF ROI target to reflect the delivery of
the strategic investment program combined with the other FCF
ROI adjustments would have resulted in a FCF ROI outcome
above threshold and a vesting outcome for the FCF ROI
component to plan participants. However, while recognising
management’s strong delivery of the strategic investment
program, the Board determined, in light of the shareholder
experience over the performance period, to apply its discretion
not to vest the FCF ROI component of the FY17 LTI plan.
This decision has resulted in no vesting for the FCF ROI
component of the FY17 LTI plan.
55
(c) Historical LTI plan performance relative to Telstra share price
The following chart compares Telstra’s LTI plan vesting results for FY14 – FY17 LTI plans (as a percentage of plan maximum
opportunity) to the Telstra share price during the same period:
)
$
(
e
c
i
r
P
e
r
a
h
S
a
r
t
s
l
e
T
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
53.0%
0.0%
0.0%
0.0%
30/06/2016
LTI Plan: FY14
30/06/2017
LTI Plan: FY15
30/06/2018
LTI Plan: FY16
30/06/2019
LTI Plan: FY17
LTI Plan Payout
Telstra Share Price
60%
50%
40%
30%
20%
10%
0%
m
u
m
i
x
a
m
f
o
I
T
L
%
Remuneration Report | Telstra Annual Report 2019
3.4 Detailed remuneration and interests in Telstra shares
The tables in this section disclose Senior Executive information and only represent their time as Senior Executives.
(a) Actual pay which crystallised in FY19 for the CEO
As a general principle, the Australian Accounting Standards require the value of share-based payments to be calculated at the
time of grant and expensed over the performance period and Restriction Period. This may not reflect what Senior Executives
actually received or became entitled to during the year.
The following table is a voluntary disclosure and is not prepared in accordance with Australian Accounting Standards, but is
designed to provide greater transparency for shareholders.
It details the actual pay the CEO received in each of the past four years. We consider this information to be helpful to assist
shareholders in understanding the actual pay received by the CEO from the various components of his remuneration from
FY16 to FY19.
As the CEO receives a significant portion of his variable remuneration in the form of equity, the value of actual pay received on his
variable components is tied directly to Telstra’s share price performance. We believe this demonstrates that our reward framework
is effective as variable compensation is aligned with our shareholders’ interests and demonstrates an appropriate level of pay for
performance over the period.
Due to the significant change in the structure of the organisation during FY19 and the consequential changes in Senior Executives
during the year, we have not included this information for Senior Executives as the majority of Senior Executives have been KMP
for less than a full year.
The statutory tables for Senior Executive remuneration can be found in Sections 3.4(b) to (e).
Name
Andrew Penn
Year
2019
20181
20171
20161
Fixed
Remuneration
($000)2
EVP/STI
payable as
cash
($000)3
2,390
2,374
2,325
2,325
1,870
1,103
1,486
1,200
Value of STI
& EVP
Restricted
Shares that
became
unrestricted
($000)4,5
738
263
349
438
Value of LTI
that became
unrestricted
($000)4,6
–
–
Total
($000)
% change
from prior
year
4,998
+33.6%
3,740
-28.1%
1,039
5,199
-23.1%
2,795
6,758
–
1. As reported in our Remuneration Reports for FY18 to FY16.
2. As disclosed in the FY18 Remuneration Report, the CEO’s change in Fixed Remuneration to $2.39 million took effect from 1 October 2017. The value reported for FY19
represents a full year of FR of $2.39 million.
3. For FY19 and FY18, the amounts relate to the cash component of the FY19 and FY18 EVP, respectfully. For FY17 and FY16, the amounts relate to the cash component of
the historical FY17 and FY16 STI plans. For FY19, the amount earned under the FY19 EVP will be payable in September 2019.
4. Equity in this table has been valued based on the Telstra closing share price on 30 June 2019.
5. Amount relates to the value of variable remuneration earned in prior financial years which was provided as Restricted Shares. For amounts reported for FY19,
the restriction period for these shares ended on 30 June 2019 and relates to Tranche 2 of the FY17 STI deferral and Tranche 1 of the FY18 EVP.
6. The outcome of the FY16 and FY15 LTI plans was that none of the Performance Rights vested as Restricted Shares, therefore no shares became unrestricted on
30 June 2019 or 30 June 2018, respectively. For the value reported in 2017 the amount relates to the FY14 LTI plan which was released from restriction on 30 June 2017.
For the value reported in 2016, the amount relates to the FY13 LTI plan which was released from restriction on 30 June 2016.
56
57
(b) Senior Executive remuneration (main table)
The table below has been prepared in accordance with the requirements of the Corporations Act and the relevant Australian
Accounting Standards. The figures provided under the equity and cash settled share-based payments columns are based on
accounting values and do not reflect actual payments received by Senior Executives in FY19.
Short term employee benefits
Post-
employment
benefits
Termination
benefits
Other long term benefits
Equity settled share-based
payments
Cash settled
share-based
payments
Accounting value (at risk) ($)8,9
Name and title
Year
Salary &
fees
($000)1
EVP (cash)
($000)2
Non-
monetary
benefits
($000)3
Other
($000)4
Superannuation
($000)5
Termination
benefits ($000)6
Accrued
leave
benefits
($000)7
Dividend Equivalent
Payment Accural
($000)
Restricted shares
($000)10
Performance
rights ($000)11
Cash rights
($000)12
Total
($000)13
2019
2,369
1,870
10
2018
2,354
1,103
7
46
(9)
–
27
–
(73)
220
5
4
–
5
–
2
5
637
–
563
–
155
340
655
206
138
–
–
559
563
–
–
7
6
3
–
–
(9)
3
22
–
–
917
582
–
10
10
–
(4)
38
–
222
519
103
461
–
1
2
4
9
–
(38)
(10)
(8)
–
766
550
164
134
716
385
123
258
Andrew Penn
CEO
Michael Ackland
GE C&SB
Alex Badenoch
GE T&P
Vicki Brady
Former GE C&SB
David Burns14
GE GBS
2019
2018
2019
2018
2019
2018
2019
2018
691
–
680
–
193
803
922
–
Robyn Denholm
CFO
2019
1,103
2018
1,080
Michael Ebeid AM
GE TE
Nikos Katinakis
GE N&IT
2019
2018
2019
2018
Brendon Riley
GE & CEO InfraCo
2019
1,379
2018
1,367
845
–
–
–
310
2019
2018
2019
2018
1,187
2019
2018
247
980
Christian Von
Reventlow
GE P&T
Warwick Bray
Former CFO
Will Irving
Former GE TW
Total current
and former KMP
58
2019
10,221
6,620
539
445
2018
7,771
3,564
37
297
21
20
16
–
15
–
4
16
19
–
20
20
15
–
15
–
21
20
14
–
5
25
5
20
170
121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,048
–
1,817
–
2,865
–
59
59
14
–
13
–
1
20
21
–
26
27
16
–
14
–
35
34
12
–
2
30
2
3
215
173
31
–
–
–
7
–
2
–
–
–
–
–
–
–
–
–
16
–
–
–
24
–
21
–
101
–
838
672
140
–
200
–
54
159
177
–
28
248
88
–
83
–
384
379
55
–
(86)
305
438
–
3
–
10
92
4
–
(62)
62
51
–
48
–
(69)
222
32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,119
4,564
1,931
–
1,513
–
348
1,655
2,142
–
1,113
2,005
1,603
–
1,774
–
2,689
2,652
1,595
–
(149)
(306)
753
1,872
320
35
283
1,933
2,061
98
(85)
235
(22)
–
2,171
863
3,004
–
1,991
1,616
24,703
1,014
–
15,038
Remuneration Report | Telstra Annual Report 2019
1.
2.
3.
4.
5.
6.
Includes salary and salary sacrifice benefits (excluding salary sacrifice
superannuation which is included under Superannuation).
For FY19, the amounts relate to performance in FY19 under the FY19 EVP.
As Robyn Denholm resigned from Telstra, she forfeited her FY19 EVP award.
For FY18, the amounts relate to cash amounts paid for performance in FY18
under the FY18 EVP. Those cash amounts were paid on 19 September 2018.
Includes the cost of personal home security services provided by Telstra,
the cost of personal use of Telstra products and services, executive protection
insurance and the provision of car parking. As David Burns was appointed as the
GE GBS whilst he was working on assignment in Singapore as the GMD Global
Services and International, his amount also includes the cost of repatriation
benefits provided to him and his family whilst working overseas on assignment
in accordance with Telstra’s relocation policy and benefits applicable to all
employees on assignment. For Nikos Katinakis and Christian Von Reventlow
this also includes the costs of their respective relocations to Australia upon
their appointments in accordance with Telstra’s relocation policy and benefits.
For Will Irving the amount includes the value of non-recourse loans under
TESOP 99 (which have not been expensed as they were issued prior to
7 November 2002 and were therefore included in the exemption permitted
under AASB 1 “First-time Adoption of Australian Equivalence to International
Financial Reporting Standards”). Where applicable, the value of non-monetary
benefits have been grossed up for FBT by the relevant FBT rates.
Includes the net movement of annual leave entitlement balance. For David
Burns, Nikos Katinakis and Christian Von Reventlow, the amount also includes
cash allowances provided as a part of their relocations to Australia in
accordance with Telstra’s relocation policy and benefits. For Vicki Brady,
the amount disclosed in FY18 also includes the amortised amount for a
sign-on bonus which was provided prior to being promoted to Group Executive
level (refer to the FY18 Remuneration Report).
Represents company contributions to superannuation as well as any additional
superannuation contributions made through salary sacrifice by Senior
Executives. Telstra does not provide any other post-employment benefits.
Termination benefits for Warwick Bray of $1,048,000 comprised of a $423,000
payment in lieu of notice and a $625,000 termination payment, both as per his
service agreement. Termination benefits for Will Irving of $1,817,000 comprised
of a $500,000 payment in lieu of notice and a $1,317,000 termination payment
both as per his service agreement. The termination benefits provided to
Warwick Bray and Will Irving were both paid in compliance with Part 2D.2,
Division 2 of the Corporations Act.
7. Includes the net movement of long service leave entitlement balances.
8.
The accounting values included in the table relate to the current year amortised
value of all Restricted Shares and Performance Rights that had not yet fully
vested at the commencement of the financial year. The value of each equity
instrument is calculated by applying valuation methodologies or is based on the
market value of Telstra shares at the grant date as described in note 5.2 to the
financial statements and is then amortised, based on the maximum achievable
allocation, over the relevant vesting period. This value includes an assumption
that the instruments will vest at the end of the vesting period unless forfeited
during the financial year.
As required under AASB 2, accounting expense that was previously recognised
as remuneration has been reversed in both FY19 and FY18 as the service
condition or the non-market performance condition (FCF ROI) was not met.
In relation to LTI Performance Rights, for FY19, this occurred for a portion of the
FY17 plan that failed to satisfy the FCF ROI performance target at 30 June 2019,
resulting in 100% of the Performance Rights allocated under this plan lapsing.
9.
10. This includes the amortised value of the Restricted Share component of the
FY19 and FY18 EVPs, as well as Restricted Shares allocated under the FY17 and
FY16 (only applicable to FY18 comparatives) STI plans.
11. This includes the amortised value of the Performance Right component of the
FY19 and FY18 EVPs, as well as Performance Rights allocated under FY17, FY16,
and FY15 (only applicable to FY18 comparatives) LTI plans. For Michael Ackland
only, the amount also includes the amortised value for Retention Rights that
were granted prior to being appointed as the Group Executive, C&SB.
12. As required under AASB 2, the accounting expense for the FY18 and FY19 EVP
Cash Rights awarded to Warwick Bray and Will Irving have been fully recognised
in this reporting period even though the EVP Cash Rights will not be eligible to
vest until the end of their respective restriction and performance periods.
The Cash Rights are subject to the same time conditions and performance
measures as those applying to FY19 Restricted Shares and Performance Rights
to be allocated to other Senior Executives (except that the Cash Rights granted
to Will Irving in lieu of the Performance Rights are not subject to an RTSR
performance condition due to constraints under the SSU).
13. The total for FY18 of $15.038 million in this table is different to the total for
FY18 in the FY18 Remuneration Report as it does not include the $0.314 million
for the former GE C&SB, Kevin Russell, reported in last year’s report.
14. David Burns received part of his Fixed Remuneration for FY19 in Singaporean
Dollars whilst he was working in Singapore on assignment. Where applicable,
the amounts have been converted using an exchange rate of A$1 = SGD$1.03,
which represents the average exchange rate from 30 July 2018 through to
14 January 2019 (being the period he was a Senior Executive and working
in Singapore).
59
(c) FY19 EVP Payments (cash and equity)
(d) Number and value of rights over equity instruments allocated, vested and exercised during FY19
Remuneration Report | Telstra Annual Report 2019
Breakdown of FY19 EVP Outcome1
Maximum
potential EVP
opportunity
($000)2
35% Cash
component
($000)
9,560
2,505
1,870
637
2,504
852
3,349
4,320
3,096
2,810
5,040
2,626
1,134
706
563
155
655
–
563
550
917
385
222
103
26%
Restricted
Shares
component
($000)3
39%
Restricted
Rights
component
($000)3
1,389
2,084
473
419
115
487
–
419
408
681
286
165
76
710
628
173
730
–
628
613
1,022
429
247
115
Total grant
of EVP ($000)
% of
maximum
opportunity
earned
% of
maximum
opportunity
forfeited
5,343
1,820
1,610
443
1,872
–
1,610
1,571
2,620
1,100
634
294
55.9%
72.7%
64.3%
52.0%
55.9%
0.0%
52.0%
55.9%
52.0%
41.9%
55.9%
41.6%
44.1%
27.3%
35.7%
48.0%
44.1%
100.0%
48.0%
44.1%
48.0%
58.1%
44.1%
58.4%
Name
Andrew Penn
Michael Ackland
Alex Badenoch
Vicki Brady
David Burns
Robyn Denholm
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
Christian Von Reventlow
Warwick Bray
Will Irving
1. The FY19 EVP outcomes were approved by the Board on 14 August 2019. These values represent the time served in FY19 as a Senior Executive. The cash component of the
FY19 EVP will be paid in September 2019.
2. Represents the maximum potential EVP opportunity specific to their time as Senior Executives for FY19, adjusted for any variation in Fixed Remuneration throughout FY19
that impacts the maximum potential EVP opportunity available. If the minimum threshold performance is not met, the minimum possible EVP payment is nil.
3. The Restricted Shares and Performance Rights awarded are expected to be allocated in November 2019 and are subject to Restriction Periods and performance periods
(as set out in section 3.1(c)) subject to the Senior Executive’s continued employment. As Will Irving and Warwick Bray ceased employment for a Permitted Reason whilst
being a participant in the FY19 EVP but prior to the Restricted Shares and Performance Rights being allocated, they will be allocated Cash Rights in lieu of those Restricted
Shares and Performance Rights. The Cash Rights are subject to the same time conditions and performance measures as those applying to the FY19 Restricted Shares and
Performance Rights to be allocated to other Senior Executives (except that the Cash Rights granted to Will Irving in lieu of the Performance Rights are not subject to an
RTSR performance condition due to constraints under the SSU).
Equity Movements
Equity
Outcomes
Total held
at 1 July
20181
Allocated
during
FY192
Value of
rights
allocated
($000)3
Rights
vested /
exercised
during
FY194
Value of
rights
vested/
exercised
($000)5
Other
changes
(lapsed
rights)6
Total held
at 30 June
20197
Achieved
perfor-mance
target during
FY198
Name
Andrew Penn
853,210
383,554
469,854
Michael Ackland
339,480
–
–
Alex Badenoch
142,202
115,548
143,857
Vicki Brady
David Burns
Robyn Denholm
Michael Ebeid AM
Nikos Katinakis
85,872
90,838
–
–
–
–
–
–
–
194,184
241,759
–
–
–
–
Brendon Riley
396,330
202,208
251,749
Christian Von Reventlow
–
Warwick Bray
Will Irving9
322,936
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(853,210)
383,554
–
–
339,480
–
(142,202)
115,548
–
–
(85,872)
(90,838)
–
(194,184)
–
–
–
–
–
–
–
–
–
–
(396,330)
202,208
–
–
–
(322,936)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
In the table above, vest has the meaning defined in the Australian Accounting Standards. A Performance Right vests when it has been performance tested and the
resultant share has been released from restriction and provided to the executive. Table 3.4(e) includes details of such shares provided during FY19.
All service and performance conditions for rights granted in previous financial years and that have vested or been exercised in FY19 are summarised in the Remuneration
Report for each relevant year of grant. Each equity instrument granted, vested or exercised in FY19 (where applicable) in the table above was issued by Telstra and
resulted or will result in one ordinary Telstra share being provided to the holder per equity instrument granted, vested or exercised. No amount is payable by the KMP.
Restricted Shares are excluded from this table, refer to tables 3.4(c) and (e) for further information.
1.
2.
3.
4.
5.
6.
7.
8.
The balance reflects the number of equity instruments held on 1 July 2018 or the date on which the executive commenced as a KMP. Refer to section 2.1 for further
information.
Performance Rights allocated during FY19 relate to the FY18 EVP which were allocated on 7 November 2018. The FY19 EVP Performance Rights will be allocated in
November 2019. Refer to section 3.1 for more information.
The fair value reflects the valuation approach required by AASB 2 using an option pricing model for Performance Rights granted. The fair value of the Performance
Rights allocated in FY19 under the FY18 EVP are based on the grant dates of 17 October 2017 for the CEO and 29 September 2017 for all other Senior Executives,
respectively. The fair value of Performance Rights granted under the FY18 EVP are $1.20 (Tranche 1) and $1.25 (Tranche 2) for the CEO, and $1.22 (Tranche 1) and
$1.27 (Tranche 2) for Senior Executives.
Relates to Performance Rights vesting as defined above. For FY19, there were no Performance Rights that vested. For more information on our Senior Executives’
interests in Telstra Shares refer to table 3.4(e).
The value of the Performance Rights vested/exercised reflects the market value at the date the instruments vested and were released from restriction.
Relates to Performance Rights that lapsed due to the specified performance measures or service conditions not being achieved. Performance Rights in this column
relate to the FY17 LTI plan that was performance tested at the end of FY19 and resulted in 100 per cent of the Performance Rights lapsing. For Robyn Denholm only,
the amount relates to the FY18 EVP Performance Rights that lapsed upon her ceasing employment.
The balance reflects the number of Performance Rights held at 30 June 2019 or the date on which the executive ceased to hold the KMP position. Refer to section
2.1 for further information.
Relates to instruments that have been performance tested for the performance period ending on 30 June 2019 and met the specified performance measures.
Performance Rights in this column relate to the FY17 LTI plan that was performance tested at the end of FY19 and resulted in 0% per cent of the Performance
Rights vesting into Restricted Shares.
9. In his capacity as GE Telstra Wholesale, Will Irving was not granted any LTI Performance Rights due to constraints under the SSU. Instead he participated in a LTI
Restricted Share plan (refer to table 3.4 (e) for his interests in Telstra shares). He will receive Cash Rights in lieu of Restricted Shares and Performance Rights under
the FY18 EVP and FY19 EVP as he ceased employment for a Permitted Reason prior to the respective equity allocations.
There are no Performance Rights or options held by any KMP’s related parties and no Performance Rights or options held indirectly or beneficially by our KMP.
As at 30 June 2019, there were no options or Performance Rights vested, or vested and exercisable or vested and unexercisable.
60
61
(e) Senior Executive interests in Telstra Shares
During FY19, our Senior Executives and their related parties held Telstra shares directly, indirectly or beneficially as follows:
Name
Total shares
held at
1 July 20181,2
Restricted
Shares
allocated3
Net shares
acquired or
disposed of
and other
changes4
Total shares
held at
30 June 20191,5
Number of
shares held
nominally at
30 June 20195,6
Number of
shares that
count towards
the Share
Ownership
Policy at
30 June 20197
Andrew Penn
1,429,346
255,702
(300,000)
1,385,048
378,319
1,385,048
Michael Ackland
Alex Badenoch
Vicki Brady
David Burns
Robyn Denholm
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
Christian Von
Reventlow
Warwick Bray
Will Irving
Total
26,807
29,422
35,660
176,206
54,535
–
–
30,068
77,032
–
51,560
129,456
–
–
–
–
–
–
(64,728)
–
–
56,875
106,454
35,660
227,766
119,263
–
–
56,875
91,743
17,376
67,906
102,952
–
–
51,875
106,454
35,660
227,766
95,350
–
–
963,670
134,806
(262,403)
836,073
836,073
834,368
–
318,212
1,041,265
4,075,123
–
–
–
678,624
–
–
(350,000)
(977,131)
–
–
–
318,212
691,265
30,193
143,518
3,776,616
1,724,955
318,212
691,265
–
1. Total shareholdings include shares held by our Senior Executives and their related parties. Unless related to our employee share plans, shares acquired or disposed
of by our Senior Executives and their related parties during FY19 were on an arm’s length basis at market price.
2. Reflects the number of shares held on 1 July 2018 or the date on which the executive commenced as a KMP. Refer to section 2.1 for further information.
3. Restricted Shares in this column were allocated on 7 November 2018 and relate to the FY18 EVP except for David Burns and Michael Ackland, who received restricted
shares as a part of their FY18 STI deferral plan which applied to their prior roles. The allocation of Restricted Shares under the FY19 EVP will be made after the
reporting date of 30 June 2019, therefore they have not been included in the table above.
4. For Andrew Penn, Brendon Riley and Will Irving, the movement relates to shares sold on market. For Robyn Denholm, the amount relates to shares she forfeited upon cessation.
5. The balance reflects the number of shares held at 30 June 2019 or the date on which the executive ceased to hold the KMP position. Refer to section 2.1 for further
information.
6. Nominally refers to shares held either indirectly or beneficially by Senior Executives and shares held by their related parties including certain Restricted Shares held
beneficially by Senior Executives. These shares are subject to a restriction period, such that the Senior Executive is restricted from dealing with the shares until the
Restriction Period ends. Refer to note 5.2 in the financial statements for further details.
7. As outlined in Section 2, Telstra’s Executive Share Ownership Policy requires the CEO and Group Executives to hold Telstra shares to the value of a specified percentage
of their Fixed Remuneration within five years of their first appointment to the relevant level. Any shares held directly or beneficially by Senior Executives are included in
calculating their shareholding for the purposes of this policy.
Remuneration Report | Telstra Annual Report 2019
4.0 Non-executive Director remuneration
(b) Changes to the Board and Committee composition
4.1 Remuneration structure
(a) Overview
Our non-executive Directors are remunerated with set fees
and do not receive any performance based pay. This enables
non-executive Directors to maintain independence and
impartiality when making decisions affecting the future
direction of the company.
There were no increases in Board or Committee fees during
the year. The Telstra Board and Committee fee structure
(inclusive of superannuation) during FY19 was:
FY19 Board fees
Chairman
Non-executive
Director
(annual base fee)
Board
$775,000
$235,000
FY19
Committee fees
Committee
Chairman
Committee
Member
Non-executive Director changes during the year
Niek Jan van Damme and Eelco Blok joined the Board effective
from 16 October 2018 and 15 February 2019, respectively.
Mr van Damme was elected as a Director at our 2018 AGM and
Mr Blok will stand for election by shareholders at our 2019 AGM
in October.
Russell Higgins, Steven Vamos and Trae Vassallo each retired
as a non-executive Director at the conclusion of our 2018 AGM
on 16 October 2018, and Jane Hemstritch resigned as a
non-executive Director on 15 January 2019.
Changes to Committee composition during FY19
During FY19 the following changes occurred:
• Craig Dunn was appointed as Chairman of the Audit and
Risk Committee effective 15 February 2019, succeeding
Dr Nora Scheinkestel (who continues to be a member of
that Committee).
• Roy Chestnutt was appointed to the Audit and Risk Committee
effective 18 October 2018.
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
$70,000
$56,000
–
$35,000
$28,000
• Niek Jan van Damme was appointed to the Remuneration
Committee effective 18 October 2018.
• Dr Nora Scheinkestel was appointed to the Remuneration
Committee, effective 1 February 2019.
–1
• All non-executive Directors became members of the
Nomination Committee, effective 18 October 2018.
• Upon commencement as a Director, Eelco Blok was
appointed to the Nomination Committee.
1. Reduced from $7,000 in October 2018 when all non-executive Directors became
members of the Nomination Committee.
The Chairman of the Board does not receive Committee fees
if he is a Member of a Board Committee. Our non-executive
Directors are remunerated in accordance with Telstra’s
Constitution, which provides for an aggregate fee pool that is
set, and varied, only by approval of a resolution of shareholders
at the AGM. The current annual fee pool of $3.5 million was
approved by shareholders at Telstra’s 2012 AGM. The total of
Board and Committee fees, including superannuation, paid to
non-executive Directors in FY19 remained within the approved
fee pool.
Superannuation contributions are included within each
non-executive Director’s Total Remuneration, in accordance
with the ASX Listing Rules and Telstra policy. Non-executive
Directors may choose to increase the proportion of their
remuneration taken as superannuation, subject to legislative
requirements.
Telstra does not provide retirement benefits for non-executive
Directors other than the superannuation contributions noted
above.
Sections 2.2(f) and (g) of this report provide details of the share
ownership policy and Telstra securities trading restrictions that
apply to our non-executive Directors. Table 4.2 provides full
details of non-executive Director remuneration for FY19.
62
63
4.2 Detailed remuneration and interests in Telstra shares
(a) Non-executive Director Remuneration
(b) Non-executive Directors’ interests in Telstra Shares
During FY19, our non-executive Directors and their related parties held Telstra shares directly, indirectly or beneficially as follows:
Remuneration Report | Telstra Annual Report 2019
Name and title
John P Mullen
Chairman
Eelco Blok3,4
Director
Roy H Chestnutt4
Director
Craig W Dunn
Director
Peter R Hearl
Director
Nora L Scheinkestel
Director
Margaret L Seale
Director
Niek Jan van Damme3,4
Director
Jane S Hemstritch5
Director
Russell Higgins AO5
Director
Steven M Vamos5
Director
Trae A N Vassallo4,5
Director
Total
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Short term employee benefits
Post–employment
benefits
Salary and fees
($000)1
Non-monetary
benefits ($000)2
Superannuation
($000)
Total ($000)
754
755
86
–
255
32
263
250
273
278
283
285
249
250
183
–
132
243
82
278
74
250
68
231
2,702
2,852
4
6
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
2
–
1
–
–
–
–
4
11
21
20
2
–
5
1
21
20
21
20
21
20
21
20
3
–
11
20
6
20
6
20
1
4
779
781
88
–
260
33
284
270
294
298
304
307
270
270
186
–
143
265
88
299
80
270
69
235
139
165
2,845
3,028
1. Includes fees for membership on Board Committees.
2. Includes the provision of car parking as well as the value of Telstra products and services (such as Foxtel, new technology) provided to Directors without charge to
allow them to familiarise themselves with Telstra’s products and services and with recent technological developments. The value of non-monetary benefits have been
grossed up for FBT by the relevant FBT rates.
3. Niek Jan van Damme and Eelco Blok qualify as KMP from 16 October 2018 and 15 February 2019, respectively, when they were appointed as non-executive Directors
of the company.
4. As Eelco Blok, Niek Jan van Damme, Roy Chestnutt and Trae Vassallo are overseas residents, their superannuation contributions for FY19 are less than the
contributions for Australian resident non-executive Directors.
5. Jane Hemstritch ceased as KMP on 15 January 2019. Russell Higgins, Steven Vamos and Trae Vassallo ceased as KMP on 16 October 2018.
Name
John P Mullen
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
Jane Hemstritch
Russell A Higgins AO
Steven M Vamos
Trae A N Vassallo
Total
Total shares held at
1 July 20181,2
Net shares acquired
or disposed of and
other changes1
Total shares held at
30 June 20191,4
Shares held
nominally at
30 June 20193,4
101,159
–
–
73,173
70,000
115,618
310,540
–
91,000
103,217
40,000
15,793
920,500
–
75,000
43,000
–
–
14,860
–
–
–
3,552
–
–
101,159
75,000
43,000
73,173
70,000
130,478
310,540
–
91,000
106,769
40,000
15,793
136,412
1,056,912
75,000
–
43,000
72,473
–
114,168
310,540
–
91,000
106,769
40,000
15,793
868,743
1. Total shareholdings include shares held by our non-executive Directors and their related parties. Shares acquired or disposed of by our non-executive Directors
and their related parties during FY19 were on an arm’s length basis at market price.
2. For Eelco Blok and Niek Jan van Damme, the balance as at 1 July 2018 represents shares held as at the date on which they became KMP.
3. Nominally refers to shares held either indirectly or beneficially by non-executive Directors including those shares held by their related parties.
4. For Jane Hemstritch, Russell Higgins, Steven Vamos and Trae Vassallo the balance as at 30 June 2019 represents shares held as at the date on which they
ceased being KMP.
5.0 Looking forward to FY20
5.1 Enhancements to the FY20 EVP
As outlined at the start of this report, following a comprehensive review of our Senior Executive remuneration framework the
Board has further enhanced the FY20 EVP through the following changes:
Summary of key changes
Feature
FY19 EVP
FY20 EVP
Weighting of financial
performance measures
within the primary
performance measure
Incentive Opportunity
EVP Composition
• Financial – 50% of total weighting
• Customer, strategic and transformation
• Financial – 60% of total weighting
• Customer, strategic and transformation
performance measures – 50% of total weighting
performance measures – 40% of total weighting
• CEO: Target: 200%
• CEO: Maximum 400%
• GEs: Target 180%
• GEs: Maximum 360%
• 35% Cash
• 26% Restricted Shares
• 39% Performance Rights
• CEO: Target: 200%
• CEO: Maximum 300%
• GEs: Target 180%
• GEs: Maximum 300%
• 25% Cash
• 35% Restricted Shares
• 40% Performance Rights
Equity Vesting Period
• Restricted Shares:
• Restricted Shares:
(subject to an RTSR performance condition)
(subject to an RTSR performance condition)
2 years from end of the initial performance period
• Performance Rights:
5 Years from start of the initial performance period
4 equal tranches with 25% eligible to vest each
year for the four years following the end of the
initial performance period
• Performance Rights:
No change – 5 years from start of the initial
performance period
RTSR vesting
• Cliff vesting – 100% of Performance Rights
• Sliding RTSR vesting scale – 50% of Performance
vest at 50th percentile
Rights vest at 50th percentile; straight line vesting
to the 75th percentile where 100% vest.
Performance Period
No change – 1 year initial performance period and a 5 year RTSR performance period
64
65
The following section outlines in more detail the changes that apply to the FY20 EVP and the rationale for making those changes.
Increased weighting of financial performance measures
Financial performance measures now 60% of total weighting
Financial
Customer, Strategic
and Transformation
50%
60%
50%
40%
FY19
FY20
FY19
FY20
• The weighting of financial performance measures within the
primary performance measures of the FY20 EVP has been
increased to 60% (previously 50%) with the remaining 40%
covering customer, strategic and transformation
performance measures.
• In the interest of generating sustainable, long-term
shareholder value, the re-weighting of measures ensures a
greater dependency on financial outcomes whilst ensuring
our Senior Executives continue to focus on the delivery of
our T22 strategic priorities, improving customer experiences
and the engagement of our people.
Reduced Maximum Opportunity to 300%
Reduced the maximum opportunity for the CEO and Group Executives down to 300% of Fixed Remuneration
CEO
GEs
100%
Gateway
100%
Gateway
200%
Target
180%
Target
300%
400%
FY20 Max
FY19 Max
300%
360%
FY20 Max
FY19 Max
• We have reduced the maximum opportunity to recognise broader market and community expectations and further align with
ASX20 market practice.
• The reduction in the maximum opportunity as a percentage of FR equates to:
−100 percentage points (or a 25% reduction) for the CEO; and
−60 percentage points (or a 16.7% reduction) for the Group Executives.
• As each performance measure of the EVP operates independently and the performance range of each measure is calculated
over a defined threshold, target and maximum, the reduction in the maximum opportunity reduces the payout for each
performance measure between target and maximum.
Therefore, this change represents more than just being a cap on maximum payouts, as the range between target and maximum
for each measure has been compressed. For the CEO, the EVP award is reduced by $23,900 for each 1% performance interval
from target to maximum, with a total reduction of $2.39 million at maximum performance.
EVP Performance and Payout Range (%) for the CEO
Performance Range
Threshold
Target
FY19 EVP % of FR
FY20 EVP % of FR
Change
100%
100%
0.0%
200%
200%
0.0%
250%
225%
300%
250%
350%
275%
Maximum
400%
300%
-10.0%
-16.7%
-21.4%
-25.0%
EVP Performance and Payout Range ($000) for the CEO
Performance Range
Threshold
Target
FY19 EVP ($000)
FY20 EVP ($000)
Change
$2,390
$2,390
+$0
$4,780
$4,780
+$0
$5,975
$5,378
-$598
$7,170
$5,975
$8,365
$6,573
Maximum
$9,560
$7,170
-$1,195
-$1,793
-$2,390
•
Reducing the maximum opportunity results in a significant reduction in the total reward opportunity for the CEO and Group
Executives and moderates the overall quantum of variable pay.
Remuneration Report | Telstra Annual Report 2019
Reduced the cash component down and increased the equity component to 75% of the total award
Increased the proportion of EVP awarded in equity to 75% (with 35% in Restricted Shares and 40% in Performance
Rights subject to RTSR)
Cash
Restricted Shares
Performance Rights
35%
25%
26%
35%
39%
40%
FY19
FY20
FY19
FY20
FY19
FY20
• We have reduced the proportion of the award paid in cash to
recognise broader market and community expectations and
further align with ASX20 market practice.
• Increased equity holding creates stronger alignment to the
longer term performance of Telstra.
• Executives will now have more value at risk with return and
payouts dependent upon shareholder returns and service
conditions.
Revised the Restriction Period for the Restricted Shares
In addition to increasing the weighting towards equity, the Restricted Share component will now be provided in four tranches
Cash
Initial
Performance
Period
1 Jul 2019 to
30 Jun 2020
Restricted Shares
Performance Rights
RTSR Performance Period (for Performance Rights only)
1 Jul 2019 to 30 Jun 2024
FY20
FY21
FY22
FY23
FY24
• EVP participants will receive 35% of their EVP outcome
in the form of Restricted Shares, delivered in 4 tranches.
• 25% of the Restricted Shares will be eligible to vest each
year for the four years following the end of the initial
performance period.
• The new structure increases equity participation enhancing
focus on long-term, sustainable performance.
RTSR vesting schedule
We have introduced a sliding RTSR vesting scale where 50% of the Performance Rights vest if Telstra’s RTSR ranks at the 50th
percentile of a comparator group comprising the ASX 100 (excluding resource companies), with up to 100% of the Performance
Rights vesting if Telstra’s RTSR ranks at the 75th percentile of the comparator group. No Performance Rights vest if Telstra’s
RTSR ranks below the 50th percentile when compared with the comparator group. This makes this performance condition
considerably more challenging.
Enhanced our claw-back provisions of equity terms
Additional claw-back provisions have been incorporated into the FY19 and FY20 EVP equity terms to drive greater
accountability and focus on sustainable performance
The claw-back provisions in our EVP equity terms have been enhanced to reflect community expectations and high standards
of governance. Both our FY19 and FY20 EVP terms give the Board absolute discretion to lapse or forfeit unvested equity if it
determines that the equity constitutes an inappropriate benefit. We have also included two new Claw-back Events in both the
FY19 and FY20 EVP equity terms which enable the Board to lapse or forfeit unvested equity in the following circumstances:
• the Senior Executive engages in conduct that may negatively impact on Telstra’s standing, reputation or relationship with
its key regulators.
• the Senior Executive fails to fulfil their responsibilities under Telstra’s risk management framework which results in a material
breach of Telstra’s risk management requirements.
Both our FY19 and FY20 EVP equity terms also contain the following Claw-back Events which enable the Board to lapse or forfeit
unvested equity in the following circumstances:
• the Senior Executive engages in fraud, dishonesty, gross misconduct, behaviour that may negatively impact on Telstra’s long
term financial strength or that brings Telstra into disrepute.
• the Senior Executive materially breaches a representation, warranty, undertaking or any other obligation to Telstra.
• the financial results that led to the Senior Executive’s equity being granted are subsequently shown to be materially misstated.
• the Senior Executive causes (through an act or omission) a significant deterioration in the financial performance of Telstra.
• the Senior Executive ceases employment for the Permitted Reason of retirement and subsequently re-enters the workforce.
• the equity is allocated in error.
To further enhance our claw-back framework, during FY19 the Board also adopted a Claw-back Policy for unvested securities
which sets out the process that will be followed to put the Board in a position to determine whether a Claw-back Event has
occurred and whether to exercise its discretion to lapse or forfeit unvested Performance Rights and Restricted Shares granted
under the EVP.
These claw-back terms and the Claw-back Policy apply equally to unvested Cash Rights.
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67
The overall reward opportunity and the time-frame of the FY20 EVP will follow the timeline below:
All of the following measures have been selected on the basis that they are directly linked to our T22 strategy as described below.
Remuneration Report | Telstra Annual Report 2019
Performance
Measure
Metric
Weighting
FY19
Baseline^
FY20*
Gateway
Target
Max
Rationale for why chosen
FY20
FY21
FY22
FY23
FY24
FY25
Jul
Jun
Aug
Oct
Nov
Jun
Jul
Jun
Jul
Jun
Jul
Jun
Jul
Underlying
EBITDA
EVP equity allocated (75%)
Restricted Shares (2nd tranche)
End of restriction 30 June 2022
Restricted Shares (4th tranche)
End of restriction 30 June 2024
EVP Cash Paid (25%)
Restricted Shares (1st tranche)
End of restriction 30 June 2021
Restricted Shares (3rd tranche)
End of restriction 30 June 2023
2020
AGM
FY20
Results
Release
Restricted
Shares - T1
Restricted Shares
T2
Restricted Shares
T3
Restricted Shares
T4
Performance Rights
FY20 EVP Performance Rights RSTR Performance Period
1 July 2019 to 30 June 2024
Performance Rights
Final RTSR Test
30 June 2024
FY20 EVP Initial
Performance
Period
1 July 2019 to
30 June 2020
5.2 FY20 EVP Performance Measures and Targets
We recognise the importance of increased transparency for our shareholders. It is our intention to continue to provide meaningful
information to enable shareholders to assess the appropriateness of our targets. For FY20, our financial targets again reflect the
negative impacts of the nbn™ network rollout and the positive benefits delivered under our T22 strategy. It is the Board’s view
that in this transformative environment such transparency enables an informed view of executive performance and the
appropriateness of reward outcomes.
To reflect this, the Board is endeavouring to provide market leading levels of transparency around the targets. We are providing
this detail not just retrospectively (for FY19), but also prospectively for FY20, providing shareholders with a high level of
transparency over the company’s remuneration framework and outcomes. The Board considers this an imperative as our operating
environment requires careful shareholder consideration of the need to appropriately recognise and reward strong management
performance for the value created for the company and its shareholders.
The table below outlines the performance measures and targets that will apply to the FY20 EVP. These performance measures and
targets have been selected by the Board to ensure that the CEO and Group Executives continue to deliver against our T22 strategy,
and that financial rewards are linked directly to Senior Executive contributions, company performance and long term shareholder
value creation.
In setting annual performance measures for FY20, the Board sought to ensure the targets were robust and sufficiently demanding,
taking into account the key deliverables and milestones outlined in our T22 strategy, planned financial outcomes contained within
our 2020 Corporate Plan and guidance (as announced on 15 August 2019). The financial targets were set to reflect the significant
and progressive negative impact of the roll out of the nbn network and the intense competition in the market impacting on average
revenues per user (ARPU).
The financial targets that apply to the FY20 EVP do not constitute market guidance. Subsequent adjustments to guidance
throughout the year (for example relating to the nbn network rollout or unplanned one-off events) and their impact on EVP
outcomes will be considered at the end of the year in accordance with established principles to ensure that outcomes
appropriately reflect the performance of Senior Executives. Any adjustments that the Board makes will be fully disclosed to
shareholders in next year’s Remuneration Report. The Board also has the ability to amend the performance measures themselves
if it considers it necessary to ensure EVP outcomes are appropriate in the context of Telstra’s performance, customer experience
and shareholder expectations.
Telstra External
Income (excluding
finance income)
Total Income
15.0%
$27,807m
Above
bottom
end of
Market
Guidance*
Approx.
Midpoint
of Market
Guidance*
At or
above
top end
of Market
Guidance*
Underlying EBITDA
is Earnings Before
Interest, Tax,
Depreciation
& Amortisation,
excludes net
one-off nbn DA
receipts less nbn
net C2C, guidance
adjustments
and includes
amortisation of
mobile operating
lease costs
Free Cashflow
excluding spectrum
plus operating
lease payments
(reported in
financing cash flow
under AASB 16)
15.0%
$8,203m
Above
bottom
end of
Market
Guidance*
Approx.
Midpoint
of Market
Guidance*
At or
above
top end
of Market
Guidance*
15.0%
$3,068m
Above
bottom
end of
Market
Guidance*
Approx.
Midpoint
of Market
Guidance*
At or
above
top end
of Market
Guidance*
l
a
i
c
n
a
n
F
i
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
6
Free Cash Flow
(FCF)
• Key indicator of financial
performance.
• Ensures continued focus
on customer retention
and growth.
• Aligns to Pillar 1 of the
T22 strategy.
• Key indicator of financial
performance.
• Ensures appropriate focus
on profit and cost to deliver.
• A strong indicator of
underlying company
profitability.
• Aligns to Pillar 4 of our
T22 strategy.
• Key indicator of financial
performance.
• Appropriate for a capital
intensive business critical
in managing the company’s
ability to pay a dividend and
maintain balance sheet
strength.
• Aligns to Pillar 4 of our
T22 strategy.
• Active reduction of our costs
will be key to competing and
delivering strong financial
performance in an
increasingly competitive
market.
Reduction in
operating non-
Direct Variable Cost
(DVC) expenses
Net Opex
Reduction
15.0%
$456m
$625m
$660m
$760m
• Delivering significant
absolute cost reduction
aligns with intent to drive
productivity and reduce
costs.
• Aligns to Pillar 4 of our
T22 strategy.
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69
Performance
Measure
Metric
Weighting
FY19
Baseline^
FY20*
Gateway
Target
Max
Rationale for why chosen
Episode NPS
Improvement in
our Episode NPS
10%
+25
+27
+29
+32
TE Number of Active
Plans, the target
provides progress
toward
our T22 reduction
of 50% by FY21
5%
517
461
441
400
Services on
in-market plans
5%
0.4m
2.5m
3m
4m
n
o
i
t
a
m
r
o
f
s
n
a
r
T
&
r
e
m
o
t
s
u
C
,
c
i
g
e
t
a
r
t
S
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
4
Product
Portfolio
Simplification
Digital
Engagement
s
n
a
l
P
E
T
n
i
n
o
s
e
c
i
v
r
e
S
s
n
a
l
p
t
e
k
r
a
m
y
r
e
v
i
l
e
D
l
a
t
i
g
D
i
c
e
n
n
o
C
a
r
t
s
l
e
T
Requires the
build of digital
first capability.
The 24% target
is the average
of Q4 FY20 and not
an average measure
for the year
t Active Telstra
Enterprise
customers on
Telstra Connect
in the last 3
months of FY20
5%
1,269
3,500
4,000
5,000
People Capability &
Engagement
Increase employee
engagement
outcome by 9
points (from
FY19 baseline)
10%
67
72
76
78
5%
16.8%
22.5%
24.0%
29.0%
experience.
• Improves customer
• A key driver of business
success and our ability
to differentiate in an
increasingly competitive
market.
• Key to generating
increased share of wallet
from existing customers,
maintaining a price
premium, and attracting
new customers.
• Aligns to Pillar 1 of our
T22 Strategy.
• See further information
below.
• Will increase the
simplicity, transparency
and satisfaction that our
customers experience
and allow the delivery
of material cost
reductions.
• Aligns to Pillar 1 of our
T22 strategy.
• See further information
below.
• Supports our cost
reduction focus.
• Enables delivery of
strong financial results.
• Aligns to Pillar 1 of our
T22 strategy.
• See information below.
• Focusses on our
employee engagement.
• Supports our ability to
have both the key
leadership and technical
talent required to deliver
on our ambitious
strategy.
• Aligns to Pillar 3 of our
T22 strategy.
Remuneration Report | Telstra Annual Report 2019
Relevance of non-financial measures
A key theme from the feedback we received from shareholder and shareholder advisory companies was the importance and use
of ‘Non-Financial’ performance measures within the EVP. The Board believes that the strategic, customer and transformation
measures directly demonstrate the delivery of critical components of the T22 strategy and are fundamental key drivers of long
term value creation.
Our T22 strategy is ambitious, requiring considerable skill, leadership and determination to execute as it spans dramatic
simplification of the entire Telstra business, customer proposition, how we connect with our customers, together with extensive
changes to our organisational structure and ways of working. The FY20 targets are robust, challenging the executive team to
execute across all functions within our business model.
To assist shareholders’ understanding of these measures and their relevance to Telstra’s performance, further information on
each measure is provided below.
Episode NPS
We have maintained Episode NPS in our EVP measures as a continuous focus on improving customer experience
and differentiating our products and services in an increasingly competitive market will be a key driver of long term
business success. It is in our shareholder interests to have the executive team specifically focused on improving the
key interactions that are most important to this customer experience. These interactions are those that are most
likely to drive both customer attraction and retention.
Episode NPS is the customer metric most directly aligned to the other key T22 initiatives that are improving
customer experience and ease of doing business with Telstra, including the simplification of our product portfolio
and improving our digital delivery.
In addition to increasing the value and innovation that our customers receive in our products, Episode NPS also
underpins companywide improvement programs focused on improving our operational excellence by identifying
and eliminating the causes of unnecessary customer effort, particularly within the Sales and Activation and Assurance
episodes for customers connecting to the nbn™ network. Improvement programs include the launch of our new plans
and removing traditional pain-points such as excess data charges in Australia, and continuously improving the ways in
which customers can self-manage their services through My Telstra digital tool for customers. In addition, when
customers do contact our contact centres, we aim to ensure that customer issues are resolved within the first contact.
s
n
a
l
P
E
T
In FY19 Telstra delivered against the target for simplification of our product portfolio for our Enterprise customers.
We will continue to focus on product simplification in FY20 in line with our commitment to rationalise 50% of
Enterprise products by FY21. For our Enterprise customers the simplification strategy is a complex and often
an individual customer transformation requiring consultation to ensure a good customer experience and retention
of revenue.
Product
Portfolio
Simplification
n
i
n
o
s
e
c
i
v
r
e
S
n
a
l
p
t
e
k
r
a
m
l
a
t
i
g
D
i
y
r
e
v
i
l
e
D
a
r
t
s
l
e
T
t
c
e
n
n
o
C
Digital
Engagement
s In FY19 Telstra delivered against the target for simplification of our product portfolio for our Consumer & Small
Business customers. Along with maintaining our committed 20 simplified connectivity plans, in FY20 the priority
for Consumer & Small Business will shift to moving our customers to these new radically simplified plan constructs.
This supports delivery of improved customer experiences, offers our customers simplicity and ease of dealing with
Telstra, and supports readiness for future delivery of digitised experiences for customers.
In FY19 Telstra delivered against our target to increase digital sales interactions. We will continue to increase the
engagement of our mass market customers through digital sales channels, targeting nearly 1 in 4 sales to occur
through digital channels in FY20. Key to achieving this target is maximising the value and ease for our customers
in using our digital channels. This strategy is intended to provide customer choice, reduce our servicing cost and
improve profit margins.
Delivering self-servicing solutions for our Enterprise customers is key to improving customer experience and
removing cost by reducing servicing calls. By the end of FY20 we are targeting 4,000 enterprise customers to actively
use Telstra Connect. Key to achieving this target will be increasing adoption and developing new functionality for this
customer base moving away from more traditional service channels. This strategy is intended to enhance our
customer connectivity and experience, reduce our servicing cost and improve profit margins.
^ For FY20 targets, the baseline refers to FY19 results calculated on the same basis as the metric definition and includes restatement for AASB 16: Leases where applicable.
* Market Guidance means guidance for FY20 as set out in Telstra’s ASX announcement dated 15 August 2019.
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71
6.0 Glossary
Cash Rights
Claw-back Event (malus)
EBITDA
EVP
FCF
FCF for LTI
FCF ROI
Rights granted to a Senior Executive who ceases employment for a Permitted Reason before the
Restricted Shares and Performance Rights are granted in respect of the EVP in lieu of those
Restricted Shares and Performance Rights. The Cash Rights are subject to the same time
conditions and performance measures as those applying to those Restricted Shares and
Performance Rights. On vesting, a Cash Right will entitle the Senior Executive to a cash payment
equivalent to the value of a share at the end of the applicable Restriction Period or performance
period and dividends paid between the date the Cash Right is allocated and the end of the
applicable Restriction Period or performance period.
Includes fraud, gross misconduct or material breach of obligations by the Senior Executive or
behaviour that brings Telstra into disrepute or may negatively impact Telstra’s long term financial
strength. It also includes where the Senior Executive causes a significant deterioration in Telstra’s
financial performance or negatively impacts Telstra’s standing with its regulators, where the
financial results that led to the Performance Rights or Restricted Shares being granted are
subsequently shown to be materially misstated, where the Senior Executive fails to fulfil his or
her responsibilities under Telstra’s risk management framework resulting in a material breach of
Telstra’s risk management framework, or where the Board determines that the Performance
Rights or Restricted Shares are an inappropriate benefit.
Earnings Before Interest, Tax, Depreciation and Amortisation.
Executive Variable Remuneration Plan.
Free Cashflow.
Annual FCF from operating and investing activities adjusted for interest paid and non-recurring
factors such as spectrum licence purchases, acquisitions (i.e. the removal of trading cashflows
and purchase prices of those entities acquired), divestments (i.e. reinstate forecasted trading
cashflows and sale proceeds for those entities disposed) and material regulatory adjustments
that impact on pricing that was assumed when setting plan targets.
The average of the annual FCF for LTI over the performance period expressed as a percentage of the
average investment over the performance period. Average investment over the period is the average
of the sum of net debt and shareholders’ funds over the entire three year performance period.
Fixed Remuneration or FR
Base salary plus company and private salary sacrificed superannuation contributions.
FY
GE
KMP
LTI
NBN Transaction
Financial year.
Group Executive.
Key Management Personnel.
Long Term Incentive.
Agreements with nbn co and the Government in relation to Telstra’s participation in the rollout of
the nbn™ network. This includes the entire Definitive Agreement receipts, any impacts the nbn™
has on our existing products, costs associated with connecting customers to the nbn™ network
and any tax, interest or debt impacts of nbn™ related changes in profit or cash. Any nbn™ related
commercial works are excluded from this definition.
NPS
Net Promoter Score is a non financial performance that we use to measure customer experience
at Telstra.
The Episode NPS performance measure is based on responses to internal surveys following
actual service experiences customers had with Telstra.
The overall Episode NPS result for Telstra is a weighted average calculation of the survey results
from Telstra business segments – Consumer & Small Business contribute collectively at 65% and
Telstra Enterprise at 35%.
Remuneration Report | Telstra Annual Report 2019
Performance Right
Permitted Reason
Related parties
A right to a share or a cash amount equivalent to the value of a share at the end of a performance
period, at Telstra’s discretion and subject to the satisfaction of certain performance measures
and service conditions.
Permitted Reason under the EVP, means death, total and permanent disablement, certain medical
conditions, company initiated separation for a reason unrelated to performance or conduct,
redundancy or retirement. Permitted Reason under the EVP Performance Rights and Restricted
Share terms also includes mutual separation.
Related parties of a person means:
• a close member of the person’s family; and/or
• an entity over which the person or close family member has, directly or indirectly, control,
joint control or significant influence.
Restricted Share
A Telstra share that is subject to a Restriction Period.
Restriction Period
RTSR
A period during which a Telstra share is subject to a service condition and cannot be traded.
Restricted Shares are transferred to a Senior Executive on the first day after the end of the
Restriction Period that Senior Executives are able to deal in shares under Telstra’s Securities
Trading Policy.
Relative Total Shareholder Return (RTSR) measures the performance of an ordinary Telstra share
(including the value of any cash dividend and other shareholder benefits paid during the period)
relative to the performance of ordinary securities issued by the other companies in a comparator
group over the same period.
Senior Executive
Refers to the CEO and those executives who are KMP with authority and responsibility for
planning, directing and controlling the activities of the company and Group, directly or indirectly.
Service Agreement
A Senior Executive's contract of employment.
SSU
STI
Structural Separation Undertaking.
Short Term Incentive.
Total Income
Total Telstra income.
Total Remuneration
Total Return
Underlying EBITDA
The sum of all the fixed and variable components of remuneration as detailed in section
3.4 for Senior Executives, and all the remuneration components as detailed in section 4.2
for non-executive Directors.
The total shareholder return calculated by incorporating share price change and any relevant
dividends for the specified period (assumed to be reinvested). The Total Return is calculated by
Thomson Reuters Eikon, an external third party.
Underlying EBITDA is Earnings Before Interest, Tax, Depreciation & Amortisation, excludes net
one-off nbn DA receipts less nbn net C2C, guidance adjustments and includes amortisation of
mobile operating lease cost.
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SignOffs.fm Page 169 Tuesday, August 27, 2019 8:28 AM
Directors’
Report
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Shareholders of Telstra Corporation Limited
Report on the Audit of the Financial Report
Opinion
Financial
Report
We have audited the financial report of Telstra Corporation Limited (the Company) and its subsidiaries (collectively the Group), which
comprises the consolidated statement of financial position as at 30 June 2019, the consolidated income statement, consolidated statement
of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then
ended, notes to the financial statements, including a summary of significant accounting policies and the Directors’ Declaration.
the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial
In our opinion:
Auditor’s Independence Declaration to the
Directors of Telstra Corporation Limited
As lead auditor for the audit of the financial report of
Telstra Corporation Limited for the financial year ended
performance for the year ended on that date; and
30 June 2019, I declare to the best of my knowledge and
belief, there have been:
b. Complying with Australian Accounting Standards and the Corporations Regulations 2001.
(a) no contraventions of the auditor independence requirements
(b) no contraventions of any applicable code of professional
Basis for Opinion
of the Corporations Act 2001 in relation to the audit; and
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with
conduct in relation to the audit.
the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial
report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
This declaration is in respect of Telstra Corporation Limited
and the entities it controlled during the financial year.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the
current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon,
but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
Ernst & Young
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report,
including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment
of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the accompanying financial report.
Rounding
The Telstra Entity is a company of the kind referred to in
the Australian Securities and Investments Commission
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016 and issued
pursuant to section 341(1) of the Corporations Act 2001.
Except where otherwise indicated, the amounts in this
Directors’ Report and the accompanying financial report
have been rounded to the nearest million dollars ($m) and
amounts in the Remuneration Report have been rounded
to the nearest thousand dollars ($000).
This report is made on 15 August 2019 in accordance with
a resolution of the Directors.
John P Mullen
Chairman
15 August 2019
Andrew R Penn
Chief Executive Officer and Managing Director
15 August 2019
Key audit matter
Revenue recognition
Australian Accounting Standard AASB 15 Revenue from Contracts
with Customers (AASB 15) applied to the Group from 1 July 2018.
Upon adoption of AASB 15, there are five areas where the Group
exercises significant judgment relating to revenue recognition:
Andrew Price
Partner
15 August 2019
• accounting for new products and plans including multiple
element arrangements;
• accounting for large Network Application Services (NAS)
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional
Standards Legislation
contracts;
• accounting for NBN revenue under the revised Definitive
Agreements (DAs) with nbn co and the Commonwealth
Government;
• determination of standalone selling prices for products sold in
multiple element arrangements; and
• assessment of significant financing components.
Disclosures relating to revenue recognition can be found at Notes 2.1
and 2.2 and disclosure of the impact of the adoption of the new
revenue accounting standard can be found within Notes 1.5 and 7.1.
The accuracy and completeness of amounts recorded as revenue is
an inherent industry risk due to the complexity of billing systems, the
complexity of products and services, and the combination of
products sold and price changes in the year.
How our audit addressed the matter
We evaluated the effectiveness of key controls over the capture and
measurement of revenue transactions across all material revenue
streams, including evaluating the relevant IT systems and new
process and controls implemented during the current year for the
appropriate recognition of revenue under AASB 15.
We examined the process and controls over the capture and
assessment of the timing of revenue recognised for new products
and plans, as well as performed testing of a sample of new plans to
supporting evidence.
For all key revenue streams, we obtained supporting evidence such
as customer contracts, statements of work, invoices and service
detail records to test the occurrence and measurement for a sample
of revenue transactions.
For the major NAS contracts, we focused our work on those which we
regarded as higher risk because of the nature of the contract, its
stage of delivery or the quantum of the related assets and those
which were significant by size.
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75
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
169
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Statements.fm Page 75 Tuesday, August 27, 2019 8:23 AM
Telstra Corporation Limited
and controlled entities
Australian Business Number (ABN): 33 051 775 556
Financial report: introduction and contents
As at 30 June 2019
About this report
This is the financial report for Telstra Corporation Limited (referred to
as the Company or Telstra Entity) and its controlled entities (together
referred to as we, us, our, Telstra, the Telstra Group or the Group) for
the year ended 30 June 2019.
Telstra Corporation Limited is a ‘for profit’ company limited by shares
incorporated in Australia whose shares are publicly traded on the
Australian Securities Exchange (ASX).
This financial report was authorised for issue in accordance with a
resolution of the Telstra Board of Directors on 15 August 2019. The
Directors have the power to amend and reissue the financial report.
Reading the financials
Section introduction
The introduction at the start of each section outlines the focus of the
section and explains the purpose and content of that section.
Note and topic summary
A summary at the start of certain notes explains the objectives and
content of that note, or at the start of certain specific topics clarifies
complex concepts, which users may not be familiar with.
Narrative table
Some narrative disclosures are presented in a tabular format to
provide readers with a clearer understanding of the information
being presented.
Information panel
The information panel describes our key accounting estimates and
judgements applied in the preparation of the financial report, which
are relevant to that section or note.
Contents
Financial Statements
Income Statement
Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flows
Statement of Changes in Equity
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77
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80
Notes to the Financial Statements
Section 1: Basis of preparation
1.1 - Basis of preparation of the financial report
1.2 - Terminology used in our income statement
1.3 - Principles of consolidation
1.4 - Key accounting estimates and judgements
1.5 - Adoption of the new accounting standards
Section 2: Our performance
2.1 - Segments and disaggregated revenue
2.2 - Income
2.3 - Expenses
2.4 - Income taxes
2.5 - Earnings per share
2.6 - Notes to the statement of cash flows
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102
103
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106
Section 3: Our core assets and working capital
3.1 - Property, plant and equipment
3.2 - Goodwill and other intangible assets
3.3 - Trade and other receivables and contract assets
3.4 - Inventories
3.5 - Trade and other payables
3.6 - Contract liabilities and other revenue received in
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118
advance
3.7 - Trade receivables from customer contracts,
118
contract assets and contract liabilities
3.8 - Deferred contract costs
120
Section 4: Our capital and risk management
4.1 - Dividend
4.2 - Equity
4.3 - Capital management
4.4 - Financial instruments and risk management
Section 5: Our people
5.1 - Employee benefits
5.2 - Employee share plans
5.3 - Post-employment benefits
5.4 - Key management personnel compensation
Section 6: Our investments
6.1 - Investments in controlled entities
6.2 - Investments in joint ventures and associated
entities
Section 7: Other information
7.1 - Other accounting policies
7.2 - Auditor’s remuneration
7.3 - Parent entity disclosures
7.4 - Commitments and contingencies
7.5 - Events after reporting date
Directors’ Declaration
Independent Auditor’s Report
122
122
124
133
141
142
146
148
149
153
158
164
165
166
167
168
169
Income
Statement
For the year ended 30 June 2019
Telstra Group
Income
Revenue (excluding finance income)
Other income
Expenses
Labour
Goods and services purchased
Net impairment losses on financial assets
Other expenses
Share of net profit/(loss) from joint ventures and associated entities
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA)
Depreciation and amortisation
Earnings before interest and income tax expense (EBIT)
Finance income
Finance costs
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year
Profit/(loss) attributable to:
Equity holders of Telstra Entity
Non-controlling interests
Earnings per share (cents per share)
Basic
Diluted
The notes following the financial statements form part of the financial report.
Note
2.2
2.2
2.3
6.2
2.3
2.2
2.3
2.4
2.5
2.5
Telstra Financial Report 2019
Telstra Financial Report 2019
2019
Year ended 30 June
2018
Restated
$m
$m
25,259
2,548
27,807
5,279
9,138
184
5,234
25,848
2,993
28,841
5,207
8,338
190
4,887
19,835
18,622
12
(22)
19,823
18,644
7,984
4,282
3,702
238
868
630
3,072
923
2,149
10,197
4,470
5,727
218
806
588
5,139
1,582
3,557
2,154
(5)
3,591
(34)
2,149
3,557
cents
cents
18.1
18.1
30.2
30.2
76 | Telstra Corporation Limited and controlled entities
74 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 77
Telstra Corporation Limited and controlled entities | 75
Notes to the financial statements (continued)Notes to the financial statements (continued) Statements.fm Page 76 Tuesday, August 27, 2019 8:23 AM
Statements.fm Page 77 Tuesday, August 27, 2019 8:23 AM
Statement of
Comprehensive Income
For the year ended 30 June 2019
Telstra Group
Profit/(loss) for the year attributable to:
Equity holders of Telstra Entity
Non-controlling interests
Items that will not be reclassified to the income statement
Retained profits
Note
2019
Year ended 30 June
2018
Restated
$m
$m
2,154
(5)
3,591
(34)
2,149
3,557
Actuarial (loss)/gain on defined benefit plans attributable to equity holders of Telstra Entity
5.3
(10)
Income tax on actuarial (loss)/gain on defined benefit plans
Fair value of equity instruments reserve
Gain/(loss) from investments in equity instruments designated at fair value through other comprehensive
income
Share of other comprehensive income of equity accounted entities
Income tax on fair value movements for investments in equity instruments
Foreign currency translation reserve
Translation differences of foreign operations attributable to non-controlling interests
Items that may be subsequently reclassified to the income statement
Foreign currency translation reserve
Translation differences of foreign operations attributable to equity holders of Telstra Entity
Share of foreign currency translation reserve of equity accounted entities
Cash flow hedging reserve
Movements in cash flow hedging reserve
Income tax on movements in the cash flow hedging reserve
Foreign currency basis spread reserve
Changes in the value of the foreign currency basis spread
Income tax on movements in the foreign currency basis spread reserve
4.3
Total other comprehensive income
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of Telstra Entity
Non-controlling interest
The notes following the financial statements form part of the financial report.
3
3
66
(22)
-
40
39
-
3
(1)
(22)
7
26
66
112
(34)
(16)
29
2
(3)
90
48
4
(97)
29
(31)
9
(38)
52
2,215
3,609
2,220
(5)
3,646
(37)
Statement of
Financial Position
As at 30 June 2019
Telstra Group
Current assets
Cash and cash equivalents
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Derivative financial assets
Current tax receivables
Prepayments
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Investments – accounted for using the equity method
Investments – other
Property, plant and equipment
Intangible assets
Derivative financial assets
Deferred tax assets
Defined benefit asset
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Current tax payables
Contract liabilities and other revenue received in advance
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities
Other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Defined benefit liability
Contract liabilities and other revenue received in advance
Total non-current liabilities
Total liabilities
Net assets
Telstra Financial Report 2019
Telstra Financial Report 2019
30 June
2019
Note
$m
As at
30 June
2018
Restated
$m
1 July
2017
Restated
$m
2.6
3.3
3.8
3.4
4.3
3.1
3.3
3.8
3.4
6.2
4.4
3.1
3.2
4.3
2.4
5.3
3.5
5.1
4.3
4.3
2.4
3.6
3.1
3.5
5.1
4.3
4.3
2.4
5.3
3.6
604
5,392
95
448
179
7
457
121
629
5,588
69
492
75
6
431
-
938
6,090
106
469
21
11
412
-
7,303
7,290
8,047
780
1,232
35
1,298
25
730
1,180
19
1,237
36
971
997
29
194
292
22,332
22,108
21,350
7,210
2,083
59
232
35,286
42,589
7,922
1,897
54
250
35,433
42,723
8,317
1,623
44
142
33,959
42,006
4,528
4,528
3,944
804
103
868
89
865
169
2,222
1,635
2,476
57
103
1,657
79
9,553
68
158
158
1
132
42
161
1,532
1,424
-
-
8,785
9,081
65
157
168
70
160
134
15,031
15,316
14,808
283
1,529
8
1,271
18,506
28,059
14,530
388
1,537
7
1,681
19,319
28,104
14,619
536
1,443
6
1,617
18,774
27,855
14,151
78 | Telstra Corporation Limited and controlled entities
76 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 79
Telstra Corporation Limited and controlled entities | 77
Notes to the financial statements (continued)Notes to the financial statements (continued) Statements.fm Page 78 Tuesday, August 27, 2019 8:23 AM
Statements.fm Page 79 Tuesday, August 27, 2019 8:23 AM
Statement of
Financial Position (continued)
As at 30 June 2019
Telstra Group
Equity
Share capital
Reserves
Retained profits
Equity available to Telstra Entity shareholders
Non-controlling interests
Total equity
The notes following the financial statements form part of the financial report.
30 June
2019
Note
$m
As at
30 June
2018
Restated
$m
1 July
2017
Restated
$m
4.2
4.2
4,447
(58)
10,160
14,549
4,428
(131)
10,335
14,632
(19)
(13)
4,421
(105)
9,816
14,132
19
14,530
14,619
14,151
Statement of
Cash Flows
For the year ended 30 June 2019
Telstra Group
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax (GST))
Payments to suppliers and employees (inclusive of GST)
Government grants received
Net cash generated by operations
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Capital expenditure (before investments)
Payments for business and shares in controlled entities (net of cash acquired)
Payments for equity accounted investments
Payments for other investments
Total capital expenditure (including investments)
Government grants received
Proceeds from sale of property, plant and equipment
Proceeds from sale of business and shares in controlled entities (net of cash disposed)
Proceeds from sale of other investments
Distributions received from equity accounted investments
Interest received
Proceeds from finance lease principal amounts
Net cash used in investing activities
Operating cash flows less investing cash flows
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Repayment of finance lease principal amounts
Purchase of shares for employee share plans
Finance costs paid
Dividend paid to equity holders of Telstra Entity
Other
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
The notes following the financial statements form part of the financial report.
Telstra Financial Report 2019
Telstra Financial Report 2019
Year ended 30 June
2019
2018
Note
$m
$m
2.4
2.6
30,231
31,901
(22,748)
(21,948)
156
174
7,639
10,127
(956)
(1,521)
6,683
8,606
(3,235)
(1,135)
(3,571)
(1,361)
(4,370)
(4,932)
(115)
(21)
(26)
(56)
(15)
(67)
(4,532)
(5,070)
53
646
42
6
33
33
91
796
49
24
9
65
104
125
(3,615)
(3,911)
3,068
4,695
4,669
4,195
(4,637)
(5,148)
(79)
-
(781)
(120)
(18)
(776)
4.1
(2,259)
(3,150)
(1)
2
(3,088)
(5,015)
(20)
620
4
604
(320)
936
4
620
2.6
80 | Telstra Corporation Limited and controlled entities
78 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 81
Telstra Corporation Limited and controlled entities | 79
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Statements.fm Page 80 Tuesday, August 27, 2019 8:23 AM
Section 1 - Basis of Preparation.fm Page 81 Tuesday, August 27, 2019 4:29 PM
Statement of
Changes in Equity
For the year ended 30 June 2019
Telstra Group
Share
capital
Reserves Retained
Total
profits
Note
1.5
1.5
Balance as previously reported at 1 July 2017
Change in accounting policy arising from AASB 15:
'Revenue from contracts with customers'
Restated balance at 1 July 2017
Restated profit/(loss) for the year
Restated other comprehensive income
Restated total comprehensive income for the year
Dividend
Non-controlling interests on disposals
Transactions with non-controlling interests
Amounts repaid on share loans provided to
employees
Additional shares purchased
Share-based payments
Restated balance at 30 June 2018
Change in accounting policy arising from AASB 9:
'Financial instruments'
Restated balance at 1 July 2018
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
Dividend
Non-controlling interests on disposals
Transactions with non-controlling interests
Amounts repaid on share loans provided to
employees
Share-based payments
Balance at 30 June 2019
$m
4,421
-
4,421
-
-
-
-
-
-
1
(18)
24
4,428
-
4,428
-
-
-
-
-
-
1
18
4,447
$m
(105)
$m
10,225
$m
14,541
-
(409)
(409)
(105)
-
(23)
(23)
-
-
(3)
-
-
-
(131)
9,816
3,591
78
3,669
(3,150)
-
-
14,132
3,591
55
3,646
(3,150)
-
(3)
-
1
-
-
10,335
(18)
24
14,632
-
(63)
(63)
(131)
-
73
73
-
-
-
-
-
(58)
10,272
2,154
(7)
2,147
(2,259)
-
-
14,569
2,154
66
2,220
(2,259)
-
-
-
1
-
10,160
18
14,549
The notes following the financial statements form part of the financial report.
Non-
control-
ling
interests
$m
19
-
19
(34)
(3)
(37)
(2)
(1)
3
-
-
5
(13)
-
(13)
(5)
-
(5)
(2)
1
(1)
-
1
(19)
Total
equity
$m
14,560
(409)
14,151
3,557
52
3,609
(3,152)
(1)
-
1
(18)
29
14,619
(63)
14,556
2,149
66
2,215
(2,261)
1
(1)
1
19
14,530
Notes to the financial statements
Telstra Financial Report 2019
Section 1. Basis of preparation
This section explains basis of preparation of our financial
report and provides a summary of our key accounting
estimates and judgements.
SECTION 1. BASIS OF PREPARATION
1.1 Basis of preparation of the financial report
This financial report is a general purpose financial report, prepared
by a ‘for profit’ entity, in accordance with the requirements of the
Australian Corporations Act 2001, Accounting Standards applicable
in Australia and other authoritative pronouncements of the
Australian Accounting Standards Board (AASB). It also complies with
International Financial Reporting Standards (IFRS) and
Interpretations published by the International Accounting Standards
Board (IASB).
The financial report is presented in Australian dollars and, unless
otherwise stated, all values have been rounded to the nearest million
dollars ($m) under the option available under the Australian
Securities and Investments Commission (ASIC) Corporations
(Rounding in Financial/Directors’ Report) Instrument 2016/191. The
functional currency of the Telstra Entity and its Australian controlled
entities is Australian dollars. The functional currency of certain non-
Australian controlled entities is not Australian dollars. The results of
these entities are translated into Australian dollars in accordance
with our accounting policy in note 7.1.2.
The financial report is prepared in accordance with historical cost,
except for some categories of financial instruments, which are
recorded at fair value.
1.2 Terminology used in our income statement
Earnings before interest, income tax expense, depreciation and
amortisation (EBITDA) reflect our profit for the year, prior to including
the effect of net finance costs, income taxes, depreciation and
amortisation. Our management primarily uses EBITDA and earnings
before interest and income tax expense (EBIT), in combination with
other financial measures, to evaluate the Company’s operating
performance. In addition, we believe EBITDA is useful to our
shareholders, analysts and other members of the investment
community who also view EBITDA as a widely recognised measure of
operating performance.
EBIT is a similar measure to EBITDA, but takes into account
depreciation and amortisation.
1.3 Principles of consolidation
Our financial report includes the assets and liabilities of the Telstra
Entity and its controlled entities as a whole as at the end of the
financial year and the consolidated results and cash flows for the
year.
An entity is considered to be a controlled entity where we are
exposed, or have rights, to variable returns from our involvement with
the entity and have the ability to affect those returns through our
power to direct the activities of the entity. We consolidate the results
of our controlled entities from the date on which we gain control until
the date we cease control.
The effects of intra-group transactions and balances are eliminated
in full from our consolidated financial statements.
Non-controlling interests in the results and equity of controlled
entities are shown separately in our income statement, statement of
comprehensive income, statement of financial position and
statement of changes in equity.
The financial statements of controlled entities are prepared for the
same reporting period as the Telstra Entity, using consistent
accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies.
1.4 Key accounting estimates and judgements
Preparing the financial report requires management to make
estimates and judgements. The accounting policies and significant
management judgements and estimates used and any changes
thereto are set out in the relevant notes. They can be located within
the following notes:
Key accounting estimates and judgements
Assessment of a significant financing component in
mass market contracts
Determination of standalone selling prices
Assessment of a significant financing component in
Indefeasible Right of Use (IRU)
Impact of nbn Infrastructure Services Agreement
(ISA) on revenue from customer contracts and other
income
Assessment of a significant financing component in
nbn DAs
Percentage of completion for commercial contracts
with nbn co
Estimating provision for income tax
Unrecognised deferred tax assets
Cash generating units (CGUs) for impairment
assessment
Useful lives and residual values of tangible assets
Impact of nbn Infrastructure Services Agreement
(ISA) on our fixed asset base
Determining CGUs and their recoverable amount for
impairment assessment
Capitalisation of development costs
Determining fair value of identifiable intangible
assets
Useful lives of intangible assets
Estimating allowance for doubtful debts
Estimating net realisable value
Amortisation period of deferred contract costs
Long service leave provision
Defined benefit plan
Significant influence over our investments
Joint control of our investments
Note Page
2.2
2.2
2.2
2.2
2.2
2.2
2.4
2.4
3.1
3.1
3.1
3.2
3.2
3.2
3.2
3.3
3.4
3.8
5.1
5.3
6.2
6.2
95
95
97
98
98
99
104
105
109
109
110
112
113
113
114
115
117
121
141
147
155
155
Note 7.1 includes our accounting policy on foreign currency
translation, changes in accounting policies and a summary of new
accounting standards to be applied in future reporting periods.
82 | Telstra Corporation Limited and controlled entities
80 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 83
Telstra Corporation Limited and controlled entities | 81
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 1 - Basis of Preparation.fm Page 82 Tuesday, August 27, 2019 8:24 AM
Section 1 - Basis of Preparation.fm Page 83 Tuesday, August 27, 2019 8:24 AM
Notes to the financial statements
Notes to the financial statements
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.5 Adoption of the new accounting standards
In the financial year 2019, we have adopted new accounting policies
for revenue recognition, deferred contract costs and impairment of
financial assets. A summary of the key impacts and restatement of
the financial statements previously reported have been detailed
below.
Key changes to our measurement, recognition and presentation of
the impacted balances and transactions, i.e. our accounting policies
are detailed in note 7.1.1.
(a) First time adoption of the new revenue standard
In December 2014, the AASB issued AASB 15: ‘Revenue from
Contracts with Customers’ and AASB 2014-5: ‘Amendments to
Australian Accounting Standards arising from AASB 15’. In October
2015, the AASB issued AASB 2015-8: ‘Amendments to Australian
Accounting Standards – Effective Date of AASB 15’ which deferred
the effective date of the new revenue standard from 1 January 2017
to 1 January 2018. In May 2016, the AASB issued AASB 2016-3:
‘Amendments to Australian Accounting Standards - Clarifications to
AASB 15’. All these standards are further collectively referred to as
AASB 15.
AASB 15 has superseded the existing accounting standards and
interpretations for revenue and subscriber acquisition costs in the
telecommunications industry.
We have adopted AASB 15 from 1 July 2018 and applied the standard
retrospectively to prior reporting periods from 1 July 2017 (‘transition
date’), subject to permitted and elected practical expedients. As a
result, all comparative information in the financial statements has
been prepared as if AASB 15 had always been in effect with a
cumulative adjustment as at 1 July 2017.
The following practical expedients have been used for the transition
to AASB 15:
• we have not restated contracts completed before 1 July 2017 (i.e.
those contracts for which we have transferred all goods and
services identified under the superseded accounting standards
and interpretations)
• in the comparative reporting period of financial year 2018, for
contracts that have variable consideration, we have used the
transaction price at the date the contract was completed rather
than estimating variable consideration amounts
• for contracts that were modified before 1 July 2017, we have not
restated those contracts for their modifications effective prior to 1
July 2017 in accordance with AASB 15. Instead, we have reflected
the aggregate effect of all modifications that occurred before 1
July 2017.
The application of AASB 15 did not affect our cash flows from
operations or the methods and underlying economics through which
we transact with our customers.
On adoption of the new standard, we have made the following
adjustments to our comparative period in the financial statements
for the financial year 2019 to reflect the requirements of AASB 15:
• $409 million after tax ($505 million before tax) decrease in opening
retained earnings as at 1 July 2017 with corresponding
adjustments against relevant line items in the statement of
financial position
• $201 million decrease in total income, $277 million decrease in
operating expenses, $76 million increase in EBITDA, $39 million
increase in net finance costs, $37 million increase in profit before
tax and $28 million increase in our net profit after tax for the year
ended 30 June 2018.
AASB 15 adoption also resulted in changes to presentation and
classification of certain items in the statement of financial position
and in the income statement.
Refer to Tables A and B for impacts on our statement of financial
position as at 1 July 2017 and 30 June 2018, respectively and to
Tables C and D for impacts on our income statement and statement
of comprehensive income for the year ended 30 June 2018.
(b) First time adoption of the new impairment rules for financial
assets
In December 2014, the AASB issued the final version of AASB 9:
‘Financial Instruments’ (AASB 9 (2014)), and AASB 2014-7:
‘Amendments to Australian Accounting Standards arising from AASB
9 (December 2014)’.
AASB 9 is the new principal standard that consolidates requirements
for the classification and measurement of financial assets and
liabilities, hedge accounting and impairment of financial assets.
AASB 9 (2014) supersedes all previously issued and amended
versions of AASB 9 and applies to Telstra from 1 July 2018.
We early adopted the previous version of the standard, AASB 9
(2013), from 1 July 2014. This version excluded the impairment
requirements, which replaced the incurred loss impairment model
used previously with an expected credit loss model for impairment of
financial assets. Expected credit losses are based on the difference
between the contractual cash flows due under the contract and all
the cash flows that we expect to receive. The differences are then
discounted at the asset’s original effective interest rate.
We have applied the requirements of the new financial assets
impairment model on a prospective basis from 1 July 2018 to
balances, which incorporate the relevant restatements on a
retrospective basis as at 1 July 2017 on the first time adoption of the
new revenue standard.
Given AASB 9 requires us to hold allowances for expected rather than
incurred credit losses, the allowance is therefore recognised earlier
and most portfolio allowance holdings have increased. The increase
in allowance resulted in a $63 million after tax ($89 million before tax)
reduction of opening retained earnings as at 1 July 2018.
We have elected to apply the AASB 9 exemption and have not
restated comparative periods in the year of initial application. Net
impairment losses on financial assets as presented in the income
statement in the comparative period were measured under the prior
requirements.
Refer to Table B for impacts on our statement of financial position.
(c) Summary of new accounting policies
On adoption of the new accounting standards, our existing
accounting policies have been amended to reflect the above changes
in revenue recognition, contract costs and impairment of financial
assets policies as described in the following notes.
New accounting policies
Revenue from contracts with customers
Revenue from other sources
Impairment of financial assets
Deferred contract costs
Note Page
99
2.2
101
2.2
117
3.3
120
3.8
1.5 Adoption of the new accounting standards (continued)
(d) Overall impact on adoption of the new accounting policies
Tables A to D summarise the overall impact of changes in the
accounting policies on our financial statements.
Table A: Impact of changes in the accounting policies on the
statement of financial position as at 1 July 2017
Table A
Telstra Group
As at
30 June 2017
AASB 15
As at
1 July 2017
Reported
Adjustments
Restated
Current assets
Cash and cash equivalents
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Derivative financial assets
Current tax receivables
Prepayments
Total current assets
Non-current assets
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Investments – accounted for using the equity method
Investments – other
Property, plant and equipment
Intangible assets
Derivative financial assets
Deferred tax assets
Defined benefit asset
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Current tax payables
Contract liabilities and other revenue received in advance
Total current liabilities
Non-current liabilities
Other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Defined benefit liability
Contract liabilities and other revenue received in advance
Total non-current liabilities
Total liabilities
Net assets
$m
938
5,468
-
893
21
11
531
7,862
1,039
-
29
194
292
21,350
9,558
1,623
44
142
34,271
42,133
4,189
865
190
2,476
42
161
1,236
9,159
70
160
134
14,808
536
1,539
6
1,161
18,414
27,573
14,560
$m
-
622
106
(424)
-
-
(119)
185
(68)
997
-
-
-
-
(1,241)
-
-
-
(312)
(127)
(245)
-
(21)
-
-
-
188
(78)
-
-
-
-
-
(96)
-
456
360
282
(409)
$m
938
6,090
106
469
21
11
412
8,047
971
997
29
194
292
21,350
8,317
1,623
44
142
33,959
42,006
3,944
865
169
2,476
42
161
1,424
9,081
70
160
134
14,808
536
1,443
6
1,617
18,774
27,855
14,151
84 | Telstra Corporation Limited and controlled entities
82 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 85
Telstra Corporation Limited and controlled entities | 83
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 1 - Basis of Preparation.fm Page 84 Tuesday, August 27, 2019 8:24 AM
Section 1 - Basis of Preparation.fm Page 85 Tuesday, August 27, 2019 8:24 AM
Notes to the financial statements
Notes to the financial statements
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.5 Adoption of the new accounting standards (continued)
(d) Overall impact on adoption of the new accounting policies
(continued)
Table A (continued)
Telstra Group
Equity
Share capital
Reserves
Retained profits
Equity available to Telstra Entity shareholders
Non-controlling interests
Total equity
As at
30 June 2017
AASB 15
As at
1 July 2017
Reported
Adjustments
Restated
$m
4,421
(105)
10,225
14,541
19
14,560
$m
-
-
(409)
(409)
-
(409)
$m
4,421
(105)
9,816
14,132
19
14,151
1.5 Adoption of the new accounting standards (continued)
(d) Overall impact on adoption of the new accounting policies
(continued)
Table B: Impact of changes in the accounting policies on the
statement of financial position as at 30 June 2018 and at 1 July 2018
Table B
Telstra Group
As at 30
June 2018
AASB 15
As at 30
June 2018
AASB 9
As at 1
July 2018
Reported Adjustments Restated Adjustments Restated
Current assets
Cash and cash equivalents
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Derivative financial assets
Current tax receivables
Prepayments
Total current assets
Non-current assets
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Investments – accounted for using the equity method
Investments – other
Property, plant and equipment
Intangible assets
Derivative financial assets
Deferred tax assets
Defined benefit asset
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Current tax payables
Contract liabilities and other revenue received in advance
Total current liabilities
Non-current liabilities
Other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Defined benefit liability
Contract liabilities and other revenue received in advance
Total non-current liabilities
Total liabilities
Net assets
$m
$m
$m
629
5,018
-
801
75
6
548
7,077
1,012
-
19
1,237
36
22,108
9,180
1,897
54
250
35,793
42,870
4,835
868
118
1,635
1
132
1,227
8,816
65
157
171
15,316
388
1,624
7
1,312
19,040
27,856
15,014
-
570
69
(309)
-
-
(117)
213
(282)
1,180
-
-
-
-
(1,258)
-
-
-
(360)
(147)
(307)
-
(29)
-
-
-
305
(31)
-
-
(3)
-
-
(87)
-
369
279
248
(395)
629
5,588
69
492
75
6
431
7,290
730
1,180
19
1,237
36
22,108
7,922
1,897
54
250
35,433
42,723
4,528
868
89
1,635
1
132
1,532
8,785
65
157
168
15,316
388
1,537
7
1,681
19,319
28,104
14,619
$m
-
(88)
-
-
-
-
-
(88)
(1)
-
-
-
-
-
-
-
-
-
(1)
(89)
-
-
-
-
-
-
-
-
-
-
-
-
(26)
-
-
(26)
(26)
(63)
$m
629
5,500
69
492
75
6
431
7,202
729
1,180
19
1,237
36
22,108
7,922
1,897
54
250
35,432
42,634
4,528
868
89
1,635
1
132
1,532
8,785
65
157
168
15,316
388
1,511
7
1,681
19,293
28,078
14,556
86 | Telstra Corporation Limited and controlled entities
84 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 87
Telstra Corporation Limited and controlled entities | 85
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 1 - Basis of Preparation.fm Page 86 Tuesday, August 27, 2019 8:24 AM
Section 1 - Basis of Preparation.fm Page 87 Tuesday, August 27, 2019 8:24 AM
Notes to the financial statements
Notes to the financial statements
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.5 Adoption of the new accounting standards (continued)
(d) Overall impact on adoption of the new accounting policies
(continued)
Table B (continued)
Telstra Group
Equity
Share capital
Reserves
Retained profits
Equity available to Telstra Entity shareholders
Non-controlling interests
Total equity
As at 30
June 2018
AASB 15
As at 30
June 2018
AASB 9
As at 1
July 2018
Reported Adjustments Restated Adjustments Restated
$m
$m
$m
4,428
(117)
10,716
15,027
(13)
15,014
-
(14)
(381)
(395)
-
(395)
4,428
(131)
10,335
14,632
(13)
14,619
$m
-
-
(63)
(63)
-
(63)
$m
4,428
(131)
10,272
14,569
(13)
14,556
Table C: Impact of changes in the accounting policies on the income
statement for the year ended 30 June 2018
Table C
Telstra Group
Income
Revenue (excluding finance income)
Other income
Expenses
Labour
Goods and services purchased
Net impairment losses on financial and contract assets
Other expenses
Share of net loss from joint ventures and associated entities
Earnings before interest, income tax expense, depreciation and amortisation
(EBITDA)
Depreciation and amortisation
Earnings before interest and income tax expense (EBIT)
Finance income
Finance costs
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year
Profit/(loss) attributable to:
Equity holders of Telstra Entity
Non-controlling interests
Year ended 30 June
2018
AASB 15
2018
Reported
Adjustments
Restated
$m
26,011
3,031
29,042
5,157
8,758
190
4,794
18,899
(22)
18,921
10,121
4,470
5,651
82
631
549
5,102
1,573
3,529
3,563
(34)
3,529
$m
(163)
(38)
(201)
50
(420)
-
93
(277)
-
(277)
76
-
76
136
175
39
37
9
28
28
-
28
0.2
0.2
$m
25,848
2,993
28,841
5,207
8,338
190
4,887
18,622
(22)
18,644
10,197
4,470
5,727
218
806
588
5,139
1,582
3,557
3,591
(34)
3,557
cents
30.2
30.2
Earnings per share (cents per share)
Basic
Diluted
cents
cents
30.0
30.0
1.5 Adoption of the new accounting standards (continued)
(d) Overall impact on adoption of the new accounting policies
(continued)
Table D: Impact of changes in the accounting policies on the
statement of comprehensive income for the year ended 30 June
2018
Table D
Telstra Group
Profit/(loss) for the year attributable to:
Equity holders of Telstra Entity
Non-controlling interests
Items that will not be reclassified to the income statement
Retained profits
Actuarial gain on defined benefit plans attributable to equity holders of Telstra Entity
Income tax on actuarial gain on defined benefit plans
Fair value of equity instruments reserve
Loss from investments in equity instruments designated at fair value through other
comprehensive income
Share of other comprehensive income of equity accounted entities
Income tax on fair value movements for investments in equity instruments
Foreign currency translation reserve
Translation differences of foreign operations attributable to non-controlling interests
Items that may be subsequently reclassified to the income statement
Foreign currency translation reserve
Translation differences of foreign operations attributable to equity holders of Telstra
Entity
Share of foreign currency translation reserve of equity accounted entities
Cash flow hedging reserve
Movements in cash flow hedging reserve
Income tax on movements in the cash flow hedging reserve
Foreign currency basis spread reserve
Changes in the value of the foreign currency basis spread
Income tax on movements in the foreign currency basis spread reserve
Total other comprehensive income
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of Telstra Entity
Non-controlling interest
Changes in the accounting policies impacting retained profits and
reserves (foreign currency translation reserve) are presented as
restatements directly in the Statement of Changes in Equity.
Year ended 30 June
2018
AASB 15
2018
Reported
Adjustments
Restated
$m
3,563
(34)
3,529
112
(34)
(16)
29
2
(3)
90
62
4
(97)
29
(31)
9
(24)
66
3,595
3,632
(37)
$m
(28)
-
(28)
-
-
-
-
-
-
-
14
-
-
-
-
-
14
14
(14)
(14)
-
$m
3,591
(34)
3,557
112
(34)
(16)
29
2
(3)
90
48
4
(97)
29
(31)
9
(38)
52
3,609
3,646
(37)
88 | Telstra Corporation Limited and controlled entities
86 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 89
Telstra Corporation Limited and controlled entities | 87
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 88 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 89 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance
This section explains our results, performance of our
segments, which are reported on the same basis as our
internal management structure, and our earnings per
share for the period. It also provides disaggregated
revenue, details of selected income and expense items,
information about taxation and a reconciliation of our
profit to net cash generated from operating activities.
SECTION 2. OUR PERFORMANCE
2.1 Segments and disaggregated revenue
Segment information is based on the information that
management uses to make decisions about operating matters
and allows users to review operations through the eyes of
management.
Our operating segments represent the business units which
offer our main products and services in the market, however
only some of our operating segments meet the disclosure
criteria for reportable segments.
The presentation of revenue is disaggregated by category and
segment based on the timing of transfer of goods and services,
major products and our geographical markets.
2.1.1 Operating segments
We report segment information on the same basis as our internal
management reporting structure at the reporting date. Segment
comparatives reflect any organisational changes that have occurred
since the prior reporting period to present a like-for-like view.
On 20 June 2018, we announced the following organisational
changes effective from 1 July 2018:
• establishment of a standalone infrastructure business unit,
Telstra InfraCo segment, comprising previously reported Telstra
Wholesale segment and network services provided to nbn co and
other customers under commercial contracts (previously part of
Segment
Operation
Telstra Operations segment). Telstra InfraCo manages Telstra’s
high quality fixed network infrastructure including data centres,
non-mobiles related domestic fibre, copper, Hybrid Fibre Coaxial
(HFC) cable network, international subsea cables, exchanges,
poles, ducts and pipes. It supplies services to other business units
within Telstra, to our wholesale customers and to nbn co
• creation of Global Business Services (GBS) which consolidates all
large scale repeatable back of house processes across the billing,
assurance, activations, field, accounting services, procurement,
people and property functions and is designed to leverage scale,
innovation and technology to improve experience, efficiency and
costs.
Effective from 1 October 2018 the remaining lines of business in
Telstra Operations segment were renamed Networks and IT (N&IT)
segment. In addition, the Technology Innovation and Strategy
segment was split between various segments with the majority
transferred to N&IT. The remaining employees in the Technology
Innovation and Strategy segment were joined by various product
teams from Telstra Consumer & Small Business and Telstra
Enterprise segments and this segment was renamed as Products
and Technology.
The ‘All Other’ category includes business units that do not qualify as
operating segments in their own right as well as the operating
segments which do not meet the disclosure requirements of a
reportable segment. These are New Business (which includes Telstra
Health, Global Products, Telstra Software Group and Neto), GBS and
Product and Technology Group.
We have four reportable segments as follows:
Telstra Consumer and
Small Business (TC&SB)
• provider of telecommunication products, services and solutions across mobiles, fixed and mobile
broadband, telephony and Pay TV/IPTV and digital content to consumer and small business customers
in Australia
• the operation of inbound and outbound call centres, Telstra shops (owned and licensed) and the
Telstra dealership network
• online self-service capabilities for customers, from buying to billing and service requests
Telstra Enterprise (TE)
• sales and contract management for medium to large business and government customers in Australia
and globally
• management of Telstra's networks outside Australia in conjunction with N&IT and Telstra Infraco
segments
• product management for advanced technology solutions and services, including Data and Internet
Protocol (IP) networks, mobility services, and Network Applications and Services (NAS) products such
as managed network, unified communications, cloud, industry solutions and integrated services and
monitoring in Australia and globally
• development of industry vertical solutions based on Telstra's networks and technology
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.1 Operating segments (continued)
Segment
Operation
Networks and IT (N&IT)
• overall planning, design, engineering architecture and construction of Telstra networks, technology
and information technology solutions
• delivering network technologies
• delivering digital platforms and capabilities to enable digital experiences
• build and management of the shared platforms, infrastructure, cloud services, software and
technologies for all internal functions
Telstra InfraCo
• provider of a wide range of telecommunication products and services delivered over Telstra networks
and associated support systems to other carriers, carriage service providers and internet service
providers
• holding fixed network infrastructure including data centres, non-mobiles related domestic fibre,
copper, HFC cable, international subsea cables, exchanges, poles, ducts and pipes
• providing access to our fixed network infrastructure assets to other Telstra business units, wholesale
customers and nbn co
• providing nbn co with long term access to certain components of our infrastructure and certain
network services under the Infrastructure Services Agreement (ISA) and commercial contracts.
Consistent with information presented for internal management
reporting purposes, the result of each segment is measured based
on its EBITDA contribution. EBITDA contribution excludes the effects
of all inter-segment balances and transactions, with the exception of
transactions referred to following Table A in note 2.1.2 and those
related to the Telstra InfraCo segment as explained below. As such,
only transactions external to the Telstra Group are reported except
as otherwise noted.
The majority of redundancy expenses for the Telstra Entity and
restructuring costs are related to multiple reportable segments and
are recorded by our corporate areas (included in the ‘All Other’
category).
From 1 July 2018 we manage Telstra InfraCo segment on a
standalone basis, i.e. inclusive of its transactions with other
business units. Other business units, however, do not reflect those
transactions with Telstra InfraCo in their segment results. The
following paragraphs describe types of transactions reported in
Telstra InfraCo segment that are not included in the results of other
business units. These transactions are eliminated at the Group level.
The following further explains how some items are allocated and
managed and, as a result, how they are reflected in our segment
results:
• Telstra InfraCo generates revenue from transactions with other
business units. The inter-segment transactions which started
from 1 July 2018 relate to access charges for the use of the
infrastructure assets are not included in the EBITDA contribution
of these other business units within Telstra Group. The access
charges are charged on the assets which are allocated to Telstra
InfraCo, being our fixed network infrastructure. Where such assets
are shared with other business units, an allocation of the assets to
Telstra InfraCo has been determined based on historical usage.
These access charges are determined based on an approach that
incorporates a variety of internally and externally observable
inputs to reflect an arm’s length basis for charging. They are
regularly reviewed by management and are eliminated at the
Group level for statutory reporting purposes
• from 1 July 2018, the Telstra InfraCo segment result includes
operations and maintenance expense. The expenses originating
from the N&IT segment and ‘All Other’ category relate to Telstra
InfraCo assets and is eliminated at the Group level. The shared
operations and maintenance costs allocated to Telstra InfraCo
assets are based on a usage methodology
• the N&IT segment and ‘All Other’ category results include network
service delivery costs for TC&SB, TE and Telstra InfraCo customers
• the operations and maintenance costs relating to Telstra InfraCo
assets are included in Telstra InfraCo costs, but have not been
excluded from the N&IT or ‘All Other’ category
• the N&IT segment recognises expenses in relation to the
installation, maintenance and running of the HFC cable network
held in Telstra InfraCo (except for operations and maintenance
costs recharged by N&IT to Telstra InfraCo), while a portion of the
running costs of the HFC cable network is managed by the
Corporate Accounting unit (included in the ‘All Other’ category)
• the Telstra InfraCo segment result includes rental revenue from
providing nbn co with long term access to ducts and pits and other
components of our infrastructure under the ISA, while the
associated costs are reported in the N&IT segment and in the ‘All
Other’ category, respectively
• from 1 July 2018 Telstra InfraCo also includes costs associated
with support functions which have not been removed from other
segments. We allocate these costs by utilising driver-based cost
allocation methodology for our internal performance reporting
• revenue associated with mobile handsets sold via dealers for the
TE segment is allocated to the TC&SB segment along with the
associated costs of goods sold, as the TC&SB segment manages
our supplier, delivery and dealership arrangements. Ongoing pre-
paid and post-paid mobile revenues derived from our mobile
usage services are recorded in the TC&SB and TE segments
depending on the type of customer serviced
• domestic promotion and advertising expenses for the Telstra
Entity are recorded in the TC&SB segment
• the rental costs, with the exception of costs related to our retail
shops and international operations, are reported in GBS (included
in the ‘All Other’ category)
• the ‘All Other’ category includes income from nbn disconnection
fees, while the associated costs are reported in GBS which is also
included in the ‘All Other’ category.
90 | Telstra Corporation Limited and controlled entities
88 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 91
Telstra Corporation Limited and controlled entities | 89
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 90 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 91 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue
Table A details our segment results and a reconciliation of EBITDA
contribution to the Telstra Group’s EBITDA, EBIT and profit before
income tax expense. It also presents disaggregated revenue based
on the nature and the timing of transfer of goods and services.
Table A
Telstra Group
TC&SB
TE
N&IT
All Other Subtotal
Telstra
InfraCo
Elimina-
tions
Total
$m
$m
$m
$m
$m
$m
$m
$m
Year ended 30 June 2019
Revenue from contracts with
customers
Sale of services
Sale of goods
Other revenue from contracts with
customers
Revenue from other sources
Revenue from external customers
Revenue from transactions
between Telstra InfraCo and other
segments
Total revenue from external
customers and Telstra InfraCo
Other income
Total income
Share of net profit from joint
ventures and associated entities
EBITDA contribution
Depreciation and amortisation
Telstra Group EBIT
Net finance costs
Telstra Group profit before
income tax expense
10,714
2,869
(1)
13,582
674
14,256
7,121
810
31
7,962
251
8,213
1
-
-
1
34
35
n/a
n/a
n/a
(58)
2
14
(42)
9
(33)
n/a
17,778
3,681
44
21,503
968
22,471
2,786
2
-
2,788
-
2,788
-
-
-
-
-
-
20,564
3,683
44
24,291
968
25,259
n/a
1,891
(1,891)
-
14,256
15
14,271
-
8,213
30
8,243
2
35
35
70
-
(33)
22,471
2,199
2,166
10
2,279
24,750
12
4,679
269
4,948
-
(1,891)
25,259
-
(1,891)
2,548
27,807
-
12
5,581
3,411
(1,459)
(1,870)
5,663
3,192
(871)
7,984
(4,282)
3,702
(630)
3,072
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue (continued)
Table A (continued)
Telstra Group
TC&SB
TE
N&IT
All Other Subtotal
Telstra
InfraCo
Elimina-
tions
Total
$m
$m
$m
$m
$m
$m
$m
$m
Year ended 30 June 2018 (restated)
Revenue from contracts with
customers
Sale of services
Sale of goods
Other revenue from contracts with
customers
Revenue from other sources
Revenue from external customers
Revenue from transactions
between Telstra InfraCo and other
segments
Total revenue from external
customers and Telstra InfraCo
Other income
Total income
Share of net profit/(loss) from joint
ventures and associated entities
EBITDA contribution
Depreciation and amortisation
Telstra Group EBIT
Net finance costs
Telstra Group profit before
income tax expense
11,400
2,554
4
13,958
524
14,482
7,039
809
39
7,887
298
8,185
1
-
-
1
49
50
33
3
16
52
27
79
18,473
3,366
59
21,898
898
22,796
3,050
2
-
3,052
-
3,052
n/a
n/a
n/a
n/a
n/a
-
14,482
16
14,498
-
8,185
32
8,217
2
50
25
75
-
79
22,796
2,709
2,788
2,782
25,578
(24)
(22)
3,052
211
3,263
-
6,626
3,527
(1,477)
(897)
7,779
2,418
-
-
-
-
-
-
-
-
-
-
-
21,523
3,368
59
24,950
898
25,848
-
25,848
2,993
28,841
(22)
10,197
(4,470)
5,727
(588)
5,139
We recognise revenue from contracts with customers when the
control of goods or services has been transferred to the customer.
Revenue from sale of services is recognised over time, whereas
revenue from sale of goods is recognised at a point in time. Other
revenue from contracts with customers includes licensing revenue
(recognised either at a point in time or over time) and agency revenue
(recognised over time). Refer to note 2.2.1 for further details about
our contracts with customers.
The effects of the following inter-segment transactions have not
been excluded from segment EBITDA contribution:
• revenue from external customers in the TE segment includes $254
million (2018: $214 million) of inter-segment revenue treated as
external expenses in the TC&SB and Telstra InfraCo segments,
which is eliminated in the ‘All Other’ category
• external expenses in the TE segment include $11 million (2018:
$13 million) of inter-segment expenses treated as external
revenue in the Telstra InfraCo and eliminated in the ‘All Other’
category.
During the year, total impairment loss of $499 million related to
property, plant and equipment and software assets was recognised
in the ‘All Other’ category. Refer to notes 3.1 and 3.2 for further
details.
In the financial year 2018, a total impairment loss of $317 million
related to goodwill and other non-current assets was recognised in
the ‘All Other’ category.
92 | Telstra Corporation Limited and controlled entities
90 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 93
Telstra Corporation Limited and controlled entities | 91
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 92 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 93 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue (continued)
Table B presents disaggregation of our segment revenue by major
products and geographical markets.
Table B
Telstra Group
Total revenue from external customers by product
Fixed
Revenue from contracts with customers
Revenue from other sources
Mobile
Revenue from contracts with customers
Revenue from other sources
Data & IP
Revenue from contracts with customers
Revenue from other sources
Network applications and services
Revenue from contracts with customers
Revenue from other sources
Media
Revenue from contracts with customers
Revenue from other sources
Global connectivity
Revenue from contracts with customers
Revenue from other sources
Other products and services
Revenue from contracts with customers
Revenue from other sources
Total revenue from contracts with customers
Total revenue from other sources
Total revenue from external customers by geographical
market
Australian customers
Revenue from contracts with customers
Revenue from other sources
Offshore customers
Revenue from contracts with customers
Revenue from other sources
TC&SB
TE
N&IT
All Other
Telstra
InfraCo
Total
$m
$m
$m
$m
$m
$m
Year ended 30 June 2019
4,144
4,142
2
8,685
8,171
514
162
162
-
311
311
-
781
781
-
-
-
-
173
15
158
13,582
674
14,256
14,256
13,582
674
-
-
-
14,256
262
262
-
1,666
1,656
10
1,757
1,757
-
2,565
2,328
237
1
1
-
1,954
1,953
1
8
5
3
7,962
251
8,213
6,506
6,256
250
1,707
1,706
1
8,213
-
-
-
-
-
-
-
-
-
35
1
34
-
-
-
-
-
-
-
-
-
1
34
35
35
1
34
-
-
-
35
12
12
-
(16)
(16)
-
(6)
(6)
-
13
13
-
50
50
-
(254)
(254)
-
168
159
9
(42)
9
(33)
203
194
9
(236)
(236)
-
(33)
805
805
-
210
210
-
445
445
-
553
553
-
-
-
-
-
-
-
775
775
-
2,788
-
2,788
2,788
2,788
-
-
-
-
2,788
5,223
5,221
2
10,545
10,021
524
2,358
2,358
-
3,477
3,206
271
832
832
-
1,700
1,699
1
1,124
954
170
24,291
968
25,259
23,788
22,821
967
1,471
1,470
1
25,259
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue (continued)
Table B (continued)
Telstra Group
Total revenue from external customers by product
Fixed
Revenue from contracts with customers
Revenue from other sources
Mobile
Revenue from contracts with customers
Revenue from other sources
Data & IP
Revenue from contracts with customers
Revenue from other sources
Network applications and services
Revenue from contracts with customers
Revenue from other sources
Media
Revenue from contracts with customers
Revenue from other sources
Global connectivity
Revenue from contracts with customers
Revenue from other sources
Other products and services
Revenue from contracts with customers
Revenue from other sources
Total revenue from contracts with customers
Total revenue from other sources
Total revenue from external customers by geographical market
Australian customers
Revenue from contracts with customers
Revenue from other sources
Offshore customers
Revenue from contracts with customers
Revenue from other sources
Other products and services relate to nbn co accessing our
infrastructure and miscellaneous revenue. It also includes revenue
from Telstra Health and Telstra Software business units.
All Other category by product and by geographical market includes
eliminations of the inter-segment transactions described in the
segment results following Table A in note 2.1.2. Amounts disclosed in
geographical markets were partly offset by revenue from operating
segments which do not meet the disclosure requirements of a
reportable segment. Other negative product revenue amounts relate
to certain corporate level adjustments.
TC&SB
TE
N&IT
All Other
Telstra
InfraCo
Total
$m
$m
$m
$m
$m
$m
Year ended 30 June 2018 (restated)
4,421
4,410
11
8,565
8,227
338
190
190
-
273
273
840
840
-
-
-
-
193
18
175
13,958
524
14,482
14,482
13,958
524
-
-
-
14,482
317
317
-
1,629
1,617
12
1,915
1,915
-
2,546
2,261
285
1
1
-
1,783
1,783
-
(6)
(7)
1
7,887
298
8,185
6,646
6,348
298
1,539
1,539
-
8,185
-
-
-
-
-
-
-
-
-
50
1
49
-
-
-
-
-
-
-
-
-
1
49
50
50
1
49
-
-
-
50
17
17
-
(12)
(12)
-
(5)
(5)
-
5
5
-
78
78
-
(214)
(214)
-
210
183
27
52
27
79
210
183
27
(131)
(131)
-
79
1,010
1,010
-
198
198
-
456
456
-
753
753
-
-
-
-
-
-
-
635
635
-
3,052
-
3,052
3,052
3,052
-
-
-
-
3,052
5,765
5,754
11
10,380
10,030
350
2,556
2,556
-
3,627
3,293
334
919
919
-
1,569
1,569
-
1,032
829
203
24,950
898
25,848
24,440
23,542
898
1,408
1,408
-
25,848
94 | Telstra Corporation Limited and controlled entities
92 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 94 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 95 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue (continued)
Information about our non-current assets by geographical market is
presented in Table C.
Table C
Telstra Group
Carrying amount of non-current
assets
Located in Australia
Located offshore
As at 30 June
2019
2018
Restated
$m
$m
28,914
1,926
30,840
29,356
1,911
31,267
Our geographical operations are split between our Australian and
offshore operations. No individual geographical area of our offshore
operations forms a significant part of our operations.
The carrying amount of our segment non-current assets excludes
financial assets, inventories, defined benefit assets, deferred
contract costs and deferred tax assets.
2.2 Income
Table A
Telstra Group
Revenue from contracts with customers
Revenue from other sources
Total revenue (excluding finance income)
Other income
Net gain on disposal of property, plant and equipment and intangibles
Net gain on disposal of business and investments
Government grants
nbn disconnection fees
Other miscellaneous income
Total income (excluding finance income)
Finance income
Total income
Disaggregation of revenue from contracts with customers based on
the nature and the timing of transfer of goods and services and by
major products and geographical market is presented in note 2.1.2 in
Table A and in Table B, respectively.
Revenue from other sources includes income from:
• operating leases of mobile handsets offered to our retail
customers. For further information about these lease
arrangements, refer to note 7.4.2.
• embedded sales type finance leases where Telstra is a dealer -
lessor of customer premise equipment
• customer contributions to extend, relocate or amend our network
assets, where the counterparty does not purchase any ongoing
services under the same (or linked) contract(s).
Year ended 30 June
2019
2018
Restated
$m
24,291
968
25,259
686
1
200
1,611
50
2,548
27,807
238
28,045
$m
24,950
898
25,848
601
323
209
1,779
81
2,993
28,841
218
29,059
Government grants include income under the Telstra Universal
Service Obligation Performance Agreement (TUSOPA), Mobile
Blackspot Government Program and other individually immaterial
contracts accounted for as government grants. There are no
unfulfilled conditions or other contingencies attached to these
grants.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers
Under some of our long-term mobile and fixed contracts with
hardware we offer customers deferred payment terms for handsets
or other devices.
We generate revenue from customer contracts, which vary in their
form (standard or bespoke), legal term (casual, short-term and long-
term) and customer segment (consumer, small-medium business,
government and large enterprise), with the main contracts being:
• homogeneous retail consumer contracts (mass market prepaid
and postpaid mobile, fixed and media plans)
• retail small to medium business contracts (mass market and off-
the-shelf technology solutions)
• retail enterprise and government contracts (carriage,
standardised and bespoke technology solutions and their
management)
• network capacity contracts (mainly Indefeasible Right of Use)
• wholesale contracts for telecommunication services
• nbn Definitive Agreements (nbn DAs) and related arrangements
• network design, build and maintenance contracts (mainly with nbn
co).
The nature and type of contracts with customers are further
described below.
We sell a wide range of goods and services, which are provided either
directly by us or by third parties. Generally, we act as principal in our
contracts with customers, i.e. we control any promised goods and
services before they are transferred to the customer and we have
primary obligation for their delivery.
(a) Telstra Consumer and Small Business (TC&SB) contracts
TC&SB is a provider of telecommunication products, services and
solutions across mobiles, fixed and mobile broadband, media and
digital content to consumer and small business customers in
Australia, i.e. our mass market customers. We offer prepaid and
postpaid services. These contracts are homogeneous in nature and
sold directly by us or via our dealer channel.
Our mass market contracts often offer a bundle of goods and
services, including products such as hardware, voice, text and data
services, media content and others.
Our postpaid plans are either fixed term contracts, where early
termination charges apply if the customer cancels the contract; or
casual month-to-month contracts, where the customer may cancel
the contract at any time without any significant termination penalty.
Fixed term contracts are typically short term and rarely exceed two
to five years, with the majority of mobile and fixed contracts being 24
months and some small business contracts with a longer term.
In general, we recognise revenue from sale of goods on their delivery
and from sale of services based on passage of time (for contracts
with fixed monthly fees) or when the services have been consumed
(for usage or excess based contracts).
Our long-term mobile contracts often offer a bundle of hardware and
services, where the customer pays a monthly fee and receives a
discount. These arrangements include two separate legal contracts
with a customer which are combined for accounting purposes.
For mobile bundles sold directly by us, the discount is allocated
between handset and services based on their relative standalone
selling prices. However, if the bundle is sold via our dealer channel,
the whole discount is allocated only to services because Telstra is
not acting as a principal for delivery of the handset.
Assessment
of a
significant
financing
component
in mass
market
contracts
We have applied management judgement to
assess if a financing component is
significant in the context of a contract as a
whole and determine appropriate discount
rates, where relevant.
In our long-term mobile mass market
contracts with handsets, we separately
account for a significant financing
component, measured at contract inception
using a discount rate reflecting credit
characteristics of the customer.
We do not separately account for the
financing component of our long-term fixed
contracts with modems because it is not
significant in the contract as a whole.
Some of our mass market contracts also include material rights and
the transaction price allocated to them at contract inception is
recognised as revenue either when the customer exercises the
option and benefits from the free or discounted products or when the
rights are forfeited.
We also offer mobile plans where the customer can lease a handset
and purchase a bundle of services. Generally, we allocate the
transaction price, and any relevant discounts, to all the products in
the bundle based on a mixture of observable and estimated
standalone selling prices of these products. However, any lease
components are separated under the lease accounting standard
based on the fair values of lease and aggregate non-lease
components.
Determina-
tion of
standalone
selling
prices
We have applied management judgement to
estimate standalone selling prices in order
to allocate the transaction price to multiple
performance obligations under the same
customer contract.
In the absence of observable prices, we use
various estimation methods, including
mostly an adjusted market assessment and
cost plus margin approach to arrive at a
standalone selling price.
Under our fixed contracts, we usually charge a connection fee for
new connections to our network. Connection is a fulfilment activity,
therefore this fee is added to the transaction price and allocated to
distinct goods and services promised under the contract.
Generally, mass market contracts are not modified due to their
homogeneous nature. Customers often have rights included in the
original contract to move up and/or down within the plan family.
However, these rights are not often used.
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Section 2 - Our Performance.fm Page 97 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(b) Telstra Enterprise (TE) contracts
TE transacts with medium to large enterprise and government
customers for the provision of telecommunication services,
advanced technology solutions, network capacity and management,
unified communications, cloud and integrated and monitoring
services in Australia and globally. Large and complex TE contracts
are usually bespoke in nature as they deliver tailored solutions and
services. Outside of the large customers, the contracts are largely
standard.
TE contracts are generally large in annual turnover and range from
one year in contract length to more than 15 years for large
infrastructure projects, with the average term being three years.
International network capacity agreements, referred to as
Indefeasible Right of Use (IRU) agreements, have an average
contract term between 10 and 33 years.
Our TE legal contracts often are in a form of multi-year framework
agreements under which customers can order our goods and
services, including some of the mass market plans. Framework
agreements often include performance conditions and grant
different types of discounts or incentive funds. Legal framework
agreements are rarely considered as contracts for accounting
purposes. Instead, revenue recognition rules are applied to goods
and services ordered under each valid purchase order or a statement
of work raised under the terms of the framework agreement. This
may result in an accounting contract term not matching the legal
term of a framework agreement and in turn affect the amount and
timing of revenue recognised under each accounting contract.
In some of our TE contracts, we also act as a dealer and a lessor for
computer mainframes, processing equipment and other related
equipment used by our customers as part of the solutions
management and outsourcing services. Leases embedded in our
contracts are separately accounted for, usually as sales type finance
leases with finance lease receivables recognised in the statement of
financial position.
Our bespoke TE contracts are varied or re-negotiated from time to
time. Subject to the nature of these changes, accounting rules for
contract modification apply, depending largely on the determination
of distinct goods and services being delivered before and after the
contract modifications and the price changes arising from the
modifications.
Some of the TE contracts include two phases: a build phase followed
by the management of the technology solutions. Due to the complex
nature of those arrangements, we analyse the facts and
circumstances of each contract in order to determine distinct
performance obligations. If the build phase (or its components)
qualifies as distinct, we recognise the build phase revenue over the
term of the build or at its completion depending on when the
customer obtains control over the technology solution. For each
contract modification, we assess the scope of the modification or its
impact on the contract price in order to determine whether the
amendment must be treated as a distinct contract, as if the existing
contract were terminated and a new contract signed, or whether the
amendment must be considered as a change to the existing contract.
Under some of our enterprise arrangements, we receive customer
contributions to extend or amend our network assets to ultimately
enable delivery of telecommunication services. Where the
counterparty makes a contribution for network construction
activities and purchases ongoing services under the same (or linked)
contract(s), the upfront contribution is added to the total transaction
price of the customer contract and is allocated to the distinct goods
and services to be delivered under that contract.
We recognise revenue from management services or fixed fee
telecommunication services based on passage of time and from
usage based carriage contracts when the services have been
consumed.
Some of our framework agreements offer enterprise loyalty
programs and technology funds under which customer can obtain
additional free products. These are accounted for as material rights
and the transaction price allocated to them at contract inception is
recognised as revenue either when the customer exercises the
option and benefits from the free products or when the rights are
forfeited.
Our TE accounting contracts include multiple goods and services.
Generally, we allocate the transaction price, and any relevant
discounts, to all the products in the accounting contract based on
the negotiated prices, which are largely aligned to the estimated
standalone selling prices of distinct goods and services promised
under the contracts. However, some discounts granted under the
framework agreements may be allocated to selected performance
obligations if specific performance conditions apply. Transaction
price allocated to any lease components is based on the fair values
as required by the lease accounting standard.
Our large commercial arrangements often incorporate service level
agreements, e.g. agreed delivery time or service reinstatement time.
If we fail to comply with one of these commitments, we pay
compensation to the customer. The expected amount of such
penalties reduce the revenue for the period in which the service level
commitment has not been met, and it is recognised as soon as it is
probable that the commitment has not been or will not be met. Some
of the arrangements also include benchmarking or CPI clauses,
which are accounted for as variable consideration, usually from the
time the price changes take effect.
Our international TE arrangements include long-term network
capacity arrangements (some being take-or-pay arrangements) as
well as provision of satellite and colocation services (i.e. access to
the rack spaces, utilities and managed services such as security and
backups), for which revenue is usually recognised based on passage
of time.
IRU arrangements usually include upfront payments for services
which will be delivered over multiple years.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(b) Telstra Enterprise (TE) contracts (continued)
Assessment
of a
significant
financing
component
in
Indefeasible
Right of Use
(IRU)
We have applied management judgement to
assess if a financing component is
significant in the context of a contract as a
whole and determine appropriate discount
rates, where relevant.
We account for a significant financing
component in our domestic and
international bespoke network capacity
agreements, i.e. IRUs, where customers
make an upfront payment in advance of
receiving services. These contracts have an
average legal contract term between 10 and
33 years.
In IRUs where Telstra receives financing from the customer, revenue
recognised over the contract term exceeds the cash payments
received in advance of performance by the amount of interest
expense recognised in net finance costs.
(c) Telstra Wholesale contracts
Telstra Wholesale (part of our Telstra InfraCo segment) is a provider
of a wide range of telecommunication products and services to other
telecommunication operators, carriage services providers and
internet service providers, who in turn sell their services to a retail
end user.
Revenue arises from fixed network services contracts, including
usage based contracts and fixed bundles, with a term of up to two
years. Other contracts provide data and IP and mobile products such
as interconnect, domestic roaming, bulk SMS and postpaid mobile
services.
Insignificant annual revenue arises under long-term network
capacity contracts (i.e. IRUs), however some of those contracts have
a fixed term of up to 15 years.
Telstra Wholesale legal contracts are generally signed as multi-year
framework agreements, which set out pricing for the agreed services,
the legal contract term and any renewal options, incentives,
discounts and one-off fees. However, usually until our wholesale
customer's customer, i.e. the end user, orders services, the
obligation to deliver goods or services does not exist. Therefore, the
accounting contract generally arises at the level of a service order of
an end user.
Some of our framework agreements specify a minimum spend
commitment (i.e. a take-or-pay arrangement), in which case the
accounting contract may exist also at the framework agreement
level.
Under some of our wholesale arrangements, we receive customer
contributions to extend or amend our network assets to ultimately
enable delivery of telecommunication services. Where the
counterparty makes a contribution for network construction
activities and purchases ongoing services under the same (or linked)
contract(s), the upfront contribution is added to the total transaction
price of the customer contract and allocated to the distinct goods
and services to be delivered under that contract.
Telstra Wholesale service revenue is generally recognised over time
during the period over which the services are rendered, mostly based
on passage of time as the service provider (i.e. our customer) receives
unlimited calls and data.
Some of the Telstra Wholesale contracts include multiple goods and
services. We allocate the transaction price, and any relevant
discounts, generally to all the products in the accounting contract
based on the negotiated prices, which are largely aligned to the
estimated standalone selling prices of distinct goods and services
promised under the contracts. However, some discounts granted
under the framework agreements may be allocated only to selected
performance obligations based on the specific performance
conditions in the framework agreement.
(d) Agreements with nbn co
We have two types of agreements with nbn co:
• nbn DAs and related arrangements
• commercial contracts for network design, build and maintenance
services.
Revenue from contracts with nbn co is mainly reported within the
Telstra InfraCo segment. Amounts recognised as other income are
recorded in our corporate areas.
Our nbn DAs and related arrangements include a number of separate
legal contracts with both nbn co and the Commonwealth
Government (being related parties hence treated as the same
customer for accounting purposes) which have been negotiated
together with a common commercial objective. These separate legal
contracts have been combined under the revenue recognition rules.
The combined accounting contract, comprising of nbn DAs and
related arrangements, has a minimum fixed term of 30 years for
accounting purposes.
The combined nbn DAs and related arrangements include a number
of separately priced elements, some of which are accounted for
under the revenue recognition standard whereas others under other
accounting standards, e.g. government grants. The Subscriber
Agreement continues to be separately accounted for as other income
given the nbn disconnection fees do not relate to our ordinary
activities and there is no price dependency on other nbn DAs.
Services provided under the Infrastructure Services Agreement (ISA)
are accounted for under the revenue recognition requirements. We
recognise revenue from providing long-term access to ducts and pits
and other infrastructure, including dark fibre and exchange rack
space over time, initially based on the cumulative nbnTM network
rollout percentage and after rollout completion based on passage of
time.
The build of nbn related infrastructure is not considered a separate
performance obligation, therefore payments received for it under a
separate legal agreement have been combined and accounted for
together with the ISA long-term access services. These payments
have been received upfront and recorded as a contract liability, i.e.
an advance payment for services transferred over the ISA average
contracted period of 35 years.
ISA also includes payments for sale of our infrastructure assets, with
the net gain on sale of those assets recognised in other income. Net
gain on sale of the infrastructure assets is recognised at point in time
when the control passes to nbn co based on the incremental nbnTM
network rollout percentage.
We deliver a number of different services under these arrangements
and the transaction price includes a number of fixed and variable
components as described on the following page in the ‘Impact of nbn
Infrastructure Services Agreement (ISA) on revenue from customer
contracts and other income’.
98 | Telstra Corporation Limited and controlled entities
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Telstra Corporation Limited and controlled entities | 99
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 98 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 99 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(d) Agreements with nbn co (continued)
Impact of nbn Infrastructure
Services Agreement (ISA) on
revenue from customer contracts
and other income
nbn co makes decisions about the access technologies (e.g. fibre to the premises
'FTTP', fibre to the basement 'FTTB', fibre to the node 'FTTN', fibre to the curb 'FTTC'
or Hybrid Fibre Coaxial 'HFC') which it intends to use to serve premises in each of
its rollout regions. In any given rollout region, these decisions trigger its election to
acquire the relevant Telstra assets, the ownership of which we are progressively
transferring to nbn co under the nbn Infrastructure Services Agreement (ISA).
These assets include lead-in conduits (LICs), certain copper and HFC assets and
associated passive infrastructure (being infrastructure that supports the relevant
copper and HFC assets). In addition to the progressive transfer of these assets, we
also provide nbn co with long-term access to certain other components of our
infrastructure.
Under the ISA, we receive from nbn co the following payments:
• Infrastructure Ownership Payment (IOP) for the transfer of LICs, certain copper
and HFC assets and associated passive infrastructure
• Infrastructure Access Payment (IAP) for long-term access to ducts and pits
• payments for long-term access to other infrastructure, including dark fibre and
exchange rack space.
IOP are received over the duration of the nbnTM network rollout, CPI adjusted and
linked to the progress of the nbnTM network rollout.
IAP are also indexed to CPI, will grow in line with the nbnTM network rollout until its
completion and subsequently continue for the remaining average contracted
period of 28 years.
IOP and IAP are classified in the income statement as other income and revenue,
respectively, and are recognised on a percentage rollout basis of the nbnTM network
footprint.
For any given period, the IOP and IAP amounts ultimately received from nbn co may
vary from the amounts recognised in the income statement depending on progress
of the nbnTM network rollout and the final number of our existing fixed line premises
as defined and determined under the ISA. A change in the nbnTM network rollout
progress and/or the final number of these premises could result in a material
change to the amount of IOP and IAP recognised in the income statement.
We have applied management judgement in determining the amounts of IOP and
IAP recognised for the financial year 2019. Should evidence exist in the future
reporting periods that changes these amounts, other income and revenue will be
adjusted in the future reporting periods.
Given significant variability in the overall ISA consideration, the legal
contract includes specific clauses as to if, when and how an interest
receivable or an interest payable should be calculated.
Assessment
of a
significant
financing
component
in nbn DAs
We have applied management judgement to
assess if a financing component is
significant in the context of a contract as a
whole and determine appropriate discount
rates, where relevant.
We do not separately account for the
financing component in our nbn DAs and
related arrangements because it is not
significant to the accounting contract.
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(d) Agreements with nbn co (continued)
The other arrangements with nbn co are commercial contracts for
network design, build and maintenance services. These
arrangements provide a framework agreement with scheduled rates
under which nbn co can order required services. Generally, the
accounting contracts under these arrangements have no fixed term
or minimum order quantities that extend beyond 12 months.
The majority of revenue is recognised over time on a percentage of
completion basis. This is because the work being delivered can take
several months to complete with control being passed progressively
over that period. The percentage of completion is calculated as costs
incurred as a percentage of total estimated costs.
Percentage
of
completion
for
commercial
contracts
with nbn co
We use percentage of completion to
measure progress and recognised revenue
from our commercial contracts with nbn co.
In calculating the percentage of completion,
we have applied management judgement to
determine the total estimated costs to
complete. These are based on historical
costs to deliver and adjusted for any
upcoming changes which might impact the
previous costs to deliver.
Recognition of trade receivables, contract assets and contract
liabilities from our contracts with customers and movements in net
contract assets and contract liabilities are detailed in notes 3.7.1
and 3.7.2, respectively.
2.2.2 Remaining performance obligations
Nature, types and terms of our contracts with customers are
described in note 2.2.1.
Sometimes goods and services purchased under the same customer
contract will be transferred to the customer over multiple reporting
periods.
For contracts where a customer has made a firm commitment, for
example entered into a fixed term contract or a take-or-pay
arrangement, and where some performance obligations remain
unfulfilled as at 30 June 2019, we disclose the aggregate transaction
price allocated to goods and services which will be transferred after
30 June 2019 but arise from contracts existing as at that date. These
performance obligations represent goods and services that we are
obliged to provide to customers during the remaining fixed term of
our contracts, including contracts with an initial term of one year or
less.
Certain contracts offer customers the ability to purchase additional
goods or services at a discount. Any additional consideration for
those products is not included in the transaction price as it will be
recognised when the customer exercises the option to purchase
those products under a new, and not an existing, accounting
contract.
In determining the transaction price allocated to the remaining
performance obligations we did not include any future amounts
arising from usage based contracts, excess charges from
consumption over and above the services included in the current
contract, one-off transactions or casual contracts because no
obligation arises under those contracts until the customer
consumes our services.
Future revenue arising from nbn DAs is estimated based on a number
of assumptions and the estimated amount of variable consideration
has been constrained to the amount that is highly probable of not
resulting in a significant cumulative revenue reversal. The estimated
variable consideration and the constraint are reassessed each
reporting period. However, given its size, long-term nature and a
number of variable components impacting the contract
consideration (refer to note 2.2.1 for details) the actual amounts
recognised in the future periods may still materially differ from our
estimates.
In addition, any amounts arising from our existing customer
contracts which will be recognised as ‘revenue from other sources’ or
‘other income’, for example operating lease income or net gain on
sale of assets, are excluded from the remaining performance
obligations.
We have elected to apply the first time adoption practical expedient
and not to disclose the remaining performance obligations for the
financial year 2018.
Table B presents aggregate transaction price allocated to the
remaining performance obligations promised under the contracts
where a customer has made a firm commitment before the balance
date but goods and services will be transferred after 30 June 2019.
Presented time bands best depict future revenue recognition
profiles.
Table B
Telstra Group
Less than 1 year
Between 1 to 2 years
Between 2 to 5 years
Between 5 to 10 years
Between 10 to 20 years
More than 20 years
As at
30 June
2019
$m
6,935
3,174
4,068
5,793
13,412
13,016
46,398
2.2.3 Recognition and measurement
In the financial year 2019, we have adopted new accounting policies
for revenue recognition.
(a) Revenue from contracts with customers
Revenue from contracts with customers arises from arrangements
where the counterparty is a customer that transacts with us to
obtain goods or services which are an output of our ordinary activities
in exchange for consideration.
We apply the five-step approach to our customer arrangements to
identify the contract for accounting purposes, i.e. the accounting
contract and to determine the amount and timing of revenue to be
recognised. The five steps are applied at inception of the accounting
contract in order to provide an overview of the contract as a whole.
This in turn allows us to determine the accounting for relevant costs
to obtain and/or fulfil a contract. The five steps are described below.
For the accounting policy for deferred costs to obtain and/or fulfil a
contract refer to note 3.8.1.
100 | Telstra Corporation Limited and controlled entities
98 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.3 Recognition and measurement (continued)
(a) Revenue from contracts with customers (continued)
(i) Step 1: Identify the contract with customer
In order to identify an accounting contract, the contract must be
legally enforceable. Any components of the contract which are
accounted for under other accounting standards are then identified
and separated out as they cannot be considered for revenue
recognition.
The accounting contract may not align with the legal contract and in
some cases multiple legal contracts may need to be combined to
form one accounting contract. In other instances, a legal contract
may only provide a framework agreement (i.e. an offer) and an
accounting contract only exists when the customer commits to
purchase goods or services. This is because an accounting contract
must have commercial substance. Each party’s rights regarding the
goods or services and specified payment terms must also exist. In
addition, it has to be probable that the customer is able and intends
to pay Telstra. The contract term impacts the identification of
performance obligations and the transaction price.
(ii) Step 2: Identify the performance obligations in the contract
After the accounting contract and its term have been established, we
determine the performance obligations within the contract.
Performance obligations include promised distinct goods or services
for which control is transferred from Telstra to the customer and
material rights but exclude fulfilment activities (other activities that
are necessary under the contract but that do not result in a transfer
of goods or services).
Performance obligations can be explicitly stated in a contract or can
be implied when the customer has a valid expectation that an
additional good or service will be delivered.
A material right is accounted for as a separate performance
obligation if we give the customer a beneficial option to purchase
additional distinct goods or services, i.e. the customer receives an
incremental discount of at least 5% of the transaction price
compared to other customers.
We account for a series of goods or services which are substantially
the same and have the same pattern of transfer to the customer as a
single performance obligation.
A good or service is distinct if it is capable of being distinct, i.e. a
customer can benefit from it on its own together with other readily
available resources, and it is distinct within the context of the
contract, i.e. no transformative relationship exists with other
promised goods or services.
(iii) Step 3: Determine the transaction price
After all performance obligations have been identified, we determine
the transaction price, which represents the total amount of revenue
to be recognised under the accounting contract. In doing so, we
assume that the contract will not be cancelled, renewed or modified.
The transaction price may include fixed and/or variable, cash and/or
non-cash consideration. It may also need to be adjusted for:
• a significant financing component (if the period between when we
would transfer the good or service to the customer and when the
customer would pay for the good or service is expected to be
greater than one year)
• consideration accounted for under other accounting standards
(such as lease repayments)
• amounts collected on behalf of third parties (such government
taxes).
Fixed cash consideration is not dependent on future events and is
based on the minimum amount of cash we expect to receive in
exchange for delivering the minimum level of goods or services the
customer has legally committed to purchase at contract inception
over the accounting contract term.
Variable consideration receivable or payable is an amount that is
variable or contingent upon an uncertain future event before the
exact amount is known. Examples of variable consideration include
discounts, rebates, refunds, credits and price concessions. To
estimate an amount of variable consideration, we use either the
most likely amount or the expected value method depending on
which better predicts the variable amount. After estimating it, we
constrain the variable consideration to the amount that is highly
probable of not resulting in a significant cumulative revenue reversal.
(iv) Step 4: Allocate the transaction price to the performance
obligations in the contract
After the transaction price has been determined, we allocate it to the
performance obligations generally based on their relative
standalone selling price (SSP). SSP is the price for which we would
sell the goods or services underlying the performance obligations on
a standalone basis, i.e. not in a bundle. We determine SSPs at
contract inception using an observable price for a standalone sale of
substantially the same good or service under similar circumstances
and to a similar class of customers. If no observable price is
available, we estimate the SSP using an appropriate method, e.g.
adjusted market assessment approach, expected cost plus a margin
approach or a residual approach.
Using relative SSPs for allocating the transaction price to
performance obligations generally reflects the proportional amount
of consideration we expect to receive in exchange for delivering the
underlying distinct goods and/or services under the contract.
However, in some instances, in order to correctly reflect the amount
of revenue to be recognised, we apply allocation exceptions for
variable consideration, discounts or a significant financing
component in order to correctly allocate these elements to some but
not all performance obligations.
(v) Step 5: Recognise revenue when or as a performance obligation is
satisfied
After the transaction price has been allocated to the performance
obligations, we determine when revenue should be recognised, i.e.
when a performance obligation is satisfied by us which is when
control of the distinct good or service is transferred to the customer.
Customers obtain control over a good or service when they benefit
from the good or service and decide how to use the good or service.
If any of the following three criteria are met, we recognise revenue
over time:
• the customer simultaneously receives and consumes all benefits
as we perform (this applies to routine or recurring services)
• our performance creates or enhances an asset controlled by the
customer (this is relevant when the asset is built on a customer’s
site)
• the asset has no alternative use to us and we have an enforceable
right to payment (for example, an asset is being built to order).
If none of the criteria are met, we recognise revenue at a point in time.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
Contract terminations generally trigger different rights and
obligations under the legal contract. These rights and obligations are
not related to our performance and were not considered at inception
of the accounting contract when applying the five-step approach.
Therefore, where relevant, any income over and above the recovery of
the consideration due for the delivered goods or services is not
classified as revenue from customer contracts. Instead, we classify
it as revenue from other sources.
We earn revenue from operating subleases of mobile handsets
offered to our retail customers (Telstra as a lessor), which we lease
from a third party in a back-to-back arrangement (Telstra as a
lessee). We also earn revenue from property operating leases.
Operating lease income is recognised on a straight- line basis over
the lease term.
We earn revenue from embedded sales type finance leases where
Telstra is a dealer-lessor of customer premise equipment. We
recognise revenue from sale of these goods at point in time when the
control transfers to the customer.
We receive contributions to extend, relocate or amend our network
assets. Where the counterparty makes a contribution for network
construction activities that is not considered a government grant,
and does not purchase any ongoing services under the same (or
linked) contract(s), we recognise revenue over the period of the
network construction activities.
Other items we classify as revenue from other sources include late
payment fees, which are recognised when charged and their
collectability is reasonably assured.
(c) Government grants
Government grants are recognised where there is reasonable
assurance that the grant will be received and Telstra will comply with
all attached conditions. Government grants relating to costs are
deferred and recognised in the income statement as other income
over the period necessary to match them with the costs that they are
intended to compensate.
2.2 Income (continued)
2.2.3 Recognition and measurement (continued)
(a) Revenue from contracts with customers (continued)
(v) Step 5: Recognise revenue when or as a performance obligation is
satisfied (continued)
We use either input or output methods to measure progress when
satisfying the performance obligations over time. Output methods
use direct measurements of the value to the customer, i.e. they are
based on the goods or services that control has transferred to date
relative to the remaining goods or services promised under the
contract (for example, milestones reached). It is applied when the
value of the goods or services transferred to the customer can be
measured directly. Input methods use our efforts or inputs in the
satisfaction of the performance obligation relative to the total
expected efforts or inputs in satisfying that performance obligation
(for example, our labour hours used). It is applied when the value of
the underlying goods or services transferred to the customer cannot
be measured.
When a performance obligation is satisfied at a point in time, the
allocated transaction price is recognised when control is transferred
to the customer. In determining whether the control over the good
has transferred to the customer, we consider the customer’s
obligation to pay, transfer of legal title to the good, physical
possession of the good, the customer’s acceptance and risks and
rewards of ownership.
(vi) Accounting after contract inception
The five-step approach provides an accounting contract overview at
its inception. However, some judgements and estimates may change
over the accounting contract term. Where relevant, we account for
the following events after contract inception:
• exercised or forfeited customer options (both material rights and
marketing offers, i.e. non beneficial options)
• changes in estimates of variable consideration
• changes in how the customer exercises its contractual rights
• special arrangements, e.g. bill and hold or consignment
arrangements.
(vii) Contract modifications
From time to time, our contracts are renegotiated after contract
inception and their scope and/or price change. We account for
contract modifications either as:
• a separate contract which will not require any reallocation to
performance obligations in the original contract
• a retrospective cumulative change to revenue (creating either a
catch up or deferral of past revenues for all performance
obligations in the original contract)
• a prospective change to revenue with a reallocation of revenues
amongst remaining performance obligations in the original
contract, or
• both a cumulative change and prospective change to revenue in
the original contract.
(b) Revenue from other sources
Revenue from other sources includes income arising from
arrangements other than those accounted for using the five-step
approach. This is because in some cases income generated in the
course of our ordinary activities does not relate to our performance
under contracts with customers or it is explicitly accounted for under
other accounting standards.
102 | Telstra Corporation Limited and controlled entities
100 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 103
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Section 2 - Our Performance.fm Page 103 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.3 Expenses
In our income statement, we classify our expenses (apart from
finance costs) by nature as this classification more accurately
reflects the type of operations we undertake.
Telstra Group
Included in our labour expenses are the following:
Employee redundancy
Share-based payments
Defined contribution plan expense
Defined benefit plan expense
Included in our goods and services purchased are the following:
Network payments
Cost of goods sold
Other expenses
Impairment losses (excluding net losses on financial assets)
Rental expense on operating leases
Service contracts and other agreements
Promotion and advertising
General and administration
Other operating expenses
Depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of intangible assets
Finance costs
Interest on borrowings
Other
Less: interest on borrowings capitalised
The following paragraphs detail further information about our
expenses and finance costs:
• share-based payments expense relates to both cash-settled and
equity-settled share plans. Refer to note 5.2 for further details.
• impairment losses include $499 million impairment of property,
plant and equipment and software assets (2018: $317 million
impairment of goodwill and other non-current assets), and $100
million impairment of deferred contract costs (2018: $101 million).
Refer to notes 3.1, 3.2 and 3.8 for further details on the impairment
of property, plant and equipment, intangible assets and deferred
contract costs respectively.
• other operating expenses include a loss of $85 million from the
sale of Ooyala Inc. and Ooyala AB in October 2018
• interest on borrowings has been capitalised using a capitalisation
rate of 4.9 per cent (2018: 4.9 per cent)
Year ended 30 June
2019
2018
Restated
$m
$m
642
23
226
52
2,791
3,771
608
1,349
1,590
310
990
387
5,234
2,810
1,472
4,282
792
181
973
(105)
868
163
29
253
69
2,267
3,551
451
1,071
1,677
344
1,057
287
4,887
3,005
1,465
4,470
777
130
907
(101)
806
• other finance costs include unrealised valuation impacts on our
borrowings and derivatives. These include net losses which arise
from changes in the fair value of derivative financial instruments to
the extent that hedge accounting is not effective or the hedge
accounting criteria are not met. These fair values increase or
decrease because of changes in financial indices and prices over
which we have no control. All unrealised amounts unwind to nil at
maturity of the underlying instrument.
• further information on our operating leases is provided in note
7.4.2.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.4 Income taxes
This note sets out our tax accounting policies and provides an analysis of our income tax expense and deferred tax balances, including
a reconciliation of tax expense to accounting profit.
Current income tax is based on the accounting profit adjusted for differences in accounting and tax treatments of income and expenses
(i.e. taxable income).
Deferred income tax, which is accounted for using the balance sheet method, arises because the accounting income is not always the
same as taxable income. This creates temporary differences, which usually reverse over time. Until they reverse, a deferred tax asset
or liability must be recognised on the balance sheet.
This note also provides disclosures which form part of the requirements of the Australian Board of Taxation’s Voluntary Tax
Transparency Code.
2.4.1 Income tax expense
Table A provides a reconciliation of notional income tax expense to actual income tax expense.
Table A
Telstra Group
Major components of income tax expense
Current tax expense
Deferred tax resulting from the origination and reversal of temporary differences
Over provision of tax in prior years
Reconciliation of notional income tax expense to actual income tax expense
Profit before income tax expense
Notional income tax expense calculated at the Australian tax rate of 30% (2018: 30%)
Notional income tax expense differs from actual income tax expense due to the tax effect of:
Non-taxable and non-deductible items
Amended assessments
Over provision of tax in prior years
Different tax rates in overseas jurisdictions
Income tax expense on profit
Income tax expense/(benefit) recognised directly in other comprehensive income or equity during the year
Year ended 30 June
2019
2018
Restated
$m
953
(20)
(10)
923
3,072
922
38
(18)
(10)
(9)
923
13
$m
1,552
33
(3)
1,582
5,139
1,542
64
(3)
(3)
(18)
1,582
(6)
Tables B and C include disclosures which form part of the requirements of the Australian Board of Taxation’s Voluntary Tax Transparency
Code. Any disclosed amounts are determined in accordance with Australian Accounting Standards.
Table B provides a breakdown of effective income tax rates and Tax Transparency Code effective income tax rates for both the Australian
Economic Group (the Telstra Entity and its Australian resident controlled entities) and the Telstra Group.
Table B
Telstra Group
Effective income tax rate
Tax Transparency Code effective income tax rate
Year ended 30 June
2019
2018 (restated)
Group
30.0%
30.9%
Australia
33.2%
34.3%
Group
30.8%
30.5%
Australia
30.5%
30.1%
The effective income tax rate for the Telstra Group of 30.0 per cent
(2018: 30.8 per cent) was calculated as income tax expense divided
by profit before income tax expense.
The Tax Transparency Code effective income tax rate (TTC ETR) for
the Telstra Group of 30.9 per cent (2018: 30.5 per cent) differs to the
effective income tax rate due to excluding the impact of under or over
provision of tax in prior years and amended assessments.
The 2018 TTC ETR for the Telstra Group of 30.5 per cent has been
updated to include the impact of the net over provision of tax and
amended 2018 assessments reflected in the current year income tax
expense. The TTC ETR forms part of the requirements of the
Voluntary Tax Transparency Code to disclose the income tax expense
borne by Telstra in respect of the Australian and global operations for
the individual year.
104 | Telstra Corporation Limited and controlled entities
102 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 105
Telstra Corporation Limited and controlled entities | 103
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019
Section 2 - Our Performance.fm Page 104 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 105 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
2.4 Income taxes (continued)
2.4.1 Income tax expense (continued)
Non-taxable and non-deductible items in the current period include
the tax effect of:
• loss on the sale of Ooyala Inc. and Ooyala AB ($26 million)
• tax losses not recognised ($12 million)
• attributable taxable income from Controlled Foreign Companies
($9 million)
• non-assessable gain on sale of land and buildings ($6 million)
• various other items ($3 million).
Table C provides a reconciliation of income tax expense to income tax
paid during the year as part of the requirements of the Voluntary Tax
Transparency Code.
Table C
Telstra Group
As at 30 June
2019
2018
Restated
Income tax expense
Over provision in prior years
Temporary differences recognised in
deferred tax expense
Intangible assets
Property, plant and equipment
Deferred contract costs
Trade and other payables
Contract liabilities and other revenue
received in advance
Provision for employee entitlements
Trade and other receivables and contract
assets
Other
Current tax expense
Income tax payments for prior years
Current year income tax payable next year
Other
Income tax paid
$m
923
10
169
(101)
(56)
52
(28)
(15)
1
(2)
20
953
103
(103)
3
956
$m
1,582
3
126
(133)
(71)
18
89
(25)
(25)
(12)
(33)
1,552
101
(132)
-
1,521
Estimating
provision for
income tax
We are subject to income tax
legislation in Australia and in
jurisdictions where we have foreign
operations. Judgement is required in
determining our worldwide provisions
for income taxes and in assessing
whether deferred tax balances are to
be recognised in the statement of
financial position. Changes in tax
legislation in the countries we operate
in may affect the amount of provision
for income taxes and deferred tax
balances recognised.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.4.2 Deferred tax assets/(liabilities)
2.4 Income taxes (continued)
2.4.4 Recognition and measurement
Table D details the amount of deferred tax assets and liabilities
recognised in the statement of financial position. Deferred tax items
recognised in the income statement include impact of foreign
exchange movements.
Table D
Telstra Group
Deferred tax items recognised in the
income statement
Property, plant and equipment
Intangible assets
Contract liabilities and other revenue
received in advance
Provision for employee entitlements
Deferred contract costs
Trade and other receivables and
contract assets
Trade and other payables
Other provisions
Investments
Capital tax losses
Defined benefit (asset)/liability
Borrowings and derivative financial
instruments
Allowance for doubtful debts
Income tax losses
Other
Deferred tax items recognised in other
comprehensive income or equity
Financial instruments
Defined benefit (asset)/liability
Investments
Other
Net deferred tax liability
Comprising:
Deferred tax assets
Deferred tax liabilities
Year ended 30 June
2019
2018
Restated
$m
$m
(1,546)
(571)
(1,440)
(743)
405
289
(227)
(209)
174
148
(143)
120
98
(57)
36
29
(9)
(1,463)
190
(168)
(30)
1
(7)
(1,470)
59
(1,529)
(1,470)
426
305
(172)
(206)
135
141
(140)
123
96
(52)
27
32
(21)
(1,489)
184
(171)
(8)
1
6
(1,483)
54
(1,537)
(1,483)
A $26 million reduction in deferred tax liabilities was recognised in
retained earnings as at 1 July 2018 due to the adoption of AASB 9
(2014).
Our income tax expense is the sum of current and deferred income
tax expenses. Current income tax expense is calculated on
accounting profit after adjusting for non-taxable and non-deductible
items based on rules set by the tax authorities. Deferred income tax
expense is calculated at the tax rates that are expected to apply for
the period in which the deferred tax asset is realised or the deferred
tax liability is settled. Both our current and deferred income tax
expenses are calculated using tax rates that have been enacted or
substantively enacted at reporting date.
Our current and deferred taxes are recognised as an expense in the
income statement, except when they relate to items that are directly
recognised in other comprehensive income or equity. In this case, our
current and deferred tax expenses are also recognised directly in
other comprehensive income or equity.
We apply the balance sheet method for calculating our deferred tax
balances. Deferred tax is the expected tax payable or recoverable on
all taxable and deductible temporary differences determined with
reference to the tax bases of assets and liabilities and their carrying
amount for financial reporting purposes as at the reporting date.
We generally recognise deferred tax liabilities for all taxable
temporary differences, except to the extent that the deferred tax
liability arises from:
• the initial recognition of goodwill
• the initial recognition of an asset or liability in a transaction that is
not a business combination and affects neither our accounting
profit nor our taxable income at the time of the transaction.
For our investments in controlled entities, joint ventures and
associated entities, recognition of deferred tax liabilities is required
unless we are able to control the timing of our temporary difference
reversal and it is probable that the temporary difference will not
reverse.
Deferred tax assets are recognised to the extent that it is probable
that taxable profit will be available against which the deductible
temporary differences, and the carried forward unused tax losses
and tax credits, can be utilised.
Deferred tax assets and deferred tax liabilities are offset in the
statement of financial position where they relate to income taxes
levied by the same taxation authority and to the extent that we intend
to settle our current tax assets and liabilities on a net basis.
2.4.2 Deferred tax assets/(liabilities) (continued)
Unrecognised
deferred tax
assets
We apply management judgement to
recognise a deferred tax asset and
review its carrying amount at each
reporting date. The carrying amount is
only recognised to the extent that it is
probable that sufficient taxable profit
will be available in the future to utilise
this benefit. Any amount unrecognised
could be subsequently recognised if it
has become probable that future
taxable profit will allow us to benefit
from this deferred tax asset.
Table E details deferred tax assets not recognised in the statement
of financial position.
Table E
Telstra Group
Deferred tax assets not recognised
Capital tax losses
Income tax losses
Deductible temporary differences
Year ended 30 June
2019
2018
$m
$m
1,736
240
167
2,143
1,744
358
165
2,267
2.4.3 Tax consolidated group
Under Australian taxation law, the Telstra Entity and its Australian
resident wholly owned entities (members) form a tax consolidated
group and are treated as a single entity for income tax purposes. The
Telstra Entity is the head entity of the group and, in addition to its
own transactions, it recognises the current tax liabilities and the
deferred tax assets arising from unused tax losses and tax credits for
all members in the group.
Entities within the tax consolidated group have entered into a tax
sharing agreement and a tax funding agreement with the head entity.
The tax sharing agreement specifies methods of allocating any tax
liability in the event the head entity defaults on its group payment
obligations and the treatment where a member exits the tax
consolidated group.
Under the tax funding agreement the head entity and each of the
members have agreed to pay/receive a current tax payable to/
receivable from the head entity based on the current tax liability or
current tax asset recorded in the financial statements of the
members. The Telstra Entity will also compensate the members for
any deferred tax assets relating to unused tax losses and tax credits.
Amounts receivable by the Telstra Entity of $46 million (2018: $59
million) and payable by the Telstra Entity of $109 million (2018: $114
million) under the tax funding agreement are due in the next financial
year upon final settlement of the current tax payable for the tax
consolidated group.
106 | Telstra Corporation Limited and controlled entities
104 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 107
Telstra Corporation Limited and controlled entities | 105
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 2 - Our Performance.fm Page 106 Tuesday, August 27, 2019 8:37 AM
Section 2 - Our Performance.fm Page 107 Tuesday, August 27, 2019 8:37 AM
Notes to the financial statements (continued)
Section 2. Our performance (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 2. Our performance (continued)
2.5 Earnings per share
2.6 Notes to the statement of cash flows
2.6 Notes to the statement of cash flows (continued)
2.6.1 Reconciliation of profit to net cash provided by operating
activities
2.6.2 Cash and cash equivalents
This note outlines the calculation of Earnings per Share (EPS),
which is the amount of post-tax profit attributable to each
share. EPS excludes profit attributable to non-controlling
interest and takes into account the average number of shares
weighted by the number of days on issue.
We calculate basic and diluted EPS. Diluted EPS reflects the
effects of the equity instruments allocated to our employee
share schemes under the Telstra Growthshare Trust and the
Telstra Employee Share Ownership Plan.
Table A
Telstra Group
Year ended 30 June
2019
2018
Restated
Note
$m
$m
Profit for the year
2,149
3,557
Telstra Group
Year ended 30 June
Finance costs
Earnings used in the calculation of
basic and diluted EPS
Profit for the year attributable to equity
holders of Telstra Entity
2019
2018
Restated
$m
$m
2,154
3,591
Weighted average number of ordinary
shares
Number of shares
(millions)
Add/(subtract) items classified
as investing/financing activities
Finance income
Net gain on disposal of property,
plant and equipment and
intangible assets
Net loss/(gain) on disposal of
business, controlled entities and
equity accounted investments
Government grants received
relating to investing activities
Add/(subtract) non-cash items
(238)
868
(218)
806
(686)
(601)
85
(323)
(11)
(91)
Weighted average number of ordinary
shares used in the calculation of basic
EPS
Dilutive effect of certain employee
share instruments
Weighted average number of ordinary
shares used in the calculation of
diluted EPS
Depreciation and amortisation
4,282
4,470
11,880
11,877
Share-based payments
20
7
11,900
11,884
Defined benefit plan expense
Share of net (profit)/loss from joint
ventures and associated entities
Impairment losses (excluding
inventories, trade and other
receivables)
6.2
cents
cents
Other
23
52
(12)
29
69
22
501
327
(8)
(33)
Basic EPS
Diluted EPS
18.1
18.1
30.2
30.2
When we calculate the basic EPS, we adjust the weighted average
number of ordinary shares to exclude the shares held in trust by
Telstra Growthshare Trust (Growthshare) and by the Telstra
Employee Share Ownership Plan Trust II (TESOP99).
Information about equity instruments issued under the Growthshare
and TESOP99 share plans can be found in note 5.2.
Cash movements in operating
assets and liabilities (net of
acquisitions and disposals of
controlled entity balances)
Decrease in trade and other
receivables
Decrease/(increase) in inventories
Increase in prepayments and
other assets
Increase in deferred contract
costs
Increase in trade and other
payables
(Decrease)/increase in contract
liabilities and other revenue
received in advance
(Decrease)/increase in net taxes
payable
Decrease in provisions
Net cash provided by operating
activities
177
28
(51)
(78)
197
(8)
(85)
(146)
121
587
(431)
(33)
(55)
34
61
(48)
6,683
8,606
Table B
Telstra Group
Year ended 30 June
2019
2018
Cash at bank and on hand
Bank deposits and negotiable
certificates of deposit
Bank overdraft
Cash and cash equivalents in the
statement of cash flows
$m
219
385
604
-
604
$m
129
500
629
(9)
620
2.6.3 Recognition, measurement and presentation
(a) Cash and cash equivalents
Cash and cash equivalents include cash at bank and on hand, bank
deposits and negotiable certificates of deposit that are held to meet
short-term cash commitments rather than for investment purposes.
Bank deposits and negotiable certificates of deposit are classified as
financial assets held at amortised cost.
(b) Short-term borrowings in financing cash flows
Where our short-term borrowings are held for the purposes of
meeting short-term cash commitments, we report the cash receipts
and subsequent repayments in financing activities on a net basis in
the statement of cash flows.
(c) Goods and Services Tax (GST) (including other value-added
taxes)
We record our revenue, expenses and assets net of any applicable
GST, except where the amount of GST incurred is not recoverable
from the Australian Taxation Office (ATO). In these circumstances the
GST is recognised as part of the cost of acquisition of the asset or as
part of the expense item.
Receivables and payables balances include GST where we have
either included GST in our price charged to customers or a supplier
has included GST in their price charged to us. The net amount of GST
due to the ATO but not paid is included in our current trade and other
payables.
108 | Telstra Corporation Limited and controlled entities
106 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 109
Telstra Corporation Limited and controlled entities | 107
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 108 Tuesday, August 27, 2019 8:25 AM
Section 3 - Our Core Assets and Working Capital.fm Page 109 Tuesday, August 27, 2019 8:25 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and
working capital
This section describes our core long-term tangible and
intangible assets underpinning the Group’s performance
and provides a summary of our asset impairment
assessment. This section also describes our short-term
assets and liabilities, i.e. our working capital supporting the
operating liquidity of our business.
SECTION 3.
3.1 Property, plant and equipment
OUR CORE ASSETS AND WORKING CAPITAL
Table A shows movements in net book value of our tangible assets
during the financial year.
Table A
Telstra Group
Land and
site
improve-
ments
Buildings
Commu-
nication
assets
Other plant
and
equipment
Total
property,
plant and
equipment
Net book value at 1 July 2017
Additions
Acquisition of controlled entities
Impairment losses
Depreciation expenses
Disposals
Net foreign currency exchange differences
Transfers
Net book value at 30 June 2018
At cost
Accumulated depreciation and impairment
Net book value at 1 July 2018
Additions
Impairment losses
Depreciation expenses
Disposals
Disposals through sale of controlled entities
Assets held for sale
Net foreign currency exchange differences
Transfers
Net book value at 30 June 2019
At cost
Accumulated depreciation and impairment
$m
52
-
-
-
(3)
-
-
-
49
52
(3)
49
-
-
(3)
-
-
-
-
16
62
65
(3)
$m
620
92
-
(4)
(96)
-
3
(3)
612
1,381
(769)
612
141
(3)
(98)
-
-
(44)
2
(9)
601
1,390
(789)
$m
20,220
3,536
-
(9)
(2,801)
(5)
48
76
21,065
62,111
(41,046)
21,065
3,004
(51)
(2,612)
(21)
-
(60)
47
(16)
21,356
61,780
(40,424)
$m
458
112
4
(7)
(105)
(3)
3
(80)
382
1,405
(1,023)
382
60
(3)
(97)
-
(2)
(13)
3
(17)
313
1,251
(938)
$m
21,350
3,740
4
(20)
(3,005)
(8)
54
(7)
22,108
64,949
(42,841)
22,108
3,205
(57)
(2,810)
(21)
(2)
(117)
52
(26)
22,332
64,486
(42,154)
Section 3. Our core assets and working capital (continued)
3.1 Property, plant and equipment (continued)
3.1.2 Recognition and measurement
The following paragraphs provide further information about our fixed
asset classes:
• additions to property, plant and equipment include $74 million
(2018: $73 million) of capitalised borrowing costs directly
attributable to qualifying assets
• buildings include leasehold improvements and a $57 million
(2018: $103 million) net book value of buildings under finance
lease
• communication assets include certain network land and building
assets that are essential to the operation of our communication
assets
• as at 30 June 2019, we had property, plant and equipment under
construction amounting to $1,006 million (2018: $1,388 million).
As these assets were not installed and ready for use, no
depreciation has been charged on these assets.
3.1.1 Impairment assessment
All non-current tangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. For our impairment
assessment we identify cash generating units (CGUs), i.e. the
smallest groups of asset that generate cash inflows that are largely
independent of cash inflows from other assets or groups of assets.
The recoverable amount of an asset is the higher of its fair value less
cost of disposal and its value in use. Fair value less cost of disposal
is measured with reference to quoted market prices in an active
market. Value in use represents the present value of the future
amount expected to be recovered through the cash inflows and
outflows arising from the asset’s continued use and subsequent
disposal.
We recognise any reduction in the carrying value as an expense in the
income statement in the reporting period in which the impairment
loss occurs.
An impairment assessment is performed at the level of our Telstra
Entity ubiquitous telecommunications network CGU.
Cash
generating
units (CGUs) for
impairment
assessment
We apply management judgement to
establish our CGUs.
We have determined that under the
nbn Infrastructure Services
Agreement (ISA) our ubiquitous
telecommunications network also
includes the Hybrid Fibre Coaxial (HFC)
cable network. This resulted mainly
from the fact that under the nbn ISA
cash inflows generated by both
networks can no longer be separated.
No one item of telecommunications
equipment is of any value without the
other assets to which it is connected to
deliver our products and services.
We did not identify any impairment indicators at the level of the
ubiquitous network. However, we have recognised total impairment
expense related to the tangible ($57 million) and intangible assets
($442 million), mostly pertaining to our legacy IT systems.
(a) Acquisition
Property, plant and equipment, including construction in progress, is
recorded at cost less accumulated depreciation and impairment.
Cost includes the purchase price and costs directly attributable to
bringing the asset to the location and condition necessary for its
intended use.
We capitalise borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset. All other
borrowing costs are recognised as an expense in our income
statement when incurred.
(b) Depreciation
Items of property, plant and equipment, including buildings and
leasehold property but excluding freehold land, are depreciated on a
straight-line basis in the income statement over their estimated
useful lives. We start depreciating assets when they are installed and
ready for use.
The useful lives of our significant property, plant and equipment
classes are detailed in Table B.
Table B
Telstra Group
Buildings
Communication assets
Other plant and equipment
Useful life (years)
As at 30 June
2019
2018
5 - 55
2 - 57
4 - 13
5 - 48
2 - 57
4 - 13
Useful lives and
residual values
of tangible
assets
We apply management judgement to
estimate useful lives and residual
values of our assets and review them
each year. If useful lives or residual
values need to be modified, the
depreciation expense changes from
the date of reassessment until the end
of the revised useful life (for both the
current and future years).
This assessment includes a
comparison with international trends
for telecommunication companies
and, in relation to communications
assets, includes a determination of
when the asset may be superseded
technologically or made obsolete.
The net effect of the assessment of
useful lives was a $253 million (2018:
$216 million) decrease in depreciation
expense.
110 | Telstra Corporation Limited and controlled entities
108 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 111
Telstra Corporation Limited and controlled entities | 109
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 110 Tuesday, August 27, 2019 8:25 AM
Section 3 - Our Core Assets and Working Capital.fm Page 111 Tuesday, August 27, 2019 8:25 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
3.1 Property, plant and equipment (continued)
(c) Leased assets (Telstra as a lessee)
3.2 Goodwill and other intangible assets
We distinguish between finance leases, which effectively transfer
substantially all the risks and benefits incidental to ownership of the
leased asset from the lessor to the lessee, and operating leases
under which the lessor effectively retains substantially all such risks
and benefits. The determination of whether an arrangement is, or
contains, a lease is based on the substance of the arrangement at
inception date, whether fulfilment of the arrangement depends on
the use of a specific asset or assets and the arrangement conveys a
right to use the asset, even if that right is not explicitly specified in an
arrangement.
Property, plant and equipment under finance lease are capitalised at
the beginning of the lease term at the lower of the fair value of the
asset and the present value of the future minimum lease payments.
A corresponding liability is also established and each lease payment
is allocated between the liability and finance charges.
Capitalised property, plant and equipment under finance lease are
depreciated on a straight-line basis to the income statement over
the shorter of the lease term or the expected useful life of the assets.
Where we lease properties, costs of improvements to these
properties are capitalised as leasehold improvements and
amortised over the shorter of the useful life of the improvements and
the term of the lease.
Operating lease payments are charged to the income statement on a
straight-line basis over the term of the lease.
When we sell and lease back the same asset, the accounting
treatment depends on the classification of the leaseback. If the
leaseback is classified as a finance lease, any gain or loss on the sale
is deferred and amortised over the lease term. If the leaseback is
classified as an operating lease, any profit or loss on sale is
recognised immediately.
3.1.3 Non-current assets held for sale
As at 30 June 2019, $121 million of assets and $79 million of
liabilities have been classified as held for sale, including assets and
liabilities related to three data centres within the Telstra Enterprise
segment. These assets are measured at the lower of carrying amount
and fair value less cost to sell. The sale of these data centres is
expected to complete in the second quarter of financial year 2020.
3.1.2 Recognition and measurement (continued)
(b) Depreciation (continued)
Impact of nbn
Infrastructure
Services
Agreement
(ISA) on our
fixed assets
base
Under the nbn Infrastructure Services
Agreement (ISA), we are required to
progressively transfer the relevant
Telstra assets to nbn co. These assets
include lead-in conduits (LICs), certain
copper and HFC assets and associated
passive infrastructure (being
infrastructure that supports the
relevant copper and HFC assets).
As at 30 June 2019, the net book value
of assets that are in scope to be
potentially transferred to nbn co under
the ISA amounted to $375 million
(2018: $625 million). This represents
1.7 per cent of the net book value of our
total property, plant and equipment.
We have applied management
judgement in assessing the useful
lives of the in-scope assets based on
the anticipated nbnTM network rollout
period.
The nbnTM network rollout will also to a
lesser extent impact useful lives of
other assets, e.g. transmission and
switching technologies, which will not
be transferred to nbn co. The full
impact on our useful lives is not yet
known and will depend on nbn co's
selection of access technologies in
each rollout region and the sequence
in which the nbnTM network rollout
progresses. For the year ended 30
June 2019, we have applied
management judgement in assessing
the useful lives of these assets based
on our best estimate of the expected
consequential impacts of the nbnTM
network rollout. The result of our
assessment is included in the net
effect of our useful lives assessment.
Should evidence exist in the future
reporting periods that changes these
best estimates, depreciation expense
will be adjusted as a change in
estimate in the future reporting
periods.
This note provides details of our goodwill and other intangible
assets and their impairment assessment.
Our impairment assessment compares the carrying value of our
CGUs with their recoverable amounts determined using a ‘value
in use’ calculation. The value in use calculations use key
assumptions such as cash flow forecasts, discount rates and
terminal growth rates.
Table A
Telstra Group
Goodwill
Software
assets
Licences
Other intan-
gible assets
Total intan-
gible assets
Restated net book value at 1 July 2017
Additions
Acquisition of controlled entities
Impairment losses
Amortisation expense
Disposal through sale of controlled entities
Net foreign currency exchange differences
Transfers
Restated net book value at 30 June 2018
At cost
Accumulated amortisation and impairment
Net book value at 1 July 2018
Additions
Acquisition of controlled entities
Impairment losses
Amortisation expense
Disposal through sale of controlled entities
Net foreign currency exchange differences
Transfers
Net book value at 30 June 2019
At cost
Accumulated amortisation and impairment
$m
1,269
-
24
(261)
-
(16)
33
-
1,049
1,624
(575)
1,049
-
1
-
-
-
26
-
1,076
1,171
(95)
$m
4,543
1,205
6
(31)
(1,217)
-
7
7
4,520
11,903
(7,383)
4,520
1,091
-
(442)
(1,216)
(5)
3
32
3,983
10,917
(6,934)
$m
2,325
88
-
-
(217)
(1)
-
-
2,195
3,174
(979)
2,195
56
-
-
(230)
(1)
1
2
2,023
2,878
(855)
$m
180
-
20
(5)
(31)
(11)
5
-
158
343
(185)
158
-
-
-
(26)
-
4
(8)
128
335
(207)
$m
8,317
1,293
50
(297)
(1,465)
(28)
45
7
7,922
17,044
(9,122)
7,922
1,147
1
(442)
(1,472)
(6)
34
26
7,210
15,301
(8,091)
112 | Telstra Corporation Limited and controlled entities
110 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 113
Telstra Corporation Limited and controlled entities | 111
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 112 Tuesday, August 27, 2019 8:25 AM
Section 3 - Our Core Assets and Working Capital.fm Page 113 Tuesday, August 27, 2019 8:25 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
3.2 Goodwill and other intangible assets (continued)
(a) Cash generating units with allocated goodwill
3.2 Goodwill and other intangible assets (continued)
The following paragraphs detail further information about our
intangible assets classes:
The carrying amount of goodwill has been allocated to the CGUs as
detailed in Table B.
3.2.2 Recognition and measurement
• additions to software assets include $31 million (2018: $28
million) of capitalised borrowing costs directly attributable to
qualifying assets
• refer to note 3.1.1 for further details on the impairment of software
Table B
Telstra Group
assets
• as at 30 June 2019, we had software assets under development
amounting to $372 million (2018: $493 million). As these assets
were not installed and ready for use, no amortisation has been
charged on the amounts.
• software assets mostly comprise internally generated assets
• licences include $56 million for the ACMA Licence 900 MHz
apparatus acquired in the current financial year.
3.2.1 Impairment assessment
Goodwill and intangible assets with an indefinite useful life are not
subject to amortisation and are assessed for impairment at least on
an annual basis, or whenever an indication of impairment arises.
Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
The recoverable amount of an asset is the higher of its fair value less
cost of disposal and its value in use.
Impairment losses are recognised in the income statement in the
reporting period when the carrying amount of the asset exceeds the
recoverable amount.
For our impairment assessment, we identify CGUs, to which goodwill
is allocated, and which cannot be larger than an operating segment.
Our impairment testing compares the carrying value of an individual
CGU with its recoverable amounts determined using a value in use
calculation.
Determining
CGUs and their
recoverable
amount for
impairment
assessment
We apply management judgement to
identify our CGUs and determine their
recoverable amounts using a ‘value in
use’ calculation for our impairment
assessment. These judgements include
cash flow forecasts, as well as the
selection of growth rates, terminal
growth rates and discount rates based
on past experience and our expectations
for the future.
Our cash flow projections are based on
five-year management-approved
forecasts unless a longer period is
justified. The forecasts use management
estimates to determine income,
expenses, capital expenditure and cash
flows for each asset and CGU.
Telstra Enterprise International Group ¹
Telstra Europe Group ¹
Telstra Enterprise Australia Group ²
Other ³
As at 30 June
2019
2018
$m
578
-
367
131
1,076
$m
488
64
367
130
1,049
1 These CGUs operate in overseas locations. Therefore the goodwill allocated to these
CGUs will fluctuate in line with movements in applicable foreign exchange rates.
2 The Telstra Enterprise Australia Group includes goodwill from past acquisitions
integrated into this business.
3 Other includes individually immaterial CGUs.
During the financial year ended 30 June 2019, there have been no
changes to our CGUs with allocated goodwill except for:
• the operations of Telstra Europe Group were integrated into
Telstra Enterprise International Group to generate combined cash
inflows for the Group. Prior to integration, the CGUs were assessed
individually.
• changes in other individually immaterial CGUs due to integration
of operations.
(b) Value in use
We have used the following key assumptions in determining the
recoverable amount of our CGUs to which goodwill has been
allocated:
Table C
Telstra Group
Discount rate
Terminal value
growth rate
2019
2018
2019
2018
%
9.2
-
%
9.2
8.5
12.8
12.8
%
3.0
-
3.0
%
3.0
3.0
3.0
Telstra Enterprise
International Group
Telstra Europe
Group
Telstra Enterprise
Australia Group
Discount rate represents the pre-tax discount rate applied to the
cash flow projections. The discount rate reflects the market
determined, risk-adjusted discount rate that is adjusted for specific
risks relating to the CGU and the countries in which it operates.
Terminal value growth rate represents the growth rate applied to
extrapolate our cash flows beyond the five-year forecast period.
These growth rates are based on our expectation of the CGUs’ long-
term performance in their markets.
Sensitivity analysis also examined the effect of a change in a key
assumption on the remaining CGUs. The discount rate would need to
increase by 293 basis points (2018: 221 basis points) or the terminal
value growth rate would need to decrease by 413 basis points (2018:
294 basis points) before the recoverable amount of any of the CGUs
would equal its carrying value. No other changes in key assumptions
will result in a material impairment charge for any of the CGUs.
Category
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is measured at cost. Cost represents the excess of what we
pay for the business combination over the fair value of the identifiable net assets acquired at the date of
acquisition.
Goodwill is not amortised but is tested for impairment on an annual basis or when an indication of
impairment arises.
Goodwill amount arising on acquisition of joint ventures or associated entities constitutes part of the
cost of the investment.
Internally generated
intangible assets
Internally generated intangible assets include mainly IT development costs incurred in design, build and
testing of new or improved IT products and systems.
Research costs are expensed when incurred.
Capitalised development costs include:
• external direct costs of materials and services consumed
• payroll and payroll-related costs for employees (including contractors) directly associated with the
project
• borrowing costs that are directly attributable to the qualifying assets.
Refer to ‘Capitalisation of development costs’ for management judgement on recognition of development
costs.
Internally generated intangible assets have a finite life and are amortised on a straight-line basis over
their useful lives.
Acquired intangible
assets
We acquire other intangible assets either as part of a business combination or through a separate
acquisition. Intangible assets acquired in a business combination are recorded at their fair value at the
date of acquisition and recognised separately from goodwill. Intangible assets acquired through a
specific acquisition are recorded at cost.
Refer to ‘Determining fair value of identifiable intangible assets’ for management judgement on
measurement of fair value of intangible assets acquired as part of a business combination.
Intangible assets that are considered to have a finite life are amortised on a straight-line basis over the
period of expected benefit. Intangible assets that are considered to have an indefinite life are not
amortised but tested for impairment on an annual basis or when an indication of impairment exists.
Capitalisation
of development
costs
Management judgement is required to
determine whether to capitalise
development costs. Development
costs are only capitalised if the project
is assessed to be technically and
commercially feasible, we are able to
use or sell the asset and we have
sufficient resources and intent to
complete the development.
Determining
fair value of
identifiable
intangible
assets
Management judgement is required to
determine the appropriate fair value of
identifiable intangible assets acquired
in business combinations. This
involves estimating timing and
amounts of future cash flows derived
from the use of these assets as well as
an appropriate discount rate to be
applied to the forecast cash flows.
Such estimates are based on current
forecasts, extrapolated for an
appropriate period and taking into
account growth rates, operating costs
and the expected useful life of the
assets.
114 | Telstra Corporation Limited and controlled entities
112 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 115
Telstra Corporation Limited and controlled entities | 113
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 114 Tuesday, August 27, 2019 8:25 AM
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
3.2 Goodwill and other intangible assets (continued)
3.3 Trade and other receivables and contract assets
3.3.1 Current and non-current trade and other receivables and
contract assets
3.2.2 Recognition and measurement (continued)
(a) Amortisation
The weighted average amortisation periods of our identifiable
intangible assets are as follows:
Table A
Telstra Group
Expected benefit
(years)
As at 30 June
Current
2019
2018
8
14
10
8
14
10
Trade receivables from
contracts with customers
Finance lease receivables
Accrued revenue
Other receivables
As at 30 June
2019
2018
Restated
Note
$m
$m
3,151
3,209
Table D
Telstra Group
Software assets
Licences
Other intangibles
Useful lives of
intangible
assets
We apply management judgement to
determine the amortisation period
based on the expected useful lives of
each asset class. In addition, we apply
management judgement to assess
annually the indefinite useful life
assumption applied to certain
acquired intangible assets.
We review the useful lives of our
identifiable intangible assets each
year. The net effect of the
reassessment of useful lives for the
financial year 2019 was a $130 million
(2018: $26 million) decrease in
amortisation expense.
Contract assets
3.7
Non-current
Trade receivables from
contracts with customers
Finance lease receivables
Other receivables
Contract assets
3.7
99
795
159
4,204
1,188
5,392
473
153
17
643
137
780
108
668
157
4,142
1,446
5,588
394
193
30
617
113
730
The majority of our receivables are in the form of contracted
agreements with our customers. In general, the terms and conditions
of these contracts require settlement between 14 to 30 days from
the date of invoice. Credit risk associated with trade and other
receivables and contract assets has been provided for.
Our trade receivables include receivables with deferred payment
terms, which allow eligible customers the opportunity to repay the
amounts due for certain hardware and professional installation
services monthly over 12, 24 or 36 months.
Contract assets relate to our rights to consideration for goods or
services provided to the customers but for which we do not have an
unconditional right to payment at the reporting date.
Refer to note 3.7 for further details regarding trade receivables from
contracts with customers and contract assets.
3.3 Trade and other receivables and contract assets
(continued)
3.3.1 Current and non-current trade and other receivables and
contract assets (continued)
(a) Finance lease receivables
We enter into finance lease arrangements predominantly for
communication assets dedicated to solutions management that we
provide to our customers largely in a back-to-back finance lease
arrangement. Refer to note 7.4 for information about our finance
lease commitments arising from these finance arrangements
(Telstra as a lessee). The weighted average remaining term of the
finance lease in our customer contracts is 5 years (2018: 6 years).
Table B presents detailed information about our finance lease
receivables.
Table B
Telstra Group
Amounts receivable under finance
leases
Within 1 year
Within 1 to 5 years
After 5 years
Total minimum lease receivables
Less: unearned finance income
Present value of minimum lease
receivables
Included in the financial statements
as
Current finance lease receivables
Non-current finance lease receivables
As at 30 June
2019
2018
$m
$m
109
125
54
288
(36)
252
99
153
252
115
183
73
371
(70)
301
108
193
301
The interest rate implicit in the leases is fixed at the contract date for
the entire lease term. The average effective interest rate was 5.0 per
cent (2018: 5.3 per cent) per annum.
(b) Impairment of trade and other receivables and contract assets
Trade and other receivables and contract assets are exposed to
customers’ credit risk and are subject to impairment assessment.
If a credit loss is expected, an allowance for doubtful debt is raised to
reduce the carrying amount of trade and other receivables and
contract assets based on a review of outstanding amounts at a
reporting date.
A credit loss is a shortfall between the cash flows that are due in
accordance with the contract and the cash flows that we expect to
receive, discounted at the original effective interest rate. The
estimated expected credit loss is calculated using one of the
following approaches:
• a portfolio approach based on historical credit loss experience
(mostly applied to balances arising from our consumer and small
business customer contracts)
• an individual account by account assessment based on past credit
history, knowledge of debtor’s financial situation or other known
credit risk (applied to balances arising from contracts with large
corporate and government customers as well as to accounts
where some detrimental change in payment behaviour has been
noticed or certain thresholds have been exceeded by Telstra
Enterprise and Telstra InfraCo customers)
• a hybrid of the portfolio approach and individual assessment
(applied mostly to balances arising from Telstra Enterprise
customer contracts).
Under the portfolio approach, receivables and contract assets are
grouped based on shared credit risk characteristics, such as:
• account status (services still active or not)
• customers’ payment history
• the days past due.
Contract assets relate to the transferred goods and services where a
valid invoice is yet to be issued to the customer and have
substantially the same risk characteristics as the trade receivables
for the same types of contracts. Therefore, the expected loss rates
for trade receivables are a reasonable approximation of the loss
rates for the contract assets.
Under a hybrid approach, accounts with an increased risk defined by
balance, age or insolvency are assessed individually and any
resulting impairment amount is recognised in lieu of the provision
calculated using the portfolio approach for that particular account.
In Telstra Wholesale (part of Telstra InfraCo segment), the
combination of the industry default rate corresponding to Standard
& Poor’s BB credit risk rating and the individual approach is used to
arrive at the provision amount.
Our provision rates for trade receivables and contract assets where
a portfolio approach is applied range from 0.2 per cent for balances
not past due to 91.0 per cent for balances where the payment is
overdue by more than 90 days and the customer’s services have been
deactivated.
Estimating
allowance for
doubtful debts
We apply management judgement to
estimate the allowance for doubtful
debts for our trade and other
receivables measured at amortised
cost and for contract assets. The
calculation is adjusted for forward
looking factors where relevant.
Our analysis shows that overall
macroeconomic factors, such as
unemployment rates, interest rates or
gross domestic product have no strong
correlations with our bad debt losses
and thus, do not have a significant
impact on estimating the allowance for
doubtful debts.
For trade receivables and contract
assets arising from our Telstra
Consumer and Small Business and
Telstra Enterprise Australian
customers, we have implemented a
scenario based approach
incorporating base, good and bad
economic scenarios. The overall
impairment is calculated as a
weighted average of the three
scenarios.
116 | Telstra Corporation Limited and controlled entities
114 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 117
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 116 Tuesday, August 27, 2019 8:25 AM
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
3.3 Trade and other receivables and contract assets
(continued)
3.3.1 Current and non-current trade and other receivables and
contract assets (continued)
(b) Impairment of trade and other receivables and contract assets
(continued)
The ageing analysis and loss allowance in relation to our trade
receivables from contacts with customers, finance lease receivables
and contract assets where the impairment allowance is calculated
using a simplified approach (i.e. based on the probability of default
over the lifetime of the financial asset and loss given default) are
detailed in Table C.
Table C
Telstra Group
Not past due, including:
- measured at amortised cost
- measured at fair value
Past due 1 - 30 days
Past due 31 - 60 days
Past due 61 - 90 days
Past 91 days
As at 30 June 2019
Gross
Allow-
ance
$m
$m
3,008
1,506
4,514
481
138
86
125
5,344
(13)
-
(13)
(2)
(4)
(5)
(119)
(143)
Ageing analysis in Table C is based on the original due date of trade
receivables, including where repayment terms for certain long
outstanding trade receivables have been renegotiated. We have not
presented the comparatives as allowed under the transition
requirements to the new impairment measurement principles that
we adopted as at 1 July 2018.
Contract assets are not yet due for collection, thus the entire balance
has been included in the ‘not past due’ category.
Other receivables and accrued revenue totalling $971 million (2018:
$855 million) are subject to impairment assessment under the
general approach and include 72 per cent (2018: 70 per cent) of
balances with an external credit rating of AA or above.
We hold security for a number of trade receivables, including past
due or impaired receivables, in the form of guarantees, letters of
credit and deposits. During the financial year 2019, no securities
were called upon. These trade receivables, along with our trade
receivables that are neither past due nor impaired, comprise
customers who have a good debt history and are considered
recoverable. Further, we limit our exposure to credit risk from trade
receivables by establishing a maximum payment period and, in
certain instances, cease providing further services after 90 days
from the past due date.
Movements in the allowance for doubtful debts in respect of our
trade and other receivables and contracts assets are detailed in
Table D.
Table D
Telstra Group
Year ended 30 June
2019
2018
Opening balance
Change in accounting policy arising
from AASB 9: 'Financial instruments'
Restated opening balance
Additional allowance
Amount used
Amount reversed
Closing balance
$m
(103)
(89)
(192)
(45)
35
50
(152)
$m
(133)
-
(133)
(48)
49
29
(103)
The total allowance in Table D includes the allowance for all types of
trade and other receivables and contract assets, regardless of the
method used in assessing the allowance. Impairment allowance
related to accrued revenue and other receivables (not presented in
Table C) amounted to $9 million.
3.3.2 Recognition and measurement
Trade and other receivables and contract assets are financial assets.
Trade and other receivables are initially recorded at fair value and
subsequently measured at amortised cost using the effective
interest method, with the exception of certain trade receivables from
contracts with customers, which are subsequently measured at fair
value. Refer to note 4.4.5 for further details on trade receivables from
contracts with customers measured at fair value.
Contract assets arise from our contracts with customers and are
initially recorded at the transaction price allocated as compensation
for goods or services provided to customers for which the right to
collect payment is subject to providing other goods or services under
the same contract (or group of contracts) and/or we are yet to issue
a valid invoice. Contract assets are subsequently measured to reflect
relevant transaction price adjustments (where required) and are
transferred to trade receivables when the right to payment becomes
unconditional, i.e. when the other goods or services under the same
contract (or group of contracts) have been transferred and/or a valid
invoice has been issued.
(a) Lease receivables (Telstra as a lessor)
Refer to note 3.1.2 (c) for details about whether an arrangement
contains a lease and the distinction between finance leases and
operating leases.
Where we lease assets via a finance lease, a lease receivable is
recognised at the beginning of the lease term and measured at the
present value of the minimum lease payments receivable plus the
present value of any unguaranteed residual value expected to accrue
at the end of the lease term.
Finance lease receipts are allocated between finance income and a
reduction of the lease receivable over the term of the lease in order to
reflect a constant periodic rate of return on the net investment
outstanding in respect of the lease.
Income from operating leases is recognised on a straight-line basis
over the term of the relevant lease.
3.3 Trade and other receivables and contract assets
(continued)
3.3.2 Recognition and measurement (continued)
(b) Impairment of financial assets
We estimate the expected credit losses for our financial assets
(including contract assets) measured at amortised cost on either of
the following basis:
• a general approach, i.e. 12-month expected credit loss which
results from all possible default events within the 12 months after
the reporting date (applicable to accrued revenue and other
receivables), or
• a simplified approach, i.e. lifetime expected credit loss which
results from all possible default events over the expected life of a
financial instrument (applicable to trade receivables from
contracts with customer, contract assets and lease receivables).
If the credit risk of a financial asset at the reporting date has
increased significantly since its initial recognition, loss allowance is
calculated based on lifetime expected credit losses, rather than 12
months.
Any customer account with debt more than 90 days past due is
considered to be in default.
Trade receivables and contract assets are written off against the
allowance for doubtful debts or directly against their carrying
amounts and expensed in the income statement when all collection
efforts have been exhausted and the financial asset is considered
uncollectable. Factors indicating there is no reasonable expectation
of recovery include insolvency and significant time period since the
last invoice was issued.
3.4 Inventories
Telstra Group
Current
Goods for resale
Raw materials and network inventory
Right to recover products
Non-current
Network inventory
As at 30 June
2019
2018
Restated
$m
$m
369
72
7
448
35
35
422
55
15
492
19
19
Our inventory includes goods available for sale, materials,
consumables and spare parts to be used within one year in
constructing and maintaining our telecommunications network. We
also purchase strategic inventories for use in maintenance of
network assets beyond one year.
Right to recover products arises from sale with a right of return under
certain contracts with customers as described in note 3.5.1.
3.4.1 Recognition and measurement
Inventories are valued at the lower of cost and net realisable value.
For the majority of inventory items, we assign cost using the
weighted average cost basis.
Net realisable value of items expected to be sold is the estimated
selling price less estimated costs of completion and the estimated
costs incurred in marketing, selling and distribution. It approximates
fair value less costs to sell.
Estimating net
realisable value
At the reporting date, we applied
management judgement to determine
net realisable value of inventories by
making certain price assumptions to
project selling prices into the future.
We also made assumptions about
current and future technologies.
Net realisable value of items expected to be consumed, for example
used in the construction of another asset, is the net value expected
to be earned through future use.
3.5 Trade and other payables
Telstra Group
Current
Trade payables
Accrued expenses
Accrued capital expenditure
Accrued interest
Contingent consideration
Refund liabilities
Other payables
Non-current
Other payables
As at 30 June
2019
2018
Restated
$m
$m
849
2,163
239
267
-
11
999
4,528
68
68
1,588
1,886
341
260
4
37
412
4,528
65
65
Trade payables and other payables are non-interest bearing
liabilities. Our payment terms vary, however payments are generally
made within 30 days to 90 days from the invoice date.
From time to time, Telstra’s suppliers utilise supply chain finance, i.e.
they transfer their rights of the amounts due from Telstra to third
parties. However, Telstra’s obligation is to pay for goods and services
purchased from our suppliers on the original due date without any
change in payment terms. As at 30 June 2019, the amount payable
under this arrangement was $593 million (2018: $42 million) and we
have reclassified it from ‘Trade payables’ to ‘Other payables’.
3.5.1 Recognition and measurement
Trade and other payables, including accruals, are recorded when we
are required to make future payments as a result of purchases of
assets or services. Trade and other payables are financial liabilities
initially recognised at fair value and carried at amortised cost using
the effective interest method.
118 | Telstra Corporation Limited and controlled entities
116 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 119
Telstra Corporation Limited and controlled entities | 117
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 118 Tuesday, August 27, 2019 8:25 AM
Section 3 - Our Core Assets and Working Capital.fm Page 119 Tuesday, August 27, 2019 8:25 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
As at 30 June 2019, the net contract liabilities amounted to $1,112
million (2018: $1,069 million). The following selected movements
contributed to the overall increase of $43 million (2018: $105 million
decrease) in the net contract liabilities:
• $1,521 million (2018: $1,364 million) revenue recognised in the
reporting period that was included in the contract liabilities
balance at the beginning of the period
• $42 million (2018: $44 million) cumulative catch-up adjustments
to revenue recognised in the prior reporting periods.
Refer to note 3.3.1 for details regarding impairment assessment and
related movements in contract assets.
By contrast, contract assets mainly refer to amounts allocated as
consideration for goods or services provided to customers for which
the right to collect payment is subject to providing other goods or
services under the same contract (or group of contracts) and/or we
are yet to issue a valid invoice.
Contract liabilities represent amounts paid (or due) to us by
customers before receiving the goods and/or services promised in
the contract.
Contract assets and contract liabilities also arise due to timing
differences between invoicing and recognition of certain discounts,
credits or other incentives, including those arising from our
framework agreements. These items adjust revenue recognised in a
given period but they can be invoiced upfront, over the contract term
or when certain performance conditions have been met.
Customer contract assets and liabilities are presented, respectively,
in current and non-current assets and current and non-current
liabilities based on the amounts expected to be collected or
recognised as revenue within or after 12 months from the reporting
period end.
In general, we invoice customers in advance for services provided
under our prepaid or fixed (usually monthly) fee contracts and in
arrears for usage based contracts (e.g. carriage services under
enterprise contracts) or excess charges in mass market contracts. In
those cases we would recognise a contract liability and a contract
asset respectively.
Under our mobile mass market long-term plans which offer a bundle
of hardware and services, the customer enters into two separate
legal contracts. Where these are combined for revenue recognition,
we recognise a trade receivable for the device payment contract
under which we have an unconditional right to payment despite the
deferred payment terms resulting in invoicing over the extended
term.
Under some of our fixed mass market long-term contracts, we also
offer a bundle of hardware (delivered upfront) and services (delivered
over the contract term). In this case, the excess of the amount
allocated to the hardware over the amount invoiced at the time is
recognised as a contract asset and transferred to trade receivables
as the service is invoiced, i.e. under this legal contract our right to
consideration is conditional on transfer of future services.
Under some of our fixed mass market plans, wholesale and
enterprise arrangements, we charge upfront connection or other
fees for contract fulfilment activities, which represent transaction
price adjustments and at the time give rise to a contract liability given
they have been collected before the goods and services have been
transferred.
We also recognise a contract liability for our domestic and
international network capacity arrangements, under which we
receive upfront payments in advance of services which will be
provided over an average contract term between 10 and 33 years.
3.5 Trade and other payables (continued)
3.5.1 Recognition and measurement (continued)
Some of our contracts with customers include a right of return,
where the customer can return certain devices for specified reasons.
Where this is the case, at contract inception we restrict the revenue
recognised to the amounts of consideration we expect to be entitled
to, i.e. we exclude the estimated refund amount. At the same time,
we also recognise a refund liability (representing our obligation to
provide a refund for the returned products), a right to recover
products (presented as an inventory item and representing the
estimate of the carrying value of the products to be recovered from
customers) and a corresponding adjustment to the cost of sales. At
each reporting period, we remeasure the refund liability (with a
corresponding adjustment to revenue) and update the measurement
of the right to recover products where required.
3.6 Contract liabilities and other revenue received in
advance
Contract liabilities arise from our contracts with customers and
represent amounts paid (or due) to us by customers before receiving
the goods and/or services promised under the contract.
We also recognise revenue received in advance for consideration
received upfront under contracts giving rise to revenue from other
sources or other income, for example from nbn disconnection fees or
from sale of assets.
Table A presents customer payments received in advance under
different types of our commercial arrangements.
Table A
Telstra Group
Current
Contract liabilities
Other revenue received in advance
Non-current
Contract liabilities
Other revenue received in advance
As at 30 June
2019
2018
Restated
Note
$m
$m
3.7
3.7
1,431
226
1,657
1,006
265
1,271
1,312
220
1,532
1,316
365
1,681
3.7 Trade receivables from customer contracts, contract
assets and contract liabilities
3.7.1 Recognition of trade receivables, contract assets and
contract liabilities
Trade receivables, contract assets and contract liabilities arise from
our contracts with customers described in note 2.2.1.
The relationship between our performance and the customer’s
payment will determine if trade receivables, contract assets or
contract liabilities are recognised.
The timing of revenue recognition may differ from customer
invoicing. Trade receivables from contracts with customers (refer
note 3.3.1) represent an unconditional right to receive consideration
(primarily cash), which normally arises when the goods and services
promised to the customer have been transferred and/or a valid
invoice has been issued.
3.7 Trade receivables from customer contracts, contract
assets and contract liabilities (continued)
3.7.2 Movements in net contract assets and contract liabilities
Our billing arrangements for goods and services as well as different
types of discounts, credits or other incentives can vary depending on
the type and nature of the contracts with customers. As a result, at
times under the same accounting contract, we may recognise both a
contract asset and a contract liability. At each reporting period, any
balances arising from the same accounting contract are presented
net in the statement of financial position as either a net contract
asset or a net contract liability.
The net presentation mainly impacts our small business and
enterprise framework arrangements offering loyalty programs and
technology funds, and nbn DAs, where multiple legal contracts have
been combined as one accounting contract.
Table A presents opening and closing balances of our current and
non-current contract assets and contract liabilities and their total
net movement for the period.
Table A
Telstra Group
Current contract assets
Non-current contract
assets
Total contract assets
Current contract liabilities
Non-current contract
liabilities
Total contract liabilities
Total net contract
(liabilities)
(Decrease) / increase in
net contract (liabilities)
for the year
As at 30 June
As at
2019
2018
Restated
1 July
2017
Restated
$m
1,188
137
1,325
1,431
1,006
2,437
$m
1,446
113
1,559
1,312
1,316
2,628
$m
1,213
54
1,267
1,170
1,271
2,441
(1,112)
(1,069)
(1,174)
(43)
105
n/a
Generally, contract assets increase when we recognise revenue for
goods and services transferred to the customer in advance of their
invoicing and decrease when we invoice customers for goods and
services provided previously (i.e. when contract assets are
transferred to trade receivables).
On the other hand, contract liabilities increase when we receive
consideration in advance of transferring the goods and services to
the customer, and decrease when we recognise revenue for the
goods and services previously prepaid by the customer.
Other changes in our contract assets and contract liabilities
represent movements resulting from changes in the transaction
prices due to timing of invoicing and recognition of discounts, credits
and other incentives.
120 | Telstra Corporation Limited and controlled entities
118 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 121
Telstra Corporation Limited and controlled entities | 119
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 3 - Our Core Assets and Working Capital.fm Page 120 Tuesday, August 27, 2019 8:25 AM
Section 3 - Our Core Assets and Working Capital.fm Page 121 Tuesday, August 27, 2019 8:25 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 3. Our core assets and working capital (continued)
Section 3. Our core assets and working capital (continued)
3.8 Deferred contract costs
Certain costs related to our contracts with customers and not
accounted for under any other accounting standards are deferred in
the statement of financial position and amortised on a basis
consistent with the transfer of goods and services to which these
costs relate.
Deferred contract costs comprise of deferred costs to obtain or fulfil
an accounting customer contract. Table A provides movements in
net book value of the deferred contract costs.
3.8 Deferred contract costs (continued)
3.8.1 Recognition and measurement (continued)
We capitalise costs to fulfil a contract if all of the following apply:
• the costs are not required to be accounted for under another
accounting standard
• the costs relate directly to a contract or a specifically identified
anticipated contract (for example, costs relating to services to be
provided under renewal of an existing contract)
• the costs generate or enhance resources that we control and will
be used to satisfy future performance obligations under the
contract
• we expect to recover the costs.
We amortise deferred contract costs over the term that reflects the
expected period of benefit of the expense. This period may extend
beyond the initial contract term to the estimated customer life or
average customer life of the class of customers. We use the
amortisation pattern consistent with the method used to measure
progress and recognise revenue for the related goods or services.
We assess whether deferred contract costs are impaired whenever
events or changes in circumstances indicate that the carrying
amounts may not be recoverable.
Amortisation
period of
deferred
contract costs
We have applied management
judgement to estimate the
amortisation period of deferred
contract costs to obtain a contract.
For sales commissions paid on
acquisition of the initial contract which
are not commensurate with
recontracting commissions, the
amortisation period reflects the
average estimated customer life for
respective types of contracts.
Table A
Telstra Group
Telstra Group
Restated net book value at 1 July 2017, including
Current
Non-current
Additions
Amortisation expense
Impairment losses
Restated net book value at 30 June 2018, including
Current
Non-current
Restated net book value at 1 July 2018
Current
Non-current
Additions
Amortisation expense
Impairment losses
Net book value at 30 June 2019, including
Current
Non-current
Costs to
obtain a
contract
Commis-
sions
Costs to fulfil a contract
Set-up costs
Costs of
service
provider
Total costs
to fulfil a
contract
Total
deferred
contract
costs
$m
856
n/a
856
639
(368)
(101)
1,026
n/a
1,026
1,026
n/a
1,026
553
(394)
(100)
1,085
n/a
1,085
$m
56
-
56
31
(26)
-
61
-
61
61
-
61
25
(29)
-
57
-
57
$m
191
106
85
576
(605)
-
162
69
93
162
69
93
586
(563)
-
185
95
90
$m
247
106
141
607
(631)
-
223
69
154
223
69
154
611
(592)
-
242
95
147
$m
1,103
106
997
1,246
(999)
(101)
1,249
69
1,180
1,249
69
1,180
1,164
(986)
(100)
1,327
95
1,232
Costs to fulfil a contract include set-up costs and costs of a service
provider, which represent the costs incurred in relation to services
which will be transferred to our customers in the future reporting
periods.
3.8.1 Recognition and measurement
We capitalise costs to obtain an accounting contract when the costs
are incremental, i.e. would not have been incurred if the contract had
not been obtained and are recoverable either directly via
reimbursement by the customer or indirectly through the contract
margin.
We elect to recognise the incremental costs of obtaining contracts as
an expense when incurred if the amortisation period of the assets
that we would have otherwise recognised would have been one year
or less.
Costs to fulfil a contract are costs incurred in satisfying the
performance obligations under a customer contract. These costs
relate directly to an identified performance obligation or indirectly to
other activities that are necessary under the contract but that do not
result in a transfer of goods or services, i.e. they are fulfilment
activities.
122 | Telstra Corporation Limited and controlled entities
120 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Section 4. Our capital and risk
management
This section sets out the policies and procedures applied to
manage our capital structure and the financial risks we are
exposed to. Our total capital is defined as equity and net debt.
We manage our capital structure in order to maximise
shareholders’ return, maintain optimal cost of capital and
provide flexibility for strategic investments.
SECTION 4. OUR CAPITAL AND RISK MANAGEMENT
4.1 Dividend
This note includes dividend paid for the previous year final
dividend and the current year interim dividend. From financial
year 2018, our dividend comprises both ordinary and special
dividends.
As the current year final dividend resolution was passed on 15
August 2019, no provision had been raised as at 30 June 2019.
We currently pay dividend to equity holders of Telstra Entity twice a
year, an interim and a final dividend. Table A below provides details
about dividends paid during the financial year 2019.
Table A
Year ended 30 June
Telstra Entity
2019
2018
2019
2018
Previous year final
dividend paid
Interim dividend
paid
$m
$m
cents
cents
1,308
1,842
11.0
15.5
951
1,308
2,259
3,150
8.0
19.0
11.0
26.5
The Dividend Reinvestment Plan (DRP) will continue to operate for
the final dividend in the financial year 2019. The election date for
participation in the DRP is 30 August 2019.
On 15 August 2019, the Directors of Telstra Corporation Limited
resolved to pay a fully franked final dividend for the financial year
2019 of 8 cents per ordinary share, comprising a final ordinary
dividend of 5 cents and a final special dividend of 3 cents. The final
dividend will be fully franked at a tax rate of 30 per cent. The record
date for the final dividend will be 29 August 2019, with payment to be
made on 26 September 2019. From 28 August 2019, shares will trade
excluding entitlement to the dividend.
As at 30 June 2019, the final dividend for the financial year 2019 was
not determined or publicly recommended by the Board, therefore no
provision for the dividend has been raised in the statement of
financial position. However, a provision for the final dividend payable
amounting to $951 million has been raised as at the date of
resolution.
There are no income tax consequences for the Telstra Group
resulting from the resolution and payment of the final dividend,
except for $408 million of franking debits arising from the payment of
this dividend that will be adjusted in our franking account balance.
Table B provides information about franking credits available for use
in subsequent reporting periods.
Table B
Telstra Group
Year ended 30 June
2019
2018
Franking account balance
Franking credits that will arise from the
payment of income tax payable as at 30
June (at a tax rate of 30% on a tax paid
basis)
$m
168
87
255
$m
191
115
306
We believe that our current balance in the franking account,
combined with the franking credits that will arise on income tax
instalments expected to be paid in the financial year 2020, will be
sufficient to fully frank our 2019 final dividend.
4.2 Equity
This note provides information about our share capital and
reserves presented in the statement of changes in equity.
We have established the Telstra Growthshare Trust (referred to
as the Trust) to allocate and administer the Company's
employee share schemes. The Trust is consolidated as it is
controlled by us. Shares that are held within the Trust, known as
treasury shares, are used to satisfy future vesting of
entitlements in these employee share schemes. These treasury
shares reduce our contributed equity.
4.2.1 Share capital
Table A
Telstra Group
Contributed equity
Share loan to employees
Shares held by employee share plans
Net services received under employee
share plans
As at 30 June
2019
2018
$m
4,530
(10)
(50)
(23)
$m
4,530
(11)
(64)
(27)
4,447
4,428
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
4.2 Equity (continued)
4.2.1 Share capital (continued)
(a) Contributed equity
As at 30 June 2019, we have 11,893,297,855 (2018: 11,893,297,855)
authorised fully paid ordinary shares on issue. Each of our fully paid
ordinary shares carries the right to one vote at a meeting of the
Company. Holders of our shares also have the right to receive
dividends and to participate in the proceeds from sale of all surplus
assets in proportion to the total shares issued in the event of the
Company winding up.
(b) Shares held by employee share plans
As at 30 June 2019, the number of shares held by employee share
plans totalled 10,200,395 (2018: 13,007,480).
(c) Net services received under employee share plans
We measure the fair value of services received under employee share
plans by reference to the fair value of the equity instruments granted.
The net services received under employee share plans represent the
cumulative value of all instruments issued.
4.2.2 Reserves
Table B details our reserve balances.
Table B
Telstra Group
Balance at 1 July 2017
Restated other comprehensive income
Transactions with non-controlling interests
Restated balance at 30 June 2018
Other comprehensive income
Balance at 30 June 2019
Cash flow
hedging
reserve
Foreign
currency
transla-
tion
reserve
Foreign
currency
basis
spread
reserve
Fair value
of equity
instru-
ments
reserve
General
reserve
Total
reserves
$m
18
52
-
70
39
109
$m
(143)
(68)
-
(211)
2
(209)
$m
16
(22)
-
(6)
(15)
(21)
$m
8
15
-
23
47
70
$m
(4)
-
(3)
(7)
-
(7)
$m
(105)
(23)
(3)
(131)
73
(58)
The table below details the nature and purpose of our reserve
balances.
Reserve
Nature and purpose
Foreign currency
translation reserve
Used to record exchange differences arising from the conversion of the non-Australian controlled
entities’ financial statements into Australian dollars. This reserve is also used to record our percentage
share of exchange differences arising from our equity accounted non-Australian investments in joint
ventures and associated entities.
Cash flow hedging
reserve
Represents the effective portion of gains or losses on remeasuring the fair value of hedge instruments,
where a hedge qualifies for hedge accounting.
Foreign currency basis
spread reserve
Used to record changes in the fair value of our derivative financial instruments attributable to
movements in foreign currency basis spread. Currency basis is included in interest on borrowings in the
income statement over the life of the borrowing.
Fair value of equity
instruments reserve
Represents changes in fair value of equity instruments we have elected to measure at fair value through
other comprehensive income.
General reserve
Represents other items we have taken directly to equity.
124 | Telstra Corporation Limited and controlled entities
122 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
Table A lists the carrying value of our net debt components.
4.3 Capital management (continued)
4.2 Equity (continued)
4.2.3 Recognition and measurement
Issued and paid up capital is recognised at the fair value of the
consideration received by the Telstra Entity.
Any transaction costs arising on the issue of ordinary shares are
recognised directly in equity, net of income tax, as a reduction of the
share proceeds received.
Services received under employee share plans (i.e. share-based
payments) increase our share capital balance and vested employee
share plans decrease the share capital balance resulting in a net
movement in our equity. Non-recourse loans provided to employees
to participate in these employee share plans are recorded as a
reduction in share capital.
We also record the purchase of Telstra Entity shares underpinning
our employee share plan as a reduction in share capital.
4.3 Capital management
Table A
Telstra Group
Borrowings
Derivative financial instruments
Gross debt
Cash and cash equivalents
Net debt
As at 30 June
2019
2018
$m
(17,253)
1,922
(15,331)
604
(14,727)
$m
(16,951)
1,583
(15,368)
629
(14,739)
No significant components of net debt are subject to any externally
imposed capital requirements. With the exception of a minor ($13
million) breach in our subsidiary that was subsequently remedied,
we did not have any defaults or breaches under any of our
agreements with our lenders during the financial year 2019.
Table B summarises the key movements in net debt during the
financial year and provides our gearing ratio.
This note provides information about components of our net
debt and related finance costs, as well as our capital
management policies.
Table B
Telstra Group
We aim to provide returns for shareholders and benefits for
other stakeholders, while:
• safeguarding our ability to continue as a going concern
• maintaining an optimal capital structure and cost of capital
that provides flexibility for strategic investments.
In order to maintain or adjust the capital structure, we may
issue or repay debt, adjust the amount of dividend paid to
shareholders, return capital to shareholders or issue new
shares.
4.3.1 Net debt
As part of our capital management, net debt and resulting gearing
ratio are monitored.
Gearing ratio equals net debt divided by total capital, where:
• net debt equals total interest bearing financial liabilities and
derivative financial instruments, less cash and cash equivalents
• total capital equals equity, as shown in the statement of financial
position, plus net debt.
Net debt at 30 June 2019 was $14,727 million (2018: $14,739
million).
We undertake the following transactions when managing our net
debt portfolio and associated financial risks:
• invest surplus cash in bank deposits and negotiable certificates of
deposit
• issue commercial paper and have committed bank facilities in
place to support working capital and short-term liquidity
requirements
• issue long term debt including bank loans, private placements and
public bonds both in the domestic and offshore markets
• use derivative financial instruments, including cross currency
swaps, interest rate swaps and forward foreign currency
contracts, to hedge foreign currency and interest rate risks.
Refer to note 4.4 for further discussion on financial risks.
Net debt at 1 July
Debt issuance
Commercial paper (net)
Revolving bank facilities (net)
Debt repayments
Finance lease repayments
Net cash outflow
Fair value (loss)/gain impacting:
Equity
Other expenses
Finance costs
Other non-cash movements
Finance leases
Total non-cash movements
Total decrease in gross debt excluding
bank overdraft
Net decrease in cash and cash
equivalents net of bank overdraft
(includes effects of foreign exchange
rate changes)
Total decrease in net debt
Net debt at 30 June
Total equity
Total capital
Gearing ratio
Year ended 30 June
2019
2018
Restated
$m
(14,739)
(1,570)
537
200
801
79
47
(23)
(10)
19
(5)
(19)
28
$m
(15,280)
(718)
809
-
862
120
1,073
(128)
15
40
(143)
(216)
857
(16)
(316)
12
(14,727)
541
(14,739)
(14,530)
(29,257)
%
50.3%
(14,619)
(29,358)
%
50.2%
4.3.1 Net debt (continued)
(a) Borrowings and repayment of debt
During the financial year 2019, we repaid $801 million of term debt
(Australian dollar equivalent). This included:
• $500 million Australian dollar bond
• $252 million Swiss franc bond
• $10 million Australian dollar private placements.
We also repaid $9 million loans from associated entities and other
loans of $30 million. The above also includes the cash settlement of
derivative financial instruments, where applicable.
Debt issuance for the year of $1,570 million (Australian dollar
equivalent), comprised:
• 10-year €600 million Euro bond ($959 million Australian dollar
equivalent)
• 7-year $300 million bilateral facility
• 1-year $300 million Australian dollar floating rate note
• $11 million loans held by controlled entities.
At 30 June 2019, we have nil (2018: $200 million) drawn under our
revolving bank facilities. All tranches drawn during the period have
been repaid. Drawings under our bank facilities and commercial
paper issues are shown on a gross basis in the statement of cash
flows.
4.3.2 Borrowings
Table C details the carrying and fair values of borrowings included in
the statement of financial position.
Table C
Telstra Group
Current borrowings
Domestic borrowings
Offshore borrowings
Bank loans
Bank overdraft
Commercial paper
Finance leases
Non-current borrowings
Domestic borrowings
Offshore borrowings
Bank loans
Finance leases
Total borrowings
As at 30 June 2019
As at 30 June 2018
Carrying
value
Fair value
Carrying
value
Fair value
$m
$m
$m
$m
(362)
(1,639)
(4)
-
(139)
(78)
(2,222)
(2,123)
(11,885)
(810)
(213)
(15,031)
(17,253)
(366)
(1,696)
(4)
-
(139)
(78)
(2,283)
(2,339)
(12,703)
(852)
(213)
(16,107)
(18,390)
(541)
(315)
(2)
(9)
(677)
(91)
(1,635)
(2,182)
(12,147)
(713)
(274)
(15,316)
(16,951)
(543)
(315)
(2)
(9)
(684)
(91)
(1,644)
(2,373)
(12,779)
(735)
(274)
(16,161)
(17,805)
126 | Telstra Corporation Limited and controlled entities
124 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
(b) Recognition and measurement
4.3 Capital management (continued)
4.3.2 Borrowings (continued)
(i) Borrowings
Borrowings are:
Borrowings
Treasury policy and purpose
Offshore
borrowings
Commercial
paper
Unless designated as a hedge of a foreign
controlled entity, our policy is to swap
foreign currency denominated borrowings
into Australian dollars using cross currency
and interest rate swaps. Refer to note 4.4 for
further details.
Commercial paper is used principally to
support working capital and short-term
liquidity. Commercial paper will continue to
be supported by a combination of liquid
financial assets, and access to committed
bank facilities.
• recognised initially on the trade date (the date on which we
become a party to the contractual provisions of the instrument)
• derecognised when our contractual obligations are discharged or
cancelled or expired
• classified as non-current liabilities except for those that mature in
less than 12 months from the reporting date, which are classified
as current liabilities.
Recognition and measurement
Initial
recognition
and
measurement
All loans and borrowings are initially
recorded at fair value, which typically
reflects the proceeds received, net of
directly attributable transaction costs.
Finance
leases
Finance lease balances are secured as the
rights to the leased assets transfer to the
lessor in the event of a default by us.
Subsequent
measurement
Generally, all our borrowings are unsecured, except for finance
leases as noted above. No assets are pledged as security for our
borrowings. All our borrowings are interest bearing.
The principal value of our total borrowings at 30 June 2019 is $16,915
million (2018: $16,579 million). Refer to Table F in note 4.3.3.
(a) Maturity of borrowings
We reduce refinancing risk by ensuring that our borrowings mature
at different periods. Refer to Table F in note 4.4.4 for the repayment
profile of our borrowings. The values disclosed represent amounts
repayable at contractual maturities.
After initial recognition, all interest
bearing loans and borrowings are stated
at amortised cost, using the effective
interest method. Any difference between
proceeds received net of direct
transaction costs and the amount payable
at maturity is recognised over the term of
the borrowing using the effective interest
method.
Loans or borrowings that are in
designated fair value hedge relationships
are adjusted for fair value movements
attributable to the hedged risk. Refer to
note 4.3.3 for our hedging policies.
Gains or losses are recognised in the
income statement when the loan or
borrowing is derecognised.
(ii) Finance leases
Refer to note 3.1.2 for our accounting policy, where Telstra is a
lessee.
4.3.2 Borrowings (continued)
(c) Finance costs
Table D presents our net finance costs for the year ended 30 June
2019. Interest on borrowings are net amounts after offsetting
interest income and interest expense on associated derivative
instruments. Our hedging strategies are discussed further in note
4.3.3.
Table D
Telstra Group
Interest income on cash, loans and
finance lease receivable
Finance income from contracts with
customers
Net interest income on defined benefit
plan
Total finance income
Interest expense on:
Domestic borrowings
Offshore borrowings
Bank loans
Commercial paper
Finance leases
Other
Gross borrowing costs
Finance costs from contracts with
customers
Net gains on financial instruments
included in remeasurements
Interest capitalised
Total finance costs
Net finance costs
Year ended 30 June
2019
2018
Restated
$m
(33)
$m
(48)
(197)
(166)
(8)
(238)
128
564
46
23
21
10
792
217
(36)
181
(105)
868
630
(4)
(218)
151
537
31
30
17
11
777
182
(52)
130
(101)
806
588
Net gains on financial instruments included in remeasurements
comprise unrealised valuation impacts on our borrowings and
derivatives which are recorded in the income statement. These
include net unrealised gains or losses which arise from changes in
the fair value of derivative financial instruments to the extent that
hedge accounting is not achieved or is not effective. These fair values
increase or decrease because of changes in financial indices and
prices over which we have no control.
128 | Telstra Corporation Limited and controlled entities
126 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
4.3.3 Derivatives
Derivatives are financial instruments that derive their value
from the price of an underlying item such as interest rate,
foreign currency exchange rate, credit spread or other index.
Table E shows the carrying value of each class of derivative financial
instruments.
Table E
Telstra Group
Current derivative financial instruments
Cross currency swaps
Interest rate swaps
Forward foreign exchange contracts
Non-current derivative financial instruments
Cross currency swaps
Interest rate swaps
Total derivative financial instruments
The terms of a derivative contract are determined at inception,
therefore any movements in the price of the underlying item over
time will cause the contract value to constantly fluctuate, which is
reflected in the fair value of the derivative. Derivatives which are in an
asset position (i.e. the market has moved in our favour) are referred
to as being ‘in the money’ and derivatives in a liability position as ‘out
of the money’.
Both parties are therefore exposed to the credit quality of the
counterparty. We are exposed to credit risk on derivative assets as a
result of the potential failure of the counterparties to meet their
contractual obligations. We do not have credit risk associated with
derivatives that are out of the money.
Refer to note 4.4.3 for information about our credit risk policies.
(a) Recognition and measurement
Derivative financial instruments are:
• recognised on the date on which we commit to purchase or sell an
asset or liability
• included as non-current assets or liabilities, except for those that
mature in less than 12 months from the reporting date, which are
classified as current assets or liabilities.
As at 30 June 2019
As at 30 June 2018
Assets
Liabilities
Assets
Liabilities
$m
118
43
18
179
1,738
345
2,083
2,262
$m
-
(54)
(3)
(57)
(12)
(271)
(283)
(340)
$m
54
3
18
75
1,462
435
1,897
1,972
$m
-
-
(1)
(1)
(54)
(334)
(388)
(389)
4.3 Capital management (continued)
4.3.3 Derivatives (continued)
(a) Recognition and measurement (continued)
Recognition and measurement
Recognition and
measurement
All derivatives are initially recognised at fair value and subsequently remeasured at fair value at each
reporting date. Where the fair value of a derivative is positive, it is carried as an asset, and where negative,
as a liability. Refer to note 4.4.5 for details on the determination of fair value.
Right to set-off
We record derivative financial instruments on a net basis in our statement of financial position where we:
• have a legally recognised right to set-off the derivative asset and the derivative liability, and we intend
to settle on a net basis or simultaneously
• enter into master netting arrangements relating to a number of financial instruments, have a legal
right of set-off, and intend to exercise that right.
For our interest rate swaps, we do not offset the receivable or payable with the underlying financial asset
or financial liability being hedged as the transactions are usually with different counterparties and are
not generally settled on a net basis.
Derecognition
Derivative assets are derecognised when the rights to receive cash flows from the derivative assets have
expired or have been transferred and we have transferred substantially all the risks and rewards of
ownership.
Derivative liabilities are derecognised when the contractual obligations are discharged, cancelled or
expired.
Impact to the income
statement
The method of recognising the resulting gain or loss depends on whether the derivative is designated as
a hedging instrument and, if so, on the nature of the item being hedged.
(b) Utilisation of derivatives to manage risks
We enter into derivative transactions in accordance with policies
approved by the Board to manage our exposure to market risks and
volatility of financial outcomes that arise as part of our normal
business operations. We do not speculatively trade in derivative
financial instruments.
Hedging refers to the way in which we use financial instruments,
primarily derivatives, to manage our exposure to financial risks. The
gain or loss on the underlying item (the ‘hedged item’) is expected to
move in the opposite direction to the gain or loss on the derivative
(the ‘hedging instrument’), therefore offsetting our risk position.
Hedge accounting allows the matching of the gains and losses on
hedged items and associated hedging instruments in the same
accounting period to minimise volatility in the income statement. In
order to qualify for hedge accounting, prospective hedge
effectiveness testing must meet all of the following criteria:
• an economic relationship exists between the hedged item and
hedging instrument
• the effect of credit risk does not dominate the value changes
resulting from the economic relationship
• the hedge ratio is the same as that resulting from actual amounts
of hedged items and hedging instruments for risk management.
Our major exposure to interest rate risk and foreign currency risk
arises from our long-term borrowings. We also have translation
foreign currency risk associated with investments in foreign
operations and transactional foreign currency exposures such as
purchases in foreign currencies. These risks are discussed further in
note 4.4.
130 | Telstra Corporation Limited and controlled entities
128 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
4.3.3 Derivatives (continued)
(b) Utilisation of derivatives to manage risks (continued)
To the extent permitted by Australian Accounting Standards, we
formally designate and document our financial instruments by
hedge type as follows:
Fair value hedges
Cash flow hedges
Net investment hedges
4.3 Capital management (continued)
4.3.3 Derivatives (continued)
(b) Utilisation of derivatives to manage risks (continued)
Table F shows the carrying value and principal value of each
component of our gross debt including derivative financial
instruments categorised by hedge type. Principal value represents
contractual obligations less future finance charges, excluding fair
value remeasurements and for foreign denominated balances
equates to the principal value in the underlying currency converted
at the spot exchange rate as at 30 June 2019.
To offset the foreign exchange
exposure arising from the
translation of our foreign
investments from their
functional currency to
Australian dollars.
Table F
Telstra Group
Objectives of this
hedging arrangement
To hedge the exposure to
changes in the fair value of
borrowings which are issued at
a fixed rate, or denominated in
foreign currency, by converting
to floating rate borrowings
denominated in Australian
dollars.
Instruments used
We enter into cross currency
and interest rate swaps to
mitigate our exposure to
changes in the fair value of our
long-term borrowings.
To hedge the exposure to
changes in cash flows from
borrowings that bear floating
interest rates or are
denominated in foreign
currency. Cash flow hedging is
also used to mitigate the
foreign currency exposure
arising from highly probable
and committed future currency
cash flows.
We enter into interest rate and
cross currency swaps to hedge
future cash flows arising from
our borrowings.
We use forward foreign
exchange contracts to hedge a
portion of firm commitments
and highly probable forecast
transactions.
Where we choose to hedge our
net investment exposures, we
use forward foreign exchange
contracts, cross currency
swaps and/or borrowings in
the relevant currency of the
investment.
Economic relationships
In all our hedge relationships, the critical terms of the hedging instrument and hedged item (including
face values, cash flows and currency) are aligned.
Borrowings by hedge designation
Fair value hedges
Cash flow hedges
Not in a hedge relationship
Finance leases
Total borrowings
Derivative assets by hedge designation
Fair value hedges
Cash flow hedges
Not in a hedge relationship
Total derivative assets
Derivative liabilities by hedge designation
Cash flow hedges
Not in a hedge relationship
Total derivative liabilities
Total gross debt
(i) Fair value hedges
All changes in the fair value of the underlying item relating to the
hedged risk are recognised in the income statement together with
the changes in the fair value of derivatives. The net difference is
recorded in the income statement as ineffectiveness. The carrying
value of borrowings in effective fair value hedge relationships is
adjusted for gains or losses attributable to the risk(s) being hedged.
Table G outlines the cumulative amount of fair value hedge
adjustments that are included in the carrying amount of borrowings
in the statement of financial position.
Table G
Telstra Group
Principal value
Unamortised discounts/premiums
Amortised cost
Cumulative fair value hedge
adjustments
Carrying amount
As at 30 June
2019
2018
$m
(3,951)
9
(3,942)
$m
(4,339)
12
(4,327)
(378)
(424)
(4,320)
(4,751)
As at 30 June 2019
As at 30 June 2018
Carrying
value
Principal
value
Carrying
value
Principal
value
$m
$m
$m
$m
(4,320)
(9,045)
(3,597)
(291)
(17,253)
1,016
1,243
3
2,262
(337)
(3)
(340)
(15,331)
(3,951)
(9,073)
(3,600)
(291)
(16,915)
733
1,259
13
2,005
-
(11)
(11)
(14,921)
(4,751)
(7,766)
(4,070)
(364)
(16,951)
962
999
11
1,972
(388)
(1)
(389)
(15,368)
(4,339)
(7,796)
(4,080)
(364)
(16,579)
669
932
11
1,612
-
(1)
(1)
(14,968)
Table H shows the ineffectiveness recognised in the income
statement. We have excluded foreign currency basis spreads from
our designated fair value and cash flow hedge relationships.
Table H
Telstra Group
Re-measurement of hedged item used
to measure ineffectiveness
Change in value of hedging instruments
Net gain before tax from
ineffectiveness
Net gain after tax
Year ended 30 June
2019
(Gain)/
loss
2018
(Gain)/
loss
$m
92
(115)
(23)
(16)
$m
161
(167)
(6)
(4)
132 | Telstra Corporation Limited and controlled entities
130 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 133
Telstra Corporation Limited and controlled entities | 131
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 4 - Our Capital and Risk Management.fm Page 132 Tuesday, August 27, 2019 8:26 AM
Section 4 - Our Capital and Risk Management.fm Page 133 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
4.3.3 Derivatives (continued)
(b) Utilisation of derivatives to manage risks (continued)
(ii) Cash flow hedges
The portion of the gain or loss on the hedging instrument that is
effective (offsets the movement on the hedged item) is recognised
directly in the cash flow hedging reserve in equity and any ineffective
portion is recognised within finance costs directly in the income
statement.
Gains or losses deferred in the cash flow hedging reserve are
subsequently:
• transferred to the income statement when the hedged transaction
affects profit or loss (e.g. a forecast transaction occurs)
• included in the initial carrying amount when the hedged item is a
non-financial asset or liability
• transferred immediately to the income statement if a forecast
hedged transaction is no longer expected to occur.
Table I presents the hedge gains or losses transferred to and from
the cash flow hedging reserve.
Table I
Telstra Group
Cash flow hedging reserve
Changes in fair value of cash flow
hedges
Changes in fair value transferred to
other expenses
Changes in fair value transferred to
goods and services purchased
Changes in fair value transferred to
finance costs
Changes in fair value transferred to
property, plant and equipment
Income tax on movements in the cash
flow hedging reserve
Year ended 30 June
2019
2018
$m
$m
200
154
(334)
(409)
(12)
151
(2)
(1)
2
3
155
-
29
(68)
During the current and prior financial years, there was no material
impact on profit or loss resulting from ineffectiveness of our cash
flow hedges or from discontinuing hedge accounting for forecast
transactions no longer expected to occur.
Table J shows when the cash flows are expected to occur with
respect to items in cash flow hedges (i.e. notional cash outflows).
These amounts are the undiscounted cash flows reported in
Australian dollars and represent our foreign currency exposures at
the reporting date.
Table J
Telstra Group
Non-capital items
Within 1 year
Capital items
Within 1 year
Borrowings
Within 1 year
Within 1 to 5 years
After 5 years
As at 30 June
2019
2018
$m
$m
(1,234)
(422)
(97)
-
(1,898)
(3,763)
(4,554)
(11,546)
(251)
(3,700)
(5,063)
(9,436)
Non-capital items will be recognised in the income statement in the
same period in which the cash flows are expected to occur. For
purchases of property, plant and equipment, the gains and losses on
the associated hedging instrument are included in the measurement
of the initial cost of the assets. The hedged assets affect the income
statement as the assets are depreciated over their useful lives.
(iii) Derivatives not in a formal hedge relationship
Some derivatives may not qualify for hedge accounting or are
specifically not designated as a hedge as natural offset achieves
substantially the same accounting results. This includes forward
foreign currency contracts that are used to economically hedge
exchange rate fluctuations associated with trade payables or other
liability and asset balances denominated in a foreign currency.
4.3.4 Other hedge accounting policies
(a) Discontinuation of hedge accounting
Hedge accounting is discontinued when a hedging instrument
expires, is sold, terminated, or no longer meets the criteria for hedge
accounting. At that time, any cumulative gains or losses relating to
cash flow hedges recognised in equity are initially retained in equity
and subsequently recognised in the income statement as the
previously hedged item affects profit or loss. For fair value hedges,
the cumulative adjustment recorded against the carrying value of the
hedged item at the date hedge accounting ceases is amortised to the
income statement using the effective interest method.
(b) Embedded derivatives
Derivatives embedded in host contracts that are financial assets are
not separated from financial asset hosts and a hybrid contract is
classified in its entirety at either amortised cost or fair value.
Derivatives embedded in other financial liabilities or other host
contracts are treated as separate financial instruments when their
risks and characteristics are not closely related to those of the host
contracts and the host contracts are not measured at fair value
through profit or loss.
4.4 Financial instruments and risk management
Our underlying business activities result in exposure to
operational risks and a number of financial risks, including
interest rate risk, foreign currency risk, credit risk and liquidity
risk.
Our overall risk management program seeks to mitigate these
risks in order to reduce volatility on our financial performance
and to support the delivery of our financial targets. Financial
risk management is carried out centrally by our treasury
department under policies approved by the Board.
This note summarises how we manage these financial risks.
There have been no material changes to our risk management
policies since 30 June 2018.
4.4.1 Managing our interest rate risk
Interest rate risk arises from changes in market interest rates.
Borrowings issued at fixed rates expose us to fair value interest
rate risk. Variable rate borrowings give rise to cash flow interest
rate risk, which is partially offset by cash and cash equivalents
balances held at variable rates.
We manage interest rate risk on our net debt portfolio by:
• setting our target ratio of fixed interest debt to variable interest
debt, as required by our debt management policy
• ensuring access to diverse sources of funding
• reducing risks of refinancing by establishing and managing our
target maturity profiles
• entering into cross currency and interest rate swaps. Refer to note
4.3.3 for further details on derivatives.
(a) Exposure
Table C in note 4.3.2 sets out the carrying value of borrowings. The
use of cross currency and interest rate swaps allows us to manage
the level of exposure our borrowings have to interest rate risks. Table
A below shows our fixed to floating ratio based on the carrying value
of our borrowings pre and post-hedging.
For internal risk management purposes, we classify debt due to
mature within 12 months as floating which is reflected in Table A
below.
Table A
Telstra Group
Fixed rate
Floating rate
Total borrowings
As at 30 June 2019
As at 30 June 2018
Pre-hedge
borrowings
Post-hedge
borrowings
Pre-hedge
borrowings
Post-hedge
borrowings
Note
4.3
$m
(14,053)
(3,200)
(17,253)
$m
(9,733)
(7,520)
(17,253)
$m
(14,457)
(2,494)
(16,951)
$m
(10,220)
(6,731)
(16,951)
134 | Telstra Corporation Limited and controlled entities
132 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 135
Telstra Corporation Limited and controlled entities | 133
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 4 - Our Capital and Risk Management.fm Page 134 Tuesday, August 27, 2019 8:26 AM
Section 4 - Our Capital and Risk Management.fm Page 135 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.2 Managing our foreign currency risk
4.4 Financial instruments and risk management (continued)
4.4.1 Managing our interest rate risk (continued)
(b) Sensitivity
We have performed a sensitivity analysis based on the interest rate
risk exposures of our financial instruments as at 30 June, showing
the impact that a 10 per cent shift in interest rates would have on our
profit after tax and on equity. In accordance with our policy to swap
foreign currency borrowings into Australian dollars, interest rate
sensitivity relates primarily to movements in Australian interest
rates.
Table B shows the results of our sensitivity analysis.
Table B
As at 30 June
Telstra Group
2019
2018
Foreign currency risk is our risk that the value of a financial
commitment, forecast transaction, recognised asset or liability
will fluctuate due to changes in foreign exchange rates. We
issue debt offshore and operate internationally and hence we
are exposed to foreign exchange risk from various currencies.
However, our largest concentration of risk is attributable to the
Euro and United States dollar.
This risk exposure arises primarily from:
• borrowings denominated in foreign currencies
• trade and other creditor balances denominated in foreign
currencies
• firm commitments or highly probable forecast transactions
for receipts and payments settled in foreign currencies or
with prices dependent on foreign currencies
• net investments in foreign controlled entities (foreign
Gain/(loss)
Equity
Net
profit/
(loss)
Net
profit/
(loss)
Equity
operations).
(a) Borrowings
Interest rates
(+10%)
Interest rates
(-10%)
$m
(18)
18
$m
24
(25)
$m
(18)
18
$m
32
(33)
A shift of 10 per cent has been selected as a reasonably possible
change in interest rates based on the current level of both short-term
and long-term interest rates. This is not a forecast or prediction of
future market conditions.
The results of the sensitivity analysis are driven by the following main
factors:
• any increase or decrease in interest rates will impact our net
unhedged floating rate financial instruments and therefore will
directly impact profit or loss
• changes in the fair value of derivatives which are part of effective
cash flow hedge relationships are deferred in equity with no
impact to profit or loss
• changes in the fair value of foreign currency basis spreads
associated with our cross currency swaps are deferred in equity
• there is minimal net impact on profit or loss as a result of fair value
movements on derivatives designated in effective fair value hedge
relationships as there will be an offsetting adjustment to the
underlying borrowing
• the analysis does not include the impact of any management
action that might take place if a 10 per cent shift were to occur.
We mitigate the foreign currency exposure on foreign currency
denominated borrowings by:
• converting borrowings to Australian dollars using cross currency
swaps
• holding borrowings to offset the translation of the net assets of a
foreign controlled entity (we may also choose to hedge the foreign
currency translation risk using derivatives). We have nil hedges in
place for foreign currency translation risk associated with our
investments in foreign operations (2018: nil).
Table C shows the carrying value of offshore borrowings by
underlying currency. As at 30 June 2019, all offshore borrowings
were swapped into Australian dollars (2018: all Australian dollars).
Table C
Telstra Group
Euro
United States dollar
Japanese yen
Swiss franc
Other
Total offshore borrowings
As at 30 June
2019
2018
$m
(9,555)
(3,562)
(136)
-
(271)
(13,524)
$m
(8,372)
(3,391)
(126)
(311)
(262)
(12,462)
As at 30 June 2019, we also held $139 million of commercial paper at
carrying value, including $50 million denominated in United States
dollar ($71 million Australian dollar equivalent). At 30 June 2018, we
held $677 million of commercial paper at carrying value, which
included $100 million denominated in United States dollar ($135
million Australian dollar equivalent). Commercial paper
denominated in United States dollar was converted into Australian
dollars using foreign exchange swaps.
4.4.2 Managing our foreign currency risk (continued)
(b) Trading
We have some exposure to foreign currency risk from our operating
(transactional) activities. We manage this risk by:
• hedging a proportion of the exposure of foreign exchange
transaction risk arising from firm commitments or highly probable
forecast transactions denominated in foreign currencies in
accordance with our risk management policy. These transactions
may be physically settled in a foreign currency or in Australian
dollars but with direct reference to quoted currency rates in
accordance with a contractual formula.
• economically hedging a proportion of foreign currency risk
associated with trade and other asset and liability balances
• economically hedging the risk associated with our wholly owned
controlled entities (‘WOCE’) that may be exposed to transactions,
both forecast and committed, in currencies other than their
functional currency, in accordance with our overall risk
management policy.
We hedge the above risks using forward foreign exchange contracts.
Table D summarises the impact of outstanding forward foreign
exchange contracts that are hedging our transactional currency
exposures.
Table D
Telstra Group
As at 30 June 2019
As at 30 June 2018
Exposure
Forward foreign exchange
contract receive/(pay)
Exposure
Forward foreign exchange
contract receive/(pay)
Local currency
m
(50)
(24)
(345)
-
m
50
21
266
-
(904)
(1,422)
-
351
1,138
-
(91)
91
Commercial paper borrowings
United States dollars
Transactions to and from WOCE
British pounds sterling
United States dollars
Other (various currencies)
Forecast transactions
United States dollars
Philippine peso
Other (various currencies)
Other assets and liabilities
United States dollars
Total in Australian dollars
(c) Natural offset
Austra-
lian
dollars
Average
exchange
rate
Local currency
Austra-
lian
dollars
Average
exchange
rate
$m
$
m
m
$m
$
(70)
0.72
(100)
0.55
0.70
-
0.72
38.24
-
(18)
(174)
-
(257)
(2,840)
-
100
15
141
-
93
2,272
-
0.70
(46)
46
(38)
(380)
(4)
(487)
(30)
-
(130)
(1,139)
(133)
0.75
(26)
(186)
(12)
(121)
(56)
-
(61)
(595)
0.57
0.76
-
0.77
40.35
-
0.75
Our direct foreign exchange exposure arising from the impact of
translation of the results of our foreign entities to Australian dollars
is, in part, naturally offset at the Group level by foreign currency
denominated operating and capital expenditure of business units,
for which we do not have formal hedging in place.
136 | Telstra Corporation Limited and controlled entities
134 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 137
Telstra Corporation Limited and controlled entities | 135
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 4 - Our Capital and Risk Management.fm Page 136 Tuesday, August 27, 2019 8:26 AM
Section 4 - Our Capital and Risk Management.fm Page 137 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.3 Managing our credit risk
4.4 Financial instruments and risk management (continued)
• closely monitoring rolling forecasts of liquidity reserves on the
4.4.2 Managing our foreign currency risk (continued)
(d) Sensitivity
We have performed a sensitivity analysis based on our foreign
currency risk exposures existing at balance date. Table E shows the
impact that a 10 per cent shift in applicable exchange rates would
have on our profit after tax and on equity.
Table E
As at 30 June
Telstra Group
2019
2018
Gain/(loss)
Equity
Net
profit/
(loss)
Net
profit/
(loss)
Equity
$m
45
(55)
$m
(47)
57
$m
6
(8)
$m
(30)
36
Exchange rates
(+10%)
Exchange rates
(-10%)
A shift of 10 per cent has been selected as a reasonably possible
change taking into account the current level of exchange rates and
the volatility observed both on a historical basis and on market
expectations of future movements. This is not a forecast or
prediction of future market conditions.
We are exposed to equity impacts from foreign currency movements
associated with our offshore investments and our derivatives in cash
flow hedges of offshore borrowings. Foreign currency risk is spread
over a number of currencies. We have disclosed the sensitivity
analysis on a total portfolio basis and not separately by currency.
The translation of our foreign entities’ results into the Group’s
presentation currency has not been included in the above sensitivity
analysis as this represents translation risk rather than transaction
risk.
Any unhedged foreign exchange positions associated with our
transactional exposures will directly affect profit or loss as a result of
foreign currency movements.
There is no significant impact on profit or loss from foreign currency
movements associated with our borrowings portfolio in effective fair
value or cash flow hedges as an offsetting entry will be recognised on
the associated hedging instrument.
The analysis does not include the impact of any management action
that might take place if these events occurred.
Credit risk is the risk that a counterparty will default on its
contractual obligations resulting in a financial loss. We are
exposed to credit risk from our operating activities (primarily
customer credit risk) and financing activities.
We manage credit risk by:
• applying Board approved credit policies
• monitoring exposure to high risk debtors
• requiring collateral where appropriate
• assigning credit limits to all financial counterparties.
We may also be subject to credit risk on transactions not included in
the statement of financial position, such as when we provide a
guarantee for another party. Details of our contingent liabilities are
disclosed in note 7.3.2.
(a) Customer credit risk
Trade and other receivables and contract assets consist of a large
number of customers, spread across the consumer, business,
enterprise, government and international sectors. Other than nbn co,
we do not have any significant credit risk exposure to a single
customer or group of customers.
Ageing analysis and ongoing credit evaluation are performed on the
financial condition of our customers and, where appropriate, an
allowance for doubtful debts is raised. In addition, receivable
balances and contract assets are monitored on an ongoing basis so
that our exposure to bad debts is not significant.
Refer to note 3.3 for further details about our trade and other
receivables and contract assets.
(b) Treasury credit risk
We are exposed to credit risk from the investment of surplus funds
(primarily deposits) and from the use of derivative financial
instruments.
We have a number of exposures to individual counterparties. To
manage this risk, we have Board approved policies that limit the
amount of credit exposure to any single counterparty. Counterparty
credit ratings and market conditions are reviewed continually with
limits being revised and utilisation adjusted where appropriate. We
also manage our credit exposure using a value at risk (VaR)
methodology, which is an industry standard measure that estimates
the maximum potential exposure of our risk positions as a result of
future movements in market rates. This helps to ensure that we do
not underestimate credit exposure with any single counterparty.
Using VaR analysis at 30 June 2019, 94 per cent (2018: 94 per cent)
of our derivative credit exposure was with counterparties that have a
credit rating of A- or better. Management does not expect any
significant losses from non-performance by any of these
counterparties.
4.4.4 Managing our liquidity risk
Liquidity risk is the risk that we will be unable to meet our
financial obligations as they fall due.
Our objective is to maintain a balance between continuity and
flexibility of funding through the use of liquid financial instruments,
long-term and short-term borrowings, and committed available
bank facilities.
We manage liquidity risk by:
• defining minimum levels of cash and cash equivalents
• defining minimum levels of cash and cash equivalents plus
basis of expected business cash flows
• using instruments which trade in highly liquid markets with highly
rated counterparties
• investing surplus funds within various types of liquid instruments.
We believe that our contractual obligations can be met through
existing cash and cash equivalents, operating cash flows and other
funding arrangements we reasonably expect to have available to us,
including the use of committed bank facilities.
Table F shows our contractual cash flow maturities of financial
liabilities including estimated interest payments. The amounts
disclosed are undiscounted future cash flows and therefore do not
reconcile to the amounts in the statement of financial position.
undrawn bank facilities
Table F
Telstra Group
Domestic borrowings
Offshore borrowings
Commercial paper
Interest on borrowings,
excluding finance lease
liabilities
Finance lease liabilities
Trade/other payables and
accrued expenses
Derivative financial assets
Derivative financial
liabilities
Total
(a) Borrowing facilities
Contractual maturity
As at 30 June 2019
As at 30 June 2018 Restated
Less
than 1
year
$m
(366)
(1,641)
(139)
1 to 2
years
2 to 5
years
$m
(1,064)
(939)
-
$m
(1,013)
(6,219)
-
More
than 5
years
$m
(850)
(4,400)
-
Total
$m
(3,293)
(13,199)
(139)
Less
than 1
year
1 to 2
years
2 to 5
years
$m
(548)
(313)
(686)
$m
(60)
(1,580)
-
$m
(2,080)
(5,179)
-
More
than 5
years
$m
(750)
(5,030)
-
Total
$m
(3,438)
(12,102)
(686)
(551)
(459)
(776)
(301)
(2,087)
(721)
(503)
(450)
(161)
(1,835)
(91)
(4,528)
(62)
(7)
(73)
(14)
(116)
(342)
(102)
(47)
(4,596)
(4,528)
(70)
(10)
(106)
(233)
(511)
(14)
(41)
(4,593)
3,345
1,283
6,638
4,621
15,887
1,402
1,963
5,779
5,251
14,395
(3,332)
(1,238)
(5,393)
(4,532)
(14,495)
(1,481)
(2,035)
(5,042)
(4,928)
(13,486)
(7,303)
(2,486)
(6,850)
(5,625)
(22,264)
(6,977)
(2,295)
(7,092)
(5,892)
(22,256)
We have committed available bank facilities in place to support our
liquidity requirements and our short-term and long-term
borrowings. Table G shows our undrawn facilities as at 30 June.
Table G
Telstra Group
Facilities available
Facilities used
Facilities unused
As at 30 June
2019
2018
$m
3,200
-
3,200
$m
3,200
(200)
3,000
138 | Telstra Corporation Limited and controlled entities
136 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 139
Telstra Corporation Limited and controlled entities | 137
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 4 - Our Capital and Risk Management.fm Page 138 Tuesday, August 27, 2019 8:26 AM
Section 4 - Our Capital and Risk Management.fm Page 139 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
Fair value hierarchy:
4.4.5 Valuation and disclosures within fair value hierarchy
• level 1: quoted (unadjusted) market prices in active markets for
The financial instruments included in the statement of
financial position are measured either at fair value or their
carrying value approximates fair value, with the exception of
borrowings, which are held at amortised cost.
To determine fair value, we use both observable and
unobservable inputs. We classify the inputs used in the
valuation of our financial instruments according to a three level
hierarchy as shown below. The classification is based on the
lowest level input that is significant to the fair value
measurement as a whole.
identical assets or liabilities
• level 2: the lowest level input that is significant to the fair value
measurement is directly (as prices) or indirectly (derived from
prices) observable
• level 3: one or more key inputs for the instrument are not based on
observable market data (unobservable inputs).
During the year ended 30 June 2019, there were no changes in
valuation techniques for recurring fair value measurements of our
financial instruments. There were also no transfers between fair
value hierarchy levels.
The table below summaries the methods used to estimate the fair
value of our financial instruments.
Level
Level 1
Level 2
Financial instrument
Fair value
Listed investments in equity
instruments
Quoted prices in active markets.
Borrowings, cross currency
and interest rate swaps
Valuation techniques maximise the use of observable market data.
Present value of the estimated future cash flows using appropriate
market based yield curves, which are independently derived. Yield
curves are sourced from readily available market data quoted for all
major currencies.
Forward foreign exchange
contracts
Quoted forward exchange rates at reporting date for contracts with
similar maturity profiles.
Level 3
Trade receivables from
contracts with customers
Trade receivables from contracts with customers measured at fair
value are such where due to the variability of the contractual cash
flows the instrument does not meet the classification requirements
of financial assets at amortised cost.
A valuation technique is used where the estimated future cash flows
are discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and
the risks specific to the asset. Expected cash inflows are estimated
based on the terms of the customer contract taking into account
possible variations in the amount and timing of cash flows. Discount
rate is determined using a risk free rate plus a risk adjustment
reflecting the credit risk associated with the cash flow.
Unlisted investments in equity
instruments
Valuation techniques (where one or more of the significant inputs is
not based on observable market data) include reference to
discounted cash flows and fair values of recent orderly sell
transactions between market participants involving instruments
that are substantially the same.
Contingent consideration
Initial recognition: expectations of future performance of the
business. Subsequent measurement: present value of the future
expected cash flows.
4.4 Financial instruments and risk management (continued)
4.4.5 Valuation and disclosures within fair value hierarchy
(continued)
Table H categorises our financial instruments which are measured at
fair value, according to the valuation methodology applied.
Table H
Telstra Group
Assets
Trade receivables from contracts
with customers
Derivative financial instruments
Investments in listed securities
Investments in unlisted securities
Liabilities
Derivative financial instruments
Contingent consideration
Total
As at 30 June 2019
As at 30 June 2018 (restated)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
-
-
9
-
9
-
-
-
9
-
2,262
-
-
2,262
(340)
-
(340)
1,922
1,506
-
-
16
1,522
-
-
-
1,522
1,506
2,262
9
16
3,793
(340)
-
(340)
3,453
-
-
11
-
11
-
-
-
11
-
1,972
-
-
1,972
(389)
-
(389)
1,583
1,502
-
-
25
1,527
-
(4)
(4)
1,523
1,502
1,972
11
25
3,510
(389)
(4)
(393)
3,117
Table I details movements in the level 3 unlisted security balances.
Table I
Telstra Group
Opening balance 1 July 2018
Purchases
Remeasurement recognised in other comprehensive
income (net of tax)
Contribution to Telstra Ventures Fund II, L.P.
Closing balance 30 June 2019
Unlisted
securities
Level 3
$m
25
1
1
(11)
16
The remeasurement recognised in other comprehensive income in
the financial year 2019 related to investments held by Telstra
Ventures Pty Limited.
During the financial year, we have not received any dividends from
our investments in these equity instruments and there have been no
transfers to or from equity in relation to these investments.
Refer to note 6.2.1 for further information on contribution to Telstra
Venture Fund II, L.P.
Our borrowings as per Table C in note 4.3.2 are classified as level 2 in
the fair value hierarchy.
We originate trade receivables from contracts with customers as
part of our ordinary activities. Settlements of those receivables from
part of the receipts from customers in the operating cash flows. No
material revaluation gains or losses were recognised during the year.
140 | Telstra Corporation Limited and controlled entities
138 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 141
Telstra Corporation Limited and controlled entities | 139
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 4 - Our Capital and Risk Management.fm Page 140 Tuesday, August 27, 2019 8:26 AM
Section 5 - Our People.fm Page 141 Tuesday, August 27, 2019 4:29 PM
Notes to the financial statements (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.6 Offsetting and netting arrangements
Table J presents financial assets and financial liabilities subject to
offsetting, enforceable master netting arrangements or similar
agreements. Following the adoption of the new accounting standard
for revenue from contracts with customers, wordings of the
respective line items have been updated as described in note 7.1.1.
Table J
Telstra Group
Gross
amounts
Gross
amounts
offset in the
statement of
financial
position
Net amounts
presented in
the
statement of
financial
position
Gross amounts not offset in
the statement of financial
position
Financial
instruments
Collateral
received or
pledged
$m
$m
$m
$m
$m
$m
A
B
C=A-B
D
E
F=C-D-E
Trade and other receivables and
contract assets
Trade and other payables
Derivative financial assets
Derivative financial liabilities
Total
Trade and other receivables and
contract assets
Trade and other payables
Derivative financial assets
Derivative financial liabilities
Total
829
(473)
2,262
(340)
2,278
658
(370)
1,972
(389)
1,871
As at 30 June 2019
696
54
(340)
2,262
(340)
2,278
(54)
337
(337)
-
As at 30 June 2018 (restated)
548
(260)
1,972
(389)
1,871
51
(51)
370
(370)
-
133
(133)
-
-
-
110
(110)
-
-
-
10
-
-
-
10
10
-
-
-
10
632
(286)
1,925
(3)
2,268
487
(209)
1,602
(19)
1,861
Gross amounts not offset in the statement of financial position
reflect amounts subject to conditional offsetting arrangements.
Gross amounts of financial instruments not offset in the statement
of financial position, i.e. our rights of set-off that are not otherwise
included in column B, related to:
• our inter-operative tariff arrangements with some of our
international roaming partners, where we have executed
agreements that allow the netting of amounts payable and
receivable by us on cessation of the contract
• our wholesale customers, where we have executed Customer
Relationship Agreements that allow for the netting of amounts
payable and receivable by us in certain circumstances where there
is a right to suspend the supply of services or on the expiration or
termination of the agreement
• our derivative financial instruments, where we have executed
master netting arrangements under our International Swaps and
Derivatives Association agreements. These agreements allow for
the netting of amounts payable and receivable by us or the
counterparty in the event of default or a credit event. In line with
contractual provisions, in the event of insolvency all derivatives
with a positive or negative fair value that exist with the respective
counterparty are offset against each other, leaving a net receivable
or liability.
Net amounts
SECTION 5. OUR PEOPLE
5.1 Employee benefits
Notes to the financial statements (continued)
Section 5. Our people
We are working to attract and retain employees with
the skills and passion to best serve our markets. This
section provides information about our employee
benefits obligations. It also includes details of our
employee share plans and compensation paid to key
management personnel.
Telstra Financial Report 2019
5.1.1 Aggregate employee benefits
Our employee related obligations include:
• liabilities for wages and salaries and related on-costs (presented
within current trade and other payables)
• annual leave, long service leave and employee incentives
(presented within employee benefits) and
• current redundancy provisions (presented within other
provisions).
We apply estimates and judgement in measuring our provisions for
employee benefits.
Table A provides a summary of all these employee obligations.
Table A
Telstra Group
Current employee benefits
Non-current employee benefits
Current redundancy provisions
Accrued labour and on-costs
As at 30 June
2019
2018
$m
804
158
1
644
1,607
$m
868
157
5
498
1,528
Long service
leave provision
We applied management judgement to
determine the following key
assumptions used in the calculation of
long service leave entitlements:
• 4.0 per cent (2018: 4.5 per cent)
weighted average projected
increases in salaries
• 2.7 per cent (2018: 3.9 per cent)
discount rate.
The discount rate used to calculate the
present value has been determined by
reference to market yields at 30 June
2019 on 10 year (2018: 10 year) high
quality corporate bonds which have
due dates similar to those of our
liabilities.
For the amounts of the provision presented as current, we do not
have an unconditional right to defer settlement for any of these
obligations. However, based on past experience, we do not expect all
employees to take the full amount of accrued leave or require
payment within the next 12 months. Amounts disclosed in Table B
have been determined in accordance with an actuarial assessment
and reflect leave that is not expected to be taken or paid within the
next 12 months.
Table B
Telstra Group
Leave obligations expected to be
settled after 12 months
5.1.2 Recognition and measurement
As at 30 June
2019
2018
$m
495
$m
524
The liabilities for employee benefits relating to wages and salaries,
annual leave and other current employee benefits are accrued at
their nominal amounts. These are calculated based on remuneration
rates expected to be current at the settlement date and include
related costs.
Certain employees who have been employed by Telstra for at least 10
years are entitled to long service leave of three months (or more
depending on the actual length of employment). We accrue liabilities
for long service leave not expected to be paid or settled within 12
months of reporting date at the present values of future amounts
expected to be paid. This is based on projected increases in wage and
salary rates over an average of 10 years, experience of employee
departures and periods of service.
Provisions are recognised when:
• the Telstra Group has a present legal or constructive obligation to
make a future sacrifice of economic benefits as a result of past
transactions or events
• it is probable that a future sacrifice of economic benefits will arise
• a reliable estimate can be made of the amount of the obligation.
We recognise a provision for redundancy costs when a detailed
formal plan for the redundancies has been developed and a valid
expectation has been created that the redundancies will be carried
out in respect of those employees likely to be affected.
142 | Telstra Corporation Limited and controlled entities
140 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 143
Telstra Corporation Limited and controlled entities | 141
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 5 - Our People.fm Page 142 Tuesday, August 27, 2019 8:26 AM
Section 5 - Our People.fm Page 143 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Section 5. Our people (continued)
5.2 Employee share plans
We have a number of employee share plans that are available to executives and employees as part of their remuneration packages.
Active share plans are conducted through the Telstra Growthshare Trust (Growthshare). Telstra wholly owns Telstra Growthshare Pty
Ltd, the corporate trustee for Growthshare (the Trustee). The results of the Trustee are consolidated into our Telstra Group Financial
Report.
A transaction will be classified as share-based compensation where the Group receives services from employees and pays for these
either in shares or similar equity instruments or in cash but the amounts due are based on the price of the equity instruments.
This note summarises the primary employee share plans conducted through Growthshare and the key events in the share-based
payment arrangements during the financial year.
We have granted the following types of equity instruments as part of
our equity-settled plans:
• restricted shares
• performance rights
• retention rights.
Restricted shares are Telstra shares that are subject to a restriction
period.
Performance rights are rights to Telstra shares subject to the
satisfaction of certain performance measures and service conditions
over a defined performance period.
Retention rights are rights to Telstra shares if the retention rights
vest.
Telstra retains the flexibility to settle performance rights granted
under the Executive Variable Remuneration Plan (EVP) and retention
rights in a cash amount equivalent to the value of the shares that
would otherwise have been provided on vesting of the rights.
A summary of the key terms of our main equity-settled plans is
presented in the tables below. Further information can be found in
note 5.2.1.
The table below provides a summary of the restricted shares that
were outstanding at any time during the financial year.
Table A @ Type
Financial year
granted
Restriction period
Number of restricted
shares allocated and
outstanding at 30
June 2019
EVP restricted shares
FY18
FY19
1 to 2 years from the end
of the initial performance
period
2 years from the end of
the initial performance
period
774,394
The restricted shares for
FY19 will be allocated at
the start of FY20
Short-term incentive (STI) restricted
shares
FY16, FY17, FY18, FY19
1 to 3 years from the
effective allocation date
Employee Share Plan (ESP) restricted
shares
FY16, FY17, FY18
3 years from the actual
allocation date
GE Telstra Wholesale restricted shares
FY17
TESOP 99 restricted shares
FY98, FY00
3 years from the effective
allocation date
Until the loan has been
paid in full
5,453,091
3,713,300
86,185
2,903,300
An effective allocation date is 1 July immediately after the financial
year when the restricted shares were granted.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 5. Our people (continued)
5.2 Employee share plans (continued)
Table below provides a summary of the performance rights that
existed at any time during the financial year.
Table B @Type
Financial
year
granted
Date of testing
against
performance
hurdles
Performance
hurdles
EVP performance
rights
FY18
50% 30 Jun 2021
50% 30 Jun 2022
FY19
30 Jun 2023
Executive Long-
term incentive
(LTI) performance
rights
FY17
30 Jun 2019
Relative Total
Shareholder
Return (RTSR)
for both FY18
and FY19
Free Cash Flow
Return on
Investment (FCF
ROI)
RTSR (not
applicable to
former GE
Telstra
Wholesale)
Number of
performance rights
allocated and
outstanding at 30
June 2019
Subsequent
restriction
period once
the
performance
rights have
become
restricted
shares
n/a
1,161,590
The performance rights
for FY19 will be allocated
at the start of FY20
1 year
The performance rights
lapsed
The definitions of RTSR and FCF ROI are set out in the Remuneration
Report Glossary.
5.2.1 Description of share based payment arrangements
The first allocation of restricted shares and performance rights
under the EVP was made in financial year 2019. Shareholder
approval will be sought at the 2019 Annual General Meeting for the
CEO’s EVP equity grant.
(a) Retention rights (equity-settled)
During the year, Telstra issued one-off retention rights to eligible
employees. As at 30 June 2019, 13,032,150 retention rights were
outstanding.
The retention rights were allocated in November 2018 in two
tranches – 40 per cent of the retention rights will vest on 31
December 2019 and the remaining 60 per cent will vest on 30 June
2021. The retention rights are not subject to performance hurdles.
There will be no dividends or dividend equivalent amounts paid
during the vesting period. If the holder leaves Telstra other than for a
permitted reason before the end of the relevant vesting period, the
retention rights are forfeited.
(b) Executive Variable Remuneration Plan (EVP)
The EVP was implemented for the CEO and other eligible senior
executives in financial year 2018. Under the EVP, the amount earned
by an executive is determined at the end of an initial one year
performance period based on Telstra’s performance against certain
predetermined performance measures and subject to Board
discretion to adjust based on its assessment of individual
performance and whether the proposed outcome is appropriate in
the context of Telstra’s performance, customer experience and
shareholder expectations. A component of the amount earned under
the EVP is provided in restricted shares and a component in
performance rights.
(i) Restricted shares (equity-settled)
FY19 EVP restricted shares are subject to a two year restriction
period following the initial one year performance period (FY18 EVP
restricted shares had a restriction period of 1 or 2 years). No further
performance hurdles will apply once the restricted shares are
allocated. During the restriction period, executives are entitled to
vote and earn dividends on their restricted shares from the actual
allocation date. However, they are restricted from dealing with the
shares during this period.
If an executive leaves Telstra other than for a permitted reason (the
definition of which is set out in the Remuneration Report Glossary)
before the end of the relevant restriction period, the restricted
shares will be forfeited. Restricted shares may also be forfeited if
certain clawback events occur during the restriction period.
(ii) Performance rights (equity-settled)
Once allocated, the performance rights will be tested against a
Relative Total Shareholder Return (RTSR) measure over a five year
period (FY18 EVP: 50% over four years and 50% over five years)
inclusive of the initial one year performance period.
The performance rights will only vest if Telstra’s RTSR ranks at the
50th percentile or greater against a comparator group comprising
the ASX100 (excluding resource companies) over the performance
period. If the RTSR measure is not satisfied, all of the applicable
performance rights in the relevant tranche will lapse.
144 | Telstra Corporation Limited and controlled entities
142 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 145
Telstra Corporation Limited and controlled entities | 143
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019
Section 5 - Our People.fm Page 144 Tuesday, August 27, 2019 8:26 AM
Section 5 - Our People.fm Page 145 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Section 5. Our people (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 5. Our people (continued)
5.2 Employee share plans (continued)
5.2.1 Description of share based payment arrangements
(continued)
(b) Executive Variable Remuneration Plan (EVP) (continued)
(ii) Performance rights (equity-settled) (continued)
No dividends are paid on performance rights prior to vesting. For
performance rights that do vest, a cash payment equivalent to
dividends paid by Telstra during the period between allocation of the
performance rights and vesting will be made at or around the time of
vesting, subject to applicable taxation. This cash entitlement is not
included in the grant date fair values of the performance rights as
this is accounted for separately.
(iii) Cash rights (cash-settled)
Executives who ceased employment for a permitted reason, before
the allocation of the FY18 EVP restricted shares and performance
rights were granted cash rights in lieu of those restricted shares and
performance rights. Those Executives were also eligible for a pro-
rata FY19 EVP outcome based on the proportion of time employed
during FY19 and will be allocated cash rights in lieu of FY19 EVP
restricted shares and performance rights.
Those cash rights are subject to the same time conditions and
performance measures as those applying to performance rights and
restricted shares (except the cash rights granted to Will Irving
(former GE Telstra Wholesale) in lieu of performance rights are not
subject to an RTSR performance condition due to constraints under
the Structural Separation Undertakings (SSU)).
We have recorded a liability of $4 million as at 30 June 2019
pertaining to the cash rights.
(c) STI restricted shares
Under the STI arrangements, 25 per cent of an eligible executive’s
actual STI payment is provided as restricted shares with an effective
allocation date of 1 July each financial year immediately after the
end of the performance period. For the CEO and other senior
executives who participated in these arrangements, up to financial
year 2017, half of these shares were restricted for 12 months and
half for 24 months from their effective allocation date. For other
executives who continue to participate in these arrangements, these
shares are restricted for three years from their effective allocation
date.
Performance hurdles are applied in determining the number of
restricted shares allocated to executives, and therefore, restricted
shares are not subject to any other performance hurdles once they
have been allocated. During the restriction period, from the actual
grant date, executives are entitled to vote and earn dividends on their
restricted shares. However, they are restricted from dealing with the
shares during this period.
If an executive leaves Telstra other than for a permitted reason
before the end of the relevant restriction period, the restricted
shares are forfeited. Restricted shares may also be forfeited if
certain clawback events occur during the restriction period.
(d) LTI share based payment arrangements
(i) Employee Share Plan (ESP) restricted shares (equity-settled)
Restricted shares provided under the ESP were allocated to certain
eligible employees at no cost (executives were excluded from the
ESP).
The restricted shares are held by the Trustee on behalf of employees
until the restriction period ends. For Australian based employees,
the shares are released from trust on the earlier of three years from
the date of allocation or the date on which the participating
employee ceases relevant employment. Although the Trustee holds
the restricted shares in trust, the employees retain beneficial
interest (dividends, voting rights, bonus issues and right issues) in
these shares until the end of the restriction period.
There are no performance hurdles for these restricted shares.
(ii) Executive LTI performance rights (no longer offered) (equity-
settled)
Executive LTI performance rights were offered up to financial year
2017 with the last allocation tested on 30 June 2019. Two types of
performance rights were outstanding in financial year 2019:
• RTSR performance rights
• FCF ROI performance rights.
In respect of the performance rights, an executive has no legal or
beneficial interest in the underlying shares, no entitlement to receive
dividend from the shares and no voting rights in relation to the shares
unless the performance rights became restricted shares which
happened if the performance hurdle was satisfied at the end of the
applicable performance period. The restriction period applying to the
restricted shares is approximately one year.
Although the Trustee holds the restricted shares in trust, the
executive retains the beneficial interest (dividends, voting rights,
bonus issues and rights issues) in these shares until they vest and
are transferred to them, on the first day after the end of the
restriction period that the executive is able to deal with the shares
under Telstra's Securities Trading Policy (unless forfeited).
All the FY17 LTI performance rights lapsed fully because the RTSR
performance hurdle was not met at the date of testing and, albeit the
target would have been met, the Board applied its discretion not to
vest the FCF ROI component.
(e) Other equity plans
(i) GE Telstra Wholesale restricted shares (no longer offered) (equity-
settled)
Due to the SSU arising from the nbn transaction, the executive
fulfilling the GE Telstra Wholesale role was prohibited from
participating in the LTI plans. As a result, an alternative
remuneration arrangement was provided to that executive.
The performance hurdles were applied in determining the number of
restricted shares allocated under this plan. The last allocation was
made in November 2017.
In accordance with the plan terms, GE Telstra Wholesale forfeited a
pro rata number of restricted shares upon his departure from Telstra
in financial year 2019.
(ii) TESOP99 (equity-settled)
As part of the Commonwealth's sale of its shareholding in the
financial years 1998 and 2000, Telstra offered eligible employees the
opportunity to buy ordinary shares of Telstra with an interest-free
loan from Telstra. The shares are held by Telstra ESOP Trustee Pty
Limited (TESOP Trustee) on behalf of the employee until the loan has
been repaid in full. The Telstra Employee Share Ownership Plan II
(TESOP 99) has 2,903,300 outstanding equity instruments as at 30
June 2019 (2018: 2,989,600) with a total fair value of $11 million
(2018: $8 million). This plan did not have a material impact on our
results.
5.2 Employee share plans (continued)
5.2.4 Recognition and measurement
For each of our equity-settled share plans, we measure the fair value
of the equity instrument at grant date and recognise the expense
over the relevant vesting period in the income statement with a
corresponding increase in equity (i.e. share capital). The expense is
adjusted to reflect actual and expected levels of vesting.
Grant date is the date when there is a shared understanding between
employees and Telstra of the terms and conditions of the plan and
the employees have accepted the offer. This often occurs prior to the
allocation of equity instruments to the employees.
The fair values of our equity instruments are calculated by taking into
account the terms and conditions of the individual plan and as
follows:
Equity instrument
Fair value approach
Restricted shares
Retention rights
Performance rights
Market value of Telstra’s
share at grant date excluding
estimated dividends lost
between the grant date and
the allocation date
Black-Scholes methodology
and utilises Monte Carlo
simulations
A liability is recognised for the fair value of cash-settled
transactions. The fair value is measured initially and at each
reporting date up to and including the settlement date, with changes
in fair value recognised in employee benefits expense in the income
statement.
5.2.1 Description of share based payment arrangements
(continued)
(e) Other equity plans (continued)
(ii) TESOP99 (equity-settled) (continued)
The employee share loan balance as at 30 June 2019 was $10 million
(2018: $11 million), the weighted average loan still to be repaid was
$3.39 (2018: $3.54) per instrument.
5.2.2 Fair value measurement
(a) Equity-settled awards
Table A provides a weighted average of the inputs used in measuring
the fair value of equity instruments at grant date.
Table A
Measurement date
Share price
Risk free rate
Dividend yield
Expected life in years
Expected stock volatility
Fair value ($)
Perfor-
mance
rights
Oct 2018
$3.11
2.26%
6.14%
4.7 years
20%
$1.98
Reten-
tion
rights
Aug 2018
$3.08
1.99%
5.84%
2.3 years
-
$2.71
Restrict-
ed
shares
Oct 2018
$3.11
-
-
-
-
$2.95
The expected stock volatility is a measure of the amount by which the
price is expected to fluctuate during a period. This is based on an
annualised historical daily volatility of closing share prices over a
certain period to the measurement date.
(b) Cash-settled awards
Table B provides a weighted average of the inputs used in measuring
the fair value of cash-settled equity instruments at grant date.
Table B
Measurement date
Share price
Risk free rate
Dividend yield
Expected life in years
Expected stock volatility
Fair value ($)
Cash rights
Sep 2018
$3.18
2.04%
6.07%
2.4 years
20%
$1.94
Fair value of those instruments was remeasured as at the end of the
reporting period.
5.2.3 Expense recognised in profit or loss
For details of the related employee benefit expenses, refer to note
2.3.
146 | Telstra Corporation Limited and controlled entities
144 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 147
Telstra Corporation Limited and controlled entities | 145
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 5 - Our People.fm Page 146 Tuesday, August 27, 2019 8:26 AM
Section 5 - Our People.fm Page 147 Tuesday, August 27, 2019 8:26 AM
Notes to the financial statements (continued)
Section 5. Our people (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 5. Our people (continued)
5.3 Post-employment benefits
We participate in, or sponsor, defined benefit and defined
contribution schemes for our employees. This note provides
details of our Telstra Superannuation Scheme (Telstra Super)
defined benefit plan.
Our employer contributions to Telstra Super are based on the
recommendations from the actuary of Telstra Super in line with
any legislative requirements. The net defined benefit asset/
(liability) at balance date is also affected by the valuation of
Telstra Super’s investments and our obligations to members of
Telstra Super.
5.3.1 Net defined benefit plan asset/(liability)
Table A details our net defined benefit plan asset/(liability)
recognised in the statement of financial position.
Table A
Telstra Group
Fair value of defined benefit plan
assets
Present value of the defined benefit
obligation
Net defined benefit asset
Attributable to:
Telstra Super
Other
As at 30 June
2019
2018
$m
$m
2,108
2,423
1,884
224
232
(8)
224
2,180
243
250
(7)
243
5.3.2 Telstra Superannuation Scheme (Telstra Super)
The Telstra Entity participates in Telstra Super, a regulated fund in
accordance with the Superannuation Industry Supervision Act
governed by the Australian Prudential Regulation Authority.
Telstra Super’s board of directors operates and governs the plan,
including making investment decisions.
Telstra Super has both defined benefit and defined contribution
divisions. The defined benefit divisions, which are closed to new
members, provide benefits based on years of service and final
average salary paid as a lump sum. Post-employment benefits do not
include payments for medical costs.
On an annual basis, we engage qualified actuaries to calculate the
present value of the defined benefit obligations.
Contribution levels made to the defined benefit divisions are
determined by Telstra after obtaining the advice of the actuary and in
consultation with Telstra Super Pty Ltd (the Trustee). These are
designed to ensure that benefits accruing to members and
beneficiaries are fully funded as they fall due. The benefits received
by members of each defined benefit division take into account
factors such as each employee’s length of service, final average
salary, and employer and employee contributions.
Telstra Super is exposed to Australia’s inflation, credit risk, liquidity
risk and market risk. Market risk includes interest rate risk, equity
price risk and foreign currency risk. The strategic investment policy
of the fund is to build a diversified portfolio of assets to match the
projected liabilities of the defined benefit plan.
(a) Reconciliation of changes in fair value of defined benefit plan
assets
Table B provides a reconciliation of fair value of defined benefit plan
assets from the opening to the closing balance.
Table B
Telstra Super
Fair value of defined benefit plan
assets at beginning of year
Employer contributions
Member contributions
Benefits paid (including contributions
tax)
Plan expenses after tax
Interest income on plan assets
Actual asset gain
Fair value of defined benefit plan
assets at end of year
As at 30 June
2019
2018
$m
$m
2,423
2,565
31
28
60
33
(465)
(334)
(7)
82
16
(8)
97
10
2,108
2,423
(b) Reconciliation of changes in the present value of the wholly
funded defined benefit obligation
Table C provides a reconciliation of the present value of defined
benefit obligation from the opening to the closing balance.
Table C
Telstra Super
Present value of defined benefit
obligation at beginning of year
Current service cost
Interest cost
Member contributions
Past service (credit)
Benefits paid
Actuarial loss/(gain) due to change in
financial assumptions
Actuarial (gain) due to change in
demographic assumptions
Actuarial loss/(gain) due to experience
Present value of wholly funded
defined benefit obligation at end of
year
As at 30 June
2019
2018
$m
$m
2,173
2,423
65
74
13
(10)
(465)
2
(2)
26
79
93
14
-
(334)
(74)
(23)
(5)
1,876
2,173
The actual return on defined benefit plan assets was 3.7 per cent
(2018: 4.4 per cent).
Net actuarial loss recognised in other comprehensive income for
Telstra Super amounted to $10 million (2018: $112 million net gain).
As a result of restructuring program, we settled the defined benefit
plan obligations relating to the employees impacted by the
redundancy and recognised a $10 million gain on settlement. This is
reflected in the past service credit.
5.3 Post-employment benefits (continued)
(d) Actuarial assumptions and sensitivity analysis
(c) Categories of plan assets
Table D details the weighted average allocation as a percentage of
the fair value of total defined benefit plan assets by class based on
their nature and risks.
Defined benefit
plan
Table D
Telstra Super
Asset allocations
Equity instruments
Australian equity ¹
International equity ¹
Private equity
Debt instruments
Fixed interest ¹
Property
Cash and cash equivalents
Other
As at 30 June
2019
2018
%
7
8
3
58
8
11
5
100
%
16
18
4
46
7
4
5
100
Management judgement was used to
determine the following key
assumptions used in the calculation of
our defined benefit obligations:
• 2.5 per cent (2018: 3.0 per cent)
average expected rate of increase in
future salaries
• 2.4 per cent (2018: 3.7 per cent)
discount rate.
We have used an eight year (2018:
eight year) high quality corporate bond
rate to determine the discount rate as
the term matches closest to the term
of the defined benefit obligations.
Our assumption for the salary inflation
rate for Telstra Super reflects our long-
term expectation for salary increases.
If the estimates prove to be different to
actual experience, this may materially
affect balances in the next reporting
period.
1 These assets have quoted prices in active markets.
(i) Related party disclosures
Table E summarises how the defined benefit obligation as at 30 June
2019 would have increased/(decreased) as a result of a change in the
respective assumptions by one percentage point (1pp).
As at 30 June 2019, Telstra Super owned 51,190,265 (2018:
41,973,318) shares in the Telstra Entity at a cost of $145 million
(2018: $166 million) and a market value of $197 million (2018: $110
million). All these shares were fully paid at 30 June 2019. In the
financial year 2019, we paid a dividend to Telstra Super of $8 million
(2018: $10 million). We own 100 per cent of the equity of Telstra
Super Pty Ltd, the Trustee of Telstra Super.
Table E
Telstra Super
Telstra Super also holds promissory notes and bonds issued by the
Telstra Entity. As at 30 June 2019, these securities had a cost of $14
million (2018: $61 million) and a market value of $15 million (2018:
$61 million).
Discount rate
Expected rate of increase in future
salaries
Defined benefit
obligation
1pp
increase
1pp
decrease
$m
(135)
94
$m
155
(85)
All purchases and sales of Telstra shares, promissory notes and
bonds by Telstra Super are on an arm’s length basis and are
determined by the Trustee and/or its investment managers on behalf
of the members of Telstra Super.
(e) Employer contributions
During the year, we paid contributions totalling $31 million (2018:
$60 million) at the average rate of eight per cent (2018: 15 per cent)
to our defined benefit divisions, following recommendations from the
actuary of Telstra Super.
We expect to contribute at the rate of five per cent to our defined
benefit divisions for the financial year 2020. This contribution rate
could change depending on market conditions and actuarial review
during the financial year 2020.
148 | Telstra Corporation Limited and controlled entities
146 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 149
Telstra Corporation Limited and controlled entities | 147
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 5 - Our People.fm Page 148 Tuesday, August 27, 2019 8:26 AM
Section 6 - Our Investments.fm Page 149 Tuesday, August 27, 2019 4:30 PM
Notes to the financial statements (continued)
Section 5. Our people (continued)
5.3 Post-employment benefits (continued)
5.4 Key management personnel compensation
Key management personnel (KMP) refer to those who have
authority and responsibility for planning, directing and
controlling the activities of the Telstra Group. KMP are deemed
to include the following:
• the non-executive Directors of the Telstra Entity
• certain executives in the Chief Executive Officer’s (CEO’s)
senior leadership team, including the CEO.
This note summarises the aggregate compensation of our KMP
during the financial years 2019 and 2018, and provides
information about other transactions with our KMP and their
related parties.
5.4.1 KMP aggregate compensation
During the financial years 2019 and 2018, the aggregate
compensation of our KMP was:
Telstra Group
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
As at 30 June
2019
2018
$000
20,531
309
316
2,865
3,527
27,548
$000
14,728
290
141
495
2,726
18,380
Refer to the Remuneration Report, which forms part of the Directors’
Report for further details regarding KMP remuneration.
5.4.2 Other transactions with our KMP and their related parties
During the financial years 2019 and 2018, apart from transactions
trivial and domestic in nature and on normal commercial terms and
conditions, there were no other transactions with our KMP and their
related parties.
(e) Employer contributions (continued)
Table F shows the expected proportion of benefits paid from the
defined benefit obligation in future years.
Table F
Telstra Super
Year ended 30 June
2019
2018
Within 1 year
Between 1 and 4 years
Between 5 and 9 years
Between 10 and 19 years
After 20 years
%
7
24
23
39
7
100
%
16
25
18
33
8
100
The weighted average duration of the defined benefit plan
obligations at the end of the reporting period was nine years (2018:
eight years).
5.3.3 Other defined benefit schemes
Our controlled entities also participate in both funded and unfunded
defined benefit schemes, which are individually and in aggregate
immaterial.
5.3.4 Recognition and measurement
(a) Defined contribution plans
Our commitment to defined contribution plans is limited to making
contributions in accordance with our minimum statutory
requirements and other obligations. The contributions are recorded
as an expense in the income statement as they become payable. We
recognise a liability when we are required to make future payments
as a result of employee services provided.
(b) Defined benefit plans
(i) Telstra Superannuation Scheme
We currently sponsor a post-employment defined benefit plan under
the Telstra Superannuation Scheme.
At reporting date, where the fair value of the plan assets is less than
the present value of the defined benefit obligations, the net deficit is
recognised as a liability. In the reverse situation, the net surplus is
recognised as an asset. We recognise the asset only when we have
the ability to control this surplus to generate future funds that will be
available to us in the form of reductions in future contributions or as
a cash refund.
The actuaries use the projected unit credit method to estimate the
present value of the defined benefit obligations of the plan. This
method determines each year of service as giving rise to an
additional unit of benefit entitlement. Each unit is measured
separately to calculate the final obligation. The present value is
determined by discounting the estimated future cash outflows using
rates based on high quality corporate bonds.
We recognise all our defined benefit costs in the income statement,
with the exception of actuarial gains and losses that are recognised
directly in other comprehensive income.
Actuarial gains and losses are based on an actuarial valuation of
each defined benefit plan at a reporting date. Actuarial gains and
losses represent the differences between previous actuarial
assumptions of future outcomes and the actual outcome, in addition
to the effect of changes in actuarial assumptions.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Section 6. Our investments
This section outlines our group structure and includes
information about our controlled entities, joint
ventures and associated entities. It provides details of
changes to these investments and their effect on our
financial position and performance during the financial
year. It also includes the results of our material joint
ventures and associated entities.
SECTION 6. OUR INVESTMENTS
6.1 Investments in controlled entities
6.1.1 List of our investments in controlled entities
A complete list of our controlled entities is available online at
www.telstra.com/investor.
Table A sets out our material operating controlled entities as at 30
June 2019 (or ownership changes to such entities) based on a
percentage of earnings before interest, income tax expense,
depreciation and amortisation (EBITDA). The ownership percentages
represent the relevant percentage of equity held by the subsidiary’s
immediate and ultimate parent, respectively.
Table A
Telstra Group
Name of entity
Ultimate parent entity
Telstra Corporation Limited
Controlled entities
Asia Global Crossing Finance Co. Ltd
Asia Netcom Pacnet (Ireland) Limited
Bridge Point Communications Pty Ltd
CloudMed Pty Ltd
Telstra Health Pty Ltd
Fred IT Group Pty Ltd 1, 2
Neto E-Commerce Solutions Pty Ltd 5
O2 Networks Pty Ltd
Ooyala AB 6
Ooyala Holdings Inc. 4,5
Ooyala Inc. 6
Pacific Business Solutions (China) 1, 2, 4
Pacnet Cable Limited
Pacnet Internet (A) Pty Ltd
Pacnet Internet (HK) Limited
Pacnet Limited
Pacnet Network (Philippines) Inc.
Pacnet Network (UK) Limited
Pacnet Network Limited
Pacnet Services (A) Pty. Ltd.
% of equity held by
immediate parent
% of equity held by
ultimate parent
As at 30 June
As at 30 June
2019
2018
2019
2018
%
%
%
%
Country of
incorporation
Australia
Bermuda
Ireland
Australia
Australia
Australia
Australia
Australia
Australia
Sweden
100.0
100.0
100.0
100.0
100.0
50.0
67.4
100.0
-
100.0
100.0
100.0
100.0
100.0
50.0
66.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
67.4
100.0
100.0
100.0
100.0
100.0
50.0
66.9
100.0
100.0
-
United States
100.0
97.0
100.0
United States
-
100.0
China
Bermuda
Australia
Hong Kong
Bermuda
Philippines
United Kingdom
Bermuda
Australia
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
-
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
97.0
97.0
97.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
150 | Telstra Corporation Limited and controlled entities
148 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 151
Telstra Corporation Limited and controlled entities | 149
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 6 - Our Investments.fm Page 150 Tuesday, August 27, 2019 8:27 AM
Section 6 - Our Investments.fm Page 151 Tuesday, August 27, 2019 8:27 AM
Notes to the financial statements (continued)
Section 6. Our investments (continued)
6.1 Investments in controlled entities (continued)
6.1.1 List of our investments in controlled entities (continued)
Table A (continued)
Telstra Group
Name of entity
Pacnet Services (Japan) Corp. 3
PT Teltranet Aplikasi Solusi 1, 4
Telstra Broadcast Services Pty Limited
Telstra Cable (HK) Limited 7
Telstra Global (HK) Limited 7
Telstra Holdings Pty Ltd
Telstra Inc.
Telstra International (Aus) Limited
Telstra International Limited
Telstra International Philippines Inc.
Telstra Internet (S) Pte Ltd
Telstra iVision Pty Ltd
Telstra Japan K.K.
Telstra Limited
Telstra Multimedia Pty Limited
Telstra Pay TV Pty Ltd
Telstra ReadyCare Pty Ltd 5
Telstra Services (Taiwan) Inc. 3
Telstra Services (USA) Inc.
Telstra Services Asia Pacific (HK) Limited 7
Telstra Singapore Pte Ltd
Sapio Pty Ltd (formerly Telstra SNP Monitoring Pty Ltd) 1
Telstra Telecommunications Private Limited 4
Telstra Web Holdings Inc. 3
% of equity held by
immediate parent
% of equity held by
ultimate parent
As at 30 June
As at 30 June
2019
2018
2019
2018
%
%
%
%
100.0
100.0
100.0
100.0
49.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
74.0
64.0
49.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
90.5
100.0
100.0
100.0
100.0
51.0
74.0
64.0
49.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
74.0
64.0
49.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
90.5
100.0
100.0
100.0
100.0
51.0
74.0
64.0
Country of
incorporation
Japan
Indonesia
Australia
Hong Kong
Hong Kong
Australia
United States
Australia
Hong Kong
Philippines
Singapore
Australia
Japan
United Kingdom
Australia
Australia
Australia
Taiwan
United States
Hong Kong
Singapore
Australia
India
Philippines
1 We have control over these companies through our decision making ability on the board.
2 These entities are audited, however not by Ernst & Young, our Australian statutory auditor.
3 The investment in these companies is held by various entities. The immediate parent percentage reflected represents the ultimate ownership by Telstra Corporation Limited.
4 These entities have a 31 December reporting date except for Telstra Telecommunications Private Limited which has a 31 March reporting date.
5 We increased our ownership interest in these entities via additional equity contributions during the year.
6 We disposed of these entities and their controlled entities during the year.
7 We transferred the ownership of these entities from Pacnet Cable Limited and Pacnet Services Corporation Limited to Telstra International Limited.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 6. Our investments (continued)
6.1 Investments in controlled entities (continued)
6.1.2 Deed of cross guarantee
Table B
Closed Group
Telstra Corporation Limited and each of the wholly-owned
subsidiaries set out below (together the ‘Closed Group’), are
party to a deed of cross guarantee (Deed), as defined in ASIC
legislative instrument: ‘ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785’ (ASIC Instrument).
The effect of the Deed is that each entity in the Closed Group
guarantees the payment in full of all debts of the other entities
in the Closed Group in the event of their winding up.
Pursuant to the ASIC Instrument, the wholly-owned
subsidiaries within the Closed Group are relieved from the
requirement to prepare and lodge separate financial
statements, directors’ reports and auditors’ reports.
The statement of comprehensive income and statement of
financial position disclosed in this section present consolidated
results of the Closed Group.
The following entities are party to the Deed and part of the Closed
Group:
• Telstra Corporation Limited
• Bridge Point Communications Pty Ltd
• DCA eHealth Solutions Pty Ltd
• iCareHealth Pty Ltd
• Kloud Solutions (National) Pty Limited
• Kloud Solutions Pty Ltd
• Mobile Tracking and Data Pty Ltd
• MSC Mobility Pty Ltd
• MTData Holdings Pty Ltd
• Network Design and Construction Limited
• O2 Networks Pty Ltd
• Pacnet Internet (A) Pty Ltd
• Telstra Broadcast Services Pty Limited
• Telstra Communications Limited
• Telstra Digital Innovation Group Pty Ltd (formerly Readify Pty Ltd)
• Telstra Health Pty Ltd
• Telstra Holdings Pty Ltd
• Telstra International (Aus) Limited
• Telstra iVision Pty Ltd
• Telstra Multimedia Pty Limited
• Telstra Pay TV Pty Ltd
• Telstra Plus Pty Ltd
• Telstra Services Solutions Holdings Limited
• Telstra Software Group Pty Ltd
• Telstra Ventures Pty Limited
• Virtual Machine Technology Pty Ltd
A revocation deed, which was lodged with ASIC in the 2018 financial
year to revoke and release Prentice Management Consulting Pty.
Ltd., Kelzone Pty. Ltd., Goodwin Enterprises (VIC) Pty. Ltd. and The
Silver Lining Consulting Group Pty Ltd from the Deed, took effect on
18 December 2018 at which point these entities ceased being
members of the Closed Group.
There are no other members of the Extended Closed Group (as
defined in the ASIC Instrument). Telstra Finance Limited is trustee
under the Deed. However, it is not a member of the Closed Group or
the Extended Closed Group.
The consolidated statement of financial position and statement of
comprehensive income of the entities that are members of the
Closed Group are presented in Tables B and C respectively. This
excludes Telstra Finance Limited. All transactions between
members of the Closed Group have been eliminated.
Current assets
Cash and cash equivalents
Trade and other receivables and
contract assets
Deferred contract costs
Inventories
Derivative financial assets
Prepayments
Total current assets
Non-current assets
Trade and other receivables and
contract assets
Deferred contract costs
Inventories
Investments – controlled entities
Investments – accounted for using the
equity method
Investments – other
Property, plant and equipment
Intangible assets
Derivative financial assets
Defined benefit asset
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Current tax payables
Contract liabilities and other revenue
received in advance
Total current liabilities
Non-current liabilities
Other payables
Employee benefits
Other provisions
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Contract liabilities and other revenue
received in advance
Total non-current liabilities
Total liabilities
Net assets
As at 30 June
2019
2018
Restated
$m
$m
544
4,597
95
431
179
412
6,258
790
1,232
35
2,597
1,306
19
21,245
5,970
2,083
232
35,509
41,767
4,095
790
102
3,242
57
96
1,575
9,957
68
157
145
14,932
283
1,461
582
4,789
69
477
75
384
6,376
734
1,180
19
2,750
1,228
32
20,901
6,647
1,897
250
35,638
42,014
4,129
852
88
2,369
1
119
1,422
8,980
62
156
156
15,155
388
1,464
660
1,114
17,706
27,663
14,104
18,495
27,475
14,539
152 | Telstra Corporation Limited and controlled entities
150 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 153
Telstra Corporation Limited and controlled entities | 151
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 6 - Our Investments.fm Page 152 Tuesday, August 27, 2019 8:27 AM
Section 6 - Our Investments.fm Page 153 Tuesday, August 27, 2019 8:27 AM
Notes to the financial statements (continued)
Section 6. Our investments (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 6. Our investments (continued)
6.1 Investments in controlled entities (continued)
6.1.2 Deed of cross guarantee (continued)
Table C (continued)
Closed Group
Table B (continued)
Closed Group
Equity
Share capital
Reserves
Retained profits
Equity available to the closed group
Table C
Closed Group
Income
Revenue (excluding finance income)
Other income
Expenses
Labour
Goods and services purchased
Net impairment losses on financial
assets
Other expenses
Share of net profit/(loss) from joint
ventures and associated entities
Earnings before interest, income tax
expense, depreciation and
amortisation (EBITDA)
Depreciation and amortisation
Earnings before interest and income
tax expense (EBIT)
Finance income
Finance costs
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year
As at 30 June
2019
2018
Restated
$m
$m
4,447
(47)
9,704
14,104
4,428
(89)
10,200
14,539
Year ended 30 June
2019
2018
Restated
$m
$m
23,803
2,534
26,337
4,843
8,307
179
5,686
19,015
24,428
2,987
27,415
4,706
7,605
202
4,927
17,440
8
(25)
19,007
17,465
7,330
9,950
3,995
3,335
241
804
563
2,772
942
1,830
4,191
5,759
225
754
529
5,230
1,611
3,619
Items that will not be reclassified to
the Closed Group income statement
Retained profits
Actuarial (loss)/gain on defined benefit
plans
Income tax on actuarial (loss)/gain on
defined benefit plans
Fair value of equity instruments
reserve
Gain/(loss) from investments in equity
instruments designated at fair value
through other comprehensive income
Share of other comprehensive income
of equity accounted entities
Income tax on fair value movements for
investments in equity instruments
Items that may be subsequently
reclassified to the Closed Group
income statement
Movements in cash flow hedging
reserve
Income tax on movements in the cash
flow hedging reserve
Changes in the value of the foreign
currency basis spread
Income tax on movements in the
foreign currency basis spread reserve
Total other comprehensive income for
the Closed Group
Total comprehensive income for the
year for the Closed Group
As at 30 June
2019
2018
Restated
$m
$m
(10)
3
3
66
(22)
40
3
(1)
(22)
7
(13)
27
112
(34)
(16)
29
2
93
(97)
29
(31)
9
(90)
3
1,857
3,622
6.1 Investments in controlled entities (continued)
6.1.2 Deed of cross guarantee (continued)
Table D provides a reconciliation of retained profits of the Closed
Group from the opening to the closing balance.
Table D
Closed Group
Retained profits at the beginning of
the financial year available to the
Closed Group
Effect on retained profits from addition
of entities to the Closed Group
Effect on retained profits arising from
AASB 9
Total comprehensive income
recognised in retained profits
Dividend
Retained profits at the end of the
financial year available to the Closed
Group
Year ended 30 June
2019
2018
Restated
$m
$m
10,200
9,640
-
(60)
13
-
1,823
3,697
(2,259)
(3,150)
9,704
10,200
6.2 Investments in joint ventures and associated entities
We account for joint ventures and associated entities using the
equity method. Under this method, we recognise the
investment at cost and subsequently adjust it for our share of
profits or losses, which are recognised in the income statement
and our share of other comprehensive income, which is
recognised in the statement of comprehensive income.
Generally, dividend received reduce the carrying value of the
investment.
The movements in the carrying amount of equity accounted
investments in our joint ventures and associated entities are
summarised in Table A.
Table A
Telstra Group
Carrying amount of investments at beginning of year
Additions
Disposals
Contribution to Telstra Ventures Fund II, L.P.
Net impairment loss recognised in the income statement
Share of net profit/(loss)
Share of distributions
Share of reserves
Carrying amount of investments at end of year
As at 30 June
Joint ventures
Associated entities
2019
2018
2019
2018
$m
296
29
-
-
(2)
323
(6)
(35)
66
348
$m
2
759
(485)
-
-
276
(16)
-
36
296
$m
941
-
-
-
-
941
18
(9)
-
950
$m
192
800
(1)
(26)
(9)
956
(6)
(9)
-
941
154 | Telstra Corporation Limited and controlled entities
152 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 155
Telstra Corporation Limited and controlled entities | 153
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 6 - Our Investments.fm Page 154 Tuesday, August 27, 2019 8:27 AM
Section 6 - Our Investments.fm Page 155 Tuesday, August 27, 2019 8:27 AM
Notes to the financial statements (continued)
Section 6. Our investments (continued)
6.2 Investments in joint ventures and associated entities
(continued)
On 29 June 2018, Telstra entered into agreement with HarbourVest
(global private equity) to form a new fund, Telstra Ventures Fund II,
L.P. As part of the agreement, Telstra contributed a majority of
Telstra Ventures Pty Limited’s investments into the new fund. This
resulted in a $25 million fair value gain recognised in other income
and a $53 million fair value loss recognised in other comprehensive
income.
On 3 April 2018, Telstra and News Corporation merged the previously
shared joint venture Foxtel, with Fox Sports Australia, which was
owned 100 per cent by News Corporation. As a result of the
transaction, Telstra contributed its shares in Telstra Media Pty Ltd in
exchange for a 35 per cent interest in NXE Australia Pty Limited,
which is the newly formed head entity of the merged group of Foxtel
and Fox Sports Australia. This resulted in a $261 million gain
recognised in other income.
We have applied judgement and determined that we have significant
influence over our investment in NXE Australia Pty Limited.
Share of reserves includes $66 million (2018: $29 million) of our
share of other comprehensive income.
6.2.1 List of our investments in joint ventures and associated
entities
Table B shows a list of our investments in joint ventures and
associated entities, their principal place of business/country of
incorporation and our ownership interest.
Table B
Telstra Group
Name of entity
Principal activities
Principal place of
business / country of
incorporation
Joint ventures
Reach Limited (a)
3GIS Pty Ltd
ProQuo Pty Ltd
International connectivity services
Bermuda
Management of former 3GIS Partner-
ship (non-operating)
Australia
Digital marketplace for small busi-
nesses
Australia
Guernsey
Bermuda
Australia
Australia
Telstra Ventures Fund II, L.P.
Venture capital
Associated entities
Australia-Japan Cable Holdings Limited (a) Network cable provider
Telstra Super Pty Ltd
Project Sunshine I Pty Ltd
Superannuation trustee
Holding entity of Sensis Pty Ltd (direc-
tory services)
enepath (Group Holdings) Pte Ltd (a)
Trading turret and calling software
provider
Singapore
PharmX Pty Ltd
Internet based ordering gateway
Australia
Asia Netcom Philippines Corporation (a)
Ownership of physical property
Philippines
Dacom Crossing Corporation (a)
Network cable provider
Korea
Digitel Crossing Inc. (a)
Telecommunication services
Philippines
Pivotal Labs Sydney Pty Ltd (a)
Software development
NXE Australia Pty Limited (b)
Pay television
Australia
Australia
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 6. Our investments (continued)
6.2 Investments in joint ventures and associated entities
(continued)
6.2.1 List of our investments in joint ventures and associated
entities (continued)
Significant
influence over
our
investments
We applied management judgement to
determine that we do not control
Telstra Super Pty Ltd even though we
own 100 per cent of its equity. Telstra
Super Pty Ltd is a trustee for the
Telstra Superannuation Scheme. We
do not consolidate Telstra Super Pty
Ltd as we do not control the board of
directors. The board of directors
consists of an equal number of
employer and member representatives
and an independent chairman. Our
voting power over the relevant
activities is 44 per cent, which is
equivalent to our representation on the
board. The entity is therefore classified
as an associated entity as we have
significant influence over it.
(a) Joint ventures and associated entities with different reporting
dates
Several of our joint ventures and associated entities have reporting
dates that differ from our reporting date of 30 June for the financial
year 2019 as follows:
• Reach Limited – 31 December
• Australia-Japan Cable Holdings Limited – 31 December
• Asia Netcom Philippines Corporation – 31 December
• Dacom Crossing Corporation – 31 December
• Digitel Crossing Inc. – 31 December
• enepath (Group Holdings) Pte Ltd – 31 March
• Pivotal Labs Sydney Pty Ltd – 31 January.
The differences in reporting dates are due to jurisdictional
requirements. Financial reports prepared as at 30 June are used for
equity accounting purposes. Our ownership interest in joint ventures
and associated entities with different reporting dates is the same at
that reporting date as at 30 June unless otherwise noted.
Joint control of
our
investments
We applied management judgement to
determine that we have joint control of
our investment in Telstra Ventures
Fund II, L.P. While we hold 62.5 per
cent of the partnership interest on a
fully committed basis, key decisions
for the entity require the unanimous
approval of the Advisory Committee, on
which we hold one of the two seats, or
a majority of at least 75 per cent of the
fully committed capital.
(b) NXE Australia Pty Limited
Telstra has a 35 percent interest in NXE Australia Pty Limited, an
associate which provides subscription TV services. Telstra's interest
in NXE Australia Pty Limited is accounted for using the equity method
in the consolidated financial statements. Financial information of
NXE Australia Pty Limited and its controlled entities for the 2019
financial year is summarised in Table C based on their consolidated
management financial statements prepared in accordance with
Australian Accounting Standards. The information disclosed reflects
the amounts presented in the financial statements of NXE Australia
Pty Limited and not Telstra’s share of those amounts. The
management financial information has been adjusted to reflect
adjustments made by Telstra when using the equity accounting
method, including fair value adjustments and modifications for
differences in accounting policy.
Table C
Year ended 30 June
NXE Australia Pty Limited
2019
2018
Restated
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Telstra's share in equity 35% (2018:
35%)
Purchase price adjustments
Telstra's carrying amount of the
investment
Revenue
Operating expenses
Loss before tax
Income tax expense
Loss for the year
Other comprehensive income
Total comprehensive income for the
year
Purchase price adjustments
Adjusted loss for the period
Telstra's share of loss for the year
(35%)
$m
733
5,324
(1,185)
(2,628)
2,244
785
(20)
765
3,078
(3,087)
(9)
3
(6)
(3)
(9)
(20)
(29)
(10)
$m
775
5,194
(1,336)
(2,384)
2,249
787
(13)
774
1,320
(1,661)
(341)
251
(90)
33
(57)
(13)
(70)
(25)
Revenue includes share of profits from associated entities.
The financial year 2018 has been restated to reflect the final
balances as per the NXE Australia Pty Limited financial statements.
Ownership interest
As at 30 June
2019
2018
%
%
50.0
50.0
45.0
62.5
50.0
50.0
50.0
62.5
46.9
100.0
46.9
100.0
30.0
30.0
28.1
15.0
40.0
49.0
48.0
20.0
35.0
28.1
15.0
40.0
49.0
48.0
20.0
35.0
156 | Telstra Corporation Limited and controlled entities
154 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 157
Telstra Corporation Limited and controlled entities | 155
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 6 - Our Investments.fm Page 156 Tuesday, August 27, 2019 8:27 AM
Section 6 - Our Investments.fm Page 157 Tuesday, August 27, 2019 8:27 AM
Notes to the financial statements (continued)
Section 6. Our investments (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 6. Our investments (continued)
(c) Equity method of accounting
Investments in associated entities and joint ventures are carried in
the consolidated balance sheet at cost plus post-acquisition
changes in our share of the investment’s net assets and net of
impairment loss. Goodwill relating to an investment in an associated
entity or joint venture is included in the carrying value of the
investment and is not amortised. When Telstra’s share of losses
exceeds our investment in an associated entity or joint venture, the
carrying amount of the investment is reduced to nil and no further
losses are recognised.
The equity accounted investment in NXE Australia Pty Limited is
assessed for impairment on an annual basis or when there are
impairment indicators. We apply management judgement to
determine the recoverable amount of the investment using a ‘value in
use’ calculation for our impairment assessment. These judgements
include selection of terminal growthrate and discount rate based on
past experience and our expectations for the future.
6.2 Investments in joint ventures and associated entities
(continued)
6.2.2 Other joint ventures and associated entities
Our share of the aggregate financial information (including joint
ventures and associated entities where equity accounting has been
suspended) is presented in Table D.
Table D
Year ended/As at 30 June
Telstra Group
Joint ventures
Associated
entities
2019
2018
2019
2018
Carrying amount of
investment
Group's share of:
Profit/(loss)
Other
comprehensive
income
Total
comprehensive
income
$m
348
(5)
61
56
$m
296
(14)
32
18
$m
950
20
(1)
19
$m
941
-
(1)
(1)
6.2.3 Suspension of equity accounting
Table E presents our unrecognised share of profits/(losses) for the
period and cumulatively for our entities where equity accounting has
ceased and the investment is recorded at zero due to losses made by
these entities and/or reductions in the equity accounted carrying
amount.
Table E
Year ended 30 June
Telstra Group
Period
Cumula
-tive
Period
Cumula
-tive
2019
2019
2018
2018
$m
$m
$m
$m
Joint ventures
Reach Limited
Associated entities
Australia-Japan
Cable Holdings
Limited
1
3
4
(547)
(68)
(615)
2
6
8
(548)
(71)
(619)
6.2.4 Transactions with our joint ventures and associated entities
Table F details transactions with our joint ventures and associated
entities recorded in the income statement and statement of financial
position.
Table F
Telstra Group
Income
Sale of goods and services
Interest income from loans to joint
ventures and associated entities
Expenses
Purchase of goods and services
Interest expense on loans from joint
ventures and associated entities
Total amounts receivable as at 30
June
Current
Joint ventures and associated entities
– receivables
Non-current
Joint ventures and associated entities
– loans
Allowance for amounts owed by joint
ventures and associated entities
Movement in allowance for amounts
owed by joint ventures and associated
entities
Opening balance
Foreign currency exchange differences
Closing balance
Total amounts payable as at 30 June
Current
Joint ventures and associated entities
– payables
Non-current
Joint ventures and associated entities
– loans
Year ended/As at
30 June
2019
2018
Restated
$m
$m
201
-
859
8
249
13
927
6
41
36
8
(8)
-
(7)
(1)
(8)
163
79
7
(7)
-
(7)
-
(7)
92
80
6.2 Investments in joint ventures and associated entities
(continued)
6.2.4 Transactions with our joint ventures and associated entities
(continued)
(a) Sale and purchase of goods and services
We sold and purchased goods and services, and received and paid
interest from/to our joint ventures and associated entities. These
transactions were in the ordinary course of business and on normal
commercial terms and conditions.
Details of individually significant transactions with our joint ventures
and associated entities during the financial year 2019 were as
follows:
• we purchased pay television services amounting to $777 million
(2018: $810 million) from Foxtel. The purchases were to enable the
resale of Foxtel** services, including Pay TV content, to our
existing customers as part of our ongoing product bundling
initiatives.
• we made sales to Foxtel for our broadband system services of $35
million (2018: $61 million) and wholesale services of $55 million
(2018: $58 million).
(b) Loans to joint ventures and associated entities
Loans provided to joint ventures and associated entities relate to
Reach Limited of $8 million (2018: $7 million to Reach Limited).
The loan provided to Reach Limited is an interest-free loan and
repayable upon the giving of 12 months’ notice by both PCCW Limited
and us. We have fully provided for the non-recoverability of the loan
as we do not consider that Reach Limited is in a position to be able to
repay the loan amount in the medium term.
(c) Loans from joint ventures and associated entities
As at 30 June 2019, we had a loan payable amount of $79 million
(2018: $80 million) under a loan agreement with an associated entity,
Project Sunshine I Pty Ltd which includes capitalised interest. The
loan has an interest rate of 9.5 per cent per annum and a maturity
date of 31 December 2020.
(d) Commitments
We have no further purchase commitments to Project Sunshine I Pty
Ltd for advertising services (2018: $8 million).
6.2.5 Recognition and measurement
(a) Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the
arrangement. Our interests in joint ventures are accounted for using
the equity method of accounting.
(b) Investments in associated entities
These are investments in entities over which we have the ability to
exercise significant influence but we do not control the decisions of
the entity. Our interests in associated entities are accounted for
using the equity method of accounting.
158 | Telstra Corporation Limited and controlled entities
156 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 159
Telstra Corporation Limited and controlled entities | 157
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 7 - Other Information.fm Page 158 Tuesday, August 27, 2019 8:40 AM
Section 7 - Other Information.fm Page 159 Tuesday, August 27, 2019 8:40 AM
Notes to the financial statements (continued)
Section 7. Other information
This section provides other information and disclosures not
included in the other sections, for example our external
auditor’s remuneration, commitments and contingencies,
parent entity disclosures and significant events occurring
after reporting date.
SECTION 7.
7.1 Other accounting policies
OTHER INFORMATION
7.1.1 Changes in accounting policies on adoption of the new
accounting standards
We note the following new standards and amendments to the
accounting standards which we have adopted in the financial year
2019:
• AASB 9 (2014): ‘Financial Instruments’ impairment sections
• AASB 15 ‘Revenue from Contracts with Customers’
• AASB 2016-5 ‘Amendments to Australian Accounting Standards -
Classification and Measurement of Share-based Payment
Transactions’
There was no significant impact on our financial results arising from
AASB 2016-5.
Adoption of both AASB 15 and AASB 9 (2014) had a significant effect
on our financial results. A summary of the key impacts and
restatement of the financial statements previously reported are
included in note 1.5.
Key changes in the accounting policies resulting from the adoption of
the new accounting standards are detailed below and relate to
revenue recognition, deferred contract costs and impairment of
financial assets. These changes impacted our measurement,
recognition and presentation of the relevant balances and
transactions.
(a) Our contracts with customers
AASB 15 impacts differ depending on the type of customer contract.
Refer to note 2.2.1 for details about our contracts with customers.
(b) Changes in the accounting policy for revenue from contracts
with customers
AASB 15 establishes principles for reporting the nature, amount,
timing and uncertainty of revenue and cash flows arising from an
entity’s contracts with customers, and requires revenue to be
recognised in a manner that depicts the transfer of promised goods
or services to a customer and at an amount that reflects the
consideration expected in exchange for transferring those goods or
services. This is achieved by applying the following five steps:
• identify the contract with the customer
• identify the performance obligations in the contract
• determine the transaction price
• allocate the transaction price to the performance obligations in
the contract based on their relative standalone selling prices
• recognise revenue when (or as) performance obligations are
satisfied.
Refer to note 2.2.3 for our accounting policy for revenue recognition
and measurement under AASB 15.
AASB 15 also provides guidance relating to the treatment of contract
costs which are not in scope of other accounting standards, i.e.
incremental costs of obtaining a contract and costs to fulfil the
contract.
Refer to note 3.8.1 for our accounting policy for recognition and
measurement of contract costs under AASB 15.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 7. Other information (continued)
7.1 Other accounting policies (continued)
(ii) Identifying performance obligations
AASB 15 provides guidance on determining if goods or services are
distinct and therefore if revenue should be allocated and recognised
when these goods have been delivered or the services performed (i.e.
when the customer controls them). The new guidance has resulted in
some changes to our prior accounting policy of identifying
deliverables which have value to the customer on a standalone basis.
Under some of our enterprise and wholesale arrangements, we
receive customer and developer contributions to extend, relocate or
amend our network assets to ultimately enable delivery of
telecommunication services to end users. Prior to the transition
date, the contributed network assets (or cash for network
construction activities) have been recognised as sales revenue over
the period of the network construction activities if they were a
separate deliverable under Interpretation 18: ‘Transfer of Assets
from Customers’. Interpretation 18 has been superseded by AASB 15
and we have changed our accounting for these type of arrangements.
Depending on whether ongoing telecommunication services have
also been purchased under the same arrangement, these contracts
will be accounted for in a different way on transition to AASB 15.
Where the counterparty makes a contribution for network
construction activities and purchases ongoing services under the
same (or linked) contract(s), the arrangement is within the scope of
AASB 15. The upfront contribution is added to the total transaction
price of the customer contract and allocated to the distinct goods
and services to be delivered under that contract. Compared to prior
accounting, this resulted in a deferral of sales revenue due to the
long term nature of these contracts.
However, where the counterparty does not purchase any ongoing
services under the same (or linked) contract(s), the arrangement is
neither within the scope of AASB 15 nor covered by any specific
accounting guidance. Therefore, we continue to account for them
consistently with our previous accounting treatment.
The adoption of the new revenue standard resulted in a number of
accounting policy changes, a financial impact to our opening
retained earnings as at 1 July 2017 and restatement of the financial
performance for the year ended 30 June 2018.
Identified impacts primarily related to the timing of revenue
recognition, the deferral of costs to obtain a contract with a
customer, expensing some of the previously deferred expenditure to
fulfil a contract and changes in the classification of revenue and
related items in the financial statements. These changes are
summarised below.
(i) Identifying customer contracts, their combinations and
modifications
AASB 15 focuses on legal rights and obligations included in a
contract (which may be a combined contract) when determining the
contract level and its term for accounting purposes. AASB 15
guidance also assumes that the contract will not be cancelled,
renewed or modified. Establishing the contract term for accounting
purposes impacts determination of performance obligations and the
transaction price to be allocated to goods and services. Therefore,
the timing and amount of revenue recognised may be impacted.
Our mobile long-term contracts often offer a bundle of hardware
(delivered upfront) and services (delivered over the contract term),
where the customer pays a monthly fee and receives a discount,
which is allocated between the hardware and services based on their
relative selling prices. When determining the customer contract,
AASB 15 requires us to assess the combination of two or more
contracts entered into at or near the same time with the same
customer. As a result, we have changed the accounting treatment of
customer contracts sold via our dealer channel, where the previously
applied substance over form principle has been overridden by the
new contract combination rules. This precluded us from combining
separate legal contracts, i.e. with the dealer for hardware and the
customer for services. Consequently, no discounts have been
allocated to hardware sold via dealer channel, which resulted in a
higher hardware revenue at the time of its recognition and lower
services revenue over the customer contract term.
Our nbn Definitive Agreements (nbn DAs) and related arrangements
include a number of separate legal contracts with both nbn co and
the Commonwealth Government (being related parties hence treated
as the same customer for accounting purposes) which have been
negotiated together with a common commercial objective. The nbn
DAs were originally signed in 2011 and subsequently modified in
2014 and 2015. These separate legal contracts have been combined
under the AASB 15 assessment. However, the combined nbn DAs
and related arrangements include a number of out of scope
elements.
This includes Telstra Universal Service Obligation Performance
Agreement and the Retraining Deed, which have both been
separately priced and continue to be accounted for as government
grants. The Subscriber Agreement also continues to be separately
accounted for as other income given the nbn disconnection fees do
not relate to our ordinary activities and there is no price dependency
on other nbn DAs.
7.1.1 Changes in accounting policies on adoption of the new
accounting standards (continued)
(b) Changes in the accounting policy for revenue from contracts
with customers (continued)
(i) Identifying customer contracts, their combinations and
modifications (continued)
On the other hand, the additional payment received under the
Information Campaign and Migration (ICM) Deed for the build of nbn
related infrastructure, has been combined and accounted for
together with the Infrastructure Services Agreement (ISA). ISA also
includes payments for sale of our infrastructure assets, which are
not in scope of AASB 15, however, the timing of control transfer for
these assets and the amount of consideration to be included in the
net gain on their disposal have been determined by reference to the
AASB 15 principles. The combined accounting contract comprised of
nbn DAs and related arrangements has a minimum fixed term of 30
years for accounting purposes.
Prior to the transition date, our accounting was largely aligned to the
legal term of the contacts, which in some cases only provided general
terms and conditions (including price lists) under which customers
could order goods and services in the future. On adoption of AASB 15,
the contract term for accounting purposes has changed for a number
of our enterprise and government contracts, our wholesale contracts
and commercial contracts with nbn co. This is because the five steps
apply to goods or services ordered under each valid purchase order
or a statement of work raised under the terms of these agreements.
AASB 15 gives far greater detail on how to account for contract
modifications than the prior revenue accounting principles. Changes
must be accounted for either as a retrospective cumulative change
to revenue (creating either a catch up or deferral of past revenues for
all performance obligations in the original contract), a prospective
change to revenue with a reallocation of revenues amongst
remaining performance obligations in the original contract, as a
separate contract which will not require any reallocation to
performance obligations in the original contract, or both a
cumulative change and prospective change to revenue in the original
contract.
Prior to the transition date, we accounted for any changes in our
retail mass market contracts prospectively. Under AASB 15, we do
not expect material impacts from modifications of these contracts
because the standard terms and conditions of our homogeneous
mass market contracts are normally not re-negotiated and the
customers’ rights to move up and down within the plan family are
included in each contract from its inception.
However, our bespoke contracts with small business, enterprise and
wholesale customers are varied or re-negotiated from time to time.
Prior to the transition date, depending on the nature and legal form
of the negotiated changes, we have considered the specific facts and
circumstances and we have determined the appropriate accounting
treatment using the accounting principles that existed at the time.
Since transition to AASB 15, the new rules impact any bespoke
contract re-negotiations from financial year 2018 onwards. This is
because we have elected to apply a transition practical expedient
and reflected the aggregate effect of all of the modifications that
have occurred before 1 July 2017 when arriving at the retained
earnings adjustments. For the restatement of the financial year
2018, we have not identified material adjustments arising from
contract modifications of our bespoke contracts.
160 | Telstra Corporation Limited and controlled entities
158 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 161
Telstra Corporation Limited and controlled entities | 159
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Section 7 - Other Information.fm Page 160 Tuesday, August 27, 2019 8:40 AM
Section 7 - Other Information.fm Page 161 Tuesday, August 27, 2019 8:40 AM
Notes to the financial statements (continued)
Section 7. Other information (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 7. Other information (continued)
7.1 Other accounting policies (continued)
7.1.1 Changes in accounting policies on adoption of the new
accounting standards (continued)
(b) Changes in the accounting policy for revenue from contracts
with customers (continued)
(ii) Identifying performance obligations (continued)
Another change to prior accounting relates to material rights, i.e.
separate performance obligations in a customer contract which
gives the customer an option to acquire additional goods or services
at a discount or for free, i.e. these rights are beneficial. In principle,
this concept is largely consistent with our prior accounting policy for
non-cash sales incentives treated as separate deliverables.
However, determination and measurement of material rights
(including accounting for their breakage) differs from our past
practice. As a result, revenue has been allocated to some of the
goods and services we offer for free in our mass market plans or as
part of the small business and enterprise loyalty programs and
technology funds. However, we have not identified material
adjustments on transition to AASB 15 because the value of material
rights is usually insignificant compared to the total contract value.
Finally, within the nbn DAs, the build of nbn related infrastructure
under the ICM Deed is not considered a separate performance
obligation. As a result, on transition to AASB 15, the payment
received, for which revenue had already been recognised between
the financial years 2012 and 2014, has instead been treated as an
advance receipt for performance obligations transferred over the ISA
average contracted period of 35 years, leading to an opening retained
earnings adjustment on transition of our nbn DAs and related
arrangements.
(iii) Determining and allocating the transaction price
AASB 15 removed the requirement for a contingent consideration
accounting policy. Prior to the transition date, in the arrangements
with multiple deliverables, we limited revenue to the amount that
was not contingent upon the delivery of additional items or meeting
other specified performance conditions (non-contingent amount).
Because our mobile long-term contracts, which offer a bundle of
hardware and services, comprise of two legal contracts and under
the terms of these contracts, the allocated hardware amount was
not contingent on delivery of future services, in the past we
recognised the hardware revenue on delivery of the handset.
Therefore, on adoption of AASB 15, we did not identify an
acceleration of hardware revenue in our mobiles business due to the
removal of the contingent consideration rules. Also, we did not
identify material adjustments to small business, enterprise or
wholesale contracts as generally they have not been impacted by the
contingent consideration rules.
In some of our mass market contracts, the amount of consideration
can vary, resulting in variable consideration under AASB 15, because
of a price concession offered when a customer agrees to an early
upgrade of their contract. However, we have not identified a material
adjustment for variable consideration in those contracts on
transition to AASB 15.
Some of our contracts offer customers the ability to move up and
down within the plan family under predefined terms, in which case at
contract inception we should only allocate the lower amount we can
contractually enforce and account for any excess amount when it is
earned. However, due to the low volume of plan changes, we have not
identified material adjustments resulting from this accounting
change on transition to AASB 15.
If a customer receives any discount(s) when purchasing a bundle of
goods or services under one accounting contract, AASB 15 requires a
proportional allocation of the discount(s) to all performance
obligations, unless the exception allocation criteria are met, in which
case the discount(s) can be allocated to only one or some but not all
performance obligations. This differs from our prior policy which
allocated cash sales incentives to goods or services contributing
towards the earning of the incentives. Meeting the allocation
exemption criteria is expected to be rare. On transition to AASB 15,
we identified some changes in timing of revenue recognition and
product allocations in our mobile and fixed mass market contracts
and product allocations in our wholesale contracts.
AASB 15 also provides new guidance on how to determine
standalone selling prices, by reference to which the total transaction
price gets allocated to goods and services within a contract. Despite
the fact that our prior accounting policy used relative selling prices
as an allocation basis, i.e. a concept similar to standalone selling
prices, AASB 15 requires consideration of similar customer
circumstances. As a result, we have identified an adjustment related
to our mass market mobile contracts where a higher hardware
revenue is recognised at the time of delivery of the hardware, and
lower services revenue over the customer contract term.
Furthermore, revenue allocation between the products in a bundle
has changed.
For our bespoke contracts, no material impacts on transition to
AASB 15 have been identified because in general, negotiated prices
are aligned with the standalone selling prices of distinct goods and
services promised under the contracts.
Under some of our mass market contracts, customers obtain a
handset or another device on a device repayment plan, i.e. within
deferred payment terms. Under AASB 15, Telstra is considered to
provide financing to the customer. AASB 15 requires separate
accounting for a significant financing component, measured at
contract inception using a discount rate that would reflect the credit
characteristics of the party receiving the financing in the contract,
i.e. the customer. For our mass market customers, this rate is
significantly higher than our past practice of using Telstra’s
incremental borrowing rate. This change has resulted in a reduction
of hardware revenue and a higher interest income being recognised
over the contract term.
AASB 15 has also introduced accounting for a significant financing
element for arrangements where customers pay for goods or
services in advance of receiving them (i.e. Telstra receives financing
from the customer). In those circumstances, revenue recognised
over the contract term exceeds the cash payments received in
advance of performance as interest expense has to be recorded. This
change has impacted accounting for some of our domestic and
international bespoke network capacity agreements, i.e.
Indefeasible Right of Use, which include upfront prepayments and
have an average legal contract term between 10 and 33 years.
AASB 15 requires accounting for a financing component only if it is
assessed as significant in the context of a contract as a whole. As a
result, we have ceased to account for the financing component in our
nbn DAs and related arrangements because financing has not been
considered significant in these agreements as a whole.
AASB 15 defines a concept of a sale with a right of return and
provides clear guidance for accounting for refund liabilities and
recognition of the products expected to be returned. We have not
identified material impacts for this change but some of our contracts
include a right of return and their revenue recognition, measurement
and presentation on the balance sheet have been impacted.
7.1 Other accounting policies (continued)
(v) Presentation and classification
AASB 15 adoption also required changes to presentation and
classification of items in the statement of financial position and in
the income statement. This includes presentation in the statement
of financial position of a contract asset or contract liability at the
contract level, separate presentation of deferred contract costs and
appropriate current and non-current classification of all relevant
balance sheet line items. On adoption of AASB 15, a number of
existing line items in the statement of financial position have been
replaced by the new presentation of contract assets and contract
liabilities and new line items have been created (e.g. refund
liabilities).
AASB 15 also requires disclosure of disaggregated revenue which
has been included in our segment disclosures in note 2.1.2.
We have revised presentation of multiple line items in the statement
of financial position in order to comply with AASB 15 and best
present the financial position going forward. The key presentation
changes are summarised in the following table.
7.1.1 Adoption of the new accounting standards (continued)
(b) Changes in the accounting policy for revenue from contracts
with customers (continued)
(iv) Contract costs
AASB 15 provides accounting guidance for incremental costs of
obtaining a contract and costs to fulfil a contract. Prior to the
transition date, we accounted for these costs under our internal
policy based on the Interpretation 1042: ‘Subscriber Acquisition
Costs in the Telecommunications Industry’, which has been
superseded by AASB 15. Contract costs which meet AASB 15 criteria
to be recognised as an asset must be amortised on a basis
consistent with the transfer of goods and services to which these
costs relate under existing and anticipated customer contract(s) (for
example, the customer can renew the contract for the same or
subset of same goods and services).
Under prior accounting, incremental costs to obtain a contract, such
as directly attributable sales commissions, have been recognised as
assets in deferred expenditure and amortised on a straight line basis
over the average customer contract term. Under AASB 15, we have
identified a net increase in these capitalised costs due to a
combination of factors. We have extended the amortisation periods
for sales commissions paid on acquisition of the initial contract
where these commissions are not commensurate with recontracting
commissions. Therefore, the amortisation period for the initial
commissions reflects the expected customer life rather than just an
initial contract term. This impact has been partly offset by
adjustments for early terminated contracts and commissions
related to short term contracts (i.e. one year or less) which have been
expensed as incurred under the practical expedient allowed by AASB
15. Under AASB 15, these costs are presented in the statement of
financial position as deferred contract costs instead of intangible
assets.
We have identified impacts in relation to costs to fulfil a contract. On
adoption of AASB 15, we have expensed two major classes of
deferred expenditure which were previously included in our
intangible assets. These were costs associated with connection and
activation activities related to our fixed network contracts and
remediation costs related to our nbn DAs and related arrangements.
These costs are assessed under AASB 116: ‘Property, plant and
equipment’. We continue to recognise as assets and amortise over
the contract term certain set up costs that relate to our large
enterprise contracts. However, these costs are presented in the
statement of financial position as deferred contract costs instead of
intangible assets.
Our deferred expenditure also included certain balances related to
cash and non-cash sales incentives which have been granted mainly
to our small business, enterprise and wholesale customers at
contract inception. Under prior accounting, both types of incentives
reduced sales revenue over the term of the customer contract on a
straight line basis. Under AASB 15, these amounts either represent a
discount that should reduce the transaction price (if the incentive is
cash) or a material right for additional goods or services (if the
incentive is non-cash), which represents a separate performance
obligation in the customer contract. Given our prior accounting is
largely aligned with the new requirements, there are no material re-
measurement adjustments related to these types of deferred
expenditure. However, they have now been presented as part of a
contract asset or contract liability under AASB 15.
162 | Telstra Corporation Limited and controlled entities
160 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Section 7. Other information (continued)
7.1 Other accounting policies (continued)
7.1.1 Changes in the accounting policies on adoption of the new
accounting standards (continued)
(b) Changes in the accounting policy for revenue from contracts
with customers (continued)
(v) Presentation and classification (continued)
Previous pres-
entation
Trade and other
receivables
New presentation
Change
Trade and other
receivables and
contract assets
Accrued revenue arising from contracts with customers has been presented as
contract assets.
Inventories
Inventories
Right to recover products sold with a right of return has been added to the
‘inventories’ line.
Inventories
Prepayments
Trade and other
receivables and
contract assets
Deferred contract
costs
Construction work in progress for long term construction contracts which
exceeded progress billings has been reclassified from inventories to contract
assets.
Costs of a service provider relating to the satisfaction of future performance
obligations included in our inventory or prepayment balances have been
reclassified to deferred contract costs.
Intangible assets
Deferred contract
costs
Deferred expenditure, a class of intangible asset, related to costs to obtain or
fulfill a contract has been reclassified to deferred contract costs.
Trade and other
payables
Contract liabilities
and other revenue
received in advance
Construction work in progress for long term construction contracts where
progress billings exceeded construction work in progress has been reclassified
from other payables to contract liabilities.
Trade and other
payables
Trade and other
payables
Revenue received in
advance
Contract liabilities
and other revenue
received in advance
Other payables relating to loyalty funds allowing customers to obtain our goods or
services for free have been reclassified to contract liabilities.
Refund liabilities have been added as part of ‘trade and other payables’ line.
Revenue received in advance arising from contracts with customers has been
presented as contract liabilities.
Contract liabilities are separately disclosed from revenue received in advance
arising from other types of arrangements (e.g. government grants) in note 3.6.
(c) Changes in the accounting policy for impairment of financial
assets
AASB 9 requires us to estimate the expected credit losses for our
financial assets measured at amortised cost or at fair value through
other comprehensive income, except for investments in equity
instruments, replacing the incurred credit loss model that we used
previously. The new accounting policy has been disclosed in note
3.3.2.
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 7. Other information (continued)
7.1 Other accounting policies (continued)
7.1.2 Foreign currency translation
(a) Transactions and balances
Foreign currency transactions are translated into the relevant
functional currency at the spot exchange rate at transaction date. At
the reporting date, amounts receivable or payable denominated in
foreign currencies are translated into the relevant functional
currency at market exchange rates at reporting date. Any currency
translation gains and losses that arise are included in our income
statement.
Non-monetary items denominated in foreign currency that are
measured at fair value (i.e. certain equity instruments not held for
trading) are translated using the exchange rates at the date when the
fair value was determined. The differences arising from the
translation are reported as part of the fair value gain or loss in line
with the recognition of the changes in the fair value of the non-
monetary item.
(b) Financial reports of foreign operations that have a functional
currency that is not Australian dollars
The financial statements of our foreign operations are translated
into Australian dollars (our presentation currency) using the
following method:
Foreign currency amount
Exchange rate
Assets and liabilities
including goodwill and fair
value adjustments arising on
consolidation
The reporting date rate
Equity items
The initial investment date
rate
Income statements
Average rate (or the
transaction date rate for
significant identifiable
transactions)
The exchange differences arising from the translation of financial
statements of foreign operations are recognised in other
comprehensive income.
7.1.3 New accounting standards to be applied in future reporting
periods
The accounting standards that have not been early adopted for the
financial year 2019 but will be applicable to the Telstra Group in
future reporting periods are detailed below.
(a) New leasing standard
In February 2016, the AASB issued AASB 16: ‘Leases’, which replaces
AASB 117: ‘Leases’, Interpretation 4 ‘Determining whether an
Arrangement contains a Lease’, Interpretation 115 ‘Operating
Leases - Incentives’ and Interpretation 127 ‘Evaluation the
Substance of Transactions Involving the Legal Form of a Lease’. The
new standard will apply to us from 1 July 2019.
The new standard requires the lessee to recognise its leases in the
statement of financial position as an asset (the right to use the
leased item) and a liability reflecting future lease payments.
Depreciation of the right-of-use asset and interest on the lease
liability will be recognised over the lease term. The lessee can utilise
the practical expedients related to short-term and low-value leases,
however, assets that are subject to subleases or are expected to be
subleased do not qualify for the low-value exception.
AASB 16 substantially carries forward the lessor accounting
requirements of AASB 117. Accordingly, a lessor continues to
classify its leases and account for them as operating or finance
leases.
As a lessee, we have a significant number of long-term non-
cancellable property operating leases for our office buildings and
network sites which will have a material impact when recognised in
the statement of financial position. We also have a large volume of
low value leases for mobile handsets which are subleased to our
consumer and small business customers under our mobile bundles
and which will also result in a material impact on transition to AASB
16. Other operating leases include motor vehicles, video
conferencing equipment, personal computers and multifunctional
devices. Our finance leases mainly relate to customer premise
equipment which is subleased to our customers under sales type
finance leases.
Lease liabilities recognised on adoption of AASB 16 will differ from
our operating lease commitments disclosed in note 7.4.2 to the
financial statements. The differences mostly arise from the effects
of discounting the future lease payments and judgements regarding
whether options to continue leasing the assets are reasonably
certain. Our operating lease commitments include commitments for
leases legally commencing after the transition date of 1 July 2019,
some of which have also been included in the lease liability estimate
as at the transition date because they represent a modification of a
transitioning lease contract.
We will adopt AASB 16 from 1 July 2019 and apply the standard using
a modified retrospective approach. Applying this method, the
comparative information for the 2019 financial year will not be
restated in our 30 June 2020 financial statements (or in 31 December
2019 half-year financial statements). Instead, the cumulative effect
of initially applying this standard will be adjusted as at 1 July 2019 to
amend the opening balance of retained earnings and the respective
line items in the statement of financial position.
We have applied the relief provisions and we have not reassessed
whether a contract is, or contains, a lease at the date of initial
application of 1 July 2019. As such this standard will be applied to all
open contracts that have been identified as leases under AASB 117
and Interpretation 4 before or as at 30 June 2019 (referred to as
'transitioning contracts').
Where Telstra Group is a lessee in the transitioning contracts, for
leases currently classified as finance leases the carrying amount of
the right-of-use asset and the lease liability at 1 July 2019 will equal
the carrying amount of the lease asset and lease liability
immediately before that date measured by applying AASB 117.
Where Telstra Group is a lessee in the transitioning contracts, for
leases currently classified as operating leases we will recognise a
lease liability (measured as present value of the remaining lease
payments, discounted using our incremental borrowing rate as at 1
July 2019) and an equal amount of a right-of-use asset. Where
relevant, we will also adjust the right-of-use asset by the amount of
any prepaid or accrued lease payments relating to those leases and
recognised in the statement of financial position as at 30 June 2019.
164 | Telstra Corporation Limited and controlled entities
162 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Section 7. Other information (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 7. Other information (continued)
7.1 Other accounting policies (continued)
(b) Other
7.3 Parent entity disclosures
7.3.2 Contingent liabilities and guarantees
7.1.3 New accounting standards to be applied in future reporting
periods (continued)
(a) New leasing standard (continued)
When estimating the right-of-use asset and the lease liability as at 1
July 2019 for our transitioning operating leases where Telstra Group
is a lessee, we have used the following practical expedients for all
similar leases on a consistent basis (as opposed to on a lease-by-
lease basis as allowed by the standard):
• we have applied a single discount rate to portfolios of leases with
characteristics which we have assessed to be reasonably similar
• we have elected to rely on our assessment of whether leases are
onerous under AASB 137 'Provisions, Contingent Liabilities and
Contingent Assets' as at 30 June 2019 instead of conducting an
impairment review
• for leases of our personal computers and multifunctional devices,
for which the underlying assets are of low value, we have not made
any adjustments on transition and as a result the lease payments
under these contracts will generally continue to be recognised on
a straight-line basis over the lease term as other operating
expenses
• we have no initial direct costs included in the measurement of the
right-of-use assets at initial application of the standard
• we have elected to utilise hindsight in determining the lease term
for contracts that contain options for extension or termination of
the lease.
Based on our transition approach and the practical expedients used,
the initial application of AASB 16 as at 1 July 2019 is expected to
result in recording in the statement of financial position right-of-use
assets and lease liabilities ranging from $3.6 billion to $3.8 billion for
our operating leases where Telstra Group is a lessee. This estimate
includes more than $0.5 billion related to lease payments arising
from new legal contracts executed before 30 June 2019 but effective
after that date, which have been treated as lease modifications for
accounting purposes (refer to Table B in note 7.4.2 to the financial
statements for maturity profile of our operating lease commitments).
The right-of-use assets will also be adjusted to reflect any prepaid
and/or accrued lease payments. No adjustments have been
identified for our finance leases where Telstra Group is a lessee.
Where Telstra Group is an intermediate lessor we have reassessed
our operating leases and identified those that on 1 July 2019 will be
recognised as finance leases. No significant adjustments have been
estimated.
No adjustments have been identified for our operating or finance
leases where Telstra is a lessor other than those related to
intermediate lessor described above.
The transition estimates have been calculated based on our current
interpretation of the new accounting requirements. However, there
is still an ongoing global debate in regard to certain aspects of the
application of the new standard and our final adjustments may differ
from the current estimates should a different consensus be agreed
globally.
We continue to assess the impact of the new leasing standard on our
future financial results, in particular how the new lease identification
requirements will change accounting for new contracts entered into
after 1 July 2019. We also continue to identify changes to our
accounting policies, internal and external reporting requirements, IT
systems, business processes and controls which will be fully
operationalised during the financial year 2020.
In March 2018, the International Accounting Standards Board (the
IASB) issued a revised Conceptual Framework for Financial
Reporting (‘Framework’) to be used immediately by the IASB but
effective for Telstra from 1 July 2020. We do not expect the practical
consequences of the new Framework to be significant in the short
term. However, our assessment of the impact arising from the
amendments is ongoing.
We do not expect any other recently issued accounting standard or
amendment to have a material impact on our financial results upon
adoption.
7.2 Auditor’s remuneration
Our external auditor of the Group is Ernst & Young (EY). In
addition to the audit and review of our financial reports, EY
provides other services throughout the year. This note shows
the total fees to external auditors split between audit, audit-
related and non-audit services.
Telstra Group
Audit fees
EY fees for the audit and review of the
financial reports
Assurance services
Audit-related
Other assurance
Total assurance services provided by EY
Non-audit services
Tax services
Advisory services
Total non-audit services provided by EY
Year ended 30 June
2019
2018
$m
$m
9.073
9.011
2.120
1.465
3.585
0.070
0.067
0.137
1.455
0.481
1.936
0.065
0.050
0.115
Audit-related fees charged by EY are for services that are reasonably
related to the performance of the audit or review of our financial
reports and for other assurance engagements. These services
include regulatory financial assurance services, services over debt
raising prospectuses, additional control assessments, various
accounting advice and additional audit services related to our
controlled entities.
Other assurance fees charged by EY are for other assurance
engagements, including IT security control assessments.
We have processes in place to maintain the independence of the
external auditor, including the nature of expenditure on non-audit
services. EY also has specific internal processes in place to ensure
auditor independence.
This note provides details of Telstra Entity financial
performance and financial position as a standalone entity. The
results include transactions with its controlled entities.
Tables A and B provide a summary of the financial information for the
Telstra Entity.
Table A
Telstra Entity
Statement of financial position
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Share capital
Cash flow hedging reserve
Foreign currency basis spread reserve
General reserve
Retained profits
Total equity
Table B
Telstra Entity
Statement of comprehensive income
Profit for the year
Total comprehensive income
As at 30 June
2019
2018
Restated
$m
$m
6,959
38,194
45,153
13,378
17,625
31,003
4,447
(209)
(21)
201
9,732
14,150
7,053
38,215
45,268
12,750
18,406
31,156
4,428
(211)
(6)
201
9,700
14,112
Year ended 30 June
2019
2018
Restated
$m
$m
2,358
2,337
3,584
3,547
Total non-current assets include $603 million (2018: $862 million)
impact of impairment losses recognised during the year. Within that
amount, impairment losses relating to the value of our investments
in, and the amounts owed by, our controlled entities amounted to
$104 million (2018: $545 million) and have been eliminated on
consolidation of the Telstra Group. Refer to note 2.3 for impairment
losses for property, plant and equipment and software.
7.3.1 Property, plant and equipment commitments
Table C provides details of our expenditure commitments for the
acquisition of property, plant or equipment, which have been
contracted for at balance date but not recognised in the financial
statements.
Table C
Telstra Entity
Total property, plant and equipment
expenditure commitments
As at 30 June
2019
2018
$m
471
$m
635
(a) Common law claims
Certain common law claims by employees and third parties are yet to
be resolved. As at 30 June 2019, management believes that the
resolution of these contingencies will not have a significant effect on
the Telstra Entity’s financial results. The maximum amount of these
contingent liabilities cannot be reliably estimated.
(b) Indemnities, performance guarantees and financial support
We have provided the following indemnities, performance
guarantees and financial support through the Telstra Entity:
• indemnities to financial institutions to support bank guarantees to
the value of $229 million (2018: $189 million) in respect of the
performance of contracts
• indemnities to financial institutions and other third parties in
respect of performance and other obligations of our controlled
entities, with the maximum amount of our contingent liabilities of
$135 million (2018: $133 million)
• letters of comfort to indicate support for certain controlled entities
to the amount necessary to enable those entities to meet their
obligations as and when they fall due, subject to certain conditions
(including that the entity remains our controlled entity)
• during the financial year 1998, we resolved to provide IBM Global
Services Australia Limited (IBMGSA) with guarantees issued on a
several basis up to $210 million as a shareholder of IBMGSA.
During the financial year 2000, we issued a guarantee of $68
million on behalf of IBMGSA. During the financial year 2004, we
sold our shareholding in this entity. The $68 million guarantee,
provided to support service contracts entered into by IBMGSA and
third parties, was made with IBMGSA bankers or directly to
IBMGSA customers. As at 30 June 2019, this guarantee remains
unchanged and $142 million (2018: $142 million) of the $210
million guarantee facility remains unused. Upon sale of our
shareholding in IBMGSA and under the deed of indemnity between
shareholders, our liability under these performance guarantees
has been indemnified for all guarantees that were in place at the
time of sale. Therefore, the overall net exposure to any loss
associated with a claim has effectively been offset.
(c) Other
In addition to the above matters, entities in the Telstra Group may be
recipients of, or defendants in, certain claims, regulatory or legal
proceedings and/or complaints made, commenced or threatened. At
30 June 2019, management believes that the resolution of these
contingencies will not have a material effect on the financial position
of the Telstra Group, or are not at a stage which supports a
reasonable evaluation of the likely outcome of the matter.
7.3.3 Recognition and measurement
The accounting policies for the Telstra Entity are consistent with
those of the Telstra Group, except for those noted below:
• under our tax funding arrangements, amounts receivable (or
payable) recognised by the Telstra Entity for the current tax
payable (or receivable) assumed from our Australian wholly-
owned entities are booked as current assets or liabilities
• investments in controlled entities, included within non-current
assets, are recorded at cost less impairment of the investment
value. Where we hedge the value of our investment in an overseas
controlled entity, the hedge is accounted for in accordance with
note 4.3. Refer to note 6.1 for details on our investments in
controlled entities.
• our interests in associated entities and joint ventures, including
partnerships, are accounted for using the cost method of
accounting and are included within non-current assets.
166 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Section 7. Other information (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Telstra Financial Report 2019
Section 7. Other information (continued)
7.4 Commitments and contingencies
Table C provides information about the assets under our operating
leases and their weighted average lease terms.
This note provides details of our commitments for capital
expenditure, operating leases and finance leases arising from
our contractual agreements.
Table C
Telstra Group
Land and buildings
Motor vehicles
Light commercial vehicles (caravan huts
and trailers)
Trucks and mechanical aids and heavy
excavation equipment
Audio visual communications
Personal computers, laptops, printers and
other related equipment used in non-
communications plant activities
Mobile handsets
Weighted average
lease term (years)
As at 30 June
2019
2018
17
3
4
6 - 7
5
16
2
3 - 4
5 - 7
5
3 - 4
3 - 4
2
2
The majority of our operating leases relate to land and buildings. We
have several leases with future minimum lease receivable of $31
million (2018: $42 million) for the Telstra Group. Our property
operating leases generally contain escalation clauses, which are
fixed increases generally between three and five per cent, or
increases subject to the consumer price index or market rate. We do
not have any significant purchase options.
We also lease handsets which we then sublease to our retail
customers in a back-to-back arrangement.
Table D sets out our future minimum lease receivables from retail
customers under non-cancellable operating leases (Telstra as
lessor).
Table D
Telstra Group
Within 1 year
Within 1 to 5 years
As at 30 June
2019
2018
$m
380
119
499
$m
332
130
462
Refer to notes 3.1 and 3.3 for our lease accounting policy (Telstra as
lessee and Telstra as a lessor, respectively). The accounting policy
described in note 3.1 applies to both property, plant and equipment
and other assets, including handsets.
This note also includes information about contingent liabilities
for which no provisions have been recognised due to the
uncertainty regarding the outcome of future events and/or
inability to reliably measure such liabilities.
7.4.1 Capital expenditure commitments
Table A shows the capital expenditure commitments contracted for
at balance date but not recorded in the financial statements.
Table A
Telstra Group
Property, plant and equipment
commitments
Intangible assets commitments
As at 30 June
2019
2018
$m
480
398
$m
638
209
Property, plant and equipment commitments include the Telstra
Entity capital expenditure commitments of $471 million (2018: $635
million) as disclosed in note 7.3.
7.4.2 Operating lease commitments
Table B shows future lease payments for non-cancellable operating
leases (Telstra as a lessee) not recorded in the financial statements.
Table B
Telstra Group
Within 1 year
Within 1 to 5 years
After 5 years
As at 30 June
2019
2018
$m
947
1,455
1,394
3,796
$m
1,008
1,467
1,649
4,124
The above amounts represent contractual undiscounted future cash
flows, which will not change on adoption of the new leasing standard
on 1 July 2019. However, as described in note 7.1.3, for a number of
reasons lease liabilities recognised on adoption of the new standard
will differ from our operating lease commitments as at 30 June 2019.
In particular, transition provisions of AASB 16 mandate the use of
Telstra's incremental borrowing rate as at 1 July 2019 to discount the
remaining future cash flows. This discount rate is determined by
reference to market indices and prices over which we have no
control.
Furthermore, where relevant, measurement of lease liabilities will
reflect judgements made about discounted future cash flows arising
from reasonably certain extension options (at Telstra's discretion)
and lease modifications, which must be reassessed should the
circumstances change. Such cash flows are not contractually
payable until the options have been legally exercised (if at all) and /or
until the effective dates of already executed new contracts (some of
which have effective dates beyond 1 July 2019).
7.4 Commitments and contingencies (continued)
7.5 Events after reporting date
7.4.3 Finance lease commitments
Table E includes finance lease commitments of the Telstra Group as
a lessee.
We are not aware of any matter or circumstance that has occurred
since 30 June 2019 that, in our opinion, has significantly affected or
may significantly affect in future years:
Table E
Telstra Group
Finance lease commitments
Within 1 year
Within 1 to 5 years
After 5 years
Total minimum lease payments
Future finance charges on finance
leases
Present value of net future minimum
lease payments
The present value of finance lease
liabilities is as follows:
Within 1 year
Within 1 to 5 years
After 5 years
Total finance lease liabilities
As at 30 June
2019
2018
$m
$m
• our operations
• the results of those operations
• the state of our affairs
other than the following:
7.5.1 Final dividend
The details of the final dividend for the financial year 2019 are
disclosed in note 4.1.
91
135
116
342
102
176
233
511
(51)
(146)
291
365
78
101
112
291
81
114
170
365
Table F provides information about the assets under our finance
leases and their weighted average remaining lease terms.
Table F
Telstra Group
Property leases in our controlled entities
Computer mainframes, processing
equipment and other related equipment
Weighted average
lease term (years)
As at 30 June
2019
2018
12
5
13
6
We lease computer mainframes, processing equipment and other
related equipment to our customers as part of the solutions
management and outsourcing services. Refer to note 3.3 for further
details on these finance leases.
Refer to note 3.1 for our lease accounting policy (Telstra as a lessee).
7.4.4 Commitments of our associated entities
Information about our share of our associated entities’ commitments
is included in note 6.2.4.
7.4.5 Contingent liabilities and contingent assets
We have no significant contingent assets as at 30 June 2019. Other
than the above, details and estimated maximum amounts (where
reasonable estimates can be made) of contingent liabilities for the
Telstra Entity are disclosed in note 7.3.2.
Other contingent liabilities identified for the Telstra Group relate to
the ASIC deed of cross guarantee. A list of the companies that are
part of the deed are included in note 6.1.2. Each of these companies
(except Telstra Finance Limited) guarantees the payment in full of
the debts of the other named companies in the event of their winding
up.
168 | Telstra Corporation Limited and controlled entities
166 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 169
Telstra Corporation Limited and controlled entities | 167
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 DirectorsDec.fm Page 168 Tuesday, August 27, 2019 8:27 AM
SignOffs.fm Page 169 Tuesday, August 27, 2019 8:28 AM
DIRECTORS’
DECLARATION
Directors’ Declaration
This Directors’ Declaration is required by the Corporations Act 2001
of Australia.
The Directors of Telstra Corporation Limited have made a resolution
that declared:
(a)
in the Directors’ opinion, the financial statements and
notes of the Telstra Group for the financial year ended 30
June 2019 as set out in the financial report:
(i)
comply with the Accounting Standards applicable in
Australia, International Financial Reporting
Standards and Interpretations (as disclosed in note
1.1 to the financial statements), and Corporations
Regulations 2001
(ii) give a true and fair view of the financial position of
Telstra Corporation Limited and the Telstra Group as
at 30 June 2019 and of the performance of Telstra
Corporation Limited and the Telstra Group, for the
year ended 30 June 2019
(iii) have been made out in accordance with the
Corporations Act 2001.
(b) they have received declarations as required by section
295A of the Corporations Act 2001
(c) at the date of this declaration, in the Directors’ opinion,
there are reasonable grounds to believe that Telstra
Corporation Limited will be able to pay its debts as and
when they become due and payable
(d) at the date of this declaration there are reasonable
grounds to believe that the members of the extended
closed group identified in note 6.1.2 to the financial
statements, as parties to a Deed of Cross Guarantee, will
be able to meet any liabilities to which they are, or may
become, subject to because of the Deed of Cross
Guarantee described in note 6.1.2.
For and on behalf of the board
John P Mullen
Chairman
Andrew R Penn
Chief Executive Officer and
Managing Director
15 August 2019
Melbourne, Australia
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Shareholders of Telstra Corporation Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Telstra Corporation Limited (the Company) and its subsidiaries (collectively the Group), which
comprises the consolidated statement of financial position as at 30 June 2019, the consolidated income statement, consolidated statement
of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then
ended, notes to the financial statements, including a summary of significant accounting policies and the Directors’ Declaration.
In our opinion:
the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial
performance for the year ended on that date; and
b. Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with
the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial
report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the
current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon,
but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report,
including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment
of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the accompanying financial report.
Key audit matter
Revenue recognition
Australian Accounting Standard AASB 15 Revenue from Contracts
with Customers (AASB 15) applied to the Group from 1 July 2018.
Upon adoption of AASB 15, there are five areas where the Group
exercises significant judgment relating to revenue recognition:
• accounting for new products and plans including multiple
element arrangements;
• accounting for large Network Application Services (NAS)
contracts;
• accounting for NBN revenue under the revised Definitive
Agreements (DAs) with nbn co and the Commonwealth
Government;
• determination of standalone selling prices for products sold in
multiple element arrangements; and
• assessment of significant financing components.
Disclosures relating to revenue recognition can be found at Notes 2.1
and 2.2 and disclosure of the impact of the adoption of the new
revenue accounting standard can be found within Notes 1.5 and 7.1.
The accuracy and completeness of amounts recorded as revenue is
an inherent industry risk due to the complexity of billing systems, the
complexity of products and services, and the combination of
products sold and price changes in the year.
How our audit addressed the matter
We evaluated the effectiveness of key controls over the capture and
measurement of revenue transactions across all material revenue
streams, including evaluating the relevant IT systems and new
process and controls implemented during the current year for the
appropriate recognition of revenue under AASB 15.
We examined the process and controls over the capture and
assessment of the timing of revenue recognised for new products
and plans, as well as performed testing of a sample of new plans to
supporting evidence.
For all key revenue streams, we obtained supporting evidence such
as customer contracts, statements of work, invoices and service
detail records to test the occurrence and measurement for a sample
of revenue transactions.
For the major NAS contracts, we focused our work on those which we
regarded as higher risk because of the nature of the contract, its
stage of delivery or the quantum of the related assets and those
which were significant by size.
170 | Telstra Corporation Limited and controlled entities
168 | Telstra Corporation Limited and controlled entities
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
169
Telstra Corporation Limited and controlled entities | 171
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 SignOffs.fm Page 170 Tuesday, August 27, 2019 8:28 AM
SignOffs.fm Page 171 Tuesday, August 27, 2019 8:28 AM
Key audit matter
The complexity of the billing systems was also considered as part of
the reliance on automated processes and controls Key Audit Matter
below.
How our audit addressed the matter
In performing this testing, we assessed the appropriateness of the
assumptions and estimates underpinning the accounting for these
major contracts as follows:
Key audit matter
Determination as to whether or not there is an impairment relating to
an asset or Cash Generating Unit (CGU) involves significant
judgment about the future cash flows and plans for these assets and
CGUs.
How our audit addressed the matter
We evaluated the Group’s assessment of indicators of impairment or
impairment reversal. Where we or the Group determined indicators
existed, we evaluated the Group’s calculation of the recoverable
amount of each CGU.
• We tested the effectiveness of controls that operate across the
contract life cycle for major contracts.
• We obtained and read the relevant sections of certain contracts,
to identify the contracted revenues, key provisions in the event
of contract termination (such as penalties or the ability for the
Group to recover costs) and other significant obligations.
• We ensured the future forecasts reflected the contract terms,
testing any significant changes (such as new services) to
contract amendments or other supporting documentation.
• We tested a sample of recorded revenue and cost transactions
by agreeing them to supporting evidence, which for revenue
included evidence of delivery and/or customer acceptance.
• We compared the historical forecast results of certain contracts
with the actual results to assess the performance of the
contract and the historical accuracy of forecasting.
• We considered the future forecast profitability and the
contractual terms to assess the recoverability of the contract-
specific assets and to determine if any contracts required loss
provisions.
We assessed the appropriateness of the assumptions and estimates
underpinning the accounting for the revised DAs including
understanding the timing of disconnections, the progress of the
NBN rollout and the transfer of the copper and Hybrid Fibre Coaxial
(HFC) networks to nbn co.
We assessed the Group accounting policies as set out in Note 2.2,
and the adequacy of disclosures for compliance with the revenue
recognition requirements of Australian Accounting Standards.
Our IT specialists assessed the Group’s manual and automated
controls relating to IT systems relevant to financial reporting,
including the recognition of revenue. When testing controls was not
considered an appropriate or efficient testing approach, alternative
audit procedures were performed on the financial information being
produced by systems.
Our IT specialists analysed the impact on our audit of new systems
that are significant to our audit. This included assessing the design
of relevant automated processes and controls.
We evaluated the effectiveness of the controls in the new systems.
Reliance on automated processes and controls
A significant part of the Group’s financial processes are heavily
reliant on IT systems with automated processes and controls over
the capturing, valuing and recording of transactions. This is a key
part of our audit because of the:
• Complex IT environment supporting diverse business
processes;
• Mix of manual and automated controls;
• Multiple internal and outsourced support arrangements; and
• Complexity of the billing systems which result in revenue being
recognised.
The Group continues to enhance its IT systems and during the year
implemented new systems which were significant to our audit.
Impairment of goodwill and intangible assets
Given the dynamic nature of the industry in which the Group
operates, there is a risk that there could be material impairment to
goodwill, other intangible asset balances, investments and other
non-current assets.
We evaluated the Group’s impairment calculations including the
testing of the recoverable amount of each CGU where there were
indicators of impairment, or there were significant goodwill or
indefinite life intangible asset balances.
Further disclosure regarding the Group’s impairment testing can be
found in Note 3.2.
We assessed the reasonableness of the Board approved cash flow
projections used in the impairment models as well as the reliability
of the Group’s historical cash flow forecasts.
We involved our valuation specialists to assess the impairment
models and evaluated the reasonableness of key assumptions
including the discount rate, terminal growth rates and forecast
growth assumptions. We also performed sensitivity analysis around
the key drivers of the cash flow projections. Having determined the
change in assumptions (individually or collectively) that would be
required for the CGUs to be impaired, we considered the likelihood of
such a movement in those key assumptions arising.
We evaluated the adequacy of impairments that had been
recognised during the financial year.
We evaluated the adequacy of the disclosures included in Note 3.2.
Capitalisation of assets, including useful lives, amortisation and impairment
There are a number of areas where judgments significantly impact
the carrying value of property, plant and equipment, software
intangible assets and their respective depreciation and amortisation
profiles. These areas are as follows:
• the decision to capitalise or expense costs;
• the annual asset life review;
• the timeliness of the transfer from assets in the course of
construction; and
• significant changes that have taken place during the period or
are expected to take place in the near future, which will impact
the extent to which, or manner in which, an asset is used or is
expected to be used.
Changes in these judgments have a significant impact on the results
of the Group. Accordingly, this was considered a key audit matter.
Disclosures relating to the capitalisation and write-off of assets can
be found at Notes 3.1 and 3.2.
Our audit procedures included the following:
• Assessed the effectiveness of the Group’s controls over the
acquisition and disposal of fixed assets.
• Evaluated the appropriateness of capitalisation policies.
• Selected a sample of costs capitalised during the year to
determine whether capitalisation was appropriate.
• Assessed the appropriateness of the date from which assets
commenced being depreciated.
We assessed the application of the Group’s annual asset life review.
This included assessing judgments made by the Group on:
• the nature of underlying costs capitalised; and
• the appropriateness of assets lives applied in the calculation of
depreciation and amortisation.
We evaluated management’s impairment assessment of property,
plant and equipment and software intangible assets. This included
assessing judgments made by the Group on:
• the nature and impact of changes on the business from the
Telstra 2022 (T22) strategy, including which specific assets are
impacted;
• the extent of the impact of these changes on the carrying value
of identified property, plant and equipment, software intangible
assets; and
• the completeness of the listing of impacted assets.
We evaluated the adequacy of disclosures included in Notes 3.1 and
3.2.
170
172 | Telstra Corporation Limited and controlled entities
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
171
Telstra Corporation Limited and controlled entities | 173
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 SignOffs.fm Page 172 Tuesday, August 27, 2019 8:28 AM
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Information Other than the Financial Statements and Auditor's Report Thereon
The directors are responsible for the other information. The other information comprises the information included in the Group’s 2019 Annual
Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual
Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this
auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion
thereon, with the exception of the Remuneration Report and our related assurance opinion.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors' Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Telstra Corporation Limited for the year ended 30 June 2019, complies with section 300A of the
Corporations Act 2001.
Responsibilities
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section
300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Andrew Price
Partner
Melbourne
15 August 2019
If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to
enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as
a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue
as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report
represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the financial
report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
172
174 | Telstra Corporation Limited and controlled entities
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
173
Telstra Corporation Limited and controlled entities | 175
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2019 Shareholder
information
Shareholder information | Telstra Annual Report 2019
Listing information
Voting rights
Substantial shareholders
Stock Exchange Listings
We are listed, and our issued shares are quoted on the
Australian Securities Exchange (ASX) and the New Zealand
Stock Exchange (NZX).
Markets on which our debt securities are listed
We also have debt securities listed on the Australian
Securities Exchange, the London Stock Exchange and
the Singapore Stock Exchange.
Shareholders (whether residents or non-residents of Australia)
may vote at a meeting of shareholders in person, directly or by
proxy, attorney or representative, depending on whether the
shareholder is an individual or a company.
Subject to any rights or restrictions attaching to our shares,
on a show of hands each shareholder present in person or by
proxy, attorney or representative has one vote and, on a poll,
has one vote for each fully paid share held. Presently, we have
only one class of fully paid ordinary shares and these do not
have any voting restrictions. If shares are not fully paid, on a
poll the number of votes attaching to the shares is pro-rated
accordingly.
Distribution of securities and security holdings
The following table shows the number of listed shares on issue at 26 July 2019:
Title of class
Listed shares
Identity of person of group
Listed shareholders
Amount owned
11,893,297,855
%
100
Distribution of shares
The following table summarises the distribution of our listed shares as at 26 July 2019:
Size of holding
Number of shareholders
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
610,068
466,584
115,441
100,952
3,542
%
47.05
35.99
8.90
7.79
0.27
Number of shares
335,756,450
1,115,540,930
826,020,462
2,435,716,637
7,180,263,376
1,296,587
100.00
11,893,297,855
%
2.82
9.38
6.95
20.48
60.37
100.00
The number of shareholders holding less than a marketable parcel of shares was 27,144 holding 2,045,407 shares (based on the
closing market price on 26 July 2019).
As at 26 July 2019, we are not aware of any substantial shareholders.
Twenty largest shareholders as at 26 July 2019
The following table sets out the Top 20 holders of our shares (when multiple holdings are grouped together):
Shareholder name
Number of shares
% of issued capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
ARGO INVESTMENTS LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
UBS NOMINEES PTY LTD
AMP LIFE LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
NETWEALTH INVESTMENTS LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
NAVIGATOR AUSTRALIA LTD
PACIFIC CUSTODIANS PTY LTD
NETWORK INVESTMENT HOLDINGS
MILTON CORPORATION LIMITED
TELSTRA GROWTHSHARE PTY LTD
BUTTONWOOD NOMINEES PTY LTD
BKI INVESTMENT COMPANY LIMITED
MUTUAL TRUST PTY LTD
Total for Top 20
Total other Investors
Grand Total
2,679,912,881
1,464,962,267
753,975,224
526,820,942
526,701,508
41,014,800
40,175,000
37,739,027
34,207,280
25,970,597
24,094,429
19,067,095
18,115,697
17,551,335
16,946,047
15,236,961
13,412,284
9,803,930
9,234,451
8,520,564
6,283,462,319
5,609,835,536
11,893,297,855
22.53%
12.32%
6.34%
4.43%
4.43%
0.34%
0.34%
0.32%
0.29%
0.22%
0.20%
0.16%
0.15%
0.15%
0.14%
0.13%
0.11%
0.08%
0.08%
0.07%
52.83%
47.17%
100.00%
176
177
Reference tables
Reference tables | Telstra Annual Report 2019
Guidance versus reported results
This schedule details the adjustments made to the reported results for the current and comparative period to reflect the
performance of the business on the basis on which we provided guidance to the market. The results are based on the guidance
statement for the current year. This guidance assumed wholesale product price stability and no impairments to investments or
core assets, and excluded any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum.
The guidance also assumed the nbn™ rollout and migration in FY19 was broadly in accordance with the nbn Corporate Plan 2019.
The guidance was provided on the basis of AASB15. Capex was measured on an accrued basis and excluded expenditure on
spectrum and externally funded capex.
Reported Basis
Year ended 30 June
2019
2018
restated
Growth
$m
$m
%
Total revenue
25,259
25,848
(2.3%)
Total income
(excl. finance income)
27,807
28,841
(3.6%)
Labour
5,279
5,207
1.4%
Goods and services
purchased
9,138
8,338
9.6%
Other expenses
5,418
5,077
6.7%
Operating expenses
19,835
18,622
6.5%
Share of net gain/(loss)
from joint ventures and
associated entities
12
(22)
n/m
EBITDA
7,984
10,197
(21.7%)
Depreciation and
amortisation
4,282
4,470
(4.2%)
EBIT
3,702
5,727
(35.4%)
Net finance costs
630
588
7.1%
Profit before income tax
expense
3,072
5,139
(40.2%)
Income tax expense
923
1,582
(41.7%)
Profit for the period
2,149
3,557
(39.6%)
Attributable to:
Equity holders of
Telstra Entity
2,154
3,591
(40.0%)
Non-controlling interests
(5)
(34)
85.3%
Free cashflow
3,068
4,695
(34.7%)
Adjustments June-19
June-18
Guidance Basis
M&A
Controlled
Entities1
M&A
JVs /
Associates1
M&A
Other
Investments1
M&A
Disposals1
Restructuring2
Asset
Impairment3
Spectrum4
Asset
Impairment5
Impairment6
Foxtel7
Spectrum8
M&A9
Restructuring10
Full year ended 30 June
$m
(2)
(2)
0
0
0
0
0
(2)
0
(2)
0
(2)
0
(2)
(2)
0
5
$m
$m
0
0
0
0
(2)
(2)
0
2
0
2
0
2
0
2
2
0
21
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
$m
(1)
(1)
0
0
(89)
(89)
0
88
0
88
0
88
0
88
88
0
62
$m
$m
$m
$m
$m
0
0
(529)
0
(272)
(801)
0
801
0
801
0
801
240
561
0
0
0
0
(493)
(493)
0
493
0
493
0
493
148
345
561
345
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
29
0
0
0
0
(30)
(30)
0
30
0
30
0
30
9
21
21
0
0
$m
(299)
(299)
0
0
0
0
57
(242)
0
(242)
0
(242)
(11)
(231)
0
0
0
0
(297)
(297)
0
297
0
297
0
297
0
297
286
(231)
11
0
0
51
$m
$m
$m
$m
$m
%
2019
2018
restated
Growth
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
113
14
0
0
25,256
25,549
(1.1%)
27,804
28,542
(2.6%)
(53)
4,750
5,154
(7.8%)
0
9,138
8,338
9.6%
(233)
4,562
4,517
(286)
18,450
18,009
1.0%
2.4%
0
12
35
(65.7%)
286
9,366
10,568
(11.4%)
0
4,282
4,470
(4.2%)
286
5,084
6,098
(16.6%)
0
630
588
7.1%
286
4,454
5,510
(19.2%)
86
200
1,311
1,666
(21.3%)
3,143
3,844
(18.2%)
200
3,148
3,867
(18.6%)
0
0
(5)
(23)
78.3%
3,186
4,873
(34.6%)
Joint ventures/Associates mainly include
additional investments in our interest in the Telsta
Ventures Fund II, LP.
3. Asset impairment adjustments:
Adjustments relating to an impairment and write
downs for IT legacy assets and WIP.
2018 has been restated for the impacts of AASB15.
This table has been reviewed by our auditors.
Reported EBITDA includes restructuring costs. FY19
guidance EBITDA excludes restructuring costs and
impairments to core assets.
Note:
There are a number of factors that have impacted our
results this financial year. In the table above, we have
adjusted the results for:
During this period we disposed of our investment in
Ooyala AB and their controlled entities, Orion
Health Group Lts and VeloCloud. We also recieved
deferred consideration from our disposal of 1300
Australia Pty Ltd and from the sell down of our
interest in the Telstra Ventures Fund II, LP.
1. Mergers & Acquisitions (M&A adjustments):
2. Restructuring adjustments:
Adjustments relating to acquisition and disposals
of controlled entities, joint ventures, associates
and other investments and any associated net
gains or losses and contingent consideration.
Adjustments for the strategic focus (T22 program)
announced at last financial full year results to
improve customer experience, simplify structure
and cut costs. In addition to our normal business as
usual redundancies for the period.
4. Spectrum adjustments:
Adjustment relating to the impact on free cashflow
associated with our spectrum purchases and
renewals for the period including:
• $27m for renewal of spectrum licences in the 900
MHz band.
• Payments for spectrum and apparatus licences in
various spectrum bands.
5. Asset impairment adjustments:
Adjustments relating to an impairment and write
downs for assets.
6. Impairment adjustments:
8. Spectrum adjustments:
10. Restructuring adjustments:
Adjustments relating to an impairment for the
remaining goodwill, intangibles and property, plant
and equipment in Ooyala.
7. Foxtel adjustments:
Adjustments relating to fair value gains resulting
from the conversion of the shareholder loan into
additional investment in the Foxtel joint venture and
recognition of our cumulative unrecognised share of
equity accounted losses.
Adjustments relating to the impact on free cashflow
associated with our spectrum purchases and
renewals for the period including:
• $27m for renewal of Spectrum Licences in the
900MHz band (2x8.4MHz national PMTS Class B
licence).
9. M&A adjustments:
Adjustments relating to acquisition and disposals of
controlled entities, joint ventures, associates and
other investments and any associated net gains or
losses and contingent consideration.
Adjustments for the strategic focus on
accelerating restructure activity in addition to our
normal business as usual redundancies for the
period.
Adjustments for the strategic focus on the
incremental capex spend announced at last
financial full year results to promote sustainable
network differentiation, support digitisation,
productivity and boost customer experience
($91m).
178
179
Reference tables
Glossary
Glossary | Telstra Annual Report 2019
Continuing operations
2019
20181
$m
$m
2017
$m
2016
20152
$m
$m
Total income (excluding finance income)
27,807
28,841
28,205
27,050
26,112
EBITDA3
EBIT
Profit for the year from continuing operations
Profit / (loss) for the year from discontinued
operations4
Profit for the year from continuing and
discontinued operations
7,984
3,702
2,149
10,197
10,679
10,465
10,533
5,727
3,557
6,238
3,874
6,310
3,832
6,559
4,114
–
–
–
2,017
191
2,149
3,557
3,874
5,849
4,305
Dividends declared per share (cents)
16.0
22.0
31.0
31.0
30.5
Total assets
Gross debt
Net debt
Total equity
42,589
42,634
42,133
43,286
40,445
15,331
15,368
16,218
16,009
14,962
14,727
14,739
15,280
12,459
13,566
14,530
14,556
14,560
15,907
14,510
Capital expenditure5
4,140
4,717
4,606
4,045
3,589
Free cashflow from continuing and
discontinued operations
Earnings per share from continuing
and discontinued operations (cents)
Dividend payout ratio (%)6
3,068
4,695
3,496
5,926
2,619
18.1
88
30.2
73
32.5
95
47.4
65
34.5
88
1. FY18 results have been restated to account for the adoption of AASB15 – refer to Note 1.5 in the Financial Report for further detail.
2. Represented the Autohome Group being classified as a discontinued operation.
3. Operating profit before interest, depreciation and amortisation and income tax expense. EBITDA is used as a measure of financial performance by excluding certain
variables that affect operating profits but which may not be directly related to all financial aspects of the operations of the company. EBITDA is not a measure of
operating income, operating performance or liquidity under A-IFRS. Other companies may calculate EBITDA in a different manner to us.
4. Profit/(loss) for the year from discontinued operations for FY15 and FY16 included both Sensis and Autohome Group results.
5. Capex is defined as additions to property, equipment and intangible assets including capital lease additions, excluding expenditure on spectrum, measured on an
accrued basis. Excludes externally funded capex.
6. Dividend payout ratio from continuing and discontinued operations. Dividend payout ratio from continuing operations FY16: 98%.
nbn™, nbn co and other nbn™ logos and brands are trademarks of nbn co limited and used under licence.
Fox Sports is a registered trademark of Twentieth Century Fox Film Corporation
Foxtel is a registered trademark of Twentieth Century Fox Film Corporation.
Ookla and Speedtest Awards are among some of the federally registered trademarks of Ookla, LLC in the US.
All amounts are expressed in Australian dollars ($A) unless otherwise stated.
Telstra Corporation Ltd, ABN 33 051 775 556
4G
The fourth generation of wireless mobile
networks, with typically faster download
and upload speeds and better response
times than previous generations.
Capital expenditure (capex)
Funds invested to purchase, upgrade
or improve long-term assets such as
property, infrastructure or equipment
to create future benefit.
Earnings before interest, income
tax expense, depreciation and
amortisation (EBITDA)
An indicator of a company’s operational
profitability.
4GX
The latest step in our 4G evolution. 4GX is
capable of greater peak network speeds
and adds another lane of capacity to the
Telstra mobile broadband super highway.
5G
The fifth generation of wireless mobile
networks, 5G will deliver a step change
in typical network speeds, with reduced
latency and much greater capacity to
help address the explosion in wireless
devices and data usage.
Access Virtual Circuit (AVC) charge
The access charge that Retail Service
Providers pay to nbn co per customer
depending on the bandwidth allocated
to the end-user premise.
Asymmetric Digital Subscriber Line
(ADSL)
A broadband technology that provides
access to the internet at fast speeds.
Data is carried over the copper network
phone lines. These data speeds can
enable the delivery of voice, data and
video services.
Average Revenue Per User (ARPU)
The measure of the average revenue
generated per unit or user.
Big Data Platform
Big Data Platform enables you to collect,
combine and explore data in one place.
Broadband
Describes a class of internet access
technologies, such as ADSL, HFC cable
and WiFi, offering a data rate significantly
higher than narrowband services. These
services typically do not tie up a
telephone line exclusively for data.
Bundle
A combination of products. For example,
a customer can bundle a fixed-line home
phone service and internet connection.
Cat M1
An Internet of Things (IoT) technology,
currently operating over Telstra’s 4GX
coverage areas, that is suitable for
applications requiring data with peak
speeds of up to 1Mbps (typical speeds
will be less). Cat M1 devices typically
provide greater reach in distance and
depth into buildings and extended
battery life.
Connectivity Virtual Circuit
(CVC) charge
A charge levied by nbn co on Retail
Service Providers based on the capacity
they acquire for retail customers’ use.
Cloud
The provision of services, software,
storage and security over the internet,
typically on a pay-for-use basis. Cloud
can allow access to information and
programs on multiple devices in
multiple locations.
Cyber security
The safe use of information and
telecommunications technology
(including mobile phones) and the
internet.
Customer relationship management
(CRM)
Technology for managing our
relationships and interactions with
customers and potential customers,
such as processing transactions,
managing an account or fault and
recommending additional products
and services.
Dark fibre
An optical fibre network used for data
transmission.
Definitive Agreement
The documents that record the final,
binding arrangements between Telstra,
nbn co and the Commonwealth
Government for Telstra’s participation
in the nbn™ network rollout.
Dividend per share (DPS)
A dividend is a payment of a portion
of our earnings to our shareholders
and is most often quoted in terms of
the amount each share receives.
Earnings per share (EPS)
The portion of profit allocated to
each share.
Fibre to the Basement (FTTB)
A broadband access solution that
delivers fibre from an exchange facility
to a location (eg the basement) in an
apartment block or similar types of
building, with the final connection to
the end user customer premises being
another access solution such as copper.
Fibre to the Node (FTTN)
A broadband access solution that
delivers fibre from an exchange facility
to a street cabinet (the “node”), with the
final connections to a premises being the
copper network phone lines.
Fibre to the Premises (FTTP)
A broadband access solution that
delivers fibre from an exchange facility
directly to the outside of a building,
offering potentially faster internet
speeds than FTTN solutions (see
definition of FTTN).
Fixed line
Refers to the delivery of telephone and/or
internet services over a cable, rather than
the mobile or wireless phone network.
Fixed line is also a term used to describe
a customer segment, for example ‘fixed
line customers.’
Free cashflow
The cash that a company is able to
generate from its operations after
spending money required to maintain
or expand its asset base.
Hybrid Fibre Coaxial (HFC)
A way of delivering video, voice and data
using both coaxial and fibre optic cables.
Infrastructure Service Agreement
(ISA)
An agreement between Telstra and
nbn co that gives nbn co long-term
access rights to certain types of Telstra
infrastructure to enable the nbn™ network
rollout, such as rack spaces in exchange
buildings, ducts (and pits/manholes),
dark fibre and certain poles.
180
181
Glossary
Contact details
Internet of Things (IoT)
The connectedness of ‘things’ (for
example machinery, vehicles, appliances)
to the internet via sensors and actuators
that collect information about the state
and condition of those things, and
transmit that data to software platforms
that can help people make sense of the
information and take appropriate action.
Internet Protocol (IP)
Part of the family of protocols describing
software that identifies internet
addresses, directs outgoing messages,
and recognises incoming messages.
Used in gateways to connect networks
at a high level.
Live chat
Telstra LiveChat is an application which
allows visitors to Telstra.com the
opportunity to communicate ‘live’ or in
near to live interactions with a Telstra
consultant. Customers can have their
questions answered and/or purchase
any number of products in one single
chat session.
Megabit per second (MBps)
A unit of measurement of transmission
speeds equal to one million bits per
second.
Mobile data
Wireless internet access delivered over
the mobile phone network to computers
and other digital devices using portable
modems.
Software Defined Networking (SDN)
A computer networking approach,
comprised of multiple kinds of network
technologies, designed to delivery greater
flexibility and agility.
Mobile Virtual Network Operator
(MVNO)
Mobile providers re-selling services via
the Telstra wholesale mobile network.
Narrowband (NB) IoT
A type of Internet of Things (IoT)
technology that operates over Telstra’s
4GX coverage areas. Narrowband IoT is
suited to stationary applications that
send very small amounts of data
infrequently and operate with longer
battery life.
Net profit after tax (NPAT)
The total revenue minus all expenses
and taxes.
Roaming
A service which allows customers to use
their mobile phone while in a service area
of another carrier.
Return on Invested Capital (ROIC)
A measure of how efficiently a company
is using capital to generate income.
If ROIC is greater than a company’s
weighted average cost of capital (WACC),
value is being created for investors.
Spectrum
Wireless communications signals travel
through the air via radio frequency,
known also as spectrum. The government
grants licences for dedicated use of
portions (bands) of spectrum.
T22
Telstra’s new strategy, announced on 20
June 2018, to lead the Australian market
by simplifying its operations and product
set, improving customer experience and
reducing its cost base.
Universal service obligation (USO)
Obligations placed on Telstra under the
Telecommunications Act 1997 to ensure
that standard telephone services,
payphones and prescribed carriage
services are reasonably accessible to all
people in Australia on an equitable basis,
wherever they reside or carry on
business.
Wi-Fi
The most prevalent form of wireless local
area network (WLAN) technology. WLANs
are small-scale wireless networks with a
typical radius of several hundred feet.
Registered Offi ce
Level 41, 242 Exhibition Street
Melbourne, Victoria 3000 Australia
Sue Laver
Company Secretary
Email: companysecretary@team.telstra.com
General Enquiries – Registered Offi ce
Website: telstra.com.au/aboutus/contactus
Customer enquiries: 13 2200
Shareholder Enquiries
Australian Share Register
Australia: 1300 88 66 77
All Other: +61 1300 88 66 77
Fax: +61 2 9287 0303
Email: telstra@linkmarketservices.com.au
Website: linkmarketservices.com.au/telstra
Link Market Services Limited
PO Box A942, Sydney, South NSW 1234 Australia
New Zealand Share Register
New Zealand: 0800 835 787
All Other: +64 9 375 5998
Fax: +64 9 375 5990
Email: enquiries@linkmarketservices.co.nz
Website: linkmarketservices.co.nz
Link Market Services Limited
PO Box 91976, Auckland 1142 New Zealand
Investor Relations
Level 28, 242 Exhibition Street
Melbourne, Victoria 3000 Australia
Australia: 1800 880 679
All Other: +61 (3) 8647 4954
Email: investor.relations@team.telstra.com
Sustainability
Level 39, 242 Exhibition Street Melbourne,
Victoria 3000 Australia
Email: sustainability@team.telstra.com
Online shareholder information
Telstra’s Investor Centre at telstra.com/investor has the
latest news and information available for shareholders.
Shareholders can also easily manage their shareholding
online at www.linkmarketservices.com.au/telstra
Shareholders require their SRN/HIN and postcode for
access and then can view and update information under
the following menus:
1. Holdings – transaction history, holding balance and value
and latest closing share price.
2. Payment and Tax – dividend payment history, tax information,
payment instructions and TFN details. Update bank details here.
3. Communication – become an e-Shareholder and update
postal/email addresses and communication elections here.
Telstra Corporation Limited
ABN 33 051 775 556
Incorporated in the Australian Capital Territory.
Telstra is listed on Stock Exchanges in Australia
and in New Zealand (Wellington).
Websites
Telstra Investor Centre: telstra.com/investor
Telstra Sustainability: exchange.telstra.com.au/sustainability/
Telstra Corporate Governance: telstra.com/governance
Telstra Customer Enquiries: telstra.com
Contact Telstra: telstra.com.au/aboutus/contactus
Indicative financial calendar1
Half year results announcement
Thursday 13 February 2020
Ex-dividend share trading commences
Wednesday 26 August 2020
Ex-dividend share trading commences
Wednesday 26 February 2020
Record date for final dividend
Thursday 27 August 2020
Record date for interim dividend
Thursday 27 February 2020
DRP election date
Friday 28 August 2020
DRP election date
Friday 28 February 2020
Interim dividend paid
Friday 27 March 2020
Annual results announcement
Thursday 13 August 2020
Final dividend paid
Thursday 24 September 2020
Annual General Meeting
Tuesday 13 October 2020
1. Timing of events may be subject to change. Any change
will be notified to the Australian Securities Exchange (ASX).
182
Keeping informed
To keep up to date with the latest news about Telstra:
• follow us on Twitter @Telstra_news
• follow us on Facebook
• subscribe to our media releases on our website at
telstra.com.au/aboutus/media/rss-feeds
• subscribe to our sustainability newsletter at
telstra.com/sustainability/subscribe
• visit Telstra Exchange at exchange.telstra.com.au
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