Telstra
Annual
Report
2020
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
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courage
Make the
complex simple
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B
Telstra Corporation Limited
ABN 33 051 775 556
Our 2020 reporting suite
We take our reporting
obligations seriously
and we provide
concise and up to date
information about your
company online.
In 2020 this information
includes our Annual
Report, our Corporate
Governance Statement
and our Bigger Picture
Sustainability Report.
Our 2020 Annual Report
Our Annual Report describes our
strategy, financial performance and
remuneration practices.
The sections of our Annual Report
titled Chairman and CEO message, The
importance of connection: responding
to the bushfire and COVID-19 crises,
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
13 August 2020 in the document titled
‘Financial results for the year ended
30 June 2020’ which is available at
telstra.com/investor.
Our 2020 Corporate Governance
Statement
Our 2020 Corporate Governance
Statement (CGS) provides detailed
information about governance at
Telstra and together with our
2020 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 2020
Sustainability Report
Our Bigger Picture 2020 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.
FY20 Financial performance
FY20 highlights
Chairman and CEO message
The importance of connection:
responding to the bushfire and COVID-19 crises
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
• Message from the People and Remuneration
Committee Chairman
• Remuneration report
Financial report
• Financial statements
• Notes to the financial statements
• Directors’ declaration
Shareholder information
Reference tables
Glossary
Indicative financial calendar
2
3
4
8
10
16
20
22
32
34
36
36
38
42
44
80
81
87
172
178
180
183
184
FY20 Financial performance
Total Income on a reported basis1
$26.2 billion
Earnings Before Interest, Tax,
Depreciation and Amortisation (EBITDA)
on a reported basis
$8.9 billion
Underlying EBITDA
on a guidance basis2
$7.4 billion
Net Profit After Tax (NPAT)
on a reported basis
$1.8 billion
FY20 performance in line with guidance
Total FY20 dividends
16 cents per share fully franked
$1.9B returned
to shareholders
Maintained A-band credit ratings
€500 million (approximately AUD $860 million)
bond issue further strengthened balance sheet
$1.8B reduction
in underlying fixed costs3 since FY16
FY20 highlights
Our customers
Helped around
2.6 million customers
stay connected
during COVID-19
More than
4 million customers
on our new plans
More than
4.3 million active
My Telstra app users
Over 2 million
Telstra Plus members
and over 4.3 billion
points redeemed
Our people
All-time-high
employee
engagement
New paid
parental
leave policy
Australian-first
pandemic leave
policy
10,000 people
now working
in Agile teams
Our community
2.5 million free calls
made from Telstra
payphones during
the bushfire crisis
Certified
carbon neutral
in our operations
in July 2020
10-year extension
of CareerTrackers
program supporting
Indigenous graduates
Partnered with
5 major universities
to build skills for
the future
Our network
1. Excluding financial income
2. FY20 guidance assumed wholesale product price stability and no impairments in and to investments or property, plant and equipment and
intangible 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 FY20 was broadly in accordance with the nbn Corporate Plan 2020. Guidance was provided on the basis
of AASB16 Leases and assumed impacts consistent with management estimates. Capex was measured on an accrued basis and excluded
expenditure on spectrum and externally funded capex and capitalised leases under AASB16 Leases. Underlying EBITDA excludes net one-off
nbn Definitive Agreement (DA) receipts less nbn net cost to connect (C2C), one-off restructuring costs and guidance adjustments but includes
depreciation of mobile lease right-of-use assets. In-year nbn headwind is defined as the net negative recurring EBITDA impact on our business
based on management best estimates including key input of the nbn Corporate Plan 2020.
3. Underlying fixed costs excludes one-off nbn DA and nbn net C2C, one-off restructuring costs and guidance adjustments.
Australia’s best 5G
– Telstra’s 5G footprint
covers approximately
one third of the
Australian population
$500 million
investment brought
forward to increase
network capacity
and accelerate our
5G roll out
Switched on more
than 700 black spot
sites, most under the
Federal Government’s
Mobile Black Spot
Program
Continued
investment
in our 400,000km
subsea cable
network
2
Chairman and CEO message
Chairman and CEO message | Telstra Annual Report 2020
Financial results
Our results showed that through a
challenging period Telstra continued
to deliver for our customers, support
our people and our community, while
generating long-term shareholder value.
FY20 proved to be an enormously
challenging year for everyone – for
governments, businesses, communities,
and for all of us as individuals. The
emotional, mental and economic
stresses as a result of the COVID-19
pandemic and necessary restrictions
have been profound.
It says a lot about the strength of our
business and strategy that through all
this we were able to meet guidance,
maintain the dividend and provide
guidance for the year ahead. Importantly,
we have also retained our strong balance
sheet and A-band credit ratings.
On a reported basis Total Income2 for
the year decreased 5.9 per cent to
$26.2 billion and NPAT decreased
14.4 per cent to $1.8 billion.
Reported EBITDA was $8.9 billion.
After adjusting for lease accounting on
a like-for-like basis3, EBITDA decreased
0.3 per cent to $8.4 billion.
On a guidance basis4, underlying EBITDA
declined 9.7 per cent to $7.4 billion.
Excluding the in-year nbn headwind5 –
which gives the clearest view of the long-
term business – underlying EBITDA grew
by approximately $40 million, with growth
in the first half of the year offset by a
second half decline.
During the year we reduced our
underlying fixed costs6 by $615 million,
or 9.2 per cent. This brought underlying
fixed cost reductions achieved since
FY16 to $1.8 billion and put Telstra on
track to achieve its $2.5 billion net cost
reduction target in FY22.
The Board resolved to pay a 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, bringing
the total dividend for FY20 to 16 cents
per share. This will see $1.9 billion
returned to shareholders for the year.
Responding to a challenging year
For all of our progress this year, the
enormous disruption caused by the
COVID-19 pandemic made 2020 an
extraordinarily challenging year and
one that highlighted the importance of
connectivity in our society, and the role
Telstra plays. Forced isolation and social
distancing measures during the
pandemic drove a huge acceleration
in digitisation including in activities
like telehealth, online learning, remote
working and e-commerce.
This experience once again
underlined the critical importance of
telecommunications networks. As well
as being the connective tissue during the
lockdown period, telecommunications
and digitisation will be crucial to our
future prosperity.
Through this extraordinary disruption,
Telstra was challenged to adapt, to find
new ways of supporting our customers,
our people and the country in a time of
need. We are very proud of the way our
team responded. The COVID-19 period
showed the value of our investments
through our T22 strategy to transform
Telstra. The reasons we introduced T22
two years ago – a need to rapidly simplify
and digitise, to remove customer pain
points, to remove legacy systems and
processes – have never been more
relevant and necessary.
While the progress we made on
T22 meant we could fast-track our
digitisation and automation efforts
during the pandemic and move more
customer interactions online, one of the
negative impacts was the reduction in
our workforce capacity, particularly in
India and the Philippines, due to strict
COVID-19 lockdowns.
We understand this was a challenging
time for many of our customers who
experienced delays getting in touch with
us and we are sorry for the disruption
that caused. Our teams worked incredibly
hard throughout this time and we thank
them for their efforts, and our customers
for their patience.
These challenges forced us to think
differently about customer service,
enabling our Australian call centre
workforce to work from home, and
accelerating our digital engagement.
By providing more customers with the
capability to resolve their enquiry using
our digital self-service tools or via
messaging, we created more capacity
to support customers who had more
complex enquiries that were better
resolved over the phone, or who were
not as comfortable using digital tools.
Our plan is to continue supporting our
customers in this way, and this means
that over time we will need a smaller
call centre workforce. Our aspiration is
that by the end of our T22 program all
in-bound calls from consumer and small
business customers will be answered in
Australia. This in turn will enable our
teams in the Philippines and India
to continue to support the digital
experiences we offer.
Meeting our responsibilities
We continued to think deeply about our
role and responsibility in the community.
We believe the obligations we have to our
customers are not defined only by the
small print of our contracts but by our
organisational purpose, values and code
of conduct.
There is also a growing community
expectation for businesses to take a
stand on important social issues and a
broader acceptance that companies will
only be successful for their shareholders
if their customers, employees and
communities enjoy success too.
For Telstra, during the COVID-19
pandemic, that sense of responsibility
included many things that we did in the
interests of our people, customers and
the economy. We introduced a new global
epidemic and pandemic leave policy for
our people – with paid leave for our
casual employees, brought forward capex
investments, created relief programs for
small business and consumer customers
(something we also did during the
bushfires), provided temporary unlimited
data allowances for home broadband
customers and offered additional data
to mobile customers.
In March, we put all job reductions on
hold for six months to give our people
certainty during this difficult time. As we
approach the end of that pause, it is clear
that the impacts of COVID-19 will be with
us for some time. We have therefore
made the decision to keep our T22
productivity role reductions on hold for
permanent Telstra employees in Australia
and internationally until February next
year. We know many are doing it tough at
the moment and we hope this decision
will give some certainty to our people in
what is a very challenging time for
Australia – and many of the countries in
which we operate.
There will be some roles that finish in
the interim where projects have come
to an end or work is no longer required,
volumes have declined, or fixed term
contracts end particularly related to our
involvement in the construction of the
NBN Network. However, for the majority
of our teams this will continue to give
them some certainty at least until the
new year.
We believe that being a responsible
business also means speaking up on
important issues. Not on every issue,
Dear Shareholders
Companies seldom get to choose the moments that define them.
The choices they do have are how they act, and react, and the 2020
Financial Year has been a defining period for Telstra. Through the
COVID-19 global pandemic, the bushfire crisis, ongoing market
disruption and our transformation initiatives, we continued to execute
on our T22 strategy and deliver for our customers and shareholders.
Your company ended the year with good momentum and growing
confidence in our ability to deliver our strategic ambitions. As we
passed the midway point of our T22 strategy to transform Telstra for
the future, we had delivered, or were on track to deliver, three quarters
of our T22 objectives.
During the financial year our progress on our T22 transformation was visible across many
corners of the business: from new consumer products to passing enterprise milestones and
showing financial strength and stability. We are pleased to have many highlights to share.
Consumer and Small Business in-market plans have been cut from 1800 to 20.
Our new loyalty program, Telstra Plus, consulting and professional service business, Telstra
Purple, and extensive gaming offers were brought to market.
We completed the release of our new set of technologies to power our systems, simplifying our
store processes and assisting us to retire many of the complex legacy systems that had caused
delays in the past.
We were number one in major mobile network leadership surveys1 and continued our clear
leadership on 5G. In fact, Telstra 5G now covers around a third of the Australian population
– an area that more than 10 million Australians live in, work in or pass through every day.
With 5G now in selected areas of 53 cities and towns, we exceeded our FY20 target of
deploying 5G in selected areas of 35 cities and towns. Our accelerated rollout means Telstra
5G coverage will reach around 75 per cent of the Australian population by June 2021.
We rolled out Agile at scale and we continued to embed this cross-functional, customer-centric
way of working across the organisation, with 10,000 people now working in Agile teams.
Telstra InfraCo became a fully operational standalone infrastructure business unit.
Our employee engagement scores exceeded targets despite the unprecedented disruption that
included having to move 25,000 of our people in Australia to work from home arrangements
during the COVID-19 pandemic.
In short, it was a year of considerable progress and more information is available on these
initiatives in the Strategy and Performance section of this report.
4
5
but those that are relevant to the
business we conduct and that impact
our customers and our people.
lock-in contracts to provide customers
with flexibility to choose the plan that is
right for them at the time.
Climate change is a perfect example
of where businesses, including Telstra,
should take meaningful action. The
business sector is a material contributor
to greenhouse emissions and rapid
climate change is creating risks that
impact our economy, our environment,
our communities and each of us
individually.
Telstra is one of the largest consumers
of energy in the country. Powering
networks that cover a continent as big
as Australia requires more than 5.6
petajoules of energy each year and in
FY20 that resulted in nearly 1.2 million
tonnes of greenhouse gas emissions.
Compounding this is a rise in demand
as businesses, governments and
communities increasingly adopt new
digital technologies. For example, the
traffic on our network grew by 28 per
cent this year and is expected to more
than triple from June 2020 to June 2025.
While Telstra has long focused on
ensuring our networks are energy
efficient, we also believed we needed
to do more. This year we committed
to becoming carbon neutral in 2020,
enabling renewable energy generation
equivalent to 100 per cent of our
consumption by 2025, and reducing
our absolute emissions by 50 per cent
by 2030.
In July 2020 Telstra received formal
carbon neutral certification from Climate
Active – well ahead of our initial plan.
We achieved this through emissions
reductions and purchasing credits from
carbon offset projects to counteract
our remaining emissions. Two of these
projects are based in Australia, including
a project that uses the knowledge of
traditional landowners to reduce
greenhouse gases emitted from
savannah fires, which today make up
3 per cent of Australia’s total emissions.
The other projects contribute to solar and
wind energy generation in India where
Telstra also has extensive operations.
Facing into challenges
When considering how to be a
responsible business, how we do things
is just as important as why we do them.
This includes how we interact with
customers and support them to access
products and services that meet their
needs – through initiatives such as
removing excess data charges to help
prevent customers from incurring high or
unexpected costs, and introducing no
6
While we are making progress and a
positive contribution in many areas,
we acknowledge that we have also
let down some of our customers in
Indigenous communities. Some years
ago, we became aware of an issue where
a small number of our partner stores,
those operated by third parties under a
licence agreement, sold mobile devices
and plans to customers that ultimately
they could not afford or may not have
been appropriate for their needs.
When we investigated, we found there
were instances where our processes
had not been followed by some frontline
staff and that, in some cases, there had
been serious misconduct. There were
examples where we had not fully
understood some of the cultural and
customer behaviours unique to these
communities.
In our initial response to these
complaints we failed to recognise
that many of these customers were
vulnerable, and our initial remediation
was based too much on our terms and
conditions and not on our purpose and
values. Since 2018 we have been
progressively implementing what is now
a comprehensive program to address the
specific issues, waiving debts, refunding
customers, introducing new processes,
and rolling out training and tools to assist
frontline employees in their interactions
with vulnerable customers.
We are cooperating with the Australian
Competition and Consumer Commission
(ACCC) as they conduct an investigation
into this issue, and we continue to
engage with them. Having considered
all available information at the date of
this report we have made a provision of
$50 million for any penalties. Please refer
to note 7.3.1 to the financial statements
in the 2020 Annual Report for more
details. There remains a material
possibility that the ACCC will commence
enforcement action against Telstra.
The lessons we have learned through
this experience have informed important
changes in how we do business and are
helping us re-define our understanding of
what responsible business looks like in
the new decade.
Executive and board renewal
The Board continues to focus on ongoing
renewal and putting in place the right
balance of experience, expertise and
fresh thinking.
In February, we welcomed experienced
Board Director Elana Rubin as a non-
executive Director. Elana brings more
than 20 years’ board experience across
the financial service sector, including
superannuation and funds management
as well as the property, infrastructure
and government sectors.
In August 2020, we announced the
appointment of Bridget Loudon as a
non-executive Director of the Telstra
Board. Bridget is an entrepreneur
and business leader, having founded
Australia’s number one skilled talent
platform, Expert360, at age 25, and
brings a unique perspective to the Board.
Elana and Bridget will stand for election
at the Telstra Annual General Meeting
later this year.
You can read more about the Board’s
composition in the Board of Directors
section.
In the management team, Kim Krogh
Andersen joined from Scandinavian
telco Telenor Group to lead the Product
& Technology function following the
departure of Christian von Reventlow.
Carmel Mulhern also stepped down as
the Group General Counsel and Group
Executive of Legal & Corporate Affairs
and we welcomed Lyndall Stoyles from
Caltex as Group General Counsel and
Group Executive, Sustainability, External
Affairs and Legal.
Our year ahead
As we move into FY21, a point where
we are closer to the finish of T22 than
the start, we look at the year ahead with
confidence in our ability to deliver our
strategic ambitions.
It is clear that COVID-19 will remain with
us for some time, however we will adapt
to deal with the challenges this will bring.
We remain committed to our strategy and
are confident it will enable us to emerge
strongly post-COVID-19.
We still have work to do to truly transform
Telstra. While we have paused some
activity, like job reductions, it is still
necessary to come back to them because
they are a critical part of continuing to
reduce our costs and ensuring we are a
sustainable business for the long term.
Any decisions that impact our people will
not be taken lightly and we will continue
to show respect, fairness and
transparency during this process.
We are pleased to provide financial
guidance for FY21 on a range of metrics7.
For FY21, Total Income is expected to be
in the range of $23.2 to $25.1 billion,
underlying EBITDA in the range of $6.5 to
Chairman and CEO message | Telstra Annual Report 2020
$7.0 billion, net one-off nbn DA receipts
(less nbn net cost to connect) in the
range of $0.7 to $1.0 billion, capital
expenditure of $2.8 to $3.2 billion,
and free cashflow after operating
lease payments of $2.8 to $3.3 billion.
The in-year nbn headwind for FY21 is
expected to have a negative impact on
underlying EBITDA of approximately
$700 million. To achieve growth excluding
the in-year nbn headwind in FY21,
underlying EBITDA will need to be around
the mid-point of the guidance range.
Guidance for FY21 underlying EBITDA
assumes an estimated negative impact
from the COVID-19 pandemic in FY21 of
approximately $400 million.
We have also adjusted our T22 target for
Return on Invested Capital (ROIC) to be
greater than 7 per cent by FY23.
Several things have changed since we
set our ROIC ambition as part of the
launch of our T22 strategy. We have
experienced deeper competition across
products and a slower return to growth,
especially in mobile. In addition, AASB16
was implemented resulting in a 1 per
cent reduction in ROIC, which previously
caused us to push out our target by
a year. In this same period our WACC
has also reduced by approximately
1.5 percentage points.
We have invested, and will continue
to invest, for long-term returns and
opportunities, especially in mobile and
our T22 strategy, the benefits of which
will be realised over time. Our long-term
ambition is to grow ROIC.
Through all of this we will rely on our
purpose and values to guide us.
For more detail on the year ahead
please refer to our Outlook section.
Thank you
The Telstra Board and senior management
team would like to sincerely thank you,
our shareholders, for your patience and
support during the year. Thanks also to
our millions of customers for their ongoing
support. Without them there would be
no Telstra.
Thank you also to every Telstra employee
who has remained committed, diligent,
resilient and led by our purpose and
values, despite incredibly challenging
circumstances.
We mentioned earlier that companies
rarely get to choose the moments
that define them. The choices are in
how they act and react, and the 2020
Financial Year has been a defining period
for Telstra through the actions we have
taken, the choices we have made and
the value we have built for the future.
Thanks for being part of it.
John P Mullen
Chairman
Andrew R Penn
Chief Executive Officer and
Managing Director
1.
2.
3.
4.
5.
6.
7.
Based on Ookla data that shows we continue to
rank first in each quarter of the year in both
Ookla speed score and average data speeds.
Telstra was also recognised as Best in Test,
Best in Voice, and Best in Crowd-Sourced
Quality awards in the umlaut (formerly P3)
2019 Australian Mobile Network Benchmark.
Excluding finance income.
Reported lease adjusted EBITDA includes all
mobile handset leases as operating expenses,
and all rent/other leases below EBITDA.
FY20 guidance assumed wholesale product
price stability and no impairments in and to
investments or property, plant and equipment
and intangible 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 FY20 was broadly in accordance
with the nbn Corporate Plan 2020. Guidance
was provided on the basis of AASB16 Leases
and assumed impacts consistent with
management estimates. Capex was measured
on an accrued basis and excluded expenditure
on spectrum and externally funded capex and
capitalised leases under AASB16 Leases.
Underlying EBITDA excludes net one-off nbn
DA receipts less nbn net C2C, one-off
restructuring costs and guidance adjustments
but includes depreciation of mobile lease
right-of-use assets. In-year nbn headwind is
defined as the net negative recurring EBITDA
impact on our business based on management
best estimates including key input of the nbn
Corporate Plan 2020.
See note 4. As at 30 June 2020, the in-year nbn
headwind was ~$830 million.
Underlying fixed costs excludes one-off nbn DA
and nbn net C2C, one-off restructuring costs
and guidance adjustments.
FY21 guidance assumes no impairments in and
to investments or non-current tangible and
intangible assets, and excludes any proceeds
on the sale of businesses, mergers and
acquisitions and purchase of spectrum. The
guidance is based on management best
estimates of nbn impacts including input from
the nbn Corporate Plan currently published at
time of issue of this guidance. Total income
excludes finance income. Underlying EBITDA
excludes net one-off nbn DA receipts less nbn
net C2C, one-off restructuring costs and
guidance adjustments but includes
depreciation of mobile lease right-of-use
assets. Guidance for FY21 underlying EBITDA
assumes an estimated negative impact from
the COVID-19 pandemic in FY21 of
approximately $400 million. This estimate is
approximately $200 million greater than the
estimated negative impact from the COVID-19
pandemic for FY20 underlying EBITDA. In-year
nbn headwind is defined as the net negative
recurring EBITDA impact on our business.
Capex is measured on an accrued basis and
excludes spectrum and guidance adjustments,
externally funded capex, and capitalised
leases. Free cashflow is defined as ‘operating
cash flows’ less ‘investing cash flows’ less
‘payments for operating lease liabilities’ and
excludes spectrum and guidance adjustments.
7
The importance of connection:
responding to the bushfire and
COVID-19 crises
This year is one we will always remember: a year scarred by the bushfire crisis and COVID-19
pandemic. We will proudly remember how our people stepped up and responded to these challenges,
driven by our purpose and values.
When considering how to be a
responsible business in the 2020s,
how businesses do things is just as
important as why they do them. This
thinking guided our response to these
crises, and our investments in our T22
strategy gave us the capability to move
quickly. The reasons we introduced T22
two years ago – a need to rapidly simplify
and digitise, to remove customer pain
points, to remove legacy systems and
processes – are more relevant and
necessary than ever before.
It was a year that highlighted the
importance of connection to loved ones,
to critical services and to communities,
and we were passionate about stepping
up to provide the connectivity that our
communities needed.
Bushfires
When the bushfires hit in late 2019, our
people were on the ground supporting
those who needed us the most. Our
emergency teams and field technicians
responded to impacted sites as soon as
it was safe to do so, delivering backup
generators, installing temporary mobile
cells on wheels, and making repairs
to our network wherever possible.
We provided vital infrastructure for
emergency services and community
evacuation centres. Our team also created
a custom app to help catalogue damage to
Telstra infrastructure and get it fixed as
quickly as possible.
Telstra has a long and proud history
of standing with the communities we
are part of in times of crisis and is a
passionate supporter of rural and regional
Australia. With connectivity being such a
vital lifeline, we worked hard to make sure
our customers and affected communities
stayed in touch. We made our Telstra
payphones and Telstra Air Wi-Fi hotspots
free nationally during January and
February, with more than 2.5 million calls
made from our payphones. We made key
emergency services sites unmetered for
our mobile customers so they could get
the latest information on the bushfire
situation without having to worry about
the data they were using.
With such devastation around them,
paying bills became challenging for
some of our customers. We answered
more than 55,000 calls from customers
making enquiries and seeking support
after the bushfires and we paid the
mobile phone bills of around 10,000
fire fighters and SES volunteers over
December and January.
In total, our investment in supporting
customers and restoring bushfire
damage to our own infrastructure,
which continues into FY21, will be
around $44 million.
The bushfires forever changed the
lives of many Australians and were
felt by the nation. We shifted our focus
to rebuilding, though it wasn’t long
before a new challenge was upon us.
COVID-19 pandemic
Since the start of the COVID-19
pandemic, Telstra’s primary focus
was on protecting the health and
safety of our employees, helping our
customers and communities stay
connected, and contributing to the
national response.
Supporting our people
The rise of the unprecedented COVID-19
pandemic was an unnerving time and
its presence and impact was a source
of ongoing uncertainty. It posed risks to
our health, our livelihoods and our way
of life. In March 2020, we put further
job reductions on hold for six months to
give our people as much certainty and
security as we could. We were also the
first major Australian company to
introduce a new global epidemic and
pandemic leave policy for our people,
including paid leave for our casual
employees.
After more than six years of our successful
flexible working policy, All Roles Flex, we
were able to quickly transition around
25,000 office-based employees in
Australia to working from home.
In order to keep our stores open and
our technicians on the road, we took
many steps to help reduce the risk of
COVID-19 transmission. This included
closing some of our stores to help the
rest of the retail network stay fully
resourced and open, and introducing new
processes to assess the potential risks
from COVID-19 at customer properties
before our technicians visited.
To help better support our customers
we added thousands of temporary roles
in Australia while we supported our staff
and partners outside Australia, including
those from our contact centres in India
and the Philippines who were subject to
lockdown measures. We understand this
was a challenging time and are sorry for
the impact it had on our customers, and
we thank our people for doing what they
could to help. This included those from
across the business who volunteered to
help our contact centres by taking
customer calls and managing queries.
Supporting our customers
As we isolated in our homes, staying
connected through phone and internet
services became more important than
ever.
From March to June 2020, we helped
around 2.6 million customers stay
connected during the COVID-19
pandemic through a range of initiatives.
We delivered unlimited data for home
and small business fixed broadband
customers, extra data for consumer and
small business mobile customers and
unlimited local, national and 13/1300
calls and calls to Australian mobiles for
eligible pensioners with a Telstra home
phone plan.
We also offered discounts for eligible
customers receiving the JobSeeker
payment.
For many of our customers who were
unable to pay their bills, we temporarily
suspended late payment fees and
launched a bill assistance hub so
customers could get information on the
support measures and apply for relief
if they were doing it tough because of
COVID-19.
The importance of connection: responding to the bushfire and COVID-19 crises | Telstra Annual Report 2020
Telstra CEO Andy Penn visits a restored mobile tower in Jingellic, NSW. Source: James Wiltshire, The Border Mail.
Small business customers could suspend
their landline and internet services if
they had to cease trading, and we
provided free or heavily discounted
access to specialist online digital
business tools and discounted mobile
broadband plans to help them rapidly
move their business online.
Our teams also worked around the clock
to move our Enterprise customers to
remote working or learning, delivering
innovative business continuity solutions.
We helped connect 30,000 disadvantaged
students across the country by providing
them with internet access to support
their online learning through state
education departments and Catholic
Education.
We also introduced an NBN Co
broadband offer for eligible low-income
families at $40 for 12 months, with a
Smart Modem included.
Meanwhile, we had teams working
tirelessly to keep our international
network connected during a time where
we experienced 50 per cent spikes in
the volume of data being transmitted.
Supporting the nation
It quickly became clear that the
pandemic was going to have significant
economic implications and we wanted to
do what we could to support the nation
that had supported us for so long.
That’s why we brought forward $500
million of capital expenditure from
the second half of FY21 into the 2020
calendar year, providing the economy
with much needed investment. We are
deploying this investment to increase
capacity in our network and further
accelerate the roll out of 5G, among
other projects supporting the digital
enablement of our customers’ businesses
and operations. We also extended all
our sponsorships expiring in 2020 for
another 12 months, supporting sporting,
education, art communities and more.
It was very important to us that we
supported those suffering from the
changing social environment, which is
why the Telstra Foundation donated
$2 million to help fast track the digital
enablement of youth mental health
services provided by Orygen Digital
and ReachOut.
We used our tech capability within
Telstra Purple to help develop a
brand-new hospital monitoring system
in two weeks. The Critical Health
Resource Information System (CHRIS)
allows healthcare facilities to move
patients to the nearest available ICU
hospital, and redeploy vital equipment
including personal protective equipment,
respirators and dialysis machines to
those that need it most. It has now been
expanded to include hospitals across
Australia and New Zealand.
Telstra Health also worked collaboratively
with hospitals and healthcare
professionals to support them to
continue providing care during the
summer of natural disasters. We saw
demand for virtual healthcare and other
digital health solutions increase as a
result of the pandemic, demonstrating
the importance of high-quality digital
health information as well as the
availability of options for the public to
access care and advice in a socially
distanced world.
The new reality
These crises forever changed our
community and forever changed our
company. Rather than thinking about
post-COVID-19 as only a “recovery”
and considering how to get back to the
way things were, we see an opportunity
to grow the economy in the long term
and build an even stronger company to
best support our customers, our people
and deliver returns to our investors.
The COVID-19 crisis goes on and we must
continue to adapt and embrace our new
reality and harness the opportunities
that come with rapid change.
Businesses should be thinking about
tangible ways to drive Australia to
become a more digitised society and
economy, so we can do more than just
bounce back. This requires reform
in five key areas: digital transition,
infrastructure, regulation, cyber security,
and skills. However, a single company,
a single organisation or a single
government cannot achieve this on its
own so we will continue to advocate
for reform by Australian businesses
more broadly.
The principles and initiatives that sit at
the heart of our T22 program are exactly
those that helped us respond to these
crises. Indeed, they are exactly those
that we will need in order to support
our customers and be successful in the
future. We will continue to adapt to the
needs of our customers while staying
focused on building a connected future
so everyone can thrive.
8
9
Strategy and
performance
We are past the midway point in our T22
transformation and it’s incredible to see
how far we’ve come.
At its heart our T22 strategy is premised
on radically simplifying our business and
removing customer pain points, digitising
and moving customers ato digital channels,
simplifying our structure and ways of
working, reducing our costs and establishing
Telstra InfraCo.
This year challenged our business in some
areas and accelerated our transformation in
others. In all, we have completed or are on
track to complete around three quarters of
our T22 milestones.
Strategy and performance | Telstra Annual Report 2020
Our customers’ demand for connectivity
and digital experiences, and the need
for simplicity and adaptability, have
reinforced the importance of our T22
strategy. This year we accelerated our
digital transformation by building new
digital technology solutions and enabling
our customers to interact with us more
online.
This transformation meant that when
COVID-19 restrictions impacted our
ability to answer our customers’ calls,
we were able to provide them with digital
self-service capabilities as an alternative
way to connect with us.
The four pillars of the strategy are:
Pillar 1: Radically simplify our
product offerings, eliminate
customer pain points and create all
digital experiences
We launched into FY20 with a set of
radically simplified plans for our
consumer and small business customers
– dropping from 1,800 to 20 in market –
and we saw our customers respond
positively to these changes. We now have
more than 4 million customers on our
new plans, exceeding our target to
migrate 3 million Consumer and Small
Business customers by June 2020.
Many of our customers who moved
across were excited by no lock-in
contracts and no excess data charges.
They told us they loved our simple,
month-to-month options that give them
flexibility and peace of mind.
Twelve months on from launching our
simplified plans we announced the next
evolution. We recognised that the way our
customers use their devices had changed
and as a result included up to 30
gigabytes of extra data for a small price
increase, with 5G now included on
medium sized plans and above. We also
offered existing customers a credit to
offset the increase for 12 months if
they moved to our new plans before
September 30, 2020. In addition to this
offer, which effectively cancels out the
impact of the price rise for eligible
customers who choose to move, we also
committed to not raising the price of
our new Small, Medium, Large or Extra
Large plans for 12 months.
Telstra’s multi-brand strategy continued
to deliver growth in customer numbers,
particularly in mobile. During FY20 the
business added 240,000 retail postpaid
mobile services, including 154,000 from
Belong.
As well as strong uptake on Telstra
services, more and more Australians
are choosing Telstra technology for
their home and we have now shipped
2 million Smart Modems and 1.65 million
Telstra TV units to customers’ homes
around the country. Telstra consumer
customers can also access Foxtel’s new
streaming platform, Binge, in addition to
our existing streaming line-up of Kayo
and Foxtel Now.
Partnering with Microsoft, we entered
the gaming market as the exclusive
Australian provider of Xbox All Access,
which includes an Xbox One console and
access to over 100 games and online
multiplayer. This is just the beginning of
Telstra’s gaming journey – we see a big
opportunity to provide more premium
content and services to Australia’s active
gaming community on our incredibly-
fast, low-latency fixed and 5G networks.
In April 2020 we launched the new My
Telstra app, which replaced the Telstra
24x7 app, and had 3.7 million downloads
before the end of June (new downloads
plus upgrades from 24x7). With high
demand for the new app, millions of our
customers were provided with access to
new digital services. The app provided
customers with a new two way in-app
messaging service, the ability to track
orders and new trouble-shooting tools.
We now have more than 4.3 million active
app users and 6.3 million active digital
users in total, which includes those
engaging with Telstra via our website.
Digital engagement grew substantially
in the last year and was accelerated
somewhat due to the impact of the
COVID-19 pandemic. By the end of
FY20 over 71 per cent of our service
transactions came via digital channels,
up from 53 per cent in the prior year.
Over 5 million transactions were done
digitally every month. New capabilities
like asynchronous messaging saw huge
growth during COVID-19, increasing from
5 per cent to 45 per cent of human
contacts during an 8-week period.
For customers who weren’t on our new
plans, we introduced Data Bill Guard to
cap excess data charges at $300 and
help reduce the likelihood of bill shock
and improve the customer experience.
Telstra Plus passed one year of rewarding
our customers and reached more than 2
million enrolled members, a milestone
that we hit ahead of schedule. We saw
4.3 billion points redeemed from launch
to the end of the financial year, which
showed us that our members were
excited by the opportunity to engage with
us and reap rewards.
Our strategic Net Promoter Score (NPS)
was up five1 points against FY19. This
surpassed our FY20 target and showed
positive sentiment that was also
reflected in our reputation and brand
measures. However, our episode NPS
declined two points for the same period,
with significant impacts from COVID-19,
particularly our reduced capacity to
answer customer calls.
While our NPS is improving, it is not at
the levels we want it to be. We are also
tracking behind target on the number
of services per customer as well as the
build of our digital systems, which will
enable us to migrate customers across
to our new systems at scale. These areas
will be a focus in FY21.
Small business customers responded
well to the release of new services to
make business growth easier. These
include Telstra Business Cyber Security
Services, Telstra Business Tech Services
and Telstra Business Digital Marketing
Services. They are also now able to earn
Telstra Plus points for each eligible dollar
spent on Telstra services.
We made strong progress rationalising
the number of products offered to our
Enterprise customers, down 35 per cent
from FY18, and we are on track for a 50
per cent reduction by the end of FY21.
We started migrating our business
customers to our new Corporate Mobile
Plus plans. The plans operate on our new
digital systems and initial results showed
a much better customer experience in
ordering, provisioning and managing a
range of mobile services.
At the 2019 Telstra Vantage event we
launched Telstra Purple, Australia’s
largest technology services business
that brought together Telstra Enterprise’s
business technology services capabilities
and those of a number of acquired
companies. Since then Telstra Purple
has delivered more than 3,000 projects,
including developing a single data
strategy empowering Genomics England
to sequence the future of British
healthcare, connecting students in more
than 500 schools in South Australia,
and helping Intensive Care Units
across Victoria manage demand during
COVID-19 through near-real-time data.
1. The Statutory Financial Results for the year ended 30 June 2020 and the Statutory Annual Report filed on 13 August 2020 and 28 August 2020 respectively contained a
typographical error in relation to this figure (previously 4) which has now been corrected.
10
11
We continued to see growth in our
Internet of Things (IoT) business this
year with a 21 per cent increase in
M2M (machine to machine) SIOs.
We also saw a 600 per cent increase
in low-powered wide-area network SIOs,
which are those on our Narrowband-IoT
and LTE-M networks. This reflected
increased traction in the utilities sector,
which also saw Sydney Water speak
publicly about their proof of concept
and rollout of our end-to-end IoT Water
Management solution.
Telstra Track and Monitor, our enterprise
asset tracking product, grew its customer
base by more than 300 per cent this
financial year. Research conducted by
Telsyte found Australian organisations
lose up to $4.3 billion in assets each year,
showing the huge opportunity for cost
savings. We also shared how our
customer SCT Logistics is expecting to
offset their technology investment with
savings in as little as three years.
Continued innovation included the launch
of Telstra Data Hub, a Microsoft and
Telstra partnership designed to promote
enterprise collaboration through secure
data sharing. In nine months, it moved
from incubating in Telstra Labs to
commercialisation. Some of the projects
underway include optimising rural water
management with the Queensland
government and developing digital
farming solutions with Charles Sturt
University.
Pillar 2: Establish a standalone
infrastructure business unit to drive
performance and set up optionality
post the nbn rollout
Telstra InfraCo is now operating as a
standalone infrastructure business unit.
At our Investor Day in November 2019,
we announced our plans to shift Telstra
InfraCo’s asset boundaries to include
mobile towers, all fibre, and network
supporting infrastructure. PSTN, legacy
fixed, and satellite infrastructure were
moved back into the networks division
of Telstra. This move allowed us to
maximise the value of our infrastructure
assets and strengthen our financial
position for our future.
We announced Telstra InfraCo’s new
structure: a simple, end-to-end operating
model that aligns with the consolidation
of our core infrastructure assets into the
one Telstra function.
On 1 April 2020 we marked the first day
of Telstra InfraCo’s new matrix operating
model and structure, and from 1 July
2020 Telstra InfraCo took accountability
for the new asset boundaries. Telstra
InfraCo is now accountable for around
250,000 kilometres of fibre optic cable,
360,000 kilometres of ducts, 8,000
mobile towers, masts and poles, 5,000
exchanges, two data centres, and access
to 400,000 kilometres of subsea cables.
We also launched a new brand identity to
establish Telstra InfraCo as a specialist
infrastructure business unit.
By allocating our infrastructure assets to
Telstra InfraCo, we created the
opportunity to commercialise these
assets more effectively to drive more
value as well as create optionality for the
future.
Pillar 3: Greatly simplify our
structure and ways of working to
empower our people and serve our
customers
We are a purpose-led organisation driven
by our values; one that is also becoming
simpler and faster to work in.
We have delivered strongly against
the employee metrics on our T22
scorecard. We ended FY20 with an
employee engagement score of 83 per
cent – 7 points above our target and an
increase of 16 points from our FY19
result. Engagement levels began tracking
upwards in the second quarter as we
started to see the benefits of our T22
strategy. These foundations meant we
were able to respond decisively to the
COVID-19 pandemic to support our
people, who told us they felt pride in
Telstra’s response and the focus on
their health and wellbeing and keeping
them informed.
We also saw an increase in ease of doing
business within Telstra, up 22 points from
our 2018 result as measured by our
Organisational Health Index (OHI). This
result is testament to the focus we have
put into acting on our people’s feedback
following our previous OHI survey,
particularly in the areas of process
improvement, role clarity and employee
involvement in our transformation.
We have now introduced Agile at scale,
a way of working in teams that simplifies
how we get work done. It is just over a
year since we started rolling it out and
81 per cent of Agile teams are now at
level 3 maturity, which is defined as
whole teams successfully using agile
processes, and demonstrates the
progress we’ve made in embedding this
way of working across the organisation.
We also guided more than 16,000 of our
people through Agile Essentials training
to give them the tools to incorporate agile
practices into their day-to-day work.
To support our leaders, we rolled out the
Leading Transformation program to over
5,000 people across the organisation
to enable them to support the
transformation we are making in how
we work, lead and function as a team.
We also signed agreements with five
Australian universities – RMIT University,
University of Melbourne, UNSW Sydney,
University of Sydney, and University of
Technology Sydney – to jointly develop
the technology skills and capabilities
both Telstra and Australia need. To help
build the pipeline of talent supporting
our global operations we signed a
Memorandum of Understanding (MoU)
with Mahindra Ecole Centrale College
of Engineering in India.
As technology evolves, we need more
skills in software engineering, data
analytics, artificial intelligence and cyber
security. This is why we are recruiting
more people in these areas, while also
taking the opportunity to train our
existing workforce. To help build these
skills we have developed micro-
credentials with RMIT Online and UTS,
and Telstra employees have started
working through these courses.
On 1 July 2019, Telstra formally launched
an Innovation and Capability Centre (ICC),
based in Bangalore, to bring together
talented Telstra and partner employees
to focus on innovation, experimentation
and process improvements. Currently
the centre has people working across
fields such as our Automation Centre
of Excellence, Data, Reporting and
Analytics, and High Performance
Software Engineering.
We have announced 12,000 indirect
role reductions and 7,300 direct
workforce role reductions since we
launched T22 in June 2018. As at the
end of June 2020, our direct workforce
was around 5,700 lower than two years
ago. This figure includes 1,600 new roles
recruited, like software engineering and
cyber security – and some additional
roles brought on board in response to
COVID-19 to mitigate workforce offshore
capacity issues.
Strategy and performance | Telstra Annual Report 2020
Telstra team member Khang Ngo welcomes a customer to our COVID-Safe Sydney Icon store
Our people voted in favour of a new
Telstra Enterprise Agreement 2019–2021
and it was approved by the Fair Work
Commission. This reinforced that we
met our objective to deliver an agreement
that’s fair and aligned to the needs of
our customers, shareholders, and,
importantly, our people.
To create equality for all new parents
we changed our Australian parental leave
policy to remove the distinction between
primary and secondary carers. Eligible
parents who have been with us for a year
or more can now take up to 16 weeks
of paid parental leave within the first
12 months after their child’s birth or
placement. There’s also more flexibility
in how this leave can be taken. We did
this because equal and shared parenting
enables better gender equality in the
workplace.
Pillar 4: Industry-leading cost
reduction programs and portfolio
management
pursue opportunities in FY21 with a view
to getting closer to monetising $2 billion
worth of assets.
We continued to make further progress
in our cost reductions program, reducing
underlying fixed costs by $615 million in
FY20, which included an additional $36
million provision for bad debts. In total,
we’ve reduced underlying fixed costs by
$1.8 billion since FY16 and we’re on track
to achieve our $2.5 billion net cost
reduction target by FY22.
We established an unlisted property trust
to own 36 of Telstra’s exchange properties
and sold a 49 per cent stake to a Charter
Hall-led consortium for $700 million. To
date, we have monetised a total of $1.5
billion in assets, including the sale and
lease-back of our Clayton data centre
complex in August 2020. We continue to
With Foxtel having faced several years
of industry disruption and now facing
the impacts of the COVID-19 pandemic,
we made a non-cash impairment and
wrote down the value of our 35 per cent
share in Foxtel from $750 million to
approximately $450 million. The non-
cash impairment change did not affect
Telstra’s FY20 results on a guidance
basis.
A €500 million (approximately AUD $860
million) bond issue in April 2020 further
strengthened our balance sheet. Since
mid-March we have also secured an
additional $940 million in bank facilities,
and we now have a total of $3.8 billion of
committed bank facilities. The bond issue
12
13
and the additional bank facilities were
both well below our current average cost
of funds.
On 1 April 2020 credit rating agency S&P
reaffirmed our A – (stable) credit rating
and on 2 April 2020 Moody’s reaffirmed
the company’s A2 (stable) credit rating.
Telstra’s continued access to low-cost
capital and A-band credit rating
demonstrated the strength of the
business and attractiveness to global
capital markets during this very volatile
time.
Building Australia’s largest, fastest,
safest, smartest and most reliable
next generation network
Our purpose is to build a connected
future so everyone can thrive and to
deliver on that we continued to work
on building the largest, fastest, safest,
smartest and most reliable network
in Australia.
We continued to invest in building a
world-leading 5G network. In FY20 we
rolled out 5G to around one third of the
Australian population, made up of
selected areas of 53 cities and towns.
More than 10 million Australians now
live, work or pass through Telstra’s 5G
footprint every day.
More than 210,000 5G devices are now
connected to 5G on Telstra’s mobile
network.
5G is already delivering ultrafast speeds,
which will continue to improve, and as
the technology matures, will increasingly
deliver ultra-low latency (less lag
between a request for data being sent
and received) and greater bandwidth.
Our customers are starting to see the
benefits across a wide range of
experiences, from more responsive
gaming to new edge compute use cases
(use cases where data is stored and
analysed in the same location it is
captured, rather than in a centralised
data warehouse) for Enterprise
customers.
We extended our 5G leadership with two
world firsts and five Australian firsts:
including making the first Australian 5G
standalone call, delivering Australia’s
first live 5G broadcast, and enabling the
first 5G stadium in Australia.
We also started running live trials using
mmWave, a technology that operates on
higher frequency spectrum and will play
an important role in delivering on 5G’s
potential with super-fast speeds and
much greater capacity.
The launch of our 5G online hubi gave our
customers easy access to information
they needed so they could consider
purchasing a 5G device, including new
interactive network maps showing our
5G coverage across the country. This
included providing accurate information
on 5G and electromagnetic energy (EME).
We continue to be proactive, transparent
and fact-based in our communications
regarding EME and comply with the
standards set by regulators. Telstra has
conducted extensive EME testing and
analysis on 5G, and test results showed
EME levels were similar to the existing
mobile technologies and well below the
EME safety limits. 5G meets the safety
standards required by independent
health authorities here and overseas.
Future 5G capabilities are expected
to move in lockstep with IoT networks
to provide ultra-reliable low latency
communications. By leveraging the
capabilities of 5G for IoT, we will be able
to expand the role of connected devices
to enable new advances both in
nationwide and hyper-localised settings.
Telstra’s existing IoT networks, LTE-M
and Narrowband-IoT, that are designed
to connect devices over long distance
while using minimal power, are also now
formally recognised as 5G technologies.
The global mobile network standards
body’s (3GPP) acceptance of our existing
LTE-M and Narrowband-IoT technologies
as 5G IoT technologies means we can
continue to support these technologies
even beyond the lifespan of 4G. This will
help drive an expansion of connected
things and allow our customers to
embrace LTE-M and Narrowband-IoT with
confidence in their long-term future.
In FY20 we invested in extending our
network to provide coverage to more
people in regional and remote places.
With our technology partner, Ericsson,
we deployed world-first technology that
effectively doubled the range of a 4G
mobile base station, increasing it to up
to 200km. We also deployed technology
that extended the range of our
Narrowband-IoT network base stations
to up to 120km, which increased our
Narrowband-IoT network footprint to
nearly four million square kilometres
across the country. These are big wins
for our regional and remote customers.
In partnership with the Queensland
Government, the Torres Strait Regional
Authority and the Commonwealth
Department of Agriculture, we’ve
committed to delivering high-speed
internet access for mobile device users
across 14 of the region’s islands by 2021.
Currently, many islands across the Torres
Strait have patchy outdoor coverage, or
only have 3G services. This expansion
project will not only support essential
services like police, health and education
providers, but it will also help stimulate
local business by creating opportunities
for tourism.
By June 2020 we had delivered more than
700 black spot sites to provide mobile
coverage to some Australians for the first
time. This included 693 under the Federal
Government Mobile Black Spot Program
and another 17 under the state programs.
In addition, as part of our wider
commitment to the mobile black spot
program Telstra has also completed a
further 215 small cells for remote
communities at our sole expense.
As part of our program to continually
upgrade our network to the latest
technology and expand our 4G and 5G
coverage, we announced the eventual
switch-off of our 3G technology. When
this happens, the spectrum that is used
to carry data and voice calls over our
3G mobile network technology will be
repurposed to help grow 5G. This will not
happen until June 2024 – four and a half
years from the October 2019
announcement.
Delivering more for our customers on
Australia’s best mobile network saw
Telstra recognised as Best in Test, Best in
Voice, and Best in Crowd-Sourced Quality
awards in the umlaut (formerly P3) 2019
Australian Mobile Network Benchmark.
We continued to invest in our connection
to the rest of the world. In FY20 we
strengthened our investment in the
Southern Cross Cable Network’s existing
cable infrastructure while planning for
future growth. We acquired a 25 per cent
equity interest in the existing network,
making it an important addition to other
investments in our subsea cable
infrastructure.
Maintaining cables 4,000 metres below
the surface of some of the roughest
oceans in the world isn’t a simple task.
We’ve partnered with leading geospatial
specialist, Fugro to operate a fleet of
maritime submersible robots out of a
new Remote Operations Centre based in
Perth. Using our satellite infrastructure,
Strategy and performance | Telstra Annual Report 2020
Fugro can now maintain assets without
having to take manned vessels on rough
seas to get close to the monitoring
equipment.
New digital platforms
Our strong progress on T22 would
not have been possible without the
successes we’ve had on our digitisation
journey. Several big steps in FY20 brought
us closer to providing our customers with
an intuitive, seamless digital experience
which in turn will continue to make
things easier for our people.
We continued to replace our legacy tools
and complex manual processes with
fully automated, world class digital
applications.
In rolling out these new digital systems,
including the My Telstra app, our
frontline teams now have access to
more technologies on our new digital
stack that provide straight-through
provisioning for orders, speeding up order
time and improving the experience they
can offer customers.
This acceleration of new digital product
launches will allow us to cease the sale
of mobile plans and nbn plans on our
legacy systems in 2021.
We also launched a bill explainer tool,
which was key to our ambition of
providing digital services for our
customers. This tool has already helped
thousands of customers by providing a
clear and easy to understand way to
navigate their bill.
Telstra Enterprise achieved its target of
4,000 active customers using the digital
self-service tool, Telstra Connect. This
result, driven by COVID-19 impacts, was
an important step forward to achieving
a key deliverable of our T22 strategy:
providing market leading digital
experiences for our customers. As some
of our overseas partners became unable
to work due to the pandemic it was
critical to move customers to a digital
self-service platform to do things like
track orders, raise incidents or service
requests and monitor their network.
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 $2.5b by
FY22
Post-nbn
ROIC > 7%1
1. Post-nbn defined as FY23 on AASB16 basis. Targeted outcome reduced from >10% in August 2020.
i. Telstra.com.au/5g
14
15
Our material risks | Telstra Annual Report 2020
Transformation and market forces
People and culture
Two years ago, Telstra launched the
T22 strategy. More than halfway into
the transformation program, we have
made good progress in addressing
customer pain points, digitising customer
experiences, simplifying our structure
and ways of working, and setting up
Telstra InfraCo as a standalone business
unit. We have successfully taken new,
simplified and easy-to-understand
customer plans to market in the
consumer and small business segments
and have seen very promising take-up of
these plans by our customers. Similarly,
we are transforming the way our
enterprise customers engage with us and
developing new offerings that give them
greater control.
Notwithstanding this progress, the
COVID-19 pandemic has created
uncertainty that may accelerate several
macro market trends. These include the
acceleration of shifts to digital business
models leveraging automation, and
balancing resiliency and efficiency of
supply chains and business models.
Broader macroeconomic factors may
also increase the potential for customers
in some segments to reduce their spend
on our products.
To manage these risks, we regularly
monitor business performance and
forecasts against changes in the
external environment, and stress test
our approach against various market
scenarios. We have also performed
several assessments to monitor our
reliance on key suppliers and their level
of resilience to ensure we are taking
steps to mitigate against the risk of
suffering downstream impacts if their
business continuity is impacted.
The impact of the COVID-19 pandemic on
Telstra internally poses the risk that the
implementation of our transformation
agenda is impacted or delayed. It is
essential that we continue to effectively
manage our risks as they relate to our
transformation objectives. We continue
to have a strong focus on maintaining
effective governance and leadership of
these programs to ensure we identify,
escalate and manage transformation
risks, including to our digitisation
program.
To mitigate the risks associated with this
transformation, we have robust internal
processes to monitor and report on our
key programs of work and the risks
relating to those programs. We also
ensure our people have access to the
right tools.
In order to successfully deliver T22, it is
vital that we continue to attract, develop
and retain a skilled and engaged
workforce capable of delivering our
strategic objectives. Pillar 3 of T22 seeks
to build an agile, enabled culture focused
on simplicity and accountability, and to
build a workforce that can pivot
dynamically in response to industry
changes. It is also focused on maintaining
a purpose and values-led culture that
reflects the expectations and standards
of the broader community in line with our
commitment to responsible business
practices, which we have identified as a
priority as part of our sustainability
strategy.
The challenges of maintaining our
culture are heightened by the COVID-19
pandemic’s impact on the way our
business operates and its impact on
our people. We have recognised the risks
associated with these developments,
as well as the broader risks of failing to
develop a culture of simplicity, change
and accountability.
We have several mechanisms to manage
our people and culture risks, including
our employee engagement surveys,
monitoring our capability coverage in
key talent segments, and ensuring we
have critical role succession coverage.
We remain focused on establishing our
new operating model and enabling our
organisational change teams to train
and uplift the capability of our people.
We have also invested heavily in our
Early Career Strategy for our more junior
employees, and our Learning Strategy
for all employees.
Health, safety, wellbeing,
environment
Telstra’s operating environment, core
business activities and infrastructure
pose a level of inherent health, safety,
wellbeing, environment and protective
security (HSWE) risks. These include
direct risks faced by our employees,
partners and members of the public,
and more indirect environmental risks
resulting from our infrastructure,
facilities and products and services.
We recognise that failure to manage
these risks effectively could cause harm
to our people, partners, communities or
the environment. In turn, this poses
potential consequences to our
community and stakeholder reputation,
as well as regulatory and litigious action.
We continue to actively monitor and
manage safety outcomes across a
diverse portfolio of risk, including to the
physical safety in our varied workplaces,
the security of our people and places of
work, our people’s mental health and
wellbeing (including the wellbeing risks
associated with transformation) and the
potential for harm to our environment
and the communities in which we work.
We continue to evolve our approach to
apply learnings and respond to emerging
risks, such as those experienced during
the challenging summer 2019-20
Australian bushfire season and impacts
of the COVID-19 pandemic to our
operations, the way we work in the
community and our people’s health and
wellbeing, particularly through ongoing
changes to restrictions and lockdowns.
Network and technology resilience
One of Telstra’s competitive advantages
is the scale, speed and resilience of our
network. The importance of our
communities having access to seamless
and high-quality connectivity has been
highlighted recently by the changed
nature of work and education due to the
COVID-19 pandemic and the 2019–20
summer bushfires.
Given so many Australian consumers and
businesses depend on our network and
its quality, we recognise the high impacts
that may arise as a result of network
congestion and outages. Such events can
be disruptive and frustrating for both
consumers and businesses, and
significant for us in terms of reputation
and the trust people have in our brand.
The resilience of our network can be
undermined by natural disasters,
unforeseen spikes in demand, malicious
actors and their activity, human error,
failure in our equipment, or failure in the
underlying electricity grid that supplies
power to our network. Increasingly,
we are cognisant of the impact and
increasing frequency of extreme weather
events arising from climate change.
We raise and assess such risk scenarios
through our mature risk management
approach and respond to them through
a range of strategies and processes that
seek to prevent, respond to, and recover
from service and network disruptions.
We have several indicators in place
to dynamically monitor network
performance and resilience, and we
proactively track risk remediations and
improvements in our network over time
to progressively reduce our risk exposure.
Our material risks
While Telstra has long operated in a rapidly evolving
environment, the challenges and pressures of the ongoing
global COVID-19 pandemic and climate change-induced
extreme weather events are accelerating the pace of
change. The importance of continuing to identify, measure
and monitor the most material risks to our business is
more heightened than ever, and is crucial in enabling us to
manage our challenges and take the right opportunities.
Failure to effectively manage our material risks could
affect the success of our strategy, as well as adversely
impact customer experience and outcomes, our reputation,
financial position and capacity to pay dividends.
The following describes the material risks that could affect
Telstra, including any material exposure to environmental
or social risks, and how we seek to manage them.
These are not listed in any order of significance, nor are
they all encompassing. They reflect the most significant
risks identified at a whole-of-entity level through our risk
management process.
16
17
Our material risks | Telstra Annual Report 2020
is not new. What is new is society’s
increased cyber-dependency, which
allows crime, protests, espionage and
errors to happen at an unprecedented
pace, scale and reach.
We design, build and manage the
security for our global network in three
main ways:
Technology – we use a range of
technologies and security controls to
minimise the likelihood and impact of
unauthorised access to our networks
and systems. These include logging and
monitoring capabilities to pre-empt and
proactively prepare for internal and
external threats and industry-standard
infrastructure configuration. We
continuously invest in our security
capabilities, including maintaining and
enhancing our existing technologies to
continue to stay ahead of new security
threats. We also deploy new technologies
to ensure we can adapt to the range of
changing security threats.
Process – our approach to cyber security
risk management ensures appropriate
ownership, oversight and ongoing risk
management is applied to IT systems,
data and risks. Cyber security subject
matter experts provide oversight, and
our risk and internal audit functions
independently assure the process.
We also have security processes that
include technical reviews of projects
and solutions; and due diligence of
third parties, to test the presence and
effectiveness of security controls at
critical points.
People – cyber security is as much
about people as it is about technology.
We deliver programs designed to foster
a strong cyber security culture. We invest
in our people to prepare them against a
range of different cyber threats. We have
mandatory annual training for all
employees and contractors and run
regular drills on our employees to test
its effectiveness.
We have also recently announced a
Cleaner Pipes initiative, which focuses on
further reducing instances of customer
data being compromised through
malware, ransomware and phishing.
We regularly update our privacy
statement and procedures, ensuring we
are compliant with our legal obligations
and consider society’s expectations in
relation to collection, storage and use of
our customers’ personal information.
Please refer to the Corporate Governance
Statement for more detail on how Telstra
manages privacy.
We also continue to work with the
Australian Government as it executes its
2020 Cyber Security Strategy, with our
CEO Andrew Penn chairing the Industry
Advisory Panel.
Climate change
Telstra has publicly acknowledged
climate change as one of the most
important issues of the decade, and – as
one of the largest consumers of power in
the country – our responsibility in leading
from the front in terms of climate action.
As evidenced by the recent devastating
bushfires, the threat of more and
increased extreme weather events
resulting from climate change is real and
poses a significant challenge to society
and business.
As part of our response we committed
to being carbon neutral in our operations
from 2020, enabling renewable energy
generation equivalent to 100 per cent of
our consumption by 2025, and reducing
absolute emissions by at least 50 per
cent by 2030.
While we are proud of these
commitments, we acknowledge the risks
of inaction and the broader challenge
climate change poses. These include the
ongoing threat of further extreme
weather events and ensuing damage to
lives and infrastructure, risks associated
with the transition to a lower carbon
economy and the reputational issues
companies such as Telstra face for not
showing leadership.
This year we have begun to align our
reporting with the recommendations of
the Taskforce on Climate Related
Financial Disclosures (TCFD) which can
be found in the climate change and
energy section of our FY20 Sustainability
Report.
Major regulatory change and
stakeholder engagement
As the leading provider in a heavily
regulated industry, Telstra’s products and
services and the way we deliver them are
subject to constant scrutiny from a range
of regulators and agencies. We continue
to maintain proactive relationships with
all relevant regulators, consumer and
community groups, and policy makers in
an effort to ensure fair, balanced and
socially appropriate policy and regulatory
decisions are made.
We recognise the importance of
transparent and timely communications
with our stakeholders, including
customers, shareholders, investors and
regulators, as well as the risks associated
with not doing so, which may impact our
ability to execute our strategy. This
includes helping inform the community
about the safety and benefits of new
technology, such as 5G. We also
recognise the importance of our
relationships with partners and
suppliers, and the need to ensure their
actions meet our standards and our
customers’ standards in order to protect
our reputation and deliver good customer
experiences.
The key regulatory matters currently
relevant to Telstra relate to regulatory
compliance, responsible business
practices, NBN Co regulation and policy,
consumer safeguards and service
standards, spectrum allocation, and
universal service policy. These and other
regulatory and policy 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. We have
a strong framework to manage this risk
and proactively engage with regulators,
government bodies, industry and
customer groups and other stakeholders.
Further detail about our risk management
framework and how we manage our
risks is provided in our 2020 Corporate
Governance Statement available at
www.telstra.com/governance.
Further information about our
sustainability related risks is provided in
our FY20 Sustainability Report, available
at www.telstra.com/sustainability/report.
Our technology and its resilience may be
undermined by several factors including
poor change management controls, data
quality, or single points of failure. Failure
to have an effective technology strategy
could lead to a number of consequences,
including poor technology architecture,
which may drive increased complexity
and cost in our business. The digitisation
of our systems and processes is a key
enabler of our T22 strategy that aims to
simplify our products and achieve our
efficiency goals. As technology continues
to evolve, we are conscious of emerging
risks in relation to artificial intelligence
and machine learning, and have
governance programs in place to
consider these risks.
We continue to implement a cross-
company resilience approach which
manages end-to-end resilience of key
products and services, including all
elements that can potentially impact a
customer service – including disruptions
to network, IT, technology, cyber, business
continuity and suppliers.
Responsible Business
Telstra has continued to work to ensure
that our business practices are in line
with our purpose and values and the
expectations of the broader community.
We recognise that there has never been
a more important time for businesses
to think deeply about the role they play
in society. Through our response to
last summer’s bushfire crisis, our
commitment to addressing climate
change and our response to COVID-19,
we have attempted to do our part not
only for our customers and employees
but also the community.
We know that our responsibility to
do the right thing goes well beyond
exceptional events and to the core of
our operational practices, particularly
those that have the potential to impact
customers in vulnerable circumstances.
We acknowledge that we have not
always got this right. (Read about an
investigation into our sales, complaint
handling and debt collection practices
in the Chairman and CEO message).
The risks of not getting this right are
extensive, including on the community’s
trust in us as a responsible corporate
citizen, on our reputation with
stakeholders and in terms of the
potential regulatory and financial
implications.
We are committed to ensuring that
we can fulfil those responsibilities in
conducting our business through a range
of measures, including those which relate
to fair sales practices, providing products
and plans which meet our customers’
needs, a well-considered approach to
hardship and the inculcation of a broader
culture that supports our people to act
responsibly and in line with stakeholder
and societal expectations.
Privacy and cybersecurity
We treat the protection of our customers’
data and networks very seriously and put
data privacy, information and cyber
security at the forefront of everything we
do. The threat represented by cybercrime
18
19
Outlook | Telstra Annual Report 2019
Outlook
As we enter financial year 2021, our local and global economies and the communities we are a
part of face significant challenges. The continued impact of the COVID-19 pandemic creates
volatility and risk, and this is likely to have an impact on confidence, employment and growth.
While Telstra has shown strength and stability since the
beginning of this pandemic, we acknowledge that our
business and our customers will not be immune from
further disruption and difficulty. The COVID-19 pandemic
will continue to impact our business into FY21, for example
through reduced income from international roaming, the
potential of increased bad debt as some customers face
hardship, and reduced professional services revenue.
We provided financial guidance for FY21 on a range of
metrics1. For FY21, Total Income is expected to be in the
range of $23.2 to $25.1 billion, underlying EBITDA in the
range of $6.5 to $7.0 billion, net one-off nbn DA receipts
(less nbn net cost to connect) in the range of $0.7 to
$1.0 billion, capital expenditure of $2.8 to $3.2 billion,
and free cashflow after operating lease payments of
$2.8 to $3.3 billion. The in-year nbn headwind for FY21 is
expected to have a negative impact on underlying EBITDA
of approximately $700 million. To achieve growth excluding
the in-year nbn headwind in FY21, underlying EBITDA will
need to be around the mid-point of the guidance range.
Guidance for FY21 underlying EBITDA assumes an
estimated negative impact from the COVID-19 pandemic
in FY21 of approximately $400 million.
The principles and initiatives that sit at the heart of our
T22 strategy have helped us respond to the crises we have
seen in FY20 and these will also enable us to deal with a
future that is increasingly hard to predict. Having passed
the midpoint of our strategic transformation, some of our
key priorities as we head towards the end of T22 will be
ongoing simplification, completing our digitisation program,
maturing our new operating model and delivering the full
$2.5 billion in underlying fixed cost reductions.
In FY21 we will focus on further rationalising the number
of products we offer our Enterprise customers, delivering
growth in the volume of data on our networks while keeping
associated costs flat, and further reducing the number of
times our customers need to call us.
Globally the telco sector has struggled to deliver strong
returns on invested capital (ROIC) over the last decade.
Increased investment driven by demand for more coverage,
speed, capacity and resilience has driven up capital
expenditure as a percentage of sales across the industry.
At the same time average revenues have been broadly flat,
which has led to falling ROIC globally. We saw this trend
play out in FY20 and anticipate it will continue in FY21.
We have also adjusted our T22 target for Return on Invested
Capital (ROIC) to be greater than 7 per cent by FY23.
Notwithstanding this, telcos have followed a cyclical
pattern through the generations of mobile technologies.
Revenues have generally grown through the first half of a
technology’s deployment and declined as technology and
networks mature. Telstra is well positioned to capitalise if
this trend continues, through our leadership in 5G at the
beginning of this cycle.
We will extend our leadership in 5G by continuing to grow
our network, giving around 75 per cent of Australia access
to Telstra 5G’s faster speeds and lower latency by June
2021. Additional advancements in 5G during FY21 will
include further access to mmWave spectrum in Australia
and second and third generation 5G chipsets and handset
devices, which will bring faster and better experiences for
our customers. We will continue to develop products and
services which utilise the unique capabilities of 5G,
particularly in the enterprise market.
We will further improve our productivity so that we are
able to continue to invest in world-leading infrastructure,
technology and products for our customers. In FY21 we
have set ourselves a target to reduce our costs by a further
$400 million, as we move closer to delivering our target of
$2.5 billion in underlying fixed cost reductions from FY16
to FY22.
In FY20, NBN Co announced changes to its business
triggered by the reported completion of the initial
rollout – a significant milestone for the Australian
telecommunications industry. However, Telstra will
continue to experience a strong financial headwind from
the nbn as customers continue to migrate from our legacy
technologies. In FY21 this headwind is expected to be
approximately $700 million. Sustainable nbn access pricing
will remain critical to the success of Australia’s broadband
market, and Telstra will continue to advocate for nbn
access price reductions.
During FY20, we fine-tuned the scope of assets and the
internal arrangements between Telstra InfraCo and the
rest of Telstra. In FY21 we will continue to take important
steps in maximising the value of our infrastructure assets,
increasing our optionality, and maintaining our network
differentiation.
We go into FY21 in a strong position with a keen awareness
of the challenges our community, our economy, our
customers and our people face. We will continue to be
guided by our purpose and our values, and focus on
creating long term shareholder value.
1. FY21 guidance assumes no impairments in and to investments or non-current tangible and intangible assets, and excludes any proceeds on the sale of
businesses, mergers and acquisitions and purchase of spectrum. The guidance is based on management best estimates of nbn impacts including input from
the nbn Corporate Plan currently published at time of issue of this guidance. Total income excludes finance income. Underlying EBITDA excludes net one-off
nbn DA receipts less nbn net C2C, one-off restructuring costs and guidance adjustments but includes depreciation of mobile lease right-of-use assets.
Guidance for FY21 underlying EBITDA assumes an estimated negative impact from the COVID-19 pandemic in FY21 of approximately $400 million. This
estimate is approximately $200 million greater than the estimated negative impact from the COVID-19 pandemic for FY20 underlying EBITDA. In-year nbn
headwind is defined as the net negative recurring EBITDA impact on our business. Capex is measured on an accrued basis and excludes spectrum and
guidance adjustments, externally funded capex, and capitalised leases. Free cashflow is defined as ‘operating cash flows’ less ‘investing cash flows’ less
‘payments for operating lease liabilities’ and excludes spectrum and guidance adjustments.
20
21
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 equity accounted entities
EBITDA
Depreciation and amortisation
EBIT
Net finance costs
Income tax expense
Profit for the period
Profit attributable to equity holders of Telstra Entity
Capex1
Free cashflow
Earnings per share (cents)
FY20
$m
23,710
26,161
16,951
(305)
8,905
5,338
3,567
771
957
1,839
1,819
3,233
4,034
15.3
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
%
(6.1)
(5.9)
(14.5)
n/m
11.5
24.7
(3.6)
22.4
3.7
(14.4)
(15.6)
(21.9)
31.5
(15.5)
1. Capex is defined as additions to property, plant and 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 2020
Reported results
Telstra delivered FY20 results in line
with guidance as we continued to deliver
for customers, supported our people
and the community, while generating
long-term shareholder value through a
challenging period.
On a reported basis, total income
declined 5.9 per cent and NPAT declined
14.4 per cent. Underlying EBITDA
declined 9.7 per cent on a guidance basis
while underlying EBITDA excluding the
in-year nbn headwind increased by
approximately $40 million. The underlying
EBITDA decline included an estimated
net negative impact from COVID-19 of
approximately $200 million across
international roaming, financial support
for customers, delays in NAS professional
services contracts, and additional bad
debt provisions.
We have made good progress on our
T22 strategy with nearly three quarters of
the measures used to monitor progress
against now either completed or on track
for delivery. Digital engagement grew
with over 71 per cent of our service
transactions occurring via digital
channels by the end of FY20, a new
Telstra InfraCo organisational structure
and operating model was implemented,
and we continued to make progress on
our $2 billion asset monetisation target
to strengthen our balance sheet. We are
now past the halfway point in delivering
T22 and while we expect to see
challenging conditions continue in
FY21, our strategy means we are well
positioned to respond to whatever lies
ahead.
Progress on T22, including our focus to
rapidly simplify and digitise, remove
customer pain points, and remove legacy
systems and processes, helped reduce
underlying fixed costs by $615 million or
9.2 per cent. This brought the total
underlying fixed cost reductions to $1.8
billion since FY16 and we remain on track
to achieve our FY22 target of $2.5 billion.
Our multi-brand strategy continued to
deliver growth, particularly in mobile
where we added 240,000 retail postpaid
handheld mobile services including
154,000 from Belong, 171,000 retail
prepaid handheld unique users, and
347,000 Wholesale services. We
continued our clear leadership in 5G with
more than 10 million people now living,
working or passing through the 53 cities
and towns in our 5G footprint every day,
and approximately one third of
the population is covered with 5G.
Telstra has always been a leader in
telecommunications technology and we
are the clear leader in Australia in 5G, as
well as being at the forefront globally.
The Telstra Board 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. The total dividend for
FY20 is 16 cents per share, fully franked.
Telstra also provided financial guidance
including assumptions on a range of
metrics for FY21, giving the market clarity
on its expectations for the year ahead.
Other information
The new accounting standard AASB16
Leases (“AASB16”) was adopted from
1 July 2019.
Consistent with information presented
for internal management reporting
purposes, the result of each segment is
measured based on its EBITDA
contribution which differs from our
EBITDA. Refer to note 2.1.1 in the
Financial Report for further detail.
Commentary reflects statutory and
management accounts reporting.
Total income3
Underlying EBITDA4
Net one-off nbn DA receipts less nbn net cost to connect
Restructuring costs
Capex
Free cashflow after operating lease payments
FY20
$26.1b
$7.4b
$1.5b
$0.2b
$3.2b
$3.4b
FY20 Guidance2
$25.3b to $27.3b
$7.4b to $7.9b
$1.3b to $1.7b
~$0.3b
$2.9b to $3.3b
$3.3b to $3.8b
FY20
FY20
FY20
FY19
Guidance versus reported results1
Reported results
$m
Adjustments
$m
Guidance basis
$m
Guidance basis
$m
Total income
Underlying EBITDA4
Free cashflow5
26,161
8,905
4,034
(20)
(1,496)
(619)
26,141
7,409
3,415
27,804
8,203
3,186
1. This guidance assumed wholesale product price stability and no impairments in and to investments or property, plant and equipment and intangible 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
FY20 was broadly in accordance with the nbn Corporate Plan 2020. Guidance was provided on the basis of AASB16 Leases and assumed impacts consistent with
management estimates. Capex was measured on an accrued basis and excluded expenditure on spectrum and externally funded capex and capitalised leases under
AASB16 Leases. Refer to the Guidance versus reported results schedule. The adjustments within the tables in this schedule have been reviewed by our auditors.
2. FY20 guidance revised on 2 September 2019 after nbn co released the nbn Corporate Plan 2020.
3. Total income excludes finance income.
4. Underlying EBITDA excluded net one-off nbn DA receipts less nbn net cost to connect, guidance adjustments including one-off restructuring costs, but included
depreciation of mobile lease right-of-use assets.
5. FY20 free cashflow defined as operating cash flows less investing cash flows less operating leases (reported in financing cash flow under AASB16 Leases).
Change
Results on a guidance basis1
22
23
Full year results and operations review | Telstra Annual Report 2020
Income for Telstra Enterprise decreased
by 3.3 per cent to $7,970 million as
growth in international was more than
offset by a decline in domestic. Telstra
Enterprise domestic income decreased
by 5.5 per cent largely due to declines in
Data & IP legacy calling and legacy fixed
products. However, NAS and mobility
revenues were broadly stable. Telstra
Enterprise international income grew by
3.6 per cent mainly due to growth in
higher margin Data & IP, increased traffic
from Australia and targeted one-off
transactions.
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 increased by 24.3 per cent
to $87 million.
Telstra InfraCo
Telstra InfraCo is a standalone
infrastructure business unit within
Telstra. It 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. From 1 July 2020, Telstra
InfraCo’s asset accountabilities will also
include our whole fibre network
(including mobile backhaul) and mobile
towers, but exclude PSTN and legacy
fixed, and satellite related assets.
Telstra InfraCo income excluding internal
access charges decreased by 10.6 per
cent to $2,733 million due to expected
declines from Telstra Wholesale legacy
fixed products and commercial works
for nbn co. This was partly offset by
increased recurring nbn DA receipts
in line with the progress of the nbnTM
network rollout and receipts for access
to passive infrastructure, and an increase
in wholesale mobility. Including internal
access charges, income decreased by
10.6 per cent to $4,423 million.
All Other
Certain items of income and expense
relating to multiple reportable segments
are recorded by our corporate areas and
included in the All Other category. This
category also includes Product and
Technology Group, Global Business
Services (GBS) and New Business
(including Telstra Health). Income
decreased by 5.1 per cent mainly due to
declines in ISA ownership receipts and
nbn commercial works (sales of assets
component), partly offset by an increase
in Per Subscriber Address Amount (PSAA)
receipts in line with the progress of the
nbnTM network rollout.
Product performance
Product revenue breakdown
5%
3%
7%
14%
9%
14%
9%
43%
FY20
Mobile
Fixed
Data & IP
NAS
19%
4%
3%
7%
FY19
21%
Global connectivity
EBITDA
contribution margins1
42%
Mobile
Retail Fixed (including
nbn cost to connect)
Data & IP
NAS
Global connectivity
FY20
FY19
Change
$m
$m
10,084
10,545
4,591
2,052
3,379
1,706
5,223
2,358
3,477
1,700
%
(4.4)
(12.1)
(13.0)
(2.8)
0.4
FY20 %
2H20 %
1H20 %
FY19 %
34.7
1.8
62.2
17.5
26.6
33.7
(1.9)
63.7
19.2
25.8
35.6
5.2
60.8
15.7
27.3
35.6
18.1
65.6
10.4
21.4
1. The data in this table includes minor adjustments to historic numbers to reflect changes in product hierarchy.
Mobile
Fixed
Data & IP
NAS
Global connectivity
Media
Other
FY20
FY19
Change
Key product revenue
On 13 August 2020, the Directors of
Telstra Corporation Limited resolved
to pay a final fully franked dividend of
8 cents per ordinary share, comprising
a final ordinary dividend of 5 cents per
share and a final special dividend of
3 cents per share. Shares will trade
excluding entitlement to the final
dividend from 26 August 2020 with
payment to be made on 24 September
2020.
The total dividend for FY20 is 16 cents
per share, fully franked, including 10
cents ordinary and 6 cents special. The
ordinary dividend represents a 99 per
cent payout ratio on FY20 underlying
earnings1 while the special dividend
represents a 66 per cent payout ratio of
FY20 net one-off nbn receipts2. The FY20
ordinary dividend is higher than the range
indicated in our capital management
framework to pay a fully franked ordinary
dividend of 70 to 90 per cent of
underlying earnings. In determining the
FY20 final ordinary dividend, the Board
has taken into account a number of
factors including the objectives and
principles of the capital management
framework, the impacts we have
estimated resulting from COVID-19, and
our free cashflow which is higher than
accounting earnings due to lower in-year
capex. Our FY20 underlying earnings
were $1,224 million while net one-off
nbn receipts were $1,075 million
compared with underlying earnings of
$1,970 million and net one-off nbn
receipts of $1,129 million in FY19.
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 nbn
one off Definitive Agreement receipts (consisting
of 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.
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 Services Agreement (ISA) amounts
and nbn commercial works are included in Telstra InfraCo. One-off nbn Definitive
Agreement (nbn DA) and ISA amounts are included in All Other, and non-nbn
commercial works are included in Telstra Enterprise.
Segment total income
10%
11%
8%
0%
31%
FY20
51%
8%
0%
30%
FY19
51%
Telstra Consumer and Small Business
Telstra Enterprise
Networks and IT
All Other
Telstra InfraCo ex internal access charges
%
(6.7)
(3.3)
24.3
(5.1)
Total external income
$m
$m
Telstra Consumer and Small Business
13,326
14,281
Telstra Enterprise
Networks and IT
All Other
Telstra InfraCo including internal access charges
7,970
8,243
70
2,156
87
2,045
4,423
4,948
(10.6)
Internal access charges
Total
(1,690)
(1,891)
26,161
27,807
10.6
(5.9)
Telstra Consumer and Small Business
Telstra Consumer and Small Business provides 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.
Income in this segment decreased by 6.7 per cent to $13,326 million, impacted by an
8.4 per cent decline across fixed products including ongoing standalone fixed voice
and a 5.2 per cent decline in mobile services revenue as declining Average Revenue
Per User (ARPU) more than offset customer net additions. Network Applications and
Services (NAS) revenue in Small Business continued to grow, increasing by 13.8 per
cent primarily due to growth in unified communications.
Telstra Enterprise
Telstra Enterprise is responsible for sales and contract management for medium and
large business and government customers in Australia and globally. It also provides
product management for advanced technology solutions and services, including Data
& IP networks and NAS products such as managed network, unified communications,
cloud, industry solutions and integrated services.
24
25
On a reported basis, total income
(excluding finance income) declined
by 5.9 per cent to $26,161 million. On a
guidance basis, total income (excluding
finance income) was $26,141 million, in
line with guidance. Competitive pressure,
legacy product and service declines, and
the nbnTM network rollout continued to
negatively impact income. Remediation
and customer initiatives in response to
bushfires, floods and COVID-19 were also
reflected by a decline in performance. The
decline has been partly offset by
improving profitability in NAS and global
connectivity, and positive signs in
mobile with continued growth in customer
services and an increase in postpaid
Transacting Minimum Monthly
Commitment (TMMC). More detail on each
of the products are outlined below on a
reported basis unless otherwise stated.
Mobile
Mobile revenue declined by 4.4 per cent
to $10,084 million largely due to declines
in postpaid and prepaid ARPU and lower
hardware volumes. Retail customer
services increased by 437,000 bringing
the total to 18.8 million. We now have 8.5
million postpaid handheld retail customer
services, an increase of 240,000 including
154,000 from Belong and a strong
contribution from Enterprise as customers
adapt their operations.
Postpaid handheld revenue decreased
by 4.6 per cent to $5,048 million as net
adds were offset by an 8.2 per cent ARPU
decline from $54.77 to $50.29. Excluding
the international roaming decline, ARPU
decreased by 6.8 per cent due to impacts
of FY19 price competition washing
through the base, lower out of bundle
revenue, modest dilution from an increase
in Belong customer mix, and accounting
for new plans which allocate more
revenue to hardware. However, there was
a positive contribution from plans sold in
FY20 with TMMC around $2 higher in FY20
compared with FY19.
Prepaid handheld revenue declined by
6.8 per cent to $773 million as a 171,000
increase in unique users was more than
offset by lower ARPU. Revenue stabilised
in 2H20 as the average voucher size
increased.
Mobile broadband revenue decreased by
4.9 per cent to $640 million as an increase
in ARPU was offset by a 469,000 reduction
in customer services, which included the
deactivation of 365,000 $0 services in
1H20. Revenue showed signs of stabilising
in 2H20, with demand increasing as more
people began working and studying from
home, however ultimately declined as
lower prepaid customer services offset
gains in postpaid.
26
Internet of Things (IoT) revenue grew
by 3.0 per cent to $209 million while
increasing customer services by 652,000.
We launched our consumer Telstra
Locator Cat-M1 Tag which uses our LTE
network, launched further solutions in
areas of Track and Monitor, Smart
Metering and Connected Building, and
won recognition for our Telstra Locator
and water management solutions.
Wholesale services revenue increased
10.0 per cent to $221 million. Wholesale
customer services including IoT
increased by 347,000 bringing the total
to 1.6 million as plans offered by Mobile
Virtual Network Operators (MVNO) on the
Telstra mobile network continued to rise
in popularity.
Mobile hardware revenue decreased by
3.3 per cent to $3,002 million largely due
to lower handset sales.
Mobile EBITDA contribution margin
declined by 0.9 percentage point to 34.7
per cent largely due to lower services
revenue, partly offset by lower costs and
improved hardware margin.
Fixed
Fixed revenue declined by 12.1 per cent
to $4,591 million impacted by nbn
migration alongside ongoing voice and
legacy decline.
Retail bundles and standalone data
revenue declined by 1.9 per cent to
$3,226 million due to a 4.4 per cent ARPU
decline from $75.07 to $71.75 caused by
migration to in-market plans and a higher
Belong mix. There were 80,000 retail
bundles and standalone data net
subscriber additions including 79,000
additions from Belong bringing total
bundles and standalone data customers
to 3.8 million.
Retail standalone voice revenue
decreased by 31.1 per cent to $607
million with lower customer services
driven by standalone voice line
abandonment and migration to nbn and
bundles. ARPU decreased by 2.2 per cent
from $43.62 to $42.64. There were
452,000 retail standalone voice net
subscriber losses taking total standalone
voice customers to 960,000.
We continue to lead the nbn market with
a total of 3.2 million nbn connections, an
increase of 620,000. Our nbn market
share is now 46 per cent (excluding
satellite). The Telstra Smart Modem is
now being utilised by 71 per cent of our
fixed data consumer base, providing a
better experience on the nbn with strong
Wi-Fi connectivity and enhanced back
up speeds.
Other retail fixed revenue, which includes
hardware, once off revenue (activation
fees), Platinum, and fixed interconnect,
decreased by 18.6 per cent to $201
million.
Retail Fixed (including net one-off nbn
cost to connect) EBITDA contribution
margin declined by 16.3 percentage
points to 1.8 per cent due to high margin
revenue reduction, growing network
payments to nbn co, legacy decline and
nbn migration costs, partly offset by fixed
cost reduction.
Data & IP
Data & IP revenue decreased by 13.0 per
cent to $2,052 million reflecting declines
in legacy volumes associated with the
nbnTM network rollout, and competitive
pricing pressures in data access and
connectivity.
To provide greater visibility of our ongoing
and legacy products, we have split Data &
IP into four areas – data access and
connectivity, legacy calling, connectivity
services, and wholesale products.
Data access and connectivity revenue,
which includes private networks and
internet connections on Telstra fibre, nbn,
legacy copper and other fixed
technologies, optical and legacy data,
declined 5.5 per cent to $1,151 million
due to legacy copper terminations partly
offset by growth in fibre and nbn
customer services. ARPU declined due to
price competition and an ongoing
technology shift enabling alternate and
lower cost solutions.
Legacy calling revenue, which includes
ISDN, declined 30.3 per cent to $431
million due to the termination of ISDN
customer services in line with the
planned exit of this product by 2022,
and migration of associated voice
services to NAS.
Connectivity services revenue, which
includes professional media solutions,
security solutions and the Telstra
Programmable Network (TPN), decreased
by 9.6 per cent to $103 million due to a
decline in monitored security solutions.
This was partly offset by growth in TPN
which enables real time on-demand
connectivity to clouds, data centres and a
partner ecosystem through one portal.
Wholesale products revenue declined
10.0 per cent to $367 million due to
ethernet pricing pressures and a decline
in transmission.
Data & IP EBITDA contribution margin
declined by 3.4 percentage points to
62.2 per cent reflecting declining revenue
on high margin legacy products with a
moderate decline in cost.
Network Applications and Services (NAS)
NAS revenue declined by 2.8 per cent to
$3,379 million reflecting a continued
focus on profitable revenue growth, lower
nbn commercial works and a decline in
discretionary spending on professional
services observed during COVID-19.
Excluding low margin hardware sales
and nbn commercial works, revenue
increased by 3.8 per cent.
Managed network services revenue
decreased by 4.0 per cent to $622 million
due to lower professional services
revenue as many businesses went into
hibernation or scaled back discretionary
projects in 2H20, and a shift to lower
priced cloud based managed data
network technologies, partly offset by
managed security growth.
Unified communications revenue
increased by 5.7 per cent to $1,067
million reflecting new collaboration and
calling service growth, and migration
from legacy calling services.
Cloud services revenue increased by
0.9 per cent to $434 million as growth
in public cloud annuity products was
broadly offset by lower spend by
customers on professional services.
Industry solutions revenue decreased
by 11.6 per cent to $1,047 million largely
due to an expected decline in revenue
from contracts outside of the nbn DAs
in line with the maturity of the nbnTM
network rollout. Excluding nbn
commercial works, revenue declined
by 8.7 per cent.
Integrated services revenue increased
by 1.5 per cent to $209 million mainly
from a rise in consulting and project
management and other service
management, partly offset by a decline
in managed IT services.
NAS EBITDA contribution margin
increased by 7.1 percentage points to
17.5 per cent due to a focus on profitable
revenue growth, growth in unified
communications and significant cost
reduction.
Global connectivity
Global connectivity represents the
international business of Telstra
Enterprise. Revenue increased by 0.4 per
cent on a reported basis and decreased
by 4.6 per cent in constant currency (CC)
terms with growth in more profitable
Data & IP products offset by declining
fixed legacy voice revenues.
Fixed legacy voice revenue decreased by
24.1 per cent (CC) due to continued
market decline and strategic focus on
profitable revenue. Data & IP revenue
grew by 1.7 per cent (CC) from existing
Full year results and operations review | Telstra Annual Report 2020
and new capacity due to investment in
cable, and one-off benefits from targeted
early customer contract terminations.
NAS and other revenue decreased by
4.6 per cent (CC) but with improved
profitability due to reduction in lower
margin equipment sales.
Global connectivity EBITDA contribution
margin (CC) increased by 5.2 percentage
points to 26.6 per cent reflecting
continued focus on higher profit revenue,
productivity and one-off benefits.
Media
Media revenue excluding cable
decreased by 8.9 per cent to $726 million
mainly due to the performance of Foxtel
from Telstra and decline in mobility from
lower digital subscriptions. Foxtel from
Telstra revenue declined by 5.9 per cent
to $625 million and had 98,000
subscriber exits reflecting a broader
industry transition from Broadcast to
IPTV. There are now 1.7 million Telstra TV
devices in the market, an increase of
114,000. Sports Live Pass users
increased by 370,000 to 3.4 million
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), late payment
fees and revenue from Telstra Health.
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 3.8 per cent is largely
due to a 45.8 per cent decline in ISA
income to $210 million in line with the
progress of the nbnTM network rollout,
partly offset by PSAA receipts which
grew by 6.9 per cent to $1,721 million
reflecting nbn migrations in the period.
27
Expense performance
Underlying fixed costs declined by 9.2 per cent or $615 million. In June 2018, we announced we would target a $2.5 billion annual
reduction in underlying fixed costs by FY22 compared with restated underlying fixed costs of ~$7.9 billion in base year FY16. We
have now achieved $1.8 billion of annual cost out since FY16 and remain on track to achieve our FY22 target.
Operating expenses1
Sales costs
– nbn payments
– other
Fixed costs
– underlying2
– other3
Underlying
One-off nbn DA and nbn cost to connect
Restructuring
Other guidance adjustments4
Reported lease adjusted5
Lease adjustments6
Reported
+$380m
-$409m
FY20
$m
8,802
1,731
7,071
7,916
6,083
1,833
FY19
$m
8,831
1,351
7,480
8,666
6,698
1,968
16,718
17,497
468
259
–
17,445
(494)
16,951
503
801
584
19,385
450
19,835
$m
(29)
380
(409)
(750)
(615)
(135)
(779)
(35)
(542)
(584)
(1,940)
(944)
(2,884)
Change
%
(0.3)
28.1
(5.5)
(8.7)
(9.2)
(6.9)
(4.5)
(7.0)
(67.7)
n/m
(10.0)
n/m
(14.5)
$17,497m
-$615m
+$259m
$17,445m
+$468m
-10.0%
Reported
lease
adjusted
basis
-$135m
-9.2%
cost out
$16,718m
-4.5%
Underlying
basis
FY19
underlying
Sales costs
– nbn
payments
Sales costs
– other
Fixed costs
– underlying2
Fixed costs
– other3
FY20
underlying
Restructuring
One-off nbn
DA and nbn
cost to
connect
FY20
reported
lease
adjusted
1. Sales and fixed costs exclude costs associated with one-off nbn DA and nbn cost to connect.
2. Fixed costs – underlying was ~$7.9b in FY16 on a restated basis and targeted to decline by our net cost productivity target of $2.5b by FY22. Underlying fixed costs are
costs excluding other fixed costs (as defined in footnote 3).
3. Fixed costs – other includes items supporting revenue growth including relevant NAS costs, mobile handset lease, and product impairment.
4. Other guidance adjustments in FY19 include $493 million asset impairment and $91 million M&A expenses.
5. ‘Reported lease adjusted’ includes all mobile handset leases as operating expenses, and all rent/other leases below EBITDA.
6. Refer to note 4 of the Guidance versus reported results schedule.
Total operating expenses declined by
14.5 per cent to $16,951 million on a
reported basis and declined by 10.0 per
cent to $17,445 million on a reported
lease adjusted basis largely due to the
$615 million reduction in underlying fixed
costs from our productivity program, a
$542 million decrease in restructuring
costs associated with T22 initiatives, and
guidance adjustments of $584 million in
FY19 including a $493 million impairment
of our legacy IT assets. Sales costs, which
are direct costs associated with revenue
and customer growth, decreased by 0.3
per cent to $8,802 million due to a $409
million decline in other sales costs as a
result of lower hardware costs, partly
offset by a $380 million increase in nbn
access payments. Other fixed costs
decreased by 6.9 per cent while one-off
nbn DA and nbn cost to connect declined
7.0 per cent in line with the progress of
the nbnTM network rollout. On an
underlying basis, total operating
expenses declined by 4.5 per cent as
underlying fixed cost reduction exceeded
increased nbn access payments.
Our progress on achieving our
productivity target is reported through
the above operating expenses table. The
detail below provides commentary on the
operating expenses as disclosed in our
statutory accounts.
Full year results and operations review | Telstra Annual Report 2020
Operating expenses on a reported basis
Labour
Goods and services purchased
Net impairment losses on financial assets
Other expenses
Total
FY20
$m
4,058
9,107
202
3,584
FY19
$m
5,279
9,138
184
5,234
16,951
19,835
Change
%
(23.1)
(0.3)
9.8
(31.5)
(14.5)
Labour
Total labour expenses decreased by
23.1 per cent or $1,221 million to $4,058
million. Salary and associated costs
declined by $457 million due to lower
headcount, redundancy costs decreased
by $485 million due to the level of
redundancies in FY19, and labour
substitution costs declined by $232
million from a reduction in labour
outsourcing.
Total full time staff equivalents (FTE)
decreased by 2.7 per cent or 810 to
28,959 including the additional FTE
recruited to assist with customer service
in response to COVID-19.
Goods and services purchased
Total goods and services purchased
decreased by 0.3 per cent or $31 million
to $9,107 million.
Cost of goods sold, which includes
mobile handsets and accessories,
tablets, cellular Wi-Fi, broadband
modems and other fixed hardware
decreased by 7.5 per cent or $281 million
to $3,490 million mainly due to lower
handset and NAS equipment sales in
2H20 from slower trading activity.
Network payments increased by 13.0 per
cent or $364 million to $3,155 million,
including a $380 million increase in nbn
access payments as customers migrate
across to nbn services. Offshore network
payments were $33 million lower mainly
due to improved network optimisation
which resulted in network cost savings.
Other goods and services purchased
declined by 4.4 per cent or $114 million
to $2,462 million mainly due to a
reduction in Foxtel service fees as a
result of a decline in Foxtel from Telstra
subscribers.
Net impairment losses on financial
assets
Total net impairment losses on financial
assets increased by 9.8 per cent or
$18 million to $202 million including
an additional $36 million allowance for
doubtful debts to reflect risks and
uncertainties brought about by COVID-19.
AASB16. Excluding depreciation of
right-of-use assets, depreciation and
amortisation increased by 0.9 per cent
or $39 million. Review of asset service
lives during FY20 resulted in a $37 million
decrease in depreciation expense and
an $87 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 Australian dollar
(AUD) increased our expenses by $93
million across labour, goods and services
purchased, and other expenses. This
foreign exchange impact was offset by
a $102 million sales revenue increase
resulting in a favourable EBITDA
contribution of $9 million.
Net finance costs
Net finance costs increased by 22.4
per cent or $141 million to $771 million.
Interest on borrowings decreased by $93
million due to a reduction in our average
gross borrowing cost from 4.9 per cent
to 4.6 per cent and lower debt on issue.
The increase in net finance costs came
from a combination of the adoption of
AASB16 which required interest costs
to be recognised for leases previously
classified as operating leases, a
reduction in interest capitalised due to
a decrease in capital expenditure, and
other non-cash financing items largely
relating to contracts with customers as
set out in note 4.3.2(b).
Other expenses
Total other expenses decreased by
31.5 per cent or $1,650 million to $3,584
million.
Service contracts and other agreements
expenses declined by 7.4 per cent or
$117 million due to productivity and cost
reduction programs. Other impairment
expenses declined by 78.8 per cent or
$479 million to $129 million largely due
to a $493 million impairment of our
legacy IT assets in FY19. Other expenses
decreased by 34.7 per cent or $1,054
million primarily due to a $1,093 million
decline in leasing costs following the
adoption of AASB16.
Share of net profit/(loss) from equity
accounted entities
Our investment in NXE Australia Pty
Limited was impaired and a loss of $308
million was recognised in our share of net
loss from joint ventures and associated
entities. The impairment reflected the
challenges of disruption in the industry
and the impact of COVID-19 as global
sports were put on hold, pubs temporarily
closed, and advertisers forced to
carefully reconsider their investments.
Depreciation and amortisation
Depreciation and amortisation increased
by 24.7 per cent or $1,056 million to
$5,338 million largely due to a $1,017
million increase in depreciation of right-
of-use assets following the adoption of
28
29
Financial position
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 increase/(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
FY20
FY19
Change
$m
$m
7,010
6,683
(2,976)
(3,615)
(3,442)
(4,370)
466
4,034
755
3,068
(4,138)
(3,088)
(104)
604
(1)
499
(20)
620
4
604
%
4.9
17.7
21.2
(38.3)
31.5
(34.0)
n/m
(2.6)
n/m
(17.4)
Capital expenditure and cash flow
Free cashflow generated from operating
and investing activities was $4,034
million representing an increase of
$966 million or 31.5 per cent, positively
impacted by a $928 million decline in
capital expenditure (including spectrum
payments) and a $1,015 million benefit
from operating leases being reclassified
as financing cashflow following the
adoption of AASB16. This was partly
offset by a $657 million increase in
working capital investment largely due
to increases in handset receivables
from the exit of mobile lease plans and
introduction of longer repayment options,
and restructuring.
Net cash provided by operating activities
increased by 4.9 per cent or $327 million
to $7,010 million mainly due to an $853
million decrease in payments to suppliers
and employees, a $202 million reduction
in income taxes paid, and from operating
leases being reclassified as a financing
cashflow. This was partly offset by a
decline in group revenue, an increase in
working capital investment largely due
to increases in handset receivables and
restructuring, and a decrease in one-off
nbn receipts in line with the progress of
the nbnTM network rollout.
Net cash used in investing activities
decreased by 17.7 per cent or $639
million to $2,976 million primarily
reflecting lower capital expenditure
for the period.
Net cash used in financing activities
increased by 34.0 per cent or $1,050
million to $4,138 million. This was
largely due to a $1,925 million increase
in repayment of borrowings and a $993 million increase in payments for the principal
portion of lease liabilities following the adoption of AASB16, partly offset by an $807
million increase in proceeds from borrowings, a $698 million increase in proceeds
from the sale of exchanges in a controlled trust, and a $356 million decline in
dividends paid.
Our accrued capital expenditure for the year on a guidance basis was $3,233 million
or 14.2 per cent of sales revenue.
On a guidance basis free cashflow after operating lease payments was $3,415 million,
in line with guidance. Performance against guidance has been adjusted for free
cashflow associated with M&A (-$39 million), operating lease payments (-$1,015
million) and spectrum ($435 million).
Debt issuance
10 year Euro bond
3 year bilateral loan facility
Short term commercial
paper and revolving bank
facilities (net)
Other loans
Total
$m
856
150
515
Debt repayments
10 year Euro bond
Bilateral loan facility
1 year AUD floating rate note
AUD private placements
174
1,695
Other loans
Total
$m
(1,499)
(800)
(300)
(60)
(122)
(2,781)
Debt position
Our gross debt position was $17,343 million comprising borrowings of $15,829
million, lease liabilities of $3,298 million less net derivative assets of $1,784 million.
Gross debt increased by 13.1 per cent or $2,012 million due to the adoption of
AASB16 which resulted in our leases previously classified as operating leases
(Telstra as a lessee) being included in gross debt. Gross debt excluding lease
liabilities decreased by $995 million reflecting a cash reduction of $1,086 million
partly offset by a non-cash increase of $91 million. The cash reduction comprised
debt issuance of $1,695 million less debt repayments of $2,781 million.
The net increase in debt from lease liabilities was $3,007 million comprising $3,644
million on transition to AASB16 and non-cash additions of $356 million offset by
$993 million in lease payments shown as a financing cash outflow. The lease liability
includes the reclassification of $291 million previously included within borrowings
under previous lease accounting requirements.
Net debt increased by 14.4 per cent or $2,117 million to $16,844 million, comprising
the increase in gross debt and a $105 million decrease in cash balances.
30
Full year results and operations review | Telstra Annual Report 2020
FY20
Actual
FY20
Comfort
zone
Statement of financial position
Our balance sheet remains in a strong
position with net assets of $15,147
million.
equipment due to lower capital
expenditure, and a $294 million decline
in intangible assets mainly due to lower
software additions.
Financial
settings
Debt
servicing1
Gearing2
Interest
cover3
1.9x
1.5x to 2.0x
52.7% 50% to 70%
11.7x
>7x
1. Debt servicing ratio is calculated as net debt/
EBITDA (comfort zone recalibrated in FY20 to
reflect adoption of AASB16).
2. Gearing ratio is calculated as net debt/total net
debt plus equity.
3. Interest cover is calculated as EBITDA/net interest
on borrowings.
Financial settings for FY20 reflect the
adoption of AASB16 (FY19 settings have
not been restated). The comfort zone for
debt servicing has been recalibrated to
reflect the capitalisation of operating
leases onto the statement of financial
position and the increase in EBITDA
under this new reporting framework.
We remain within our comfort zones for
our credit metrics on a post AASB16
basis. Our debt servicing is 1.9 times
(30 June 2019: 1.8 times), gearing ratio
is at 52.7 per cent (30 June 2019: 50.3
per cent) and interest cover is 11.7 times
(30 June 2019: 10.5 times).
Current assets decreased by 10.5 per
cent to $6,534 million. Trade and other
receivables and contract assets declined
by $271 million while prepayments
declined by $192 million, of which $161
million was due to the adoption of
AASB16. Assets classified held for sale
decreased by $121 million which reflects
assets held for sale in FY19, including
three data centres within the Telstra
Enterprise segment. We subsequently
sold of one of the data centres but did
not receive the consents required for sale
of the remaining two (see note 3.10).
Non-current assets increased by 7.3 per
cent to $37,869 million. Right-of-use
assets increased by $3,030 million due to
the adoption of AASB16 while trade and
other receivables and contract assets
increased by $648 million largely due to
the exit of mobile lease plans and
introduction of longer repayment options.
This was partly offset by a $401 million
decline in investments accounted for
using the equity method including a $308
million impairment of our investment in
NXE Australia Pty Limited, a $337 million
decrease in property, plant and
Current liabilities increased by 5.7 per
cent to $10,094 million. Lease liabilities
increased by $611 million due to the
adoption of AASB16 which resulted in the
recognition of operating leases onto the
statement of financial position while
borrowings increased by $541 million
primarily from an increase in commercial
paper and drawn bank facilities. This was
partly offset by a $548 million decline in
trade and other payables mainly due to
volume and timing of handset orders with
large suppliers.
Non-current liabilities increased by
3.5 per cent to $19,162 million. Lease
liabilities increased by $2,687 million due
to the adoption of AASB16 partly offset
by a $1,965 million decline in borrowings.
The decline in borrowings was largely
from reclassification to current liabilities
of debt maturing within the next 12
months, reclassification of lease
liabilities under previous lease
accounting and early repayment of
bilateral loan facilities partly offset by
debt issuance during the year, foreign
currency and other valuation impacts.
30 Jun 2020
30 Jun 2019
Change
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 (%)
$m
6,534
37,869
44,403
10,094
19,162
29,256
15,147
15,147
8.0
12.5
$m
7,303
35,286
42,589
9,553
18,506
28,059
14,530
14,530
8.8
14.8
%
(10.5)
7.3
4.3
5.7
3.5
4.3
4.2
4.2
(0.8)pp
(2.3)pp
31
Board of Directors
John P Mullen
Andrew R Penn
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Elana Rubin
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
John P Mullen
Age 65, 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. 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.
Other listed company directorships (past three
years): Chairman, Brambles Limited (Joined
2019, Chair from 2020). Former – Director,
Brookfield Infrastructure Partners L.P (2017–
2020).
Other directorships and not-for-profit
appointments: Chairman, Toll Holdings (Private –
since 2017). Chair, Australian National Maritime
Museum (Joined 2016 and Chair from 2019).
Member, UNICEF Task Force on Workplace
Gender Discrimination and Harassment
(2018–2019). UNSW Business School Advisory
Council Member (from 2005). Former – Chairman
of the US National Foreign Trade Council in
Washington (2008–2010).
Andrew R Penn
Age 57, 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 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 AXA Asia Pacific Holdings, Chief
Financial Officer, 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 and appointments:
Member of the Council of Trustees of the
National Gallery of Victoria; Board Director of
the Groupe Speciale Mobile Association
(GSMA) (from 2018), Chairman of the Australian
Government’s Cyber Industry Advisory Panel,
created to guide development of Australia’s
2020 Cyber Security Strategy; 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 63, MS, BBA
Non-executive Director appointed 15 February
2019 and elected 15 October 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.
Other listed company directorships (past
three years): Member of the Supervisory
Boards of Post NL (from 2017) and Signify NV
(from 2017). Director, OTE Group (from 2019).
Other directorships and appointments:
Director, Koninklijke VolkerWessels N.V
(from 2019). Advisor, Reggeborgh Groep BV
(from 2018). Member, Dutch Sports Council,
an advisory Board of the Dutch Government
(from 2019).
Roy H Chestnutt
Age 61, 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.
Other listed company directorships (past
three years): Director, Boingo Wireless, Inc
(from 2019), Saudi Telecom (from 2018) and
Digital Turbine Inc (from 2018).
Other directorships and appointments:
Non-executive Partner, Delta Partners.
Craig W Dunn
Age 56, BCom, FCA
Non-executive Director appointed 12 April
2016 and last re-elected in October 2019.
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.
Other listed company directorships (past
three years): Director, Westpac (from 2015).
Other directorships and appointments:
Chair, ISO Blockchain Standards Committee
(from 2017) and The Australian Ballet (Joined
2014, Chair from 2015).
Peter R Hearl
Age 69, B Com (UNSW), MIML ANZ, FAICD,
Member – AMA
Non-executive Director since 15 August 2014,
last re-elected in October 2017. Chairman of
the People and 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.
Other listed company directorships (past
three years): Director, Santos Ltd (from
2016). Former – Director, Treasury Wine
Estates (2012–2017).
Other directorships and appointments:
Chairman-Elect, Endeavour Group Ltd
(Woolworths drinks and hotels business
proposed for demerger in 2020) (from 2019).
Member, UNSW’s Australian School of
Business Alumni Leaders Group, Trustee of The
Stepping Stone Foundation (from 2020) and
member of the Stepping Stone Foundation’s
Investment Committee (from 2018). Previously
honorary Chairman of the US-based UNSW
Study Abroad-Friends and US Alumni Inc.
Elana Rubin
Age 62, BA (Hons), MA, FFin, FAICD, FAIM
Non-executive Director appointed 14 February
2020. Member of the People and Remuneration
Committee and the Nomination Committee.
Elana has more than 20 years Board
experience across the financial service
sector, including superannuation and funds
management as well as the property,
infrastructure and government sectors.
Her executive career spanned industrial
relations, social and economic policy and
superannuation.
Elana is adept at working in consumer facing
organisations with a strong customer focus
and can balance commercial interests with the
complex requirements of regulated sectors.
Elana has strong risk management and
regulatory experience, having worked in highly
regulated sectors including as Chair of
AustralianSuper, one of Australia’s largest and
innovative super funds, and Chair of Victorian
WorkCover Authority, a highly regarded
regulator and personal injury insurer.
Other listed company directorships (past
three years): Chair, Afterpay Limited (Joined
2017, Chair from 2020). Director, Slater and
Gordon Limited (from 2018). Former – Director,
Mirvac Limited (2010–2019).
Nora L Scheinkestel
Age 60, LLB (Hons), PhD, FAICD
Non-executive Director since August 2010,
last re-elected in October 2019. Member of the
Audit & Risk Committee (previously Chairman
Audit & Risk Committee 2012-2019), the
Nomination Committee and the People and
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.
Other listed company directorships (past
three years): Chairman, Atlas Arteria Limited
(Joined 2014, Chair from 2015). Director, Atlas
Arteria International Limited (from 2015),
AusNet Services Ltd (from 2016), Brambles
Limited (from 2020). Former – Director,
Stockland Group (2015–2018) and OceanaGold
Corporation (2018–2019).
Other directorships and appointments:
Trustee, Victorian Arts Centre Trust (from 2017).
Board of Directors | Telstra Annual Report 2020
Margaret L Seale
Age 59, BA, FAICD
Non-executive Director since May 2012
and last re-elected in 2018. Member of the
Audit & Risk Committee and the Nomination
Committee.
Margie is an experienced company director
and has served and is serving on the boards
of companies across a range of industries.
She previously worked in senior executive roles
in Australia and overseas, including in the
consumer goods, health and global publishing
sectors, and sales and marketing, and in the
successful transition of traditional business
models to digital environments.
Immediately prior to her non-executive career,
Margie was Managing Director of Random
House Australia and New Zealand and
President, Asia Development for Random
House globally. She is currently a non-
executive director of Scentre Group Limited
and Westpac Banking Corporation. Margie has
previously served on the boards of Australian
Pacific (Holdings) Pty Limited, Penguin
Random House Australia Pty Ltd (as a
non-executive director and then Chair), the
Australian Publishers’ Association, Bank of
Queensland Limited, Ramsay Health Care
Limited, the Council of Chief Executive Women
(chairing its Scholarship Committee), the
Powerhouse Museum and the Sydney Writers’
Festival. She has been on the Advisory Council
of J P Morgan, Australia and New Zealand, and
the Advisory Board for the Australian Public
Service Commission Centre for Learning
and Leadership. In 2015, Margie founded
philanthropic literary travel company Ponder &
See, which funds writers’ festivals and writers.
Other listed company directorships (past
three years): Director, Westpac Banking
Corporation (from 2019) and Scentre Group
Limited (from 2016). Former – Director, Ramsay
Health Care Limited (2015–2018) and Bank of
Queensland Limited (2014–2018).
Niek Jan van Damme
Age 59, Drs.
Non-executive Director appointed 16 October
2018. Member of the People and 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.
32
33
Senior
management
team
We welcomed two new
appointments to our senior
management team over the
past 12 months.
Andrew Penn
Chief Executive Officer
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.
Andy became the CEO and Managing
Director of Telstra, Australia’s largest
telecommunications company, on 1 May
2015. Further detail about Andy can be
found in the Board of Directors section.
Vicki Brady
Chief Financial Officer and Group
Executive, Strategy & Finance
The Strategy and Finance 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 Network. The team manages
all sales and service activities, across
all channels for our consumer and
small business customers.
Kim Krogh Andersen
Group Executive, Product & Technology
Michael Ebeid AM
Group Executive, Enterprise
Product and Technology (P&T)
drives Telstra’s end-to-end product
accountability, profitability, and
experience. The team oversees Telstra’s
overall product and technology roadmap
and strategy, and manages the lifecycle
and economics of these products. P&T is
also the thought-leader and incubator of
emerging technologies. Through Telstra
Labs, our home for innovation, we push
technology to be more human, turn big
ideas into commercialised opportunities,
and glimpse into what the future holds.
Alex Badenoch
Group Executive, Transformation,
Communications & People
On 1 February 2020, the Communications
and Transformation and People teams
came together to form the
Transformation, Communications and
People function. The team oversees the
overall T22 transformation program,
leads the delivery of our T22 Pillar 3
milestones and our broader Human
Resources function. It is also responsible
for Telstra’s internal and external
communications function, ensuring our
employees are kept informed and
enhancing Telstra’s reputation.
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.
Enterprise is responsible for revenues
of $8 billion from delivering 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 and 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.
Lyndall Stoyles
Group General Counsel and Group
Executive, Sustainability, External
Affairs & Legal
The Sustainability, External Affairs and
Legal team is responsible for providing
advice to Telstra’s Board, CEO and senior
management as well as providing legal
counsel, policy advice, stakeholder
management and community programs
across government relations, regulatory
and compliance, sustainability and
regional affairs. This team was formerly
known as Legal and Corporate Affairs.
The Communications team shifted to the
Transformation, Communications and
People function on 1 February 2020.
Brendon Riley
CEO, Telstra InfraCo
Telstra InfraCo is responsible for driving
greater efficiency in the operation of
Telstra’s key fixed and mobile
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.
34
35
Directors’
Report
Sustainability
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. We want everyone to thrive in a digital world.
Our 2020 Bigger Picture Sustainability Report, available online at
telstra.com/sustainability/report, provides a transparent overview of
our progress and performance this year. The report also details the
work we are undertaking in support of the United Nations’ Sustainable
Development Goals (SDGs) and includes disclosures aligned to the
Taskforce on Climate related Financial Disclosures (TCFD).
This year we announced a significant
acceleration of our response to climate
change, implementing three key goals:
1. To achieve carbon neutrality in our
operations from this year
2. To be renewable leaders by enabling
renewable energy generation equivalent
to 100 per cent of our consumption
by 2025
3. To reduce our absolute emissions by
at least 50 per cent by 2030
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 fourth edition of the
ASX Corporate Governance Council’s
Corporate Governance Principles and
Recommendations, which we have early
adopted this year.
Our 2020 Corporate Governance
Statement, which provides
detailed information about
governance at Telstra, is
available on our website at
telstra.com/governance.
36
Shareholders
Telstra Board
Audit & Risk
Committee
People &
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.
2
37
Directors’ Report
Directors’ Report | Telstra Annual Report 2020
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 2020. Financial comparisons used in this report are of
results for the year ended 30 June 2020 compared with the
results for the year ended 30 June 2019.
The historical fi nancial 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 fi nancial year was to provide
telecommunications and information services for domestic and
international customers. There has been no signifi cant change
in the nature of this activity during the year.
Review and results of operations
Information on the operations and fi nancial position for the
Telstra Group is set out in the Operating and Financial Review
(OFR), comprising the Chairman and CEO’s message, The
importance of connection: responding to the bushfi re and
COVID-19 crises, 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 to
maximise returns for shareholders, maintain fi nancial strength
and retain fi nancial fl exibility. The objectives of the Capital
Management Framework are supported by the following
principles:
• committed to 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 profi t after
tax excluding net one-off nbn receipts and guidance
adjustments
• target capex/sales ratio of around 14 per cent excluding
spectrum (capex is measured on an accrued basis and
excludes expenditure on spectrum and guidance adjustments,
externally funded capex and capitalised leases)
• maintain fl exibility 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.
Minor updates have been made to the concepts of ‘underlying
earnings’ and ‘guidance adjustments’ to align with our approach
to FY21 guidance. Underlying earnings now exclude net one-off
nbn receipts, one-off restructuring costs and guidance
adjustments. Guidance adjustments include impairments in
and to investments or non-current tangible and intangible
assets, proceeds on the sale of businesses, mergers and
acquisitions and purchase of spectrum. “Net one-off nbn
receipts” is defi ned as the net nbn one-off Defi nitive Agreement
receipts (consisting of Per Subscriber Address Amount,
Infrastructure Ownership and Retraining) less nbn net cost to
connect less tax. The dividend is subject to no unexpected
material events, and is subject to Board discretion having
regard to fi nancial and market conditions, business needs and
maintenance of fi nancial strength and fl exibility consistent
with our Capital Management Framework.
On 13 February 2020, the Directors resolved to pay an interim
fully franked dividend for the fi nancial year 2020 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.
Dividends paid during the year were as follows:
Dividend
Date
resolved
Date
paid
Fully franked
dividend
per share
Total dividend
($ million)
Total fi nal dividend for the year ended 30 June 2019
15 Aug 2019
26 Sept 2019
8.0 cents
Total interim dividend for the year ended 30 June 2020
13 Feb 2020
27 Mar 2020
8.0 cents
951
952
On 13 August 2020, the Directors resolved to pay a fi nal fully
franked dividend of 8 cents per ordinary share ($951 million),
comprising a fi nal ordinary dividend of 5 cents per share and a
fi nal special dividend of 3 cents per share. The record date for
the fi nal dividend will be 27 August 2020, with payment to be
made on 24 September 2020. Shares will trade excluding
entitlement to the fi nal dividend on 26 August 2020.
Further information regarding FY20 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 fi nal dividend for the fi nancial year 2020. The election date
for participation in the DRP is 28 August 2020.
Events occurring after the end of the fi nancial year
The Directors are not aware of any matter or circumstance
that has arisen since the end of the fi nancial year that, in their
opinion, has signifi cantly affected, or may signifi cantly affect
in future years, Telstra’s operations, the results of those
operations or the state of Telstra’s affairs, other than
• the fi nal dividend for the fi nancial year 2020 and that the
DRP will continue to operate in respect of that dividend
• disposal of Clayton data centre property
Refer to note 7.6, Events after reporting date, of the 2020
Financial Report for details.
Signifi cant changes in the state of affairs
There were no signifi cant changes in the state of affairs of our
company during the fi nancial year 2020.
Business strategies, prospects and likely developments
The OFR sets out information on Telstra’s business strategies
and prospects for future fi nancial years, and refers to likely
developments in Telstra’s operations and the expected results
of those operations in future fi nancial years. Information in the
OFR is provided to enable shareholders to make an informed
assessment of the business strategies and prospects for future
fi nancial years of the Telstra Group. Detail that could give rise to
likely material detriment to Telstra (for example, information that
is commercially sensitive, is confi dential 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 fi nancial years has not
been included.
Details of Directors and executives
Changes to the Directors of Telstra Corporation Limited during
the fi nancial year and up to the date of this report were:
• Elana Rubin was appointed as a non-executive Director
effective 14 February 2020
• on 11 August 2020 the Board announced the appointment of
Bridget Loudon to the role of non-executive Director, effective
14 August 2020.
Information about our Directors and Senior Executives is
provided as follows:
• names of our current Directors and details of their
qualifi cations, 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
• details of Director and Senior Executive remuneration are
set out in the Remuneration Report, which forms part of the
Directors’ Report.
38
3
4
39
Board and Committee meeting attendance
Details of the number of meetings held by the Board and its Committees during fi nancial year 2020, and attendance by Board
members, are set out below:
Board
Audit and Risk
Nomination
Remuneration
Committees1
a
16
16
16
16
16
16
7
16
16
16
b
16
16
16
15
16
16
7
15
16
16
a
–
–
–
6
6
–
–
6
6
–
b
(2)
(6)
–
6
6
–
(1)
6
6
–
a
6
–
6
6
6
6
2
6
6
6
b
6
(5)
6
6
6
6
2
6
6
6
a
–
–
–
–
–
5
1
5
–
5
b
(2)
(4)
–
–
–
5
1
4
–
5
John P Mullen3
Andrew R Penn
Eelco Blok
Roy H Chestnutt
Craig W Dunn3
Peter R Hearl3
Elana Rubin2
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
Total number of meetings held
16
6
6
5
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. Elana Rubin was appointed as a non-executive Director effective from 14 February 2020.
3. From time to time the Board also establishes ad hoc committees to support the Board in carrying out its responsibilities. During fi nancial year 2020, the Board
established a special purpose Board committee to oversee a review into Telstra’s sales, complaint handling and debt collection practices (including the matters
being investigated by the ACCC referred to in note 7.3, Other provisions, of the 2020 Financial Report and Facing into challenges in the Chairman and CEO
message). The members of the Committee were John Mullen, Craig Dunn and Peter Hearl and the Committee met 9 times during the year.
Director shareholdings in Telstra
Company Secretary
Sue Laver BA, LLB (Hons) (Monash), GAICD, FGIA
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.
Details of Directors’ shareholdings in Telstra as at 13 August
2020 are shown in the table below:
Director
John P Mullen
Andrew R Penn2
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Elana Rubin
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
Number of shares held1
101,159
1,757,235
75,000
70,000
73,173
100,000
51,728
150,265
310,540
74,000
1. The number of shares held refers to shares held either directly or indirectly by
Directors as at 13 August 2020 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 benefi cially as at 30 June 2020. The
numbers above include 175,000 shares held by a related party of Margaret
Seale. In this case, the Director has a relevant interest.
2. Andrew Penn also holds 941,835 Performance Rights.
Directors’ Report | Telstra Annual Report 2020
Directors’ and offi cers’ indemnity and insurance
(a) Constitution
Telstra’s constitution provides for it to indemnify, to the
maximum extent permitted by law:
• certain offi cers of Telstra and its related bodies corporate
(“Telstra Offi cers”), for any liability and legal costs they incur
in that capacity; and
• Telstra Offi cers and certain employees asked by Telstra to be
an offi cer of a company that is not related to Telstra, for any
liability they incur as an offi cer of that company, as if that
liability had been incurred in the capacity as a Telstra Offi cer.
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 offi cers of Telstra’s related bodies corporate, for
any liability they incur in that capacity.
(b) Deeds of indemnity in favour of directors, offi cers,
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 offi cers’ insurance
Telstra maintains directors’ and offi cers’ insurance policies
that, subject to some exceptions, provide worldwide insurance
cover to past, present and future directors, secretaries and
offi cers 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 offi cers’
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 notifi ed 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
signifi cant breaches of environmental regulation during the
fi nancial 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 2020 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 qualifi es
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 fi rst two compliance periods
ended 5 December 2015 and 5 December 2019.
For more information on environmental performance,
including environmental regulation, refer to the Bigger Picture
Sustainability Report 2020, which is available online at
telstra.com/sustainability/report.
Non-audit services
During fi nancial year 2020, 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 fi nancial statements in our 2020
Financial Report.
The Directors are satisfi ed, based on advice provided by the
Audit & Risk Committee that the provision of non-audit services
during fi nancial year 2020 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 confi rmation by both
management and EY that the provision of these services does
not compromise auditor independence;
• the external auditor services policy clearly identifi es
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.
40
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41
Message from the
People and Remuneration
Committee Chairman
Dear fellow shareholders,
On behalf of your company’s People and Remuneration Committee, I am pleased to present Telstra’s
FY20 Remuneration Report.
As outlined in the Chairman and CEO’s message the 2020 Financial Year has been a defi ning period
for Telstra. Through the bushfi res and COVID-19 global pandemic we continued to execute on our T22
strategy and deliver for our customers and shareholders.
Our response to COVID-19 and the Bushfi res
Enhanced Remuneration Framework
I am incredibly proud of the way our team has responded during
the bushfi re crisis and the COVID-19 pandemic. Our executive
team has shown great leadership and supported our people,
customers, communities, and the Australian economy during
these challenging times.
When the bushfi res struck in late 2019, while our people were
on the ground, supporting our customers and communities, our
leadership team moved quickly. During the bushfi res, Telstra
provided vital infrastructure for emergency services and
community evacuation centres, answered more than 55,000
calls from customers making enquiries and seeking support,
and paid the mobile phone bills for around 10,000 fi re fi ghters
and SES volunteers over December and January. Telstra also
provided free access to its payphone network and Telstra Air
Wi-Fi hotspots.
Following the bushfi re crisis, we were further challenged with
the onset of the COVID-19 pandemic. During this time Telstra
again has demonstrated great leadership and implemented
initiatives that supported our key stakeholders. We estimate
the net negative impact from COVID-19 during FY20 was
approximately $200 million to Underlying EBITDA.
• In March we provided our people with certainty by putting any
further job reductions as a part of our T22 transformation
program on hold for 6 months.
• We were able to quickly transition around 25,000 offi ce-based
employees in Australia to working from home.
• We were also the fi rst major Australian company to introduce
a new global epidemic and pandemic leave policy for our
people, including paid leave for our casual employees.
• To help better support our customers we added thousands of
temporary roles in Australia while we supported our staff and
partners outside Australia, including those from our contact
centres in India and the Philippines who were subject to
lockdown measures.
• We provided unlimited data for home and small business fi xed
broadband customers and extra data for consumer and small
business mobile customers. For pensioners on landlines we
provided unlimited local, national and 13/1300 calls and free
calls to Australian mobiles. We also offered discounts for
eligible customers receiving the JobSeeker payment.
• For many of our customers who were unable to pay their bills,
we temporarily suspended late payment fees and launched a
bill assistance hub so customers could get information on the
support measures and apply for relief if they were doing it
tough because of COVID-19; and
• We helped connect 30,000 disadvantaged students across the
country by providing them with internet access to support
their online learning through state education departments
and Catholic Education.
As foreshadowed in our 2019 Remuneration Report we
enhanced our Executive Variable Remuneration Plan (EVP)
structure for FY20 to ensure that Senior Executive
remuneration refl ected broader market and community
expectations. We increased the weighting of fi nancial
performance measures, reduced the proportion of cash and
increased the proportion of equity in EVP awards, provided for
vesting of the Restricted Share component in four equal
tranches over four years and enhanced the performance
condition attached to the Performance Right component.
The maximum opportunity for the CEO and other Senior
Executives was also reduced signifi cantly. Further detail of
these enhancements can be found in the key highlights section
of the FY20 Remuneration Report.
FY20 Performance
Telstra delivered FY20 results in line with guidance as we
continued to deliver for customers, supported our people and
the community, and generated long-term shareholder value
through a challenging period.
On a reported basis Total Income (excluding fi nance income)
for the year decreased 5.9 per cent to $26.2 billion and on a
guidance basis1 Underlying EBITDA declined 9.7 per cent to
$7.4 billion. Excluding the in-year nbn headwind2, which gives
the clearest view of the long-term business, Underlying EBITDA
grew by approximately $40 million, with growth in the fi rst half
of the year offset by a second half decline.
We have made good progress on our T22 strategy with nearly
three quarters of the measures used to monitor progress now
either completed or on track for delivery. We are now past the
halfway point in delivering T22 and while we expect to see
challenging conditions continue in FY21, our strategy means we
are well positioned to respond to whatever lies ahead. Progress
on T22, including our focus to rapidly simplify and digitise,
remove customer pain points, and remove legacy systems and
processes, helped reduce underlying fi xed costs3 by $615
million or 9.2 per cent. This brought the total underlying fi xed
cost reductions to $1.8 billion since FY16 and we remain on
track to achieve our FY22 target of $2.5 billion.
Further information on our FY20 performance for the year can
be found in the FY20 Full Year Results and Operations Review in
this 2020 Annual Report.
FY20 Senior Executive Remuneration Outcomes
Telstra’s EVP is designed to ensure a signifi cant portion of
remuneration is variable and at-risk. It provides the critical link
between delivering Telstra’s T22 strategy and Telstra’s
Corporate Plan, and shareholder value and executive reward.
The performance measures and targets were selected by the
Board to ensure that the CEO and Group Executives continue to
deliver against our T22 strategy, and their fi nancial rewards are
directly linked to their individual contribution, company
performance and long term shareholder value creation.
The key remuneration outcomes under the FY20 EVP include:
• The CEO’s Individual EVP Outcome at 48.3% of the maximum
opportunity
• The average Individual EVP Outcome for Senior Executives
(including the CEO) at 49.7% of the maximum opportunity.
With respect to the FY20 primary performance measures,
positive outcomes were achieved across many fi nancial and
non-fi nancial measures demonstrating strong delivery against
our FY20 Corporate Plan and T22 strategy.
Notwithstanding the impact COVID-19 had on our business
(estimated to be a negative net impact of approximately $200
million to Underlying EBITDA), no adjustments were made for
this. Some metrics on the FY20 scorecard were positively
impacted and others have been challenged by the pandemic.
However, when considering these outcomes on balance, the
Board determined that the primary performance measure
outcomes and the Base EVP Outcome would be driven by the
results achieved and so no relief was given to management for
the impact of COVID-19.
Further detail regarding the key FY20 remuneration outcomes
for the CEO and other Senior Executives and our non-executive
director fees is provided in the report that follows this letter.
Responsible Selling
We recognise the fundamental importance of doing business
responsibly, continuously striving to improve outcomes for our
customers and taking action where we do not meet the
standards we set for ourselves. The matters being investigated
by the Australian Competition and Consumer Commission
(ACCC) (refer to note 7.3.1 to the fi nancial statements in this
2020 Annual Report for further details) include circumstances
where we have not met those standards. Consequently, in
determining Individual EVP Outcomes for FY20, the Board has
reduced by 10% the individual outcomes under the FY20 EVP
for the Senior Executives accountable for the areas of the
business where these issues occurred (reducing payments to
these executives collectively by $758,000). This reduction has
been applied by virtue of the accountability these executives
had in their roles, and not because of any specifi c conduct by
them in relation to the matter. The roles where the FY20
individual EVP outcome has been reduced are:
• Chief Executive Offi cer – Andrew Penn
• Group Executive Telstra Consumer and Small Business
(5 September 2017 to 10 September 2018) – Vicki Brady
• Group Executive Telstra Consumer and Small Business
(11 September 2018 to current) – Michael Ackland
Once this matter is concluded, the Board will consider any
further impacts as appropriate for relevant KMP, including
on Individual EVP Outcomes.
People and Remuneration Committee Ongoing Focus
During FY20 the committee expanded its role to include a
review of selected people related risks and oversight of culture
within Telstra and as a result is now known as the People and
Remuneration Committee (previously referred to as the
Remuneration Committee). Amongst other things, the People
and Remuneration Committee reviews selected people related
risks, the risk management plans that management has put in
place to deal with those risks and monitors whether Telstra is
operating within its risk appetite in respect of those risks. It
also oversees culture within Telstra and the effectiveness of
management’s initiatives to instil and reinforce Telstra’s Values
and compliance with Telstra’s Code of Conduct.
As a People and Remuneration Committee, we remain
committed to ensuring the structure of Telstra’s executive
remuneration practices promote high standards of sustainable
performance, long term decision making, shareholder
alignment and effective governance.
Information is shared between the People and Remuneration
Committee and the Audit and Risk Committee. For each half
year and full year, the Chair of the Audit and Risk Committee
attends the People and Remuneration Committee meeting and
provides an overview of the key issues that have been
considered by the Audit and Risk Committee that are likely to
be relevant in assessing performance and remuneration
outcomes for the CEO and other Senior Executives.
Looking forward to FY21
FY21 has already proven to be a year of signifi cant challenge
across economies and communities globally due to COVID-19.
Telstra has shown great strength and stability since the
beginning of the pandemic and we understand that our
shareholders want transparency in an uncertain and disrupted
market. We will continue to provide meaningful information to
enable shareholders to assess the performance of the company
and the relevance of our remuneration targets and outcomes.
We have again provided detail prospectively on our
remuneration framework and targets for the coming year. These
appear in Section 4 of our FY20 Remuneration Report. We
believe this information provides our shareholders with market
leading levels of transparency.
In setting annual performance measures for FY21, the Board
sought to ensure the targets were robust and suffi ciently
demanding, taking into account the key deliverables and
milestones outlined in our T22 strategy, planned fi nancial
outcomes contained within our FY21 Corporate Plan and FY21
guidance (as announced on 13 August 2020 and which takes
into account the estimated negative impact on FY21 Underlying
EBITDA from the in-year nbn headwind and the COVID-19
pandemic). We have now passed the midway point of our T22
strategy to transform Telstra for the future. The non-fi nancial
performance measures and targets for FY21 continue to build
on the momentum gained in FY20 in delivering our T22 strategy.
We do not anticipate any increases to non-executive Director
fees for FY21. Similarly, we do not anticipate any increases in
Senior Executive Fixed Remuneration for FY21, other than on
appointment or promotion to a new role or due a signifi cant
increase in accountabilities.
On behalf of the People and Remuneration Committee, I would
like to thank you for your loyalty as a Telstra shareholder and
invite you to read the full report in detail.
Peter R. Hearl
People and Remuneration
Committee Chairman
1. FY20 guidance assumed wholesale product price stability and no impairments in and to investments or property, plant and equipment and intangible 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
FY20 was broadly in accordance with the nbn Corporate Plan 2020. Guidance was provided on the basis of AASB16 Leases and assumed impacts consistent with
management estimates. Capex was measured on an accrued basis and excluded expenditure on spectrum and externally funded capex and capitalised leases under
AASB16 Leases. Underlying EBITDA excludes net one-off nbn DA receipts less nbn net C2C, one-off restructuring costs and guidance adjustments but includes
depreciation of mobile lease right-of-use assets. In-year nbn headwind is defi ned as the net negative recurring EBITDA impact on our business based on management
best estimates including key input of the nbn Corporate Plan 2020.
2. See note above. As at 30 June 2020, the in-year nbn headwind was ~$830 million.
3. Underlying fi xed costs excludes one-off nbn DA and nbn net C2C, one-off restructuring costs and guidance adjustments.
42
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43
Remuneration
Report
This audited report details the
remuneration framework and outcomes
for Key Management Personnel (KMP)
of the Telstra Group for the year ended
30 June 2020 (FY20).
Contents
1.0
1.1
1.2
2.0
2.1
2.2
2.3
2.4
3.0
3.1
3.2
4.0
4.1
4.2
5.0
Policy
Key Management Personnel
Remuneration policy, strategy and governance
Senior Executive remuneration
FY20 Remuneration structure
FY20 Base EVP outcome
Exercise of Board Discretion in determining Individual EVP
Outcomes
Detailed remuneration and interests in Telstra shares
Non-executive Director remuneration
FY20 Fee structure
Detailed remuneration and interests in Telstra shares
Looking forward to FY21
FY21 Remuneration Framework
FY21 EVP Performance Measures and Targets
Glossary
Remuneration Report | Telstra Annual Report 2020
Remuneration at Telstra and FY20 Remuneration Outcomes – Key Highlights
The following table includes the key highlights and remuneration outcomes for FY20.
Key area of focus
or outcome
FY20 performance
and Executive
Variable
Remuneration Plan
(EVP) outcomes
Key changes in
FY20
Highlights / Details
The Board determined the Base EVP Outcome following an assessment of Telstra’s performance against the primary
performance measures under the FY20 EVP during the 2020 fi nancial year. This was used as an input in determining each
Senior Executive’s remuneration outcome under the EVP.
The primary performance measures selected for Telstra’s FY20 EVP are based on four fi nancial measures and four strategic,
customer and transformation measures. For FY20, Telstra exceeded threshold for three of the fi nancial measures (Total
Income, FCF and Net Opex Reduction) and one was below threshold (Underlying EBITDA) primarily due to the impact of
COVID-19. Of the strategic, customer and transformation measures one exceeded target (Product Simplifi cation), two
achieved maximum (Digital Engagement and People, Capability and Engagement) and one was below threshold (Episode
NPS).
Consideration is also given to each executive’s performance during the fi nancial year when determining their individual
remuneration outcome. The individual award earned by a Senior Executive under the EVP is referred to as their “Individual
EVP Outcome” and is determined by the Board taking into consideration the Base EVP Outcome, the executive’s “at target”
EVP reward opportunity, their individual performance and other factors in accordance with the Board’s decision framework
such as any material risk events identifi ed, the severity of their impact and the executive’s accountability for the matter.
In determining Individual EVP Outcomes for FY20 the Board took into account circumstances being investigated by the ACCC,
where our practices have not met the standards we set for ourselves, as outlined in the People and Remuneration Committee
Chair Letter and note 7.3.1 to the fi nancial statements in this 2020 Annual Report. As a consequence, the Board has reduced
individual remuneration outcomes under the FY20 EVP by 10% for those Senior Executives accountable for the areas of the
business where these issues occurred (reducing payments to these executives collectively by $758,000). This reduction has
been applied by virtue of the accountability these executives had in their roles, and not because of any specifi c conduct in
relation to the matter. The fi gures below refl ect the reduction applied by the Board. Refer to Section 2.3 for further details of
these adjustments and Section 2.4 for Senior Executive Individual EVP Outcomes.
For our CEO – Andrew Penn, his Individual EVP Outcome, as a percentage of maximum opportunity, was 48.3% (72.5% of
target opportunity). This outcome was determined by the Board following an assessment of Telstra’s performance against the
primary performance measures under the EVP, as well as his individual performance, during the 2020 fi nancial year and his
ultimate accountability, as CEO, for circumstances being investigated by the ACCC, where our practices have not met the
standards we set for ourselves, as described above.
The average Individual EVP Outcome for current Senior Executives (including the CEO), as a percentage of maximum
opportunity, was 49.7% (81.9% of target opportunity). Each Senior Executive’s Individual EVP Outcome was similarly
determined by the Board taking into account Telstra’s performance against the primary performance measures under the EVP
during the 2020 fi nancial year, as well as their individual performance during the year (including, in the case of the Group
Executives, their performance relative to each other) and their accountability (by virtue of their roles) for circumstances being
investigated by the ACCC, where our practices have not met the standards we set for ourselves, as described above.
These outcomes demonstrate the alignment between our performance, remuneration structure, effective governance and
Board oversight, and executive reward.
The form in which the CEO and other Senior Executives receive their Individual EVP Outcome for FY20 is:
• 25% in cash;
• 35% as Restricted Shares, with 25% eligible to vest each year over four years, which may be forfeited if employment
ceases other than for a Permitted Reason or if certain claw-back (malus) events occur; and
• 40% as Performance Rights that are subject to a Relative Total Shareholder Return (RTSR) performance condition, which
may lapse if employment ceases other than for a Permitted Reason or certain claw-back (malus) events occur, which means
the Senior Executives will only receive value from those Performance Rights if they vest at the end of FY24.
As foreshadowed in our 2019 Remuneration Report, we made the following enhancements to our Executive Variable
Remuneration Plan (EVP) for FY20:
• Higher weighting of fi nancial performance measures: The weighting of fi nancial performance measures within the
primary performance measures increased to 60% (previously 50%) with the remaining 40% covering customer, strategic
and transformation performance measures.
• Reduced maximum opportunity: The maximum EVP opportunity was reduced to 300% of Fixed Remuneration for the CEO
and Group Executives (previously 400% and 360% respectively).
• More shares, less cash: The CEO and Group Executives are to receive 75% (previously 65%) of their Individual EVP
Outcome in the form of Restricted Shares and Performance Rights.
• Restricted Shares to vest over 4 years: 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 (previously one tranche that
vested after two years).
• Vesting of Performance Rights now more challenging: Vesting of Performance Rights will now be determined on a
straight line basis, with 50% of the Performance Rights vesting (previously 100%) 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. This performance condition will continue to be assessed over a fi ve-year period
from the start of the Initial Performance Period.
• Enhanced our share ownership policies: the CEO is now required to hold 200% of Fixed Remuneration in Telstra shares
(previously 100%) and the Chairman of Telstra is required to hold 200% of the non-executive Director annual base fee
(previously 100%) in Telstra shares both within fi ve years of appointment to their respective positions.
For further information and the rationale for why we made these changes, please refer to our 2019 Remuneration Report.
44
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1.0 Policy
1.1 Key Management Personnel (KMP)
Telstra’s KMP are assessed each year and comprise the Directors of Telstra and the 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 Telstra and the Group, directly or indirectly. Each KMP held their position for the whole of FY20, unless stated
otherwise.
Our KMP during FY20 were:
Non-executive Directors
Senior Executives
Current
John P Mullen
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Elana Rubin (from 14/02/20)
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
Current
KMP Position
Andrew Penn
Chief Executive Offi cer & Managing Director (CEO)
Michael Ackland
Group Executive (GE) Telstra Consumer & Small Business (C&SB)
Kim Krogh Andersen
GE Product & Technology (from 06/01/20)
Alex Badenoch
GE Transformation, Communications & People (TC&P)
Vicki Brady
David Burns
Chief Financial Offi cer
GE Global Business Services (GBS)
Michael Ebeid AM
GE Telstra Enterprise (TE)
Nikos Katinakis
Brendon Riley
GE Networks & IT
GE and CEO Telstra InfraCo
Former
Christian Von Reventlow GE Product & Technology (to 02/10/19)
1.2 Remuneration policy, strategy and governance
Our remuneration policy is designed to:
• support our strategy and reinforce our culture and values
• provide internally consistent and market competitive rewards
to attract, motivate and retain highly skilled employees
• link fi nancial reward outcomes directly to employee
contribution and company performance
• ensure all reward decisions are made free from bias and
support diversity within Telstra.
Our governance framework for determining Senior Executive
remuneration includes the aspects outlined below.
(a) The People and Remuneration Committee
The People and Remuneration Committee assists the Board in
discharging its responsibilities on matters relating to
remuneration, people, culture, conduct and diversity and
consists only of independent non-executive Directors.
Among other things, the Committee:
• reviews and makes recommendations to the Board on non-
executive Director, CEO and Senior Executive remuneration,
as well as Telstra’s overall remuneration framework
• reviews selected people related risks, the risk management
plans that management has put in place to deal with those
risks and monitors whether Telstra is operating within its risk
appetite in respect of those risks
• oversees the culture within Telstra and the effectiveness
of management’s initiatives to instil and reinforce Telstra’s
Values and compliance with Telstra’s Code of Conduct,
including reviewing reports from management on culture and
any conduct that is materially inconsistent with the Telstra
Values or Code of Conduct (including material breaches and
the action taken, or proposed to be taken, in response to
those breaches)
• reviews and makes recommendations to the Board on Senior
Executive succession plans and talent development plans and
also reviews capability more broadly across Telstra.
For each half year and full year, the Chairman of the Audit and
Risk Committee attends the People and Remuneration
Committee meeting and provides an overview of the key issues
considered by the Audit and Risk Committee that are likely to
be relevant to assessing the performance and remuneration
outcomes for the CEO and other Senior Executives by the
People and Remuneration Committee. Information and papers
considered by a Committee are also provided to other
Committees and the Board as relevant.
The People and Remuneration Committee’s name was changed
during FY20 (previously referred to as the Remuneration
Committee) to refl ect its expanded role in relation to the review
and oversight of the selected people related risks, culture and
issues noted above. This oversight further emphasises the
committee’s ongoing focus on building a workplace of choice
that fosters diversity, talent and career progression. Further
detail about the People and Remuneration Committee and its
responsibilities is provided in our Corporate Governance
Statement available at telstra.com/governance.
(b) Annual remuneration review
As part of its role, the People and Remuneration Committee
reviews that CEO and other Senior Executive remuneration
packages involve a balance between fi xed and incentive pay,
refl ecting appropriate short and long term performance
objectives.
The Committee also monitors that the remuneration
arrangements and outcomes for the CEO and other Senior
Executives encourage employees to pursue Telstra’s strategy
and success without rewarding conduct that is contrary to
Telstra’s Values or risk appetite.
Remuneration Report | Telstra Annual Report 2020
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
• market movement in external comparator groups (which are
used for reference purposes only) made up of companies of
similar size and complexity to Telstra
The People and Remuneration Committee and Board review the
CEO’s fi xed 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 People and
Remuneration Committee and Board review and approval.
(c) Engagement with consultants
During FY20, 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 People and
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 the alignment of the interests of our
executives with the generation of long term shareholder value.
During FY20, numerous meetings were held with shareholders
and shareholder advisory organisations.
(e) Incentive design and performance assessment
The People and Remuneration Committee oversees the setting
of robust measures and targets to encourage performance and
behaviour that is aligned to our values, including the primary
performance measures for the EVP. The primary performance
measures for the FY20 EVP are summarised in section 2.1.
The Board determines the Base EVP Outcome by assessing
performance against each primary performance measure. The
Base EVP Outcome is an input into the assessment of each
Senior Executive’s Individual EVP Outcome.
The primary performance measures operate independently, and
each measure has a weighting and defi ned performance
threshold, target and maximum level. Where performance
against a primary performance measure is determined by the
Board to be at:
• threshold, the outcome for that measure will be 50% of its
weighting;
• target, the outcome for that measure will be 100% of its
weighting; and
• maximum, the outcome for that measure will be 200% of its
weighting
If performance falls between any of those levels, the outcome
will be determined proportionately having regard to the
percentages outlined above. The Board also has discretion to
adjust an outcome to ensure there are no windfall gains or
losses.
The Base EVP Outcome is calculated as the total sum of each
primary performance measure outcome, although the Board
also has discretion to adjust that outcome if it considers it to
be inappropriate, taking into account matters which may
include Telstra’s performance, customer experience and
shareholder expectations.
To assess the primary performance measures, the Board
reviews the Group’s results, including the fi nancial statements
which are audited by Ernst & Young (EY), our external auditor. It
also reviews other work undertaken by EY and Telstra Group
Internal Audit on performance against the primary performance
measures. Refer to section 2.2 for further information.
Each Senior Executive’s Individual EVP Outcome is determined
having regard to the Base EVP Outcome, their target EVP
opportunity, their individual performance taking into account a
range of considerations including the Senior Executive’s
individual scorecard performance, leadership behaviour and
conduct, effective application of risk management practices
and in respect of the Group Executives, their performance
relative to each other. The Board may also consider other
factors in accordance with its decision framework such as any
material risk events identifi ed, the severity of their impact and
the executive’s accountability for the matter.
(f) Share Ownership Policies
Telstra has in place share ownership policies which apply to the
CEO, Group Executives and non-executive Directors. The intent
of these policies is to align the interests of the CEO, Group
Executives and non-executive Directors with the interests of
our long term shareholders.
Under the Executive Share Ownership policy that applies to the
CEO and Group Executives, the CEO is required to hold Telstra
shares to the value of 200% of his Fixed Remuneration
(increased from 100% in August 2019) within 5 years of his
appointment as CEO. Group Executives are required to hold
Telstra shares to the value of 100% of their Fixed Remuneration
within fi ve years of their appointment to Group Executive level.
Any shares purchased by Senior Executives are valued, for the
purpose of the policy, at their acquisition price. Restricted
Shares held by Senior Executives are included in calculating
their shareholding for the purpose of the policy. The value
attributed to Restricted Shares is the value used by Telstra to
determine the number of Restricted Shares granted under the
relevant Telstra equity plan (which is based on the volume
weighted average price of Telstra shares over a defi ned period
before the Restricted Shares are granted). Performance Rights
are not included in calculating a Senior Executive’s
shareholding for the purpose of the policy, however any shares
granted on vesting of Performance Rights are recognised based
on Telstra’s closing share price on the date that the
Performance Right vests. Senior Executives must obtain Board
or, in certain circumstances, CEO or Chairman approval before
they sell Telstra shares if they have not yet met their share
ownership requirements under the policy.
As at 30 June 2020, the CEO held Telstra shares to the value of
352% of his Fixed Remuneration as recognised under the policy.
Those Senior Executives who have held a Group Executive
position for at least fi ve years have met the shareholding
requirement as at 30 June 2020. Progress is monitored on an
ongoing basis. For information on Senior Executives’ interests in
Telstra shares refer to section 2.4(e).
Summary of Share Ownership Policy requirements
Position
Minimum Holding Requirement within 5 years
of appointment to the position
CEO
200% of Fixed Remuneration
Group Executives
100% of Fixed Remuneration
Chairman of the
Board
200% of the annual non-executive Director
base fee
Non-executive
Directors
100% of the annual non-executive Director
base fee
46
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47
To align the interests of non-executive Directors with those of
our shareholders, non-executive Directors are also required to
satisfy a minimum shareholding requirement. The Chairman of
the Board is required to hold Telstra shares to the value of at
least 200% of the annual non-executive Director base fee
within fi ve years of his appointment as Chairman. All other non-
executive Directors are required to hold Telstra shares to the
value of at least 100% of the annual non-executive Director
base fee, within fi ve 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. In August 2019, the
minimum holding requirement for the Chairman was increased
from 100% to 200%. As at the date of this report, the Chairman
held shares to the value of 160% of the annual non-executive
Director base fee and under the policy has until April 2021 to
meet the new 200% holding requirement. All other non-
executive Directors have met their minimum holding
requirement with the exception of one Director who has been
on the Board for less than 12 months. Directors’ shareholdings
as at 13 August 2020 are set out in the Directors’ Report.
(g) Securities Trading Policy
All KMP must comply with Telstra’s Securities Trading Policy,
which includes a requirement that Telstra securities can only be
traded during specifi ed 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 fi nancial
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 confi rm on an annual basis that they
comply with our Securities Trading Policy, which assists in
monitoring and enforcing our policy.
(h) Claw-back (Malus) Policy
Telstra has adopted and implemented a Claw-back (Malus)
Policy which sets out the process that is followed to put the
Board in a position to determine, before securities vest,
whether a claw-back event has occurred and whether to lapse
or forfeit unvested Performance Rights, Restricted Shares and
Cash Rights.
(i) Board Decision Framework
In August 2019, the Board adopted a decision framework to
provide guidance to the Board in exercising its discretion on
variable remuneration outcomes and provide greater
consistency in remuneration adjustments. The framework was
applied in determining the Individual EVP Outcomes under the
FY20 EVP.
Remuneration Report | Telstra Annual Report 2020
2.0 Senior Executive remuneration
2.1 FY20 Remuneration Structure
The following diagram illustrates the remuneration framework that applied to our Senior Executives during FY20.
Attract, motivate
and retain highly
skilled people
Fixed Remuneration
Reinforce our culture
and values
Reward company
performance and
employee contribution
Align to long term
shareholder value creation
Executive Variable Remuneration Plan (EVP)
Cash
Equity
Base salary
plus superannuation
Set taking into account:
• skills, capabilities,
experience and performance
• business performance,
scarcity of talent, economic
climate and market
conditions
• consistency with increases
elsewhere within Telstra
• external comparator groups
made up of companies of
similar size and complexity
The Base EVP Outcome for FY20 was based on fi nancial, strategic, customer and transformation
priorities. Performance over the fi nancial year was measured against stretching fi nancial and non-
fi nancial performance targets set at the start of the fi nancial year and communicated in the 2019
Remuneration Report.
Each Senior Executive’s Individual EVP Outcome was determined having regard to the Base EVP
Outcome, their target EVP opportunity and their individual performance, and was ultimately at the
discretion of the Board.
• 25% of the FY20 Individual
EVP Outcome is provided in
cash
• 35% of the FY20 Individual
EVP Outcome is deferred
as Restricted Shares
• Restricted Shares are 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
• May be forfeited if
employment ceases other
than for a Permitted Reason
or a clawback (malus) event
occurs
• 40% of the FY20 Individual
EVP Outcome is allocated in
Performance Rights, which
are subject to a 5-year
Relative Total Shareholder
Return (RTSR) performance
condition
• May lapse if employment
ceases other than for a
Permitted Reason or a
clawback (malus) event
occurs
Recognises sustainable performance in the medium to longer term
Market competitive
base reward
Rewards annual
performance, providing
specifi c focus on
strategic priorities
Recognises the criticality
of strategic non-fi nancial
measures as drivers of
longer term value creation
Focuses on achieving
longer-term superior
performance for
stakeholders
(a) FY20 Remuneration mix for Senior Executives
The graph below shows the FY20 remuneration mix for Senior Executives expressed as a percentage of Fixed Remuneration (FR).
CEO
100%
Fixed Remuneration
50%*
EVP Cash
70%*
EVP Restricted Shares
80%*
EVP Performance Rights
Individual EVP Outcome at Target = 200% of Fixed Remuneration comprised of:
Total Equity = 150% of Fixed Remuneration
Other Senior
Executives
100%
Fixed Remuneration
45%*
EVP Cash
63%*
EVP Restricted Shares
72%*
EVP Performance Rights
Individual EVP Outcome at Target = 180% of Fixed Remuneration comprised of:
Total Equity = 135% of Fixed Remuneration
* The percentages shown are calculated from the 25% Cash, 35% Restricted Share and 40% Performance Right components of the FY20 EVP multiplied by the FY20 EVP
target opportunity for the CEO (200% of FR) and other Senior Executives (180% of FR).
48
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49
Remuneration Report | Telstra Annual Report 2020
(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
FR as at
13 August 2020
Notice period
Termination
payment
$2,390,000
6 months
6 months
Michael Ackland
GE Consumer & Small Business
$1,150,000
6 months
6 months
Kim Krogh Andersen
GE Product & Technology
$1,000,000
6 months
6 months
Alex Badenoch
GE Transformation,
Communications & People
$930,000
6 months
6 months
Vicki Brady
CFO
$1,200,000
6 months
6 months
The table below outlines the key features of the FY20 EVP.
EVP design
attributes
Detail
EVP
Reward
opportunity
Initial
performance
period
Calculation of
Individual EVP
Outcomes
CEO: 200% of FR at target; 300% of FR at maximum
Group Executives: 180% of FR at target; 300% of FR at maximum
1 year (1 July 2019 to 30 June 2020)
Overview
Each Senior Executive’s Individual EVP Outcome for FY20 is set out in section 2.4(c).
The CEO’s Individual EVP Outcome was determined by the Board taking into consideration the CEO’s ‘at target’ EVP reward
opportunity, the Base EVP Outcome, the CEO’s performance and other factors in accordance with its decision framework including
any material risk events identifi ed, the severity of their impact, and the CEO’s accountability for the matter.
Each Group Executive’s Individual EVP Outcome was determined by the Board taking into consideration their ‘at target’ EVP reward
opportunity, the Base EVP Outcome, their performance (including their performance relative to other Group Executives) and other
factors in accordance with its decision framework including any material risk events identifi ed, the severity of their impact, and
the executive’s accountability for the matter.
David Burns
GE Global Business Services
$1,000,000
6 months
6 months
At Target EVP Reward Opportunity
Calculating Individual EVP Outcome
Michael Ebeid AM
GE Telstra Enterprise
$1,150,000
6 months
6 months
Nikos Katinakis
GE Networks & IT
$1,100,000
6 months
6 months
Brendon Riley
GE & CEO Telstra InfraCo
$1,400,000
6 months
12 months*
* 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 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) FY20 Executive Variable Remuneration Plan (EVP) Structure
The CEO and all Group Executives participated in the FY20 EVP. The construct of the FY20 EVP is illustrated in the diagram below:
d
e
s
a
e
l
e
R
s
t
l
u
s
e
R
0
2
Y
F
)
%
5
2
(
d
i
a
P
h
s
a
C
P
V
E
M
G
A
a
r
t
s
l
e
T
0
2
0
2
)
%
5
7
(
d
e
t
a
c
o
l
l
A
y
t
i
u
q
E
P
V
E
FY20 EVP Initial
Performance
Period
1 July 2019 to
30 June 2020
Restricted Shares
(1st tranche)
End of restriction
30 June 2021
Restricted Shares
(2nd tranche)
End of restriction
30 June 2022
Restricted Shares
(3rd tranche)
End of restriction
30 June 2023
Restricted Shares
(4th tranche)
End of restriction
30 June 2024
Restricted
Shares – T1
Restricted
Shares – T2
Restricted
Shares – T3
Restricted
Shares –T4
Performance Rights
Performance
Rights
RTSR Test
30 June 2024
FY20 EVP Performance Rights RTSR Performance Period
1 July 2019 to 30 June 2024
FY20
FY21
FY22
FY23
FY24
FY25
Jul
Jun
Aug
Sep
Oct
Nov
Jun
Jul
Jun
Jul
Jun
Jul
Jun
Jul
At the 2020 AGM to be held on 13 October 2020, we will seek shareholder approval for the Restricted Shares and Performance
Rights to be allocated to the CEO under the FY20 EVP.
FR
$
X
Target
EVP
Opportunity
%
=
Target
EVP
Opportunity
$
X
Primary Performance
Measures
Financial
Customer
Strategic
Transformation
Primary
Performance
Measure
outcomes and
total scorecard
outcome both
subject to
Board
discretion
=
Base EVP
Outcome
%
Differentiated
for Individual
Performance
and subject to
Board
discretion
=
Individual
EVP
Outcome
Base EVP Outcome
As outlined in section 2.2, the Base EVP Outcome for FY20 as a percentage of maximum was 53.7% for the CEO (80.5% of target)
and 51.0% for the other Senior Executives (85.1% of target).
The Base EVP Outcome was determined by the Board following an assessment of Telstra’s performance against the primary
performance measures (described in detail below) during the 2020 fi nancial year (referred to as the Initial Performance Period).
The primary performance measures operate independently, and each measure was given a weighting and had defi ned
performance threshold, target and maximum levels. Where performance against a primary performance measure was determined
by the Board to be at:
• threshold, the outcome for that measure was 50% of its weighting;
• target, the outcome for that measure was 100% of its weighting; and
• maximum, the outcome for that measure was 200% of its weighting.
If performance fell between any of those levels, the outcome was determined proportionately having regard to the percentages
outlined above. The Board also had discretion to adjust an outcome to ensure there were no windfall gains or losses. Details of the
adjustments approved by the Board for FY20 are outlined in section 2.2(b).
The Base EVP Outcome was calculated as the total sum of each primary performance measure outcome, although the Board also
had discretion to adjust that outcome if it considered it to be inappropriate, taking into account matters which may include
Telstra’s performance, customer experience and shareholder expectations. The Board considered the Base EVP Outcome
appropriate and accordingly did not adjust the outcome, refer to section 2.2(b).
Individual performance
At the end of the 2020 fi nancial year:
• the CEO’s individual performance was assessed by the Board in accordance with the annual performance evaluation process for
the CEO, taking into account a range of considerations including his individual scorecard performance, leadership behaviour and
conduct and effective application of risk management practices; and
• each Group Executive’s individual performance was assessed by the CEO in accordance with an annual performance evaluation
process, taking into account a range of considerations including the Group Executive’s individual scorecard performance,
leadership behaviour and conduct, effective application of risk management practices and performance relative to the other
Group Executives. As noted above, each Group Executive’s individual performance relative to the other Group Executives was
also taken into account in determining their Individual EVP Outcome. The CEO’s recommended assessment for each Group
Executive was provided to the People and Remuneration Committee for endorsement, and then to the Board for approval.
Board discretion
The Board has the discretion, in determining a Senior Executive’s Individual EVP Outcome, to take into account factors in
accordance with its decision framework such as any material risk events identifi ed, the severity of their impact, and the
executive’s accountability for the matter. Refer to section 2.3 for further information on discretion exercised in determining FY20
Individual EVP Outcomes.
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51
EVP design
attributes
Primary
Performance
Measures
Detail
The primary performance measures outlined below were selected for FY20 because they provide the critical link between
delivering Telstra’s T22 strategy and Telstra’s Corporate Plan and increasing shareholder value. The threshold, target and maximum
levels for each measure (as outlined in our 2019 Remuneration Report) were set to be robust and suffi ciently demanding, taking
into account the key deliverables and milestones outlined in our T22 strategy, planned fi nancial outcomes contained within our
Corporate Plan and guidance as announced on 15 August 2019. They were subsequently updated to refl ect our revised guidance
announced on 2 September 2019 following the release of NBN Co’s Corporate Plan. We did not make any further adjustments to
the threshold, target and maximum levels for each primary performance measure as a result of the impacts that COVID-19 has
had on our business. The levels for the fi nancial measures were set to refl ect the signifi cant 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 levels for all fi nancial measures (with the exception of Net Opex Reduction) were evaluated against market guidance, with
each target level approximating the midpoint of that guidance and each maximum level equal to or above the maximum guidance
range. It remains the Board’s view that the levels were robust and demanding in the face of an exceptionally challenging market.
The primary performance measures and the threshold, target and maximum levels for FY20 were as follows.
Performance
Measure and Metric
Weighting
FY19
Baseline^
FY20
Threshold
Target
Max
Total Income
Telstra External Income
(excluding fi nance
income)
Underlying
EBITDA
Underlying EBITDA is
Earnings Before Interest,
Tax, Depreciation &
Amortisation, excludes
net one-off nbn DA
receipts less nbn net
C2C, one-off
restructuring costs and
guidance adjustments
but includes depreciation
of mobile lease right of
use assets
Free Cash Flow (FCF)
Free Cashfl ow excluding
M&A and spectrum, plus
operating lease
payments (reported in
fi nancing cash fl ow
under AASB 16)
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
6
–
l
a
i
c
n
a
n
F
i
15.0%
$27,807m $25,800m $26,300m $27,300m
15.0%
$8,203m
$7,548m
$7,748m
$8,048m
15.0%
$3,068m
$3,293m
$3,493m
$3,893m
Net Opex Reduction
Reduction in operating
non-Direct Variable Cost
(DVC) expenses
15.0%
$456m
$595m
$630m
$730m
Rationale for
why chosen
• Key indicator of fi nancial
performance
• Ensures continued focus
on customer retention
and growth
• Aligns to Pillar 1 of the
T22 strategy
• Key indicator of fi nancial
performance
• Ensures appropriate
focus on profi t and cost
to deliver
• A strong indicator of
underlying company
profi tability
• Aligns to Pillar 4 of our
T22 strategy
• Key indicator of fi nancial
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 fi nancial
performance in an
increasingly competitive
market
• Delivering signifi cant
absolute cost reduction
aligns with intent to drive
productivity and reduce
costs
• Aligns to Pillar 4 of our
T22 strategy
Remuneration Report | Telstra Annual Report 2020
EVP design
attributes
Detail
Performance
Measure and Metric
Weighting
FY19
Baseline^
FY20
Threshold
Target
Max
Rationale for
why chosen
Episode NPS
Improvement in our Episode NPS
10%
+25
+27
+29
+32
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
Simplifi cation
Digital
Engagement
TE Plans
TE Number of
Active Plans, the
target provides
progress toward
our T22
reduction of
50% by FY21
Services on
in-market plans
Digital Delivery
Requires the
build of digital
fi rst capability.
The 24% target
is the average
of Q4 FY20 not
an average
measure for
the year
Telstra Connect
Active Telstra
Enterprise
customers on
Telstra Connect
in the last 3
months
5%
517
461
441
400
5%
0.4m
2.5m
3m
4m
5%
16.8%
22.5%
24.0%
29.0%
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
• 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 rationale
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 rationale
below
• Improves customer
experience
• Supports our cost
reduction focus
• Enables delivery of
strong fi nancial results
• Aligns to Pillar 1 of our
T22 strategy
• See further rationale
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
• See further rationale
below
^ Refers to FY19 results calculated on the same basis as the metric defi nition and includes restatement for AASB 16: Leases where applicable.
52
17
18
53
EVP design
attributes
Detail
Relevance of non-fi nancial measures
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.
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 specifi cally 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 simplifi cation 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 on our in market plans and continuously improving the ways in which customers can self-
manage their services through My Telstra app. In addition, when customers do contact us, we aim to ensure that customer issues
are resolved within the fi rst contact.
Product Portfolio Simplifi cation – TE Plans
In FY19 Telstra delivered against the target for simplifi cation of our product portfolio for our Enterprise customers. We continued
to focus on product simplifi cation in FY20 in line with our commitment to rationalise 50% of Enterprise products by FY21. For our
Enterprise customers the simplifi cation often requires an individual customer transformation with consultation to ensure a good
customer experience and retention of revenue.
Product Portfolio Simplifi cation – Services on In market plans
In FY19 Telstra delivered against the target for simplifi cation of our product portfolio for our Consumer & Small Business
customers. Along with maintaining our committed 20 simplifi ed connectivity plans, in FY20 the priority for Consumer & Small
Business shifted to moving our customers to these new radically simplifi ed plan constructs. This supports the 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.
Digital Engagement – Digital Delivery
In FY19 Telstra delivered against our target to increase digital sales interactions and in FY20 we continued 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 profi t margins.
Digital Engagement – Telstra Connect
Delivering self-servicing solutions for our Enterprise customers is key to improving customer experience and removing cost by
reducing servicing calls. For FY20 our target was 4,000 enterprise customers to actively use Telstra Connect. The key to achieving
this target is 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 profi t margins.
People Capability & Engagement
Focusing on our people and employee engagement throughout a period of signifi cant disruption is critically important to attract
and retain the talent needed to deliver on our strategy. We believe that it is in our shareholder interests to have management
strongly focused on maintaining and growing our employee engagement as it will support our ability to have both the key
leadership and technical talent required to deliver our ambitious strategy. To ensure the integrity of our employment engagement
score, this performance measure only impacts the remuneration of Telstra’s senior leaders within Telstra.
EVP outcome
– Cash vs equity
balance
A Senior Executive’s Individual EVP Outcome is provided as a combination of cash (25%), Restricted Shares (35%) and
Performance Rights (40%) which are subject to an RTSR performance test. This results in a 25:75 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. Refer to the secondary performance measures section outlined below for further information on the RTSR
performance condition.
Equity
allocation
methodology
Individual EVP Outcome Components
25% Cash
Equity Allocation Calculation
(face value methodology)
35% Restricted Shares (pro-rata vesting over 4 years)
40% Performance Rights (subject to 5 year RSTR)
÷
5 Day
VWAP
=
No. of Restricted Shares allocated
No. of Performance Rights allocated
Claw-back
(malus)
The number of Restricted Shares and Performance Rights to be granted to a Senior Executive is based on the dollar value of their
Individual EVP Outcome, multiplied by 35% for Restricted Shares and 40% for Performance Rights, and then divided by the fi ve
day volume weighted average price (VWAP) of Telstra shares commencing on the day after the FY20 results announcement (i.e. a
face value allocation methodology).
Remuneration Report | Telstra Annual Report 2020
EVP design
attributes
Issue/exercise
price
Restriction and
performance
periods for
equity
Secondary
Performance
Measures
Detail
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.
Restricted Shares: Restricted Shares will be eligible to vest in four equal tranches, with 25% eligible to vest each year for the four
years following 30 June 2020 (being the end of the Initial Performance Period). i.e. on 30 June 2021, 30 June 2022, 30 June 2023, and
30 June 2024.
Performance Rights: As noted above, the Performance Rights will be subject to an RTSR performance condition, tested over a fi ve-
year performance period from 1 July 2019 to 30 June 2024. Refer to the secondary performance measures section outlined below.
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 the Performance Rights and accelerate the end of the Restriction Periods
for the Restricted Shares.
In addition to the primary performance measures (which are assessed over the one year period to 30 June 2020) the Performance
Rights component of each Senior Executive’s Individual EVP Outcome only vests if, and to the extent that, the RTSR performance
condition is satisfi ed at the end of the fi ve year performance period on 30 June 2024. Any Performance Rights that vest following
the testing of the RTSR performance condition will be automatically exercised following the release of Telstra’s annual results for
FY24 and any Performance Rights that do not vest following the testing will lapse (and expire) at that time. This means Senior
Executives have a double hurdle in relation to the Performance Right component of their Individual EVP Outcome, with
performance measured over both the Initial Performance Period and the fi ve-year RTSR Performance Period.
RTSR measures the performance of an ordinary Telstra share (including the value of any cash dividends and other shareholder
benefi ts paid during the RTSR Performance Period) relative to the performance of ordinary securities issued by the other entities
in the comparator group (being entities in the S&P / ASX100 index as at 1 July 2019 (excluding resources companies)) 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 entities in the comparator group over the long term. This reinforces the ultimate
focus on shareholder value creation and helps align actual pay outcomes with returns delivered to long-term shareholders.
Under the RTSR performance condition, the number of Performance Rights that vest will be determined on a straight-line basis with:
• 50% of the Performance Rights vesting if Telstra’s RTSR ranks at the 50th percentile of the comparator group; and
• up to 100% of the Performance Rights vesting if Telstra’s RTSR ranks at the 75th percentile of the comparator group.
No Performance Rights will vest if Telstra’s RTSR ranks below the 50th percentile when compared with the comparator group.
The starting price that will be used to determine Telstra’s RTSR at the end of the RTSR Performance Period is $3.78. Both the
starting price and end price for the purpose of calculating Telstra’s RTSR is the average of Telstra’s daily closing share price over
the 30 day period to 30 June of the relevant year. Telstra measures its 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 down to the nearest whole number if the two
decimal places are below .50.
Dividends
Restricted Shares: Participants receive dividends on Restricted Shares during the Restriction Periods consistent with other
Telstra shareholders.
Leaver
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 Individual EVP Outcome based on the proportion of time they were
employed during FY20. The Senior Executive will receive the cash component of their Individual EVP Outcome (pro-rata based
on the proportion of time they were employed during FY20). 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 Telstra share at the end of the applicable Restriction Period or the RTSR Performance Period
(as applicable) and dividends paid between the date the Cash Right is allocated and the end of the applicable Restriction Period
or RTSR Performance Period. Where the Senior Executive receives Cash Rights, there is no change to the Restriction Periods, and
the RTSR Performance Period 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 Periods, the RTSR Performance Period, or the RTSR performance condition. If the Senior
Executive ceases employment for any other reason, their Restricted Shares and Performance Rights are forfeited.
The Board has discretion to claw-back Performance Rights and Restricted Shares if certain claw-back events occur before the
Performance Rights vest or the Restricted Shares are transferred to the Senior Executive following the end of the applicable
Restriction Period. Claw-back events include fraud, dishonesty, 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 fi nancial strength. It also
includes where the Senior Executive causes a signifi cant deterioration in Telstra’s fi nancial performance or negatively impacts
Telstra’s standing, reputation or relationship with its key regulators, where the fi nancial 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 fulfi l 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 benefi t.
54
19
20
55
(d) Financial performance
The table below provides a summary of Telstra’s key fi nancial results over the past fi ve fi nancial years. Those results are not fully
comparable due to changes in the accountings standards over that period. In FY20 we have adopted AASB 16: ‘Leases’, but the
comparative information for FY19 has not been restated and the results from FY16 to FY18 are not prepared on the same basis.
Refer to Note 1.5 to the fi nancial statements in the 2020 Annual Report for more details. FY18 results have been restated due to
the adoption of AASB 15: ‘Revenue from Contracts with Customers’. Refer to Note 1.5 to the fi nancial statements in the 2019
Annual Report for more details. As a result, the FY18, FY19 and FY20 results are prepared in accordance with AASB 15 and FY16
and FY17 are prepared under the superseded revenue standard.
Financial performance
Earnings
Total Income1
EBITDA1
Net Profi t2
Shareholder Value
Share Price ($)3
Total Dividend Paid Per Share (cents)4
FY20
$m
26,161
8,905
1,819
3.13
16.0
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
1. 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.
2. Net Profi t 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).
3. Share prices are as at 30 June for the respective year. The closing share price for FY15 was $6.14.
4. We currently pay dividends to holders of Telstra’s ordinary shares twice a year, an interim and a fi nal dividend. The amounts included in this table relate to dividends
paid during the fi nancial year. Therefore, for each respective year, the amount includes the dividend paid for the previous year fi nal dividend and the current year interim
dividend. Refer to Note 4.1 to the fi nancial statements in the Financial Report for further information.
(e) Historical Plan Performance relative to Telstra Share Price
The graph below shows the average Individual EVP Outcomes for FY18, FY19 and FY20, plus the STI plan outcomes for FY16 and
FY17, as a percentage of the target opportunity, relative to the performance of Telstra’s share price over the past fi ve years.
Individual EVP Outcomes refl ect a combination of Telstra’s performance assessed against performance measures and individual
performance, 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 of performance.
)
$
(
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
111.8%
43.6%
29.1%
39.1%
70.6%
27.5%
18.4%
24.7%
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
81.9%
32.8%
28.7%
20.4%
81.0%
82.6%
FY16 STI1,2
30/06/2016
FY17 STI1,2
30/06/2017
FY18 EVP
30/06/2018
FY19 EVP
30/06/2019
FY20 EVP
30/06/2020
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 Senior Executives for the relevant period.
2. Excludes FY16 and FY17 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.
56
21
Remuneration Report | Telstra Annual Report 2020
2.2 FY20 Base EVP Outcome
(a) Pay for performance ranges
As outlined earlier in the report, the primary performance
measures of the EVP operate independently, and each measure
was given a weighting and had a defi ned performance
threshold, target and maximum level. Where performance
against a primary performance measure was determined by
the Board to be at:
• threshold, the outcome for that measure was 50% of its
weighting;
• target, the outcome for that measure was 100% of its
weighting; and
• maximum, the outcome for that measure was 200% of its
weighting.
The following diagram demonstrates the relationship between
threshold, target and maximum performance and the payout
range for the CEO and Group Executives.
CEO Pay for Performance
CEO Pay for Performance
FY20 EVP Metric Performance Range
146%
0%
50%
Threshold
100%
Target
+46%
200%
Max
Range = 100%
FY20 EVP Metric Performance Outcome
123% (46% of 50% range)
0%
50%
Threshold
100%
Target
+23%
150%
Max
Range = 50%
Group Executive Pay for Performance
FY20 EVP Metric Performance Range
146%
FY20 EVP Metric Performance Range
(Target achievement = Payment of 200% of FR – see below)
0%
50%
Threshold
100%
Target
+46%
200%
Max
0%
50%
Threshold
FY20 EVP Metric Performance Outcome
0%
50%
Threshold
100%
Target
100%
Target
FY20 Payout Range (Target EVP 200%, Maximum EVP 300%)
(% of Fixed Remuneration)
0%
100%
Threshold
200%
Target
Group Executive Pay for Performance
FY20 EVP Metric Performance Range
(Target achievement = Payment of 180% of FR – see below)
0%
50%
Threshold
100%
Target
FY20 EVP Metric Performance Outcome
0%
50%
Threshold
100%
Target
FY20 Payout Range (Target EVP 180%, Maximum EVP 300%)
(% of Fixed Remuneration)
0%
90%
Threshold
180%
Target
200%
Max
150%
Max
300%
Max
200%
Max
167%
Max
300%
Max
The resulting effect of the payout and performance ranges for
the CEO and Group Executives as outlined above is that, where
performance on a metric was determined to be above target,
the outcome awarded to the CEO and Group Executives was
determined proportionately having regard to the ranges
outlined above.
The following diagram and explanation have been included to
assist shareholders in understanding how the outcomes in the
following section have been calculated for each metric taking
into account the performance of a metric and the relevant
weighting.
FY20 EVP Metric Performance Outcome
131% (46% of 67% range)
Range = 100%
0%
50%
Threshold
100%
Target
+31%
167%
Max
Range = 67%
Using the FY20 Product Portfolio Simplifi cation (TE Plans)
metric as an example, the outcome for the metric was
determined to be 146% of target. This represents a 46% over
achievement of the target rate which is set at 100% (i.e. 100% +
46% = 146%). In translating this over achievement of 46% to
the metric performance outcome range as demonstrated in the
diagram above, the 46% is applied to the relevant metric
performance outcome range for the CEO and Group Executives,
and then the scorecard weighting is applied to derive a
weighted outcome.
If we take the CEO as an example, the target to maximum range
on the metric performance outcome range represents 50
percentage points (i.e. 100% to 150% equates to a range of 50%
between target and maximum). As the outcome is calculated as
a 46% over achievement of target, when it is converted to the
metric outcome range of 50% it equates to a 23% over
achievement of target on metric performance outcome range
(i.e. 46% of a 50% range = 23%, which equates to a 123%
outcome). Then applying the weighting of 5% for the Product
Portfolio Simplifi cation (TE Plans) metric, the weighted
outcomes is calculated at 6.1% for the CEO (i.e. 123% x 5% =
6.1% rounded). To express this weighted outcome as a % of the
maximum opportunity, the result of 6.1% is divided by 150% to
derive a weighted outcome of 4.1%.
Other than the change in the maximum opportunity as
communicated in last year’s remuneration report, the way in
which we calculate the outcomes for each metric is consistent
with our past practice. To reiterate, as each performance metric
operates independently of each other, the revised maximum
opportunity for the CEO and GE represents more than just a cap
on maximum payouts. It drives a signifi cant reduction in the
total reward opportunity for the CEO and Group Executives
between target and maximum and moderates the overall
quantum of variable pay.
22
57
(b) Overall FY20 Base EVP Outcomes
The Board actively evaluates performance against
the primary performance measures. The Board
maintains absolute discretion to ensure the Base
EVP Outcome is appropriate, taking into account
matters which may include Telstra’s performance,
customer experience and shareholder
expectations. Notwithstanding the impacts
COVID-19 and the bushfi re crisis had on our
business, our results were still in line with
guidance and market expectations. With respect
to the FY20 primary performance measures,
positive outcomes were achieved across many
fi nancial and non-fi nancial measures
demonstrating strong delivery against our FY20
Corporate Plan and T22 strategy. The Base EVP
Outcome was 80.5% of the target opportunity
(53.7% of maximum) for the CEO and 85.1% of the
target opportunity (51.0% of maximum) for the
other Senior Executives under the FY20 EVP. The
Board did not make any adjustments to any of the
primary performance measure outcomes
or the overall FY20 Base EVP Outcome as a result
of the impacts that COVID-19 has had on our
business. Some measures have been positively
impacted and others have been challenged. On
balance the Board determined that the primary
performance measure outcomes and the Base
EVP Outcome are driven by the results achieved
and no adjustments were made for the impact of
COVID-19. However, the Board did exercise
discretion in determining Individual EVP
Outcomes as outlined in Section 2.3 below.
Measures
Measures
Financial
Financial
Total Income ($m)
Total Income ($m)
excluding fi nance income
excluding fi nance income
(15% weighting)
(15% weighting)
Underlying
Underlying
EBITDA ($m)
EBITDA ($m)
is Earnings Before
is Earnings Before
Interest, Tax, Depreciation
Interest, Tax, Depreciation
& Amortisation, excludes
& Amortisation, excludes
net one-off nbn DA
net one-off nbn DA
receipts less nbn net C2C,
receipts less nbn net C2C,
one-off restructuring
one-off restructuring
costs and guidance
costs and guidance
adjustments but includes
adjustments but includes
depreciation of mobile
depreciation of mobile
lease right of use assets
lease right of use assets
(15% weighting)
(15% weighting)
Free Cash Flow ($m)
Free Cash Flow ($m)
excluding M&A and
excluding M&A and
spectrum, plus operating
spectrum, plus operating
lease payments (reported
lease payments (reported
in fi nancing cash fl ow
in fi nancing cash fl ow
under AASB 16)
under AASB 16)
(15% weighting)
(15% weighting)
Net Opex Reduction
Net Opex Reduction
($m)
($m)
Reduction in operating
Reduction in operating
non-Direct Variable Cost
non-Direct Variable Cost
(DVC) expenses
(DVC) expenses
(15% weighting)
(15% weighting)
Remuneration Report | Telstra Annual Report 2020
Performance Measure
Performance Measure
Results
Results
Threshold
Threshold
Target
Target
Maximum
Maximum
Result
Result
Result
Result
(% of Target)
(% of Target)
Base EVP Weighted Outcome
Base EVP Weighted Outcome
Additional information
Additional information
$25,800m
$25,800m
$26,300m
$26,300m
$27,300m
$27,300m
$26,096m
$26,096m
80%
80%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
Metric Weighting = 15%
Metric Weighting = 15%
Result = 80% of target
Result = 80% of target
CEO Weighted Outcome: 12% of target (8.0% of max)
CEO Weighted Outcome: 12% of target (8.0% of max)
80%
80%
$7,548m
$7,548m
$7,748m
$7,748m
$8,048m
$8,048m
$7,497m
$7,497m
0%
0%
GE Weighted Outcome: 12% of target (7.2% of max)
GE Weighted Outcome: 12% of target (7.2% of max)
80%
80%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Metric Weighting = 15%
Metric Weighting = 15%
Result = 0% of target
Result = 0% of target
CEO Weighted Outcome: 0% of target (0% of max)
CEO Weighted Outcome: 0% of target (0% of max)
0%
0%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
GE Weighted Outcome: 0% of target (0% of max)
GE Weighted Outcome: 0% of target (0% of max)
0%
0%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Metric Weighting = 15%
Metric Weighting = 15%
Result = 88% of target
Result = 88% of target
CEO Weighted Outcome: 13.2% of target (8.8% of max)
CEO Weighted Outcome: 13.2% of target (8.8% of max)
88%
88%
$3,293m
$3,293m
$3,493m
$3,493m
$3,893m
$3,893m
$3,446m
$3,446m
88%
88%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
GE Weighted Outcome: 13.2% of target (7.9% of max)
GE Weighted Outcome: 13.2% of target (7.9% of max)
88%
88%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Metric Weighting = 15%
Metric Weighting = 15%
Result = 78% of target
Result = 78% of target
CEO Weighted Outcome: 11.7% of target (7.8% of max)
CEO Weighted Outcome: 11.7% of target (7.8% of max)
78%
78%
$595m
$595m
$630m
$630m
$730m
$730m
$615m
$615m
78%
78%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
GE Weighted Outcome: 11.7% of target (7.0% of max)
GE Weighted Outcome: 11.7% of target (7.0% of max)
78%
78%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Total Income (excluding fi nance income) of $26,161m was
Total Income (excluding fi nance income) of $26,161m was
reported by Telstra for FY20. This result was audited by our
reported by Telstra for FY20. This result was audited by our
external auditor EY. Adjusted for the factors outlined
external auditor EY. Adjusted for the factors outlined
below, Total Income was $26,096m, which for the purpose
below, Total Income was $26,096m, which for the purpose
of the EVP performance measure is between threshold and
of the EVP performance measure is between threshold and
target.
target.
To ensure the FY20 Base EVP Outcome appropriately
To ensure the FY20 Base EVP Outcome appropriately
refl ected the performance of Senior Executives, the Board
refl ected the performance of Senior Executives, the Board
approved a negative net adjustment to the reported result
approved a negative net adjustment to the reported result
of $65m for NBN Transaction related adjustments to
of $65m for NBN Transaction related adjustments to
ensure no windfall gain or loss.
ensure no windfall gain or loss.
Underlying EBITDA of $7,409m was reported by Telstra for
Underlying EBITDA of $7,409m was reported by Telstra for
FY20. The result was reviewed by our external auditor EY.
FY20. The result was reviewed by our external auditor EY.
For the purposes of the EVP, Underlying EBITDA was
For the purposes of the EVP, Underlying EBITDA was
$7,497m after adjusting $88m for the NBN Transaction
$7,497m after adjusting $88m for the NBN Transaction
related adjustments to ensure no windfall gain or loss and
related adjustments to ensure no windfall gain or loss and
was determined to be below threshold.
was determined to be below threshold.
FCF on a guidance basis of $3,415m was reported by
FCF on a guidance basis of $3,415m was reported by
Telstra for FY20. The result was reviewed by our external
Telstra for FY20. The result was reviewed by our external
auditor EY.
auditor EY.
Adjusted for the factors outlined below, FCF was $3,446m
Adjusted for the factors outlined below, FCF was $3,446m
which for the purpose of the EVP performance measure
which for the purpose of the EVP performance measure
was between threshold and target.
was between threshold and target.
To ensure the FY20 Base EVP Outcome appropriately
To ensure the FY20 Base EVP Outcome appropriately
refl ected the performance of Senior Executives, the Board
refl ected the performance of Senior Executives, the Board
approved a net adjustment of $31m to the reported result
approved a net adjustment of $31m to the reported result
for NBN Transaction related adjustments to ensure no
for NBN Transaction related adjustments to ensure no
windfall gain or loss.
windfall gain or loss.
As outlined in the FY20 Full Year Results and Operations
As outlined in the FY20 Full Year Results and Operations
Review, underlying fi xed cost reduction (which is referred
Review, underlying fi xed cost reduction (which is referred
to as Net Opex Reduction for the purpose of the EVP) was
to as Net Opex Reduction for the purpose of the EVP) was
$615m. This resulted in an outcome between threshold
$615m. This resulted in an outcome between threshold
and target. The Board did not adjust the outcome for any
and target. The Board did not adjust the outcome for any
additional factors. The Net Opex Reduction calculation was
additional factors. The Net Opex Reduction calculation was
reperformed by our external auditor EY.
reperformed by our external auditor EY.
This result was driven by excellent progress in delivering
This result was driven by excellent progress in delivering
signifi cant absolute cost reduction across the
signifi cant absolute cost reduction across the
organisation. We are on track to meet our $2.5 billion cost
organisation. We are on track to meet our $2.5 billion cost
reduction target under our T22 strategy.
reduction target under our T22 strategy.
58
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Measures
Measures
Threshold
Threshold
Target
Target
Maximum
Maximum
Customer, Strategic and Transformation measures
Customer, Strategic and Transformation measures
Result
Result
Result
Result
(% of Target)
(% of Target)
Base EVP Weighted Outcome
Base EVP Weighted Outcome
Additional information
Additional information
Performance Measure
Performance Measure
Results
Results
Episode NPS
Episode NPS
Improvement in our Episode NPS
Improvement in our Episode NPS
(10% weighting)
(10% weighting)
Product Portfolio
Product Portfolio
Simplifi cation
Simplifi cation
(10% weighting
(10% weighting
comprising 5% for each
comprising 5% for each
Product Portfolio
Product Portfolio
Simplifi cation Metric)
Simplifi cation Metric)
TE Plans
TE Plans
(Number of
(Number of
active plans)
active plans)
(5% weighting)
(5% weighting)
Services on in
Services on in
market plans
market plans
(Number of
(Number of
services)
services)
(5% weighting)
(5% weighting)
+27
+27
+29
+29
+32
+32
+23
+23
0%
0%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
Metric Weighting = 10%
Metric Weighting = 10%
Result = 0% of target
Result = 0% of target
CEO Weighted Outcome: 0% of target (0% of max)
CEO Weighted Outcome: 0% of target (0% of max)
0%
0%
GE Weighted Outcome: 0% of target (0% of max)
GE Weighted Outcome: 0% of target (0% of max)
0%
0%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Metric Weighting = 5%
Metric Weighting = 5%
Result = 146% of target
Result = 146% of target
CEO Weighted Outcome: 6.1% of target (4.1% of max)
CEO Weighted Outcome: 6.1% of target (4.1% of max)
123%
123%
461
461
441
441
400
400
422
422
146%
146%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
Max
Max
GE Weighted Outcome: 6.6% of target (3.9% of max)
GE Weighted Outcome: 6.6% of target (3.9% of max)
131%
131%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
Max
Max
Metric Weighting = 5%
Metric Weighting = 5%
Result = 200% of target
Result = 200% of target
CEO Weighted Outcome: 7.5% of target (5% of max)
CEO Weighted Outcome: 7.5% of target (5% of max)
2.5m
2.5m
3.0m
3.0m
4.0m
4.0m
4.86m
4.86m
200%
200%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
150%
150%
Max
Max
GE Weighted Outcome: 8.3% of target (5% of max)
GE Weighted Outcome: 8.3% of target (5% of max)
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
167%
167%
Max
Max
The overall Episode NPS result was below threshold and is a
The overall Episode NPS result was below threshold and is a
weighted average calculation of the survey results from
weighted average calculation of the survey results from
Telstra business segments – 65% Consumer and Small
Telstra business segments – 65% Consumer and Small
Business (combined calculation) and 35% Enterprise
Business (combined calculation) and 35% Enterprise
(Telstra Enterprise Australia only). The result was audited by
(Telstra Enterprise Australia only). The result was audited by
Telstra’s Group Internal Audit.
Telstra’s Group Internal Audit.
Despite the outcome falling short of threshold, the result
Despite the outcome falling short of threshold, the result
refl ects an outstanding cross company effort to support
refl ects an outstanding cross company effort to support
customers in the face of unprecedented challenges brought
customers in the face of unprecedented challenges brought
on by COVID-19. Prior to the pandemic, Episode NPS was on
on by COVID-19. Prior to the pandemic, Episode NPS was on
track to likely exceed the FY20 target.
track to likely exceed the FY20 target.
With the onset of COVID-19, advocacy in TE increased to
With the onset of COVID-19, advocacy in TE increased to
unprecedented levels due to the rapid deployment of
unprecedented levels due to the rapid deployment of
COVID-19 continuity plans such as meeting customer
COVID-19 continuity plans such as meeting customer
demand by adding additional Australian-based workforce
demand by adding additional Australian-based workforce
capability. However, C&SB advocacy declined as a result of a
capability. However, C&SB advocacy declined as a result of a
reduced contact centre workforce particularly in India and
reduced contact centre workforce particularly in India and
the Philippines due to global containment measures. In an
the Philippines due to global containment measures. In an
effort to reduce the impact on customer experiences and
effort to reduce the impact on customer experiences and
advocacy, the following initiatives were put in place:
advocacy, the following initiatives were put in place:
• provided unlimited data for home and small business fi xed
• provided unlimited data for home and small business fi xed
broadband customers, extra data for consumer and small
broadband customers, extra data for consumer and small
business mobile customers and included unlimited local,
business mobile customers and included unlimited local,
national and 13/1300 calls and calls to Australian mobiles
national and 13/1300 calls and calls to Australian mobiles
for eligible pensioners with a Telstra home phone plan.
for eligible pensioners with a Telstra home phone plan.
• additional Australian-based workforce capability to meet
• additional Australian-based workforce capability to meet
the demand of high call volumes
the demand of high call volumes
• innovative digital messaging solution via the My Telstra
• innovative digital messaging solution via the My Telstra
app scaled up during the period to help customers contact
app scaled up during the period to help customers contact
us
us
• targeted campaigns to direct our customers to our digital
• targeted campaigns to direct our customers to our digital
retail channel
retail channel
We have made excellent progress toward our T22 target of
We have made excellent progress toward our T22 target of
halving the number of active Telstra Enterprise products by
halving the number of active Telstra Enterprise products by
FY21. In FY20, we reduced our active products to 422 which
FY21. In FY20, we reduced our active products to 422 which
for the purpose of the EVP was determined to be between
for the purpose of the EVP was determined to be between
target and maximum. The result was audited by Telstra’s
target and maximum. The result was audited by Telstra’s
Group Internal Audit.
Group Internal Audit.
The Enterprise products that we ceased over the period
The Enterprise products that we ceased over the period
include Government Wideband IP (including legacy GWIP),
include Government Wideband IP (including legacy GWIP),
Network Contact Centre (Genesys), Trunk Radio Service
Network Contact Centre (Genesys), Trunk Radio Service
(TRS) Fleetcomm, Panviva Agent Assist & Knowledge
(TRS) Fleetcomm, Panviva Agent Assist & Knowledge
management variants, specifi c Telstra Internet Direct (TID)
management variants, specifi c Telstra Internet Direct (TID)
fi xed pricing variants and multiple Skype for Business
fi xed pricing variants and multiple Skype for Business
variants.
variants.
In FY19 we launched our radically simplifi ed product
In FY19 we launched our radically simplifi ed product
proposition and have 20 core connectivity plans in market
proposition and have 20 core connectivity plans in market
for our C&SB customers (compared to 1,800 plans
for our C&SB customers (compared to 1,800 plans
previously, comprising 1,400 legacy and 400 active). Our
previously, comprising 1,400 legacy and 400 active). Our
C&SB customers can now enjoy month-to-month plans with
C&SB customers can now enjoy month-to-month plans with
no lock in contracts and no excess data charges in Australia
no lock in contracts and no excess data charges in Australia
across mobile phone and broadband services, fl exibility in
across mobile phone and broadband services, fl exibility in
how mobile handsets can be purchased and the ability to
how mobile handsets can be purchased and the ability to
customise plans by adding their chosen extras to those
customise plans by adding their chosen extras to those
plans.
plans.
In FY20 we continued to migrate customers to these plans
In FY20 we continued to migrate customers to these plans
and had connected 4.86 million services on these core
and had connected 4.86 million services on these core
connectivity plans by the end of FY20, which for the purpose
connectivity plans by the end of FY20, which for the purpose
of the EVP was determined to be at the maximum. This
of the EVP was determined to be at the maximum. This
result was audited by Telstra’s Group Internal Audit.
result was audited by Telstra’s Group Internal Audit.
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Measures
Measures
Threshold
Threshold
Target
Target
Maximum
Maximum
Customer, Strategic and Transformation measures (continued)
Customer, Strategic and Transformation measures (continued)
Result
Result
Result
Result
(% of Target)
(% of Target)
Base EVP Weighted Outcome
Base EVP Weighted Outcome
Additional information
Additional information
Performance Measure
Performance Measure
Results
Results
Digital
Digital
Engagement
Engagement
(10% weighting
(10% weighting
comprising 5% for each
comprising 5% for each
Digital Engagement
Digital Engagement
metric)
metric)
Digital Delivery
Digital Delivery
(digital sales as
(digital sales as
a % of total
a % of total
sales)
sales)
(5% weighting)
(5% weighting)
Telstra Connect
Telstra Connect
(Active Telstra
(Active Telstra
Enterprise
Enterprise
customers on
customers on
Telstra Connect)
Telstra Connect)
(5% weighting)
(5% weighting)
22.5%
22.5%
24.0%
24.0%
29.0%
29.0%
30.3%
30.3%
200%
200%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
150%
150%
Max
Max
Metric Weighting = 5%
Metric Weighting = 5%
Result = 200% of target
Result = 200% of target
CEO Weighted Outcome: 7.5% of target (5% of max)
CEO Weighted Outcome: 7.5% of target (5% of max)
GE Weighted Outcome: 8.3% of target (5% of max)
GE Weighted Outcome: 8.3% of target (5% of max)
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
167%
167%
Max
Max
3,500
3,500
4,000
4,000
5,000
5,000
6,610
6,610
200%
200%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
150%
150%
Max
Max
Metric Weighting = 5%
Metric Weighting = 5%
Result = 200% of target
Result = 200% of target
CEO Weighted Outcome: 7.5% of target (5% of max)
CEO Weighted Outcome: 7.5% of target (5% of max)
GE Weighted Outcome: 8.3% of target (5% of max)
GE Weighted Outcome: 8.3% of target (5% of max)
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
167%
167%
Max
Max
The Digital Delivery result was determined for the purpose of
The Digital Delivery result was determined for the purpose of
the EVP to be at maximum. The result was audited by
the EVP to be at maximum. The result was audited by
Telstra’s Group Internal Audit.
Telstra’s Group Internal Audit.
FY20 Digital Delivery was driven by excellent progress in key
FY20 Digital Delivery was driven by excellent progress in key
customer digital experiences in value added services and
customer digital experiences in value added services and
pre-paid.
pre-paid.
The digital delivery result was largely underpinned by rich,
The digital delivery result was largely underpinned by rich,
relevant and guided content digital experiences for our
relevant and guided content digital experiences for our
customers.
customers.
Digital engagement was enhanced through the following:
Digital engagement was enhanced through the following:
• we enhanced the My Telstra app to add additional
• we enhanced the My Telstra app to add additional
messaging placements and a new in-app shopping
messaging placements and a new in-app shopping
experience, driving further sales
experience, driving further sales
• improved Telstra.com online functionality in our digital
• improved Telstra.com online functionality in our digital
shop
shop
• new telstra.com homepage delivering improved customer
• new telstra.com homepage delivering improved customer
experience, explore to order conversion rates improved and
experience, explore to order conversion rates improved and
greater agility and speed to market
greater agility and speed to market
• to support customers with personalised journeys, the fi rst
• to support customers with personalised journeys, the fi rst
telstra.com “hub” design was launched in September 2019
telstra.com “hub” design was launched in September 2019
to enhance shopping experience. For example, the Apple
to enhance shopping experience. For example, the Apple
hub we implemented brought together the complete range
hub we implemented brought together the complete range
of Apple devices and accessories to make it easier for
of Apple devices and accessories to make it easier for
customer to explore options. This strategy has also been
customer to explore options. This strategy has also been
deployed to a range of other tailored product journeys
deployed to a range of other tailored product journeys
including Samsung products, student offerings and
including Samsung products, student offerings and
tailored journeys for customers who speak languages
tailored journeys for customers who speak languages
other than English.
other than English.
The new core capabilities established as part of T22 meant
The new core capabilities established as part of T22 meant
we could fast-track the digitisation and automation of our
we could fast-track the digitisation and automation of our
tools during COVID-19 and move more customer enquiries
tools during COVID-19 and move more customer enquiries
online quickly, removing the need for many customers to call
online quickly, removing the need for many customers to call
us at all.
us at all.
A key to improving customer experience and removing cost
A key to improving customer experience and removing cost
is by reducing servicing calls and delivering self-servicing
is by reducing servicing calls and delivering self-servicing
solutions for our Telstra Enterprise customers through our
solutions for our Telstra Enterprise customers through our
platform Telstra Connect. Telstra Connect is a digital
platform Telstra Connect. Telstra Connect is a digital
platform for Telstra business and enterprise customers to
platform for Telstra business and enterprise customers to
view and manage their products and services in one place.
view and manage their products and services in one place.
During the last three months of FY20 there were 6,610 active
During the last three months of FY20 there were 6,610 active
users on Telstra Connect resulting in the maximum outcome.
users on Telstra Connect resulting in the maximum outcome.
This result was achieved due to the accelerated onboarding
This result was achieved due to the accelerated onboarding
of customers on Telstra Connect following the onset of
of customers on Telstra Connect following the onset of
COVID-19.
COVID-19.
The calculation of the number of active customers on Telstra
The calculation of the number of active customers on Telstra
Connect was reperformed by our external auditor EY.
Connect was reperformed by our external auditor EY.
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Measures
Measures
Threshold
Threshold
Target
Target
Maximum
Maximum
Customer, Strategic and Transformation measures (continued)
Customer, Strategic and Transformation measures (continued)
Result
Result
Result
Result
(% of Target)
(% of Target)
Base EVP Weighted Outcome
Base EVP Weighted Outcome
Additional information
Additional information
Performance Measure
Performance Measure
Results
Results
Remuneration Report | Telstra Annual Report 2020
People Capability & Engagement
People Capability & Engagement
(Employee Engagement Score)
(Employee Engagement Score)
(10% weighting)
(10% weighting)
72
72
76
76
78
78
83
83
200%
200%
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
150%
150%
150%
150%
Max
Max
Metric Weighting = 10%
Metric Weighting = 10%
Result = 200% of target
Result = 200% of target
CEO Weighted Outcome: 15% of target (10% of max)
CEO Weighted Outcome: 15% of target (10% of max)
GE Weighted Outcome: 16.7% of target (10% of max)
GE Weighted Outcome: 16.7% of target (10% of max)
0%
0%
50%
50%
Threshold
Threshold
100%
100%
Target
Target
167%
167%
167%
167%
Max
Max
Our employee engagement score was 83 resulting in the
Our employee engagement score was 83 resulting in the
maximum outcome being awarded. There was a concerted
maximum outcome being awarded. There was a concerted
effort across the company to improve our engagement score
effort across the company to improve our engagement score
over FY20. Our leadership approach to managing and
over FY20. Our leadership approach to managing and
supporting our people through the impact of the COVID-19
supporting our people through the impact of the COVID-19
pandemic has also positively contributed to this outcome.
pandemic has also positively contributed to this outcome.
The following initiatives have resulted in a strong
The following initiatives have resulted in a strong
engagement score for FY20:
engagement score for FY20:
• Embedded and further scaled Agile ways of working.
• Embedded and further scaled Agile ways of working.
• Embedded and refi ned our new operating rhythm.
• Embedded and refi ned our new operating rhythm.
• In FY19 we brought forward job reductions in order to allow
• In FY19 we brought forward job reductions in order to allow
for lower level of workforce reduction, change and
for lower level of workforce reduction, change and
increased job security in FY20.
increased job security in FY20.
• Signifi cant investments in learning, including in software
• Signifi cant investments in learning, including in software
engineering, SDN software defi ned networking (including
engineering, SDN software defi ned networking (including
micro-credentialing with RMIT), data micro credentialing
micro-credentialing with RMIT), data micro credentialing
with UTS, cyber micro credentialing with UNSW, deep Agile
with UTS, cyber micro credentialing with UNSW, deep Agile
skills, leadership and team effectiveness, human centred
skills, leadership and team effectiveness, human centred
design and lean.
design and lean.
• Concluded Enterprise Bargaining.
• Concluded Enterprise Bargaining.
• Simplifi ed 40 processes that our people told us were a
• Simplifi ed 40 processes that our people told us were a
priority to fi x.
priority to fi x.
COVID-19 related initiatives:
COVID-19 related initiatives:
• Paused announcing any further workforce reductions for
• Paused announcing any further workforce reductions for
six months providing a level of job security for our people.
six months providing a level of job security for our people.
• accelerated Agent@home technology to enable our
• accelerated Agent@home technology to enable our
contact centre employees to work from home.
contact centre employees to work from home.
• increased communications from leaders and daily ‘All
• increased communications from leaders and daily ‘All
Hands Check-In’ including COVID-19 related content,
Hands Check-In’ including COVID-19 related content,
support and health/wellbeing tips for our people.
support and health/wellbeing tips for our people.
• responded to ensure that our customers were being looked
• responded to ensure that our customers were being looked
after; e.g. unlimited data to our broadband customers,
after; e.g. unlimited data to our broadband customers,
extra data for mobiles.
extra data for mobiles.
The calculation of our employee engagement score was
The calculation of our employee engagement score was
reperformed by our external auditor EY.
reperformed by our external auditor EY.
Total
Total
CEO
CEO
80.5% of target
80.5% of target
53.7% of maximum
53.7% of maximum
Group Executives
Group Executives
85.1% of target
85.1% of target
51.0% of maximum
51.0% of maximum
64
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Remuneration Report | Telstra Annual Report 2020
2.4 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 FY20 for Senior Executives
As a general principle, the Australian Accounting Standards require the value of share-based payments to be calculated at the
time of grant and to be expensed over the performance period and applicable Restriction Periods. This may not refl ect what Senior
Executives actually received or became entitled to during the year.
The tables in this section are voluntary disclosures and are not prepared in accordance with Australian Accounting Standards.
They are designed to provide greater transparency for shareholders on the pay and benefi ts the Senior Executives actually
received, or became entitled to receive, during FY20 while they were a Senior Executive.
Senior Executives receive a signifi cant portion of their variable remuneration in the form of equity. The value they actually receive
from that variable remuneration is tied directly to Telstra’s share price performance and whether the variable remuneration vests.
We believe this demonstrates that our reward framework effectively aligns with our shareholders’ interests and demonstrates the
linkage between pay and performance.
The statutory tables for Senior Executive remuneration can be found in Sections 2.4(b) to (e).
The following table details the actual remuneration the CEO received, or became entitled to receive, during FY20 in comparison to FY19.
Name
Andrew Penn
Year
2020
20191
Fixed
Remuneration
($000)
Individual
EVP
Outcome
payable as
cash
($000)2
Value of EVP
Restricted
Shares that
became
unrestricted
($000)3,4
Value of LTI
and other
rights that
became
unrestricted
($000)3,5
Total
($000)
% change
from prior
year
2,390
2,390
866
1,870
400
738
–
–
3,656
4,998
-26.9%
1. As reported in our 2019 Remuneration Report.
2. For FY20, amount relates to the cash component of the FY20 EVP, earned in FY20 and payable in September 2020. The amount refl ects the reduction resulting from the
exercise of discretion by the Board in determining the CEO’s Individual EVP Outcome as outlined in Section 2.3. For FY19, the amount relates to the cash component of
the FY19 EVP, earned in FY19 and paid in September 2019.
3. Equity in this table has been valued based on Telstra’s share price at 30 June for each respective year.
4. Amount relates to the value of variable remuneration earned in prior fi nancial years which was provided as Restricted Shares. For amounts reported for FY20, the
Restriction Period for these shares ended on 30 June 2020 and relates to Tranche 2 of the FY18 EVP. 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 plan and Tranche 1 of the FY18 EVP.
5. The outcome of the FY17 LTI plan was that none of the Performance Rights vested as Restricted Shares, therefore no LTI shares became unrestricted on 30 June 2020.
For amounts reported for FY19, the outcome of the FY16 LTI plan was that none of the Performance Rights vested as Restricted Shares, therefore no LTI shares became
unrestricted on 30 June 2019.
The following table details the actual remuneration Senior Executives (other than the CEO) as at 30 June 2020 received, or became
entitled to receive during FY20.
Fixed
Remuneration
($000)
Other cash
amounts
($000)1
Individual
EVP Outcome
payable as
cash
($000)2
Value of EVP
Restricted
Shares that
became
unrestricted
($000)3,4
Value of LTI
and other
rights that
became
unrestricted
($000)3,5
Total
($000)
1,112
484
930
1,200
1,000
1,150
1,100
1,400
–
183
–
–
–
–
–
–
379
175
406
461
435
356
405
513
–
–
121
137
–
–
–
211
425
1,916
–
–
–
–
–
–
–
842
1,457
1,798
1,435
1,506
1,505
2,124
Name
Michael Ackland
Kim Krogh Andersen
Alex Badenoch
Vicki Brady
David Burns
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
1. For Kim Krogh Andersen, the amount includes a cash allowance provided as a part of his relocation to Australia in accordance with Telstra’s relocation policy and
benefi ts and a sign-on cash payment of $100,000 which was provided as part of his appointment to the role of GE Product & Technology.
2. Amount relates to the cash component of the FY20 EVP, earned in FY20 and payable in September 2020. For Michael Ackland and Vicki Brady, the amounts refl ect the
reduction resulting from the exercise of discretion by the Board in determining their Individual EVP Outcome as outlined in Section 2.3.
3. Equity in this table has been valued based on Telstra’s share price at 30 June 2020.
4. Amount relates to the value of FY18 EVP Tranche 2 Restricted Shares which were earned in a previous year but were subject to a Restriction Period ending 30 June
2020. Equity in this table has been valued based on the Telstra closing share price on 30 June 2020 of $3.13.
5. The outcome of the FY17 LTI plan was that none of the Performance Rights vested as Restricted Shares, therefore no LTI shares became unrestricted on 30 June 2020.
For Michael Ackland the amount relates to the fi rst tranche of Retention rights that were granted to him prior to being appointed as the Group Executive, C&SB.
2.3 Exercise of Board Discretion in determining Individual
EVP Outcomes
The Base EVP Outcome (outlined above) was an input into each
Senior Executive’s Individual EVP Outcome. As outlined in
Section 2.1, each Senior Executive’s Individual EVP Outcome
was determined taking into consideration the Base EVP
Outcome, their “at target” EVP reward opportunity and their
performance (including, in the case of the Group Executives,
their performance relative to each other). The Board also has
discretion, in determining a Senior Executive’s Individual EVP
Outcome, to take into account factors in accordance with its
decision framework such as any material risk events identifi ed,
the severity of their impact and the executive’s accountability
for the matter.
We recognise the fundamental importance of doing business
responsibly, continuously striving to improve outcomes for our
customers and taking action where we do not meet the
standards we set for ourselves. The matters being investigated
by the ACCC (refer to note 7.3.1 to the fi nancial statements in
the 2020 Annual Report for further details) include
circumstances where we have not met those standards.
Consequently, in determining Individual EVP Outcomes for
FY20, the Board has reduced by 10% the individual
remuneration outcomes under the FY20 EVP for the Senior
Executives accountable for the areas of the business where
these issues occurred (reducing payments to these executives
collectively by $758,000). This reduction has been applied by
virtue of the accountability these executives had in their roles,
and not because of any specifi c conduct by them in relation to
the matter. The roles where the FY20 EVP individual
remuneration outcome has been reduced are:
• CEO – Andrew Penn
• Group Executive Telstra Consumer & Small Business
(5 September 2017 to 10 September 2018) – Vicki Brady
• Group Executive Telstra Consumer & Small Business
(11 September 2018 to current) – Michael Ackland
Should further information come to light once this matter is
concluded, the Board will consider any further impacts,
including on Individual EVP Outcomes.
66
31
32
67
Remuneration Report | Telstra Annual Report 2020
(b) Senior Executive remuneration (main table)
The table below has been prepared in accordance with the requirements of the Corporations Act and the relevant Australian
Accounting Standards and relates only to the periods that the person was a Senior Executive. The fi gures provided under the
equity settled share-based payments columns are based on accounting values and do not refl ect actual payments received by
Senior Executives in FY20.
Short term
Short term
employee benefi ts
employee benefi ts
Post-
Post-
employment
employment
benefi ts
benefi ts
Termination
Termination
benefi ts
benefi ts
Other long term benefi ts
Other long term benefi ts
Equity settled share-based payments
Equity settled share-based payments
Accounting value (at risk) ($)8,9
Accounting value (at risk) ($)8,9
Salary & fees
Salary & fees
($000)1
($000)1
EVP (cash)
EVP (cash)
($000)2
($000)2
Non-monetary
Non-monetary
benefi ts
benefi ts
($000)3
($000)3
Other
Other
($000)4
($000)4
Superannuation
Superannuation
($000)5
($000)5
Termination
Termination
benefi ts
benefi ts
($000)6
($000)6
Accrued leave
Accrued leave
benefi ts ($000)7
benefi ts ($000)7
Dividend
Dividend
Equivalent
Equivalent
Payment Accrual
Payment Accrual
($000)
($000)
Restricted shares
Restricted shares
($000)10
($000)10
Performance rights
Performance rights
($000)11
($000)11
Total
Total
($000)12
($000)12
2,369
2,369
2,369
2,369
1,091
1,091
691
691
473
473
–
–
909
909
680
680
1,179
1,179
193
193
979
979
922
922
1,129
1,129
845
845
1,079
1,079
766
766
1,379
1,379
1,379
1,379
277
277
716
716
866
866
1,870
1,870
379
379
637
637
175
175
–
–
406
406
563
563
461
461
155
155
435
435
655
655
356
356
563
563
405
405
550
550
513
513
917
917
–
–
385
385
10,864
10,864
8,561
8,561
3,996
3,996
6,295
6,295
10
10
10
10
1
1
4
4
149
149
–
–
3
3
5
5
8
8
2
2
60
60
206
206
8
8
3
3
30
30
164
164
10
10
10
10
13
13
123
123
292
292
527
527
(46)
(46)
7
7
(22)
(22)
(9)
(9)
204
204
–
–
–
–
27
27
44
44
(73)
(73)
(14)
(14)
138
138
28
28
22
22
26
26
134
134
–
–
(4)
(4)
(9)
(9)
258
258
211
211
500
500
21
21
21
21
21
21
16
16
11
11
–
–
21
21
15
15
21
21
4
4
21
21
19
19
21
21
15
15
21
21
15
15
21
21
21
21
5
5
14
14
184
184
140
140
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,100
1,100
–
–
1,100
1,100
–
–
59
59
59
59
28
28
14
14
12
12
–
–
23
23
13
13
30
30
1
1
25
25
21
21
28
28
16
16
27
27
14
14
34
34
35
35
7
7
12
12
273
273
185
185
106
106
31
31
16
16
–
–
–
–
–
–
36
36
7
7
28
28
2
2
16
16
–
–
13
13
–
–
13
13
–
–
54
54
16
16
–
–
–
–
282
282
56
56
942
942
838
838
351
351
140
140
47
47
–
–
375
375
200
200
311
311
54
54
373
373
177
177
282
282
88
88
303
303
83
83
487
487
384
384
(55)
(55)
55
55
711
711
(86)
(86)
477
477
438
438
17
17
–
–
234
234
3
3
176
176
10
10
184
184
4
4
135
135
51
51
142
142
48
48
366
366
(69)
(69)
(32)
(32)
32
32
5,038
5,038
5,119
5,119
2,342
2,342
1,931
1,931
1,088
1,088
–
–
2,007
2,007
1,513
1,513
2,258
2,258
348
348
2,079
2,079
2,142
2,142
2,000
2,000
1,603
1,603
2,046
2,046
1,774
1,774
2,864
2,864
2,689
2,689
1,306
1,306
1,595
1,595
3,416
3,416
2,019
2,019
2,410
2,410
431
431
23,028
23,028
18,714
18,714
Name and title
Name and title
Andrew Penn
Andrew Penn
CEO
CEO
Michael Ackland
Michael Ackland
GE C&SB
GE C&SB
Kim Krogh
Kim Krogh
Andersen
Andersen
GE P&T
GE P&T
Alex Badenoch
Alex Badenoch
GE TC&P
GE TC&P
Vicki Brady
Vicki Brady
CFO
CFO
David Burns
David Burns
GE GBS
GE GBS
Michael Ebeid AM
Michael Ebeid AM
GE TE
GE TE
Nikos Katinakis
Nikos Katinakis
GE N&IT
GE N&IT
Brendon Riley
Brendon Riley
GE & CEO InfraCo
GE & CEO InfraCo
Christian Von
Christian Von
Reventlow
Reventlow
Former GE P&T
Former GE P&T
Total current
Total current
and former KMP
and former KMP
Year
Year
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
2020
2020
2019
2019
In the table above, EVP Cash, Restricted Shares and Performance Rights are dependent on the satisfaction of performance conditions (an overview of performance
conditions is included above at 2.1(c)). All other items are not related to performance.
1.
2.
3.
4.
5.
Includes salary and salary sacrifi ce benefi ts (excluding salary sacrifi ce superannuation which is included under Superannuation).
For FY20, the amounts relate to performance in FY20 under the FY20 EVP, which will be paid in September 2020. The amounts for Andrew Penn, Michael Ackland and
Vicki Brady refl ect the reduction resulting from the exercise of discretion by the Board in determining Individual EVP Outcomes as outlined in Section 2.3. For FY19, the
amounts relate to cash amounts paid for performance in FY19 under the FY19 EVP. Those cash amounts were paid in September 2019.
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. Includes repatriation and relocation costs for Kim Krogh Andersen. Where applicable, the value of non-monetary benefi ts has been
grossed up for FBT by the relevant FBT rates.
Includes the net movement of annual leave entitlement balance. For Kim Krogh Andersen the amount also includes a cash allowance provided as a part of his
relocation to Australia in accordance with Telstra’s relocation policy and benefi ts as well as a cash sign on bonus of $100,000 which was provided as a part of his
appointment to the role of GE Product and Technology.
Represents company contributions to superannuation as well as any additional superannuation contributions made through salary sacrifi ce by Senior Executives.
Telstra does not provide any other post-employment benefi ts.
6.
7.
8.
Termination benefi ts for Christian Von Reventlow of $1.1 million comprised of a $550,000 payment in lieu of notice and a $550,000 termination payment, both as per
his service agreement and inclusive superannuation contribution where applicable. The termination benefi t provided was paid in compliance with Part 2D.2, Division 2
of the Corporations Act. Christian Von Reventlow forfeited any entitlement to his FY20 EVP award and the Restricted Share and Performance Right component of his
FY19 EVP outcome as a result of his cessation of employment.
Includes the net movement of long service leave entitlement balances.
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 fi nancial 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 fi nancial 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 fi nancial year.
As required under AASB 2, accounting expense that was previously recognised as remuneration has been reversed in FY20 as the service condition was not met.
9.
10. This includes the amortised value of the Restricted Share component of the FY20, FY19 and FY18 EVPs.
11. This includes the amortised value of the Performance Right component of the FY20, FY19 and FY18 EVPs. For Michael Ackland only, the amount disclosed for FY20 also
includes the amortised value for Retention Rights that were granted prior to being appointed as the Group Executive, C&SB.
12. The total for FY19 of $18.714 million in this table is different to the total for FY19 in the FY19 Remuneration Report of $24.703 million as it does not include $1.872
million for Warwick Bray (former CFO), $1.113 million for Robyn Denholm (former CFO) and $3.004 million for Will Irving (former GE Wholesale), reported in last year’s
report.
68
33
34
69
(c) FY20 EVP Payments (cash and equity)
Breakdown of FY20 Individual EVP Outcomes1
Maximum
potential EVP
opportunity
($000)2
25% Cash
component
($000)
7,170
3,450
1,451
2,790
3,600
3,000
3,450
3,300
4,200
848
866
379
175
406
461
435
356
405
513
–
35%
Restricted
Shares
component
($000)3
40%
Performance
Rights
component
($000)3
1,212
1,386
531
245
569
646
609
499
567
717
–
607
280
650
738
696
570
648
820
–
Individual EVP
Outcome
($000)
% of
maximum
opportunity
earned
% of
maximum
opportunity
forfeited
3,464
1,517
700
1,625
1,845
1,740
1,425
1,620
2,050
–
48.3%
44.0%
48.2%
58.2%
51.3%
58.0%
41.3%
49.1%
48.8%
0.0%
51.7%
56.0%
51.8%
41.8%
48.7%
42.0%
58.7%
50.9%
51.2%
100.0%
Name
Andrew Penn
Michael Ackland
Kim Krogh Andersen
Alex Badenoch
Vicki Brady
David Burns
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
Christian Von Reventlow
1. The FY20 Individual EVP Outcomes were approved by the Board on 9 August 2020. For Andrew Penn, Michael Ackland and Vicki Brady the amounts refl ect the reduction
resulting from the exercise of discretion by the Board in determining Individual EVP Outcomes as outlined in Section 2.3. These values represent the time served in
FY20 as a Senior Executive. The cash component will be paid in September 2020.
2. Represents the maximum potential EVP opportunity specifi c to their time as Senior Executives for FY20, adjusted for any variation in Fixed Remuneration throughout
FY20 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 2020 and are subject to Restriction Periods and performance
periods (as set out in section 2.1(b)) and the Senior Executive’s continued employment.
(d) Number and value of rights over equity instruments allocated, vested and exercised during FY20
Name
Andrew Penn
Michael Ackland
Kim Krogh Andersen
Alex Badenoch
Vicki Brady8
David Burns
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
Equity Movements
Total held at
1 July 20191
Rights
allocated
during FY202
Value of rights
allocated
($000)3
Rights
vested /
exercised
during FY204
Value of rights
vested/
exercised
($000)5
Other
changes
(lapsed
rights)6
Total held at
30 June 20207
383,554
558,281
1,407
–
339,480
202,232
400
(135,792)
–
115,548
131,772
–
–
–
–
224,842
83,562
203,130
168,169
164,095
202,208
273,721
–
445
165
402
333
325
542
–
–
–
–
–
–
–
–
–
–
510
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
941,835
405,920
–
340,390
215,334
203,130
168,169
164,095
475,929
–
Christian von Reventlow
–
–
All service and performance conditions for rights granted in previous fi nancial years and that have vested or been exercised in FY20 are summarised in the Remuneration
Report for each relevant year of grant. Each equity instrument granted, vested or exercised in FY20 (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 2.4(c) and (e) for further information.
1.
2.
3.
4.
5.
6.
7.
The balance refl ects the number of equity instruments held on the later of 1 July 2019 or the date on which the executive commenced as a KMP. Refer to section 1.1 for
further information.
Rights allocated during FY20 relate to the FY19 EVP Performance Rights which were allocated on 13 November 2019. The FY20 EVP Performance Rights will be
allocated in November 2020, refer to section 2.1 for more information.
The fair value refl ects 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 FY20 under the FY19 EVP are based on the grant dates of 15 October 2019 for the CEO and 11 October 2018 for all other Senior Executives,
respectively. The fair value of Performance Rights granted under the FY19 EVP are $2.52 for the CEO, and $1.98 for Senior Executives.
For Michael Ackland the amount relates to the fi rst tranche of Retention Rights that were granted to him prior to being appointed as the Group Executive, C&SB. For
more information on our Senior Executives’ interests in Telstra Shares refer to table 2.4(e).
The value of the Performance Rights vested/exercised refl ects the market value at the date the instruments vested and were released from restriction.
Relates to rights that lapsed due to the specifi ed performance measures or service conditions not being achieved.
The balance refl ects the number of rights at 30 June 2020 or, if earlier, the date on which the executive ceased to hold the KMP position. Refer to section 1.1 for further
information.
8. The nil closing balance reported for Vicki Brady under this table in last year’s Remuneration Report refl ected the balance of rights she held at the date she ceased to be
a KMP. The opening balance reported this year refl ects the balance of rights held at 1 July 2019 and relates to performance rights allocated under the FY18 EVP which
occurred during the period she was on extended leave.
There are no Performance Rights or options held by any KMP’s related parties and no Performance Rights or options held indirectly or benefi cially by our KMP. As at 30
June 2019, there were no options or Performance Rights vested, or vested and exercisable or vested and unexercisable.
Remuneration Report | Telstra Annual Report 2020
(e) Senior Executive interests in Telstra Shares
During FY20, our Senior Executives and their related parties held Telstra shares directly, indirectly or benefi cially as follows:
Name
Andrew Penn
Michael Ackland
Kim Krogh Andersen
Alex Badenoch
Vicki Brady7
David Burns
Michael Ebeid AM
Nikos Katinakis
Brendon Riley
Christian Von Reventlow
Total shares
held at
1 July 20191,2
1,385,048
56,875
–
106,454
123,508
227,766
–
–
836,073
–
Restricted Shares
allocated3
Net shares acquired
or disposed of and
other changes4
Total shares
held at
30 June 20201,5
Number of shares
held nominally at
30 June 20205,6
372,187
134,821
–
149,895
55,708
135,420
112,113
109,397
182,480
–
–
135,792
–
–
–
–
–
60,000
–
–
1,757,235
327,488
–
256,349
179,216
363,186
112,113
169,397
558,838
191,696
–
188,411
99,632
186,980
112,113
109,397
1,018,553
1,018,553
–
–
Total
2,735,724
1,252,021
195,792
4,183,537
2,465,620
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 FY20 were on an arm’s length basis at market price.
2. Refl ects the number of shares held on the later of 1 July 2019 or the date on which the executive commenced as a KMP. Refer to section 1.1 for further information.
3. Restricted Shares in this column were allocated on 13 November 2019 and relate to the FY19 EVP. The allocation of Restricted Shares under the FY20 EVP will be made
after the reporting date of 30 June 2020, therefore they have not been included in the table above.
4. For Michael Ackland the movement relates to Retention Rights that vested during FY20, refer to table 2.4(d) for further information. For Nikos Katinakis, the movement
relates to an on-market share purchase.
5. The balance refl ects the number of shares held at 30 June 2020 or, if earlier, the date on which the executive ceased to hold the KMP position. Refer to section 1.1 for
further information.
6. Nominally refers to shares held either indirectly or benefi cially by Senior Executives and shares held by their related parties including certain Restricted Shares held
benefi cially 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 to the fi nancial statements for further details.
7. The closing balance reported for Vicki Brady under this table in last year’s Remuneration Report refl ected the number of share interests at the date she ceased to be a
KMP. The opening balance reported this year refl ects the number of share interests held at 1 July 2019.
3.0 Non-executive Director remuneration
3.1 FY20 Fee 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 FY20 was:
FY20
Board fees
Board
FY20
Committee fees
Audit & Risk
Committee
People
&Remuneration
Committee
Nomination
Committee
Chairman
$775,000
Committee
Chairman
Non-executive Director
(annual base fee)
$235,000
Committee
Member
$70,000
$35,000
$56,000
$28,000
–
–
The Chairman Board fee and non-executive Director annual base
fee have not changed since 2014 and 2012 respectively, and
again no increase in Board fees is expected in FY21. The
Chairman of the Board does not receive Committee fees if he is a
Member of a Board Committee. All non-executive Directors are
members of the Nomination Committee and do not receive a fee
for that 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 FY20
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 benefi ts for non-executive
Directors other than the superannuation contributions noted
above.
Sections 1.2(f) and (g) of this report provide details of the share
ownership policy and securities trading restrictions that apply
to our non-executive Directors. Table 3.2 provides full details of
non-executive Director remuneration for FY20.
(b) Changes to the Board and Committee composition
During the year, Elana Rubin was appointed to the Board
effective 14 February 2020 and as a member of the People and
Remuneration Committee on 27 May 2020. On 11 August we
announced that Bridget Loudon has been appointed to the
Board effective 14 August 2020. Ms Rubin and Ms Loudon will
stand for election at our 2020 Annual General Meeting on 13
October 2020.
There were no other changes to Board and Committee
composition during FY20.
70
35
71
36
3.2 Detailed remuneration and interests in Telstra shares
(a) Non-executive Director Remuneration
Name and title
John P Mullen
Chairman
Eelco Blok4
Director
Roy H Chestnutt4
Director
Craig W Dunn
Director
Peter R Hearl
Director
Elana Rubin3
Director
Nora L Scheinkestel
Director
Margaret L Seale
Director
Niek Jan van Damme4
Director
Total
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Short term employee benefi ts
Post–employment
benefi ts
Salary and fees
($000)1
Non-monetary
benefi ts ($000)2
Superannuation
($000)
Total
($000)
754
754
231
86
265
255
284
263
280
273
83
–
277
283
249
249
258
183
2,681
2,346
8
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
4
21
21
4
2
5
5
21
21
11
21
8
–
21
21
21
21
5
3
117
115
783
779
235
88
270
260
305
284
291
294
91
–
298
304
270
270
263
186
2,806
2,465
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 provided to the Chairman. The value of non-monetary benefi ts has been
grossed up for FBT by the relevant FBT rates. The year-on-year increase in non-monetary benefi ts disclosed for the Chairman is due to an increase in car parking
utilisation.
3. Elana Rubin qualifi ed as KMP from 14 February 2020, when she was appointed as a non-executive Director of the company.
4. As Eelco Blok, Niek Jan van Damme and Roy Chestnutt are overseas residents, their superannuation contributions for FY20 are less than the contributions for
Australian resident non-executive Directors.
5. The total for FY19 of $2.465 million in this table is different to the total for FY19 in the FY19 Remuneration Report of $2.845 million as it does not include the amounts
disclosed for former non-executive Directors reported in last year’s report. These values are $0.143 million for Jane Hemstritch, $0.088 million for Russell Higgins AO,
$0.080 million for Steven Vamos and $.069 million for Trae Vassallo.
(b) Non-executive Directors’ interests in Telstra Shares
During FY20, our non-executive Directors and their related parties held Telstra shares directly, indirectly or benefi cially as follows:
Name
John P Mullen
Eelco Blok
Roy H Chestnutt
Craig W Dunn
Peter R Hearl
Elana Rubin
Nora L Scheinkestel
Margaret L Seale
Niek Jan van Damme
Total
Total shares held at
1 July 20191,2
Net shares acquired or
disposed of and other
changes1
Total shares held at
30 June 20201
Shares held nominally at
30 June 20203
101,159
75,000
43,000
73,173
70,000
37,361
130,478
310,540
–
840,711
–
–
27,000
–
30,000
14,367
19,787
–
74,000
165,154
101,159
75,000
70,000
73,173
100,000
51,728
150,265
310,540
74,000
1,005,865
75,000
–
70,000
72,473
–
–
119,385
310,540
–
647,398
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 FY20 were on an arm’s length basis at market price.
2. For Elana Rubin the balance as at 1 July 2019 represents shares held as at the date on which she became KMP.
3. Nominally refers to shares held either indirectly or benefi cially by non-executive Directors including those shares held by their related parties.
Remuneration Report | Telstra Annual Report 2020
4.0 Looking forward to FY21
4.1 FY21 Senior Executive Remuneration Framework
As outlined at the start of this report, we made a range of enhancements to our Senior Executive remuneration structure for FY20
in response to shareholder feedback to better refl ect community and stakeholder expectations.
For FY21 we do not anticipate any increases in Senior Executive Fixed Remuneration other than on appointment, promotion to a
new role or due to a signifi cant increase in accountabilities, nor do we intend on making any further signifi cant changes to the EVP
remuneration structure. However, we do continue to monitor the market and regulatory environment to look at ways of continually
enhancing and simplifying our Senior Executive Remuneration framework and governance to ensure that it continues to:
• support our strategy and reinforce our culture and values
• provide internally consistent and market competitive rewards to attract, motivate and retain highly skilled employees
• link fi nancial reward outcomes directly to employee contribution and company performance; and
• align to long term shareholder value creation.
The EVP structure for FY21 is as follows:
d
e
s
a
e
l
e
R
s
t
l
u
s
e
R
1
2
Y
F
)
%
5
2
(
d
i
a
P
h
s
a
C
P
V
E
M
G
A
a
r
t
s
l
e
T
1
2
0
2
)
%
5
7
(
d
e
t
a
c
o
l
l
A
y
t
i
u
q
E
P
V
E
FY21 EVP Initial
Performance
Period
1 July 2020 to
30 June 2021
Restricted Shares
(1st tranche)
End of restriction
30 June 2022
Restricted Shares
(2nd tranche)
End of restriction
30 June 2023
Restricted Shares
(3rd tranche)
End of restriction
30 June 2024
Restricted Shares
(4th tranche)
End of restriction
30 June 2025
Restricted
Shares – T1
Restricted
Shares – T2
Restricted
Shares – T3
Restricted
Shares –T4
Performance Rights
Performance
Rights
RTSR Test
30 June 2025
FY21 EVP Performance Rights RTSR Performance Period
1 July 2020 to 30 June 2025
FY21
FY22
FY23
FY24
FY25
FY26
Jul
Jun
Aug
Sep
Oct
Nov
Jun
Jul
Jun
Jul
Jun
Jul
Jun
Jul
Further information on the FY21 EVP structure will be provided in our 2021 Remuneration Report.
4.2 FY21 EVP Performance Measures and Targets
FY21 has already proven to be a year of signifi cant challenge
across our local and global economies and communities due to
the ongoing impact of the COVID-19 pandemic. Whilst Telstra
has shown great strength and stability during this time, we
acknowledge more than ever the importance of increased
transparency for our shareholders due to level of uncertainty
and disruption in the market. It is our intention to continue to
provide meaningful information to enable shareholders to
assess the appropriateness of our remuneration targets and
outcomes.
To refl ect this, the Board remain committed to providing market
leading levels of transparency around the targets by providing
this detail prospectively for FY21. This provides 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 FY21 EVP. These performance
measures and targets have been selected by the Board to
ensure that the CEO and other Senior Executives continue to
deliver against our T22 strategy, and that fi nancial rewards are
linked directly to Senior Executive contributions, company
performance and long term shareholder value creation.
In setting the primary performance measures and targets for
the FY21 EVP, the Board sought to ensure they were robust and
suffi ciently demanding, taking into account the key deliverables
and milestones outlined in our T22 strategy, planned fi nancial
outcomes contained within our FY21 Corporate Plan and FY21
guidance (as announced on 13 August 2020 and which takes
into account the estimated negative impact on FY21 Underlying
EBITDA from the in-year nbn headwind and the COVID-19
pandemic).
As we have now passed the midway point of our T22
transformation, the non-fi nancial metrics and targets continue
to build on the momentum gained in FY20 in delivering our T22
strategy. Our aspiration and commitment to enhancing our
digital engagement with our customers, radically simplifying
our products and eliminating customer pain points. We remain
fully committed to our T22 strategy which continues to position
us well especially during this period of heightened disruption
and uncertainty.
The targets that apply to the FY21 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 both during the fi nancial year as those
events may occur and also at the end of the fi nancial year, in
accordance with established principles to ensure that
outcomes appropriately refl ect 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 appropriate having
regard to Telstra’s business circumstances and priorities.
All of the following measures have been selected on the basis
that they are directly linked to our T22 strategy as described
below.
72
37
73
38
Performance
Measure
Metric
Weighting
FY20
Baseline^
FY21*
Threshold
Target
Max
Rationale for
why chosen
Performance
Measure
Metric
Weighting
FY20
Baseline^
FY21*
Threshold
Target
Max
Rationale for
why chosen
Remuneration Report | Telstra Annual Report 2020
Telstra External Income
(excluding fi nance
income)
Total
Income
15.0%
$26,161m
Underlying EBITDA is
Earnings Before
Interest, Tax,
Depreciation &
Amortisation, excludes
net one-off nbn DA
receipts less nbn net
C2C, one-off
restructuring costs and
guidance adjustments
but includes
depreciation of mobile
lease right of use assets
Underlying
EBITDA
15.0%
$7,409m
Above
bottom
end of
Market
Guidance*
Approx.
Midpoint
of Market
Guidance*
At or
above top
end of
Market
Guidance*
Free Cashfl ow excluding
M&A and spectrum plus
operating lease
payments (reported in
fi nancing cash fl ow
under AASB 16)
Free Cash
Flow (FCF))
15.0%
$3,415m
Year-on-year reduction
in operating non-Direct
Variable Cost (DVC)
expenses
Net Opex
Reduction
15.0%
$615m
$350m
$400m
$500m
• Key indicator of fi nancial
performance
• Ensures continued focus
on customer retention and
growth
• Aligns to Pillar 1 of the
T22 strategy
• Key indicator of fi nancial
performance
• Ensures appropriate focus
on profi t and cost to
deliver
• A strong indicator of
underlying company
profi tability
• Aligns to Pillar 4 of our
T22 strategy
• Key indicator of fi nancial
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 fi nancial
performance in an
increasingly competitive
market
• Delivering signifi cant
absolute cost reduction
aligns with intent to drive
productivity and reduce
costs
• Aligns to Pillar 4 of our
T22 strategy
Improvement in our
Episode NPS
Episode NPS
10%
+23
+30
+32
+34
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
Simpli-
fi cation
Digital
Engage-
ment
e
v
i
t
c
A
e
s
i
r
p
r
e
t
n
E
s
t
c
u
d
o
r
P
TE Number of
Active Plans, the
target provides
progress toward
our T22 reduction
of 50% by FY21
n
o
s
e
c
i
v
r
e
S
t
e
k
r
a
m
-
n
i
s
n
a
l
p
Consumer and
Small Business
Fixed and Postpaid
services on in-
market plans
Sale transactions
through digital
channels. The 35%
target is the
average of Q4 FY21
not an average of
performance for
the year.
Active Telstra
Enterprise
customers on
Telstra Connect in
the last 3 months
of FY21
y
r
e
v
i
l
e
D
l
a
t
i
g
D
i
t
c
e
n
n
o
C
a
r
t
s
l
e
T
People Capability
& Engagement
Top-line
sustainable
employee
engagement
score
5%
422
328
308
268
5%
4.86m
7.7m
8.2m
8.6m
5%
30.3%
33.5%
35.0%
45.0%
5%
6,610
6,840
7,100
9,000
10%
83
80
83
84
• 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
• Will increase the
simplicity, transparency
and satisfaction that our
customers experience and
allow the delivery of
material cost reductions
• An enabler for customers
to migrate to the new
stack
• Aligns to Pillar 1 of our
T22 strategy
• Improves customer
experience
• Supports our cost
reduction focus
• Aligns to Pillar 1 of our
T22 strategy
• 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
^
*
For FY21 targets, the baseline refers to FY20 results calculated on the same basis as the metric defi nition and includes restatement for AASB 16: Leases where
applicable.
Market Guidance means guidance for FY21 as set out in Telstra’s ASX announcement dated 13 August 2020.
40
75
g
n
i
t
h
g
i
e
w
l
a
t
o
t
f
o
%
0
6
–
l
a
i
c
n
a
n
F
i
74
39
5.0 Glossary
Base EVP Outcome
Cash Rights
The outcome determined by the Board following an assessment of Telstra’s performance against
the primary performance measures under the EVP during the Initial Performance Period and
making such adjustments as it considers necessary to ensure the outcome is appropriate, that is
then used as an input for determining each Senior Executive’s Individual EVP Outcome.
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 signifi cant infl uence.
Remuneration Report | Telstra Annual Report 2020
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 Telstra 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.
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation
EVP
FCF
Executive Variable Remuneration Plan
Free Cashfl ow
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 fi rst 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 benefi ts paid during the period)
relative to the performance of ordinary securities issued by the other companies in a comparator
group over the same period.
RTSR Performance Period
The fi ve-year performance period ending on 30 June 2024 over which the RTSR performance
condition for the FY20 EVP Performance Rights will be measured.
Fixed Remuneration or FR
Base salary plus company and private salary sacrifi ced superannuation contributions
Senior Executive
Refers to the CEO and those executives who are KMP with authority and responsibility for
planning, directing and controlling the activities of Telstra and the Group, directly or indirectly.
FY
GE
Financial year
Group Executive
Individual EVP Outcome
The individual award earned by a Senior Executive under the EVP taking into consideration their
performance, the Base EVP Outcome, their ‘at target’ EVP reward opportunity and other factors in
accordance with the Board’s decision framework such as any material risk events identifi ed, the
severity of their impact and the Senior Executive’s accountability for the matter.
Initial Performance Period
1 year (1 July 2019 – 30 June 2020)
KMP
LTI
NBN Transaction
Key Management Personnel
Long Term Incentive
Agreements with nbn co and the Government in relation to Telstra’s participation in the rollout of
the nbnTM network. This includes the entire Defi nitive Agreement receipts and the net negative
recurring NBN headwinds on our business.
NPS
Net Promoter Score is a non-fi nancial 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%.
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.
Performance Right
Permitted Reason
76
41
Service Agreement
A Senior Executive's contract of employment
STI
Short Term Incentive
Total Income
Total Telstra income
Total Remuneration
Underlying EBITDA
The sum of all the fi xed and variable components of remuneration as detailed in section 2.4
for Senior Executives, and all the remuneration components as detailed in section 3.2 for
non-executive Directors.
Underlying EBITDA is Earnings Before Interest, Tax, Depreciation & Amortisation. Excludes net
one-off nbn DA receipts less nbn net C2C, one-off restructuring costs and guidance adjustments
but includes depreciation of mobile lease right-of-use assets.
42
77
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
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 fi nancial 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).
Auditor’s Independence Declaration to the
Directors of Telstra Corporation Limited
As lead auditor for the audit of the fi nancial report of
Telstra Corporation Limited for the fi nancial year ended
30 June 2020, I declare to the best of my knowledge and
belief, there have been:
(a) no contraventions of the auditor independence requirements
of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional
conduct in relation to the audit.
This report is made on 13 August 2020 in accordance with
a resolution of the Directors.
This declaration is in respect of Telstra Corporation Limited
and the entities it controlled during the fi nancial year.
John P Mullen
Chairman
13 August 2020
Andrew R Penn
Chief Executive Offi cer and Managing Director
13 August 2020
Ernst & Young
Andrew Price
Partner
13 August 2020
A member fi rm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional
Standards Legislation
Financial
Report
78
43
79
2020.Financial Report.book Page 1 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 2 Wednesday, August 12, 2020 7:08 PM
Telstra Corporation Limited
and controlled entities
Australian Business Number (ABN): 33 051 775 556
Telstra Financial Report 2020
Financial report: introduction and contents
As at 30 June 2020
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 2020.
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). Our shares are also quoted on
the New Zealand Stock Exchange (NZX).
This financial report was authorised for issue in accordance with a
resolution of the Telstra Board of Directors on 13 August 2020. 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
F2
F3
F4
F6
F7
Contents
Notes to the Financial Statements
Financial Statements
Section 1: Basis of preparation
1.1
Income Statement
1.2
Statement of Comprehensive Income
1.3
Statement of Financial Position
1.4
Statement of Cash Flows
Statement of Changes in Equity
1.5
- Basis of preparation of the financial report
- Terminology used in our income statement
- Principles of consolidation
- Key accounting estimates and judgements
- Changes in accounting policies
F8
87
81
F8
87
82
F8
87
83
F8
87
85
86
F9
88
Income
87
87
87
87
88
94
F15
100
F21
108
F29
109
F30
112
F33
112
F33
Section 2: Our performance
Notes to the Financial Statements
2.1
- Segments and disaggregated revenue
Section 1: Basis of preparation
2.2
- Income
1.1 Basis of preparation of the financial report
2.3
- Expenses
1.2 Terminology used in our income statement
2.4
- Income taxes
1.3 Principles of consolidation
- Earnings per share
2.5
1.4 Key accounting estimates and judgements
2.6
- Notes to the statement of cash flows
1.5 Changes in accounting policies
Section 3: Our core assets, lease arrangements and
Section 2: Our performance
working capital
2.1 Segments and disaggregated revenue
- Property, plant and equipment
3.1
2.2
- Goodwill and other intangible assets
3.2
2.3 Expenses
3.3
- Lease arrangements
Income taxes
2.4
3.4
- Trade and other receivables and contract assets
2.5 Earnings per share
3.5
- Inventories
2.6 Notes to the statement of cash flows
- Trade and other payables
3.6
Section 3: Our core assets, lease arrangements and working capital
3.7
- Contract liabilities and other revenue received in
114
3.1 Property, plant and equipment
advance
116
3.2 Goodwill and other intangible assets
F51
3.8
- Trade receivables from customer contracts,
130
119
3.3 Lease arrangements
contract assets and contract liabilities
131
126
3.4 Trade and other receivables and contract assets
F52
- Deferred contract costs
3.9
132
129
3.5
F53
3.10 - Assets and liabilities held for sale
129
3.6 Trade and other payables
Section 4: Our capital and risk management
3.7 Contract liabilities and other revenue received in advance 130
4.1
- Dividend
3.8
4.2
- Equity
- Capital management
4.3
3.9 Deferred contract costs
4.4
- Financial instruments and risk management
3.10 Assets and liabilities held for sale
Trade receivables from customer contracts, contract
assets and contract liabilities
114
F35
116
F37
119
F40
126
F47
129
F50
129
F50
130
F51
94
100
108
109
112
112
133
F54
133
F54
135
F56
141
F62
130
131
132
Inventories
Section 5: Our people
Section 4: Our capital and risk management
5.1
4.1 Dividend
5.2
4.2 Equity
5.3
4.3 Capital management
4.4 Financial instruments and risk management
5.4
- Employee benefits
- Employee share plans
- Post-employment benefits
- Key management personnel compensation
- Investments in controlled entities
- Investments in joint ventures and associated
entities
Section 6: Our investments
Section 5: Our people
5.1 Employee benefits
6.1
5.2 Employee share plans
6.2
5.3 Post-employment benefits
5.4 Key management personnel compensation
Section 7: Other information
Section 6: Our investments
7.1
6.1
7.2
6.2
7.3
7.4
Section 7: Other information
7.5
7.1 Other accounting policies
7.6
7.2 Auditor’s remuneration
7.3 Other provisions
Directors’ Declaration
7.4 Parent entity disclosures
Independent Auditor’s Report
7.5 Commitments and contingencies
7.6 Events after reporting date
- Other accounting policies
Investments in controlled entities
- Auditor’s remuneration
Investments in joint ventures and associated entities
- Other provisions
- Parent entity disclosures
- Commitments and contingencies
- Events after reporting date
150
F71
151
F72
154
F75
157
F78
133
133
135
141
158
F79
163
F84
150
151
154
157
158
163
168
F89
168
F89
169
F90
169
F90
171
F92
171
F92
168
168
169
169
171
171
F95
173
172
F93
Income
Statement
For the year ended 30 June 2020
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 (loss)/profit 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) for the year 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.
Telstra Financial Report 2020
Year ended 30 June
2020
2019
Note
$m
$m
2.2
2.2
2.3
6.2
2.3
2.2
2.3
2.4
2.5
2.5
23,710
2,451
26,161
4,058
9,107
202
3,584
25,259
2,548
27,807
5,279
9,138
184
5,234
16,951
19,835
(305)
12
17,256
19,823
8,905
5,338
3,567
274
1,045
771
2,796
957
1,839
1,819
20
1,839
7,984
4,282
3,702
238
868
630
3,072
923
2,149
2,154
(5)
2,149
cents
cents
15.3
15.3
18.1
18.1
80 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F1
F2 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 81
Directors’ Declaration
Independent Auditor’s Report
172
173
Notes to the financial statements (continued)Notes to the financial statements (continued) 2020.Financial Report.book Page 3 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 4 Wednesday, August 12, 2020 7:08 PM
Statement of
Comprehensive Income
For the year ended 30 June 2020
Telstra Group
Profit/(loss) for the year attributable to:
Equity holders of Telstra Entity
Non-controlling interests
Telstra Financial Report 2020
Year ended 30 June
2020
2019
Note
$m
$m
1,819
20
1,839
2,154
(5)
2,149
Items that will not be reclassified to the income statement
Retained profits
Actuarial loss on defined benefit plans attributable to equity holders of Telstra Entity
5.3
Income tax on actuarial loss on defined benefit plans
Fair value of equity instruments reserve
Gain 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 income statement
Foreign currency translation reserve
Translation differences of foreign operations attributable to equity holders of Telstra Entity
4.3
4.3
Cash flow hedging reserve
Changes in cash flow hedging reserve
Share of other comprehensive income of equity accounted entities
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 for the year attributable to:
Equity holders of Telstra Entity
Non-controlling interests
The notes following the financial statements form part of the financial report.
(82)
25
-
16
(2)
(43)
21
54
(6)
(16)
(6)
2
49
6
(10)
3
3
66
(22)
40
39
3
-
(1)
(22)
7
26
66
1,845
2,215
1,825
20
2,220
(5)
Statement of
Financial Position
As at 30 June 2020
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
Right-of-use assets
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
Lease liabilities
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
Lease liabilities
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 2020
As at 30 June
2020
2019
Note
$m
$m
2.6
3.4
3.9
3.5
4.3
3.10
3.4
3.9
3.5
6.2
4.4
3.1
3.3
3.2
4.3
2.4
5.3
3.6
5.1
7.3
3.3
4.3
4.3
2.4
3.7
3.10
3.6
5.1
7.3
3.3
4.3
4.3
2.4
5.3
3.7
499
5,121
82
418
147
2
265
-
604
5,392
95
448
179
7
457
121
6,534
7,303
1,428
1,354
28
897
21
780
1,232
35
1,298
25
21,499
21,836
3,030
7,412
2,011
66
123
37,869
44,403
-
7,706
2,083
59
232
35,286
42,589
3,980
4,528
727
124
611
2,763
54
224
1,611
-
10,094
4
127
143
2,687
13,066
320
1,605
8
1,202
19,162
29,256
15,147
804
103
-
2,222
57
103
1,657
79
9,553
68
158
158
-
15,031
283
1,529
8
1,271
18,506
28,059
14,530
82 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F3
F4 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 83
Notes to the financial statements (continued)Notes to the financial statements (continued) 2020.Financial Report.book Page 5 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 6 Wednesday, August 12, 2020 7:08 PM
Statement of
Financial Position (continued)
Telstra Financial Report 2020
As at 30 June 2020
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.
As at 30 June
2020
2019
Note
$m
$m
4.2
4.2
4,451
5
10,017
14,473
674
4,447
(58)
10,160
14,549
(19)
15,147
14,530
Statement of
Cash Flows
For the year ended 30 June 2020
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 shares in controlled entities (net of cash acquired)
Payments for equity accounted investments
Payments for other investments
Total capital expenditure (including investments)
Proceeds from sale of property, plant and equipment
Proceeds from sale of businesses and shares in controlled entities (net of cash disposed)
Proceeds from sale of equity accounted and other investments
Distributions received from equity accounted investments
Receipts for the principal portion of finance lease receivables
Government grants received
Interest received
Net cash used in investing activities
Operating cash flows less investing cash flows
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment for the principal portion of lease liabilities
Payment for the principal portion of finance lease liabilities
Purchase of shares for employee share plans
Finance costs paid
Dividends paid to non-controlling interests
Dividend paid to equity holders of Telstra Entity
Proceeds from the sale of units in a controlled trust
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 2020
Year ended 30 June
2020
2019
Note
$m
$m
29,506
30,231
(21,895)
(22,748)
153
7,764
156
7,639
(754)
(956)
7,010
6,683
(2,341)
(1,101)
(3,207)
(1,163)
(3,442)
(4,370)
-
(33)
(122)
(115)
(21)
(26)
(3,597)
(4,532)
276
646
58
15
83
135
28
26
42
6
33
104
53
33
(2,976)
(3,615)
4,034
3,068
5,476
4,669
(6,562)
(4,637)
(993)
-
(22)
(812)
(23)
-
(79)
-
(781)
(2)
(1,903)
(2,259)
698
3
-
1
(4,138)
(3,088)
(104)
604
(1)
499
(20)
620
4
604
2.4
2.6
3.3
4.1
6.1
2.6
84 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F5
F6 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 85
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 7 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 8 Wednesday, August 12, 2020 7:08 PM
Statement of
Changes in Equity
For the year ended 30 June 2020
Telstra Financial Report 2020
Notes to the financial statements
Notes to the financial statements
Section 1. Basis of preparation
Section 1. Basis of preparation
This section explains basis of preparation of our
This section explains basis of preparation of our
financial report and provides a summary of our key
financial report and provides a summary of our key
accounting estimates and judgements.
accounting estimates and judgements.
Telstra Group
Share
capital
Reserves Retained
Total
profits
Balance at 1 July 2018
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
Dividends
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
Change in accounting policy arising from AASB 16:
'Leases'
Restated balance at 1 July 2019
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends
Non-controlling interests from the sale of units in a
controlled trust
Transactions with non-controlling interests
Amounts repaid on share loans provided to
employees
Additional shares purchased
Share-based payments
Balance at 30 June 2020
Note
1.5
6.1
4.2
$m
4,428
-
-
-
-
-
-
1
18
4,447
-
4,447
-
-
-
-
-
3
(22)
23
4,451
$m
(131)
-
73
73
-
-
-
-
-
(58)
-
(58)
-
63
63
-
-
-
-
-
-
5
$m
10,272
2,154
(7)
2,147
(2,259)
-
-
$m
14,569
2,154
66
2,220
(2,259)
-
-
-
1
-
10,160
18
14,549
(2)
(2)
10,158
1,819
(57)
1,762
(1,903)
14,547
1,819
6
1,825
(1,903)
-
-
-
-
-
10,017
-
-
3
(22)
23
14,473
The notes following the financial statements form part of the financial report.
Non-
control-
ling
interests
$m
(13)
(5)
-
(5)
(2)
1
(1)
-
1
(19)
-
(19)
20
-
20
(26)
Total
equity
$m
14,556
2,149
66
2,215
(2,261)
1
(1)
1
19
14,530
(2)
14,528
1,839
6
1,845
(1,929)
698
698
1
-
-
-
674
1
3
(22)
23
15,147
The financial statements of controlled entities are prepared for the
same reporting period as the Telstra Entity, using consistent
accounting policies.
1.4 Key accounting estimates and judgements
Preparing the financial report requires management to make
estimates and judgements.
1.4.1 COVID-19 pandemic
During the financial year 2020, a global pandemic caused by a
coronavirus (COVID-19) has been declared. Telstra continues to
closely monitor the COVID-19 pandemic and its impact on the global
and domestic economies. The expected duration and magnitude of
this pandemic and its potential impacts on the economy and
financial markets are unclear. It is not known whether the measures
being undertaken in Australia and globally will be sufficient to limit
the impact on the economy. The financial impacts for many
businesses are expected to be material and for Telstra it will depend
on how the situation and its impact on the economy and our
customers evolves.
Financial impacts of the COVID-19 pandemic identified and
recognised during the financial year 2020 have been reflected in our
financial performance for the year and considered in our financial
position as at 30 June 2020. To the extent that ongoing impacts have
been estimated we have considered the uncertainties arising from
the COVID-19 pandemic in preparation of our financial statements
and the relevant disclosures have been included in the following
sections:
• section 3.1 regarding impairment assessment of our ubiquitous
telecommunications network
• section 3.2 regarding impairment assessment of goodwill and
intangible assets
• section 3.4 regarding measurement of expected credits losses for
our financial assets
• section 4.4 regarding our financial risk management
• section 6.2 regarding impairment assessment of our investments
in associates.
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
EBITDA reflects earnings before interest, income tax, 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.
86 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F7
F8 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 87
Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 9 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 10 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements
Telstra Financial Report 2020
Notes to the financial statements
Telstra Financial Report 2020
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.4 Key accounting estimates and judgements (continued)
1.5 Changes in accounting policies
1.5 Changes in accounting policies (continued)
1.4.2 Summary of key management 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
Key accounting estimates and judgements
Assessment of a significant financing component
Assessment of a significant financing component in
in mass market contracts
mass market contracts
Determining standalone selling prices
Determining standalone selling prices
Assessment of a significant financing component in
Assessment of a significant financing component
Indefeasible Right of Use (IRU)
in Indefeasible Right of Use (IRU)
Impact of nbn Infrastructure Services Agreement
Impact of nbn Infrastructure Services Agreement
(ISA) on revenue from customer contracts and other
(ISA) on revenue from customer contracts and
income
other income
Assessment of a significant financing component in
Assessment of a significant financing component
nbn DAs
in nbn DAs
Percentage of completion for commercial contracts
with nbn co
Percentage of completion for commercial
contracts with nbn co
Estimating provision for income tax
Note Page
Note Page
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.4
101
F22
F23
102
F24
103
F25
104
F26
105
F26
105
F31
115
F36
F32
110
111
F36
2.4
2.4
3.2
3.1
3.1
3.1
3.2
3.2
2.4
3.1
3.2
3.2
3.2
3.2
3.3
Unrecognised deferred tax assets
Estimating provision for income tax
Cash generating units (CGUs) for impairment
Unrecognised deferred tax assets
assessment
Cash generating units (CGUs) for impairment
Useful lives and residual values of tangible assets
assessment
Determining CGUs and their recoverable amount for
Useful lives and residual values of tangible assets
impairment assessment
Determining CGUs and their recoverable amount
Capitalisation of development costs
for impairment assessment
Determining fair value of identifiable intangible
assets
Capitalisation of development costs
Useful lives of intangible assets
Determining fair value of identifiable intangible
assets
Determining lease term
Determining incremental borrowing rates for
Useful lives of intangible assets
property leases
Determining lease term
Estimating allowance for doubtful debts
Determining incremental borrowing rates for
Estimating net realisable value
property leases
Amortisation period of deferred contract costs
Estimating allowance for doubtful debts
Long service leave provision
Estimating net realisable value
Defined benefit plan
Amortisation period of deferred contract costs
Significant influence over our investments
Long service leave provision
Joint control of our investments
Defined benefit plan
Note 7.1 includes our accounting policy on foreign currency
Significant influence over our investments
translation and a summary of new accounting standards to be
Joint control of our investments
applied in future reporting periods.
3.9
3.4
5.1
3.5
5.3
3.9
6.2
5.1
6.2
5.3
3.2
3.3
3.3
3.4
3.3
3.5
6.2
6.2
F38
115
F39
117
F40
118
F40
119
F41
119
F43
120
F48
F50
122
F53
127
F71
129
F77
132
F86
150
F86
156
165
165
Note 7.1 includes our accounting policy on foreign currency
translation and a summary of new accounting standards to be
applied in future reporting periods.
A number of new or amended accounting standards became
mandatory during the financial year 2020, with the key changes to
our accounting policies resulting from AASB 16: ‘Leases’.
The impact of the first time adoption of the lease accounting
standard has been disclosed in note 1.5.1 below and the new
accounting policies in notes 2.2.3 and 3.3.3. Other accounting
standards and amendments mandatory in the current reporting
period did not have any material impacts on our accounting policies.
1.5.1 First time adoption of the new lease accounting standard
(a) Adoption approach and transition impacts
In February 2016, the AASB issued AASB 16: ‘Leases’, which replaced
AASB 117: ‘Leases’, Interpretation 4: ‘Determining whether an
Arrangement contains a Lease’, Interpretation 115: ‘Operating
Leases - Incentives’ and Interpretation 127: ‘Evaluating the
Substance of Transactions Involving the Legal Form of a Lease’.
We have adopted AASB 16 from 1 July 2019 using the modified
retrospective adoption approach. Applying this method, the
comparative information for the financial year 2019 has not been
restated. Instead, the cumulative effect of initially applying this
standard was 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.
The new standard introduced new requirements for lease
identification and determination of a lease term, which apply to both
lessee and lessor. However, on transition 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 has been applied to all open contracts that have
already been identified as leases under AASB 117 and Interpretation
4 before or as at 30 June 2019 (referred to as 'transitioning
contracts').
The new standard introduced significant accounting changes for our
lease arrangements where Telstra Group is a lessee as it requires the
lessee to recognise all its leases in the statement of financial
position as an asset (representing the right to use the leased asset)
and a liability (reflecting future lease payments). Depreciation of the
right-of-use asset and interest on the lease liability are recognised
over the determined lease term.
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 and as allowed by the standard, we have used the
following practical expedients for all similar leases on a consistent
basis (as opposed to on a lease-by-lease basis):
• 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 personal computers, printers and other related
equipment, 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 continue to be
recognised on a straight-line basis over the lease term as other
operating expenses
• we have excluded initial direct costs from the measurement of the
right-of-use assets upon 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.
1.5.1 First time adoption of the new lease accounting standard
(continued)
(a) Adoption approach and transition impacts (continued)
Other operating leases included motor vehicles and video
conferencing equipment, for which we have recognised right-of-use
assets and lease liabilities, and personal computers, printers and
other related equipment, which continue to be expensed under the
exemption for leases of low value assets.
AASB 16 substantially carried forward the lessor accounting
requirements of AASB 117. Accordingly, as a lessor we continue to
classify our leases and account for them as operating or finance
leases.
As a lessee, we also have leases of renewable energy plants with fully
variable lease payments, which continue to be expensed in the
period in which the event or condition that triggers those payments
occurs.
The transition impacts on our key lease arrangements were as below.
As a lessee, we have a significant number of long-term non-
cancellable property leases for our office buildings, warehouses,
retail stores and network sites which used to be accounted for as
operating leases. On transition to AASB 16 recognition of these
leases had the most significant impact on the statement of financial
position. A small number of our office and data centre buildings, or
parts thereof, are subject to subleases for which on transition we
have recognised finance lease receivables and recorded a net loss in
the opening retained earnings.
We also have a large volume of low value operating leases for mobile
handsets which are subleased to our consumer and small business
customers under our mobile bundles. This customer offer was
removed from the market on 25 June 2019. However, the
adjustments related to our existing leases resulted in considerable
transition impacts reflecting the recognition of right-of-use assets
and lease liabilities under our new lessee accounting policies. Our
customer mobile bundles offering handset leases are in substance
back-to-back subleases of the newly recognised right-of-use
assets. There were no changes to our lessor accounting for the
customer contracts and they continue to be accounted for as
operating leases due to the nature of these transactions.
Our finance leases (Telstra Group as a lessee) mainly related to sale
and leaseback of communication assets dedicated to solution
management, which were subleased to our enterprise customers
under dealer-lessor finance leases (Telstra Group as a dealer-
lessor). There were no measurement adjustments to these leases on
transition to AASB 16. However, going forward any similar new
arrangements where Telstra as a seller-lessee enters into a legal
sale and leaseback transaction will be assessed under AASB 16
requirements. In particular, where the legal sale transaction does
not meet revenue recognition criteria, sale and leaseback
transactions will be accounted for as a financial liability rather than
a lease.
As at 30 June 2019, certain finance and operating leases related to
selected data centres were classified as part of assets and liabilities
held for sale and separately presented in the statement of financial
position. On 1 July 2019, the operating leases classified as held for
sale have been remeasured under AASB 16 requirements and the
right-of-use assets and lease liabilities have been recognised as an
adjustment to the assets and liabilities classified as held for sale.
(b) Summary of adjustments
Key changes in the accounting policies resulted in the following
adjustments to our transitioning contracts on adoption of AASB 16
on 1 July 2019:
AASB 117 lease classification
as at 30 June 2019
Adjustment on transition on 1 July 2019
Telstra as a lessee in a finance
lease
Reclassification of the existing assets under finance leases and finance lease liabilities
recognised as at 30 June 2019 to right-of-use assets and lease liabilities, respectively.
Telstra as a lessee in an operating
lease
Recognition of lease liabilities (measured as present value of the remaining lease payments
over the determined lease term, discounted using our incremental borrowing rate as at 1 July
2019) and an equal amount of the right-of-use assets. Where relevant, the right-of-use assets
were adjusted by the amount of any prepaid or accrued lease payments or lease incentives
recognised as at 30 June 2019.
Telstra as an intermediate lessor
in an operating sublease
Change in classification from operating to finance subleases based on reassessment by
reference to head leases recognised on 1 July 2019, resulting in derecognition of the newly
created right-of-use assets and recognition of finance lease receivables with any
corresponding net gain or loss adjustment to the opening retained earnings.
Telstra as an intermediate lessor
in a finance sublease, or
Telstra as a head lessor (including
dealer-lessor) in a finance or an
operating lease
No adjustments have been required.
88 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F9
F10 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 89
Notes to the financial statements (continued)Notes to the financial statements (continued) 2020.Financial Report.book Page 11 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 12 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements
Telstra Financial Report 2020
Notes to the financial statements
Telstra Financial Report 2020
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.5 Changes in accounting policies (continued)
1.5.1 First time adoption of the new lease accounting standard
(continued)
(b) Summary of adjustments (continued)
The initial application of AASB 16 as at 1 July 2019 resulted in
recognition of $3,751 million right-of-use assets and $3,935 million
lease liabilities in the statement of financial position. Lease liabilities
included the $291 million reclassification of finance lease balances
previously presented as part of the borrowings line in the statement
of financial position. The difference between the right-of-use assets
and lease liabilities reflected adjustments to the right-of-use assets
for:
• any prepaid and/or accrued lease payments or lease incentives
• a net loss recognised in the opening retained earnings on
derecognition of right-of-use assets for finance subleases.
Table A summarises adjustments made on 1 July 2019 to each line
item in the statement of financial position affected by the first time
application of AASB 16. The reported balances of 30 June 2019
incorporate adjustments described in note 1.5.3.
Table A
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
Right-of-use assets
Intangible assets
Derivative financial assets
Deferred tax assets
Defined benefit asset
Total non-current assets
Total assets
As at
30 Jun 2019
AASB 16
As at
1 July 2019
Reported
Adjustments
Restated
$m
604
5,392
95
448
179
7
457
121
7,303
780
1,232
35
1,298
25
21,836
-
7,706
2,083
59
232
35,286
42,589
$m
-
7
-
-
-
-
(161)
43
(111)
18
-
-
-
-
(69)
3,751
-
-
-
-
3,700
3,589
$m
604
5,399
95
448
179
7
296
164
7,192
798
1,232
35
1,298
25
21,767
3,751
7,706
2,083
59
232
38,986
46,178
1.5 Changes in accounting policies (continued)
1.5.1 First time adoption of the new lease accounting standard
(continued)
(b) Summary of adjustments (continued)
Table A (continued)
Telstra Group
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Lease liabilities
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
Lease liabilities
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
Equity
Share capital
Reserves
Retained profits
Equity available to Telstra Entity shareholders
Non-controlling interests
Total equity
As at
30 Jun 2019
AASB 16
As at
1 July 2019
Reported
Adjustments
Restated
$m
4,528
804
103
-
2,222
57
103
1,657
79
9,553
68
158
158
-
15,031
283
1,529
8
1,271
18,506
28,059
14,530
4,447
(58)
10,160
14,549
(19)
14,530
$m
(8)
-
(5)
978
(78)
-
-
-
43
930
(64)
-
(18)
2,957
(213)
-
(1)
-
-
2,661
3,591
(2)
-
-
(2)
(2)
-
(2)
$m
4,520
804
98
978
2,144
57
103
1,657
122
10,483
4
158
140
2,957
14,818
283
1,528
8
1,271
21,167
31,650
14,528
4,447
(58)
10,158
14,547
(19)
14,528
The following paragraphs provide further details on the nature of
adjustments to each of the impacted line items in the statement of
financial position:
• property, plant and equipment decreased due to reclassification
of the existing assets under finance leases to right-of-use assets
• borrowings reduced due to reclassification of the existing finance
• right-of-use assets and lease liabilities were recognised as new
line items for the transitioning leases
• trade and other receivables and contract assets increased due to
recognition of finance lease receivables for finance subleases of
right-of-use assets
• prepayments, trade and other payables and other provisions
decreased due to prepaid or accrued rent and lease incentives
adjusting the right-of-use assets
• assets and liabilities held for sale increased to reflect the
transition to AASB 16 of operating leases classified as held for sale
as at 30 June 2019
lease liabilities to lease liabilities
• deferred tax liabilities decreased to reflect tax impacts of the net
loss recognised in the opening retained earning on the
derecognition of the right-of-use assets under finance subleases
• retained profits decreased to recognise a net loss on finance
subleases of right-of-use assets.
90 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F11
F12 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 91
Notes to the financial statements (continued)Notes to the financial statements (continued) 2020.Financial Report.book Page 13 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 14 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements
Telstra Financial Report 2020
Notes to the financial statements
Telstra Financial Report 2020
Section 1. Basis of preparation (continued)
Section 1. Basis of preparation (continued)
1.5 Changes in accounting policies (continued)
(d) Amendment to AASB 16
1.5.1 First time adoption of the new lease accounting standard
(continued)
(c) Reconciliation of operating lease commitments and the lease
liability
On adoption of AASB 16 and as detailed in the section above, for
Telstra as a lessee we recognised lease liabilities in relation to leases
previously classified as operating leases under AASB 117. The
recognised lease liabilities were measured at the present value of
the remaining lease payments over the determined lease term,
discounted using our incremental borrowing rates as of 1 July 2019.
The weighted average incremental borrowing rate applied to the
lease liabilities on 1 July 2019 was 2.9 per cent.
Our operating lease commitments at 30 June 2019 also included
commitments for leases legally commencing after the transition
date of 1 July 2019, all of which have been included in the lease
liability as at the transition date as under the new requirements they
represented modifications of transitioning lease contracts.
In June 2020, the AASB issued AASB 2020-4: ‘Amendments to
Australian Accounting Standards - COVID-19-Related Rent
Concessions’ to make it easier for lessees to account for COVID-19-
related rent concessions such as rent holidays and temporary rent
reductions. Telstra early adopted the amendment in June 2020 to
account for COVID-19-related rent concessions granted during the
financial year 2020.
The amendment provides lessees with an optional practical
expedient not to assess whether rent concessions occurring as a
direct consequence of the COVID-19 pandemic are lease
modifications and allows lessees to account for such rent
concessions as variable lease payments in most instances. It applies
to COVID-19-related rent concessions that reduce lease payments
due on or before 30 June 2021.
There were no material impacts from the adoption of this
amendment.
(e) Summary of new accounting policies
Lease liabilities recognised on adoption of AASB 16 differed from our
operating lease commitments disclosed in note 7.4.2 to the financial
statements in our 2019 Annual Report. The differences mostly arose
from the effects of discounting the future lease payments and the
reassessment of lease term (including lease modifications) as
summarised in Table B.
On adoption of the new lease accounting standard, our existing
accounting policies have been amended to reflect the changes
described in the sections above. The new accounting polices
describing revenue recognition from our lease arrangements and
accounting for our lease arrangements are disclosed in notes 2.2.3
and 3.3.3, respectively.
1.5.2 First time adoption of the amendments relating to the
interest rate benchmark reform
Following the decision by global regulators to replace Inter-bank
Offered Rates (IBORs), i.e. a series of interest rate benchmarks, with
alternative risk-free rates, we have established a project led by our
treasury department with representation from functions across the
company to monitor the developments of global regulators and to
manage the transition of our contracts that could be affected.
We have elected to early adopt AASB 2019-3: ‘Amendments to
Australian Accounting Standards - Interest Rate Benchmark
Reform’, issued by the AASB in October 2019. The standard includes
a number of reliefs that apply to all hedging relationships directly
affected by interest rate benchmark reform. A hedging relationship is
affected if interest rate benchmark reform gives rise to uncertainties
about the timing and or amount of benchmark-based cash flows of
the hedged item or the hedging instrument. The reliefs apply during
the period before the replacement of an existing interest rate
benchmark with an alternative risk-free rate. The reliefs cease to
apply once certain conditions are met. The adoption of the new
standard had no impact on Telstra’s financial results for the year
ended 30 June 2020.
To date we have identified that our net exposure on the financial
instruments is to Australian dollar BBSW as receive and pay cash
flows denominated in foreign currency are perfectly matched.
Table B: Reconciliation of operating lease commitments (Telstra as a
lessee) previously reported as at 30 June 2019 in our 2019 Annual
Report (applying AASB 117) to lease liabilities recognised on
transition to AASB 16 on 1 July 2019.
Table B
Telstra Group
Operating lease commitments as at 30 June
2019 (as reported in the 2019 Financial Report)
Add: reassessment of lease term (including
lease modifications)
Add: finance lease liabilities as at 30 June 2019
(as reported in the 2019 Financial Report and
excluding finance lease liabilities transferred
to liabilities held for sale)
(Less): discounting impact using the
incremental borrowing rate as at 1 July 2019
(Less): operating lease commitments related to
leases expensed as leases of low value assets
(Less): lease liabilities related to the disposal
group classified as held for sale as at 30 June
2019
Lease liabilities recognised on transition to
AASB 16 on 1 July 2019
Reconciliation
of operating
lease
commitments
to opening
balance of
lease liability
$m
3,796
324
291
(408)
(25)
(43)
3,935
Changes from the AASB 16 adoption impacting retained profits are
presented as restatements directly in the statement of changes in
equity.
1.5 Changes in accounting policies (continued)
1.5.2 First time adoption of the amendments relating to the
interest rate benchmark reform (continued)
Table C summarises as at 30 June 2020 our derivative instruments in
hedging relationships that would be affected by IBOR reform
showing estimated gross nominal floating-rate interest cash flows
until maturity and associated nominal amounts in the underlying
currency and weighted average maturity.
Table C
Telstra Group
Native
currency
Receive/
(pay)
Interest rate swaps
3MBBSW
3MBBSW
3MEURIBOR
3MLIBOR
Cross currency swaps
3MBBSW
3MEURIBOR
3MLIBOR
Net
3MBBSW
AUD
AUD
EUR
USD
AUD
EUR
USD
AUD
Receive
Pay
Pay
Pay
Pay
Receive
Receive
Pay
Nominal
amounts
Weighted
average
maturity
Nominal
interest
cash flows
until
maturity
$m
9
(4)
(49)
(28)
(428)
49
28
$m
years
2,283
(50)
(2,250)
(1,000)
(6,313)
2,250
1,000
2.3
3.5
1.8
1.3
3.1
1.8
1.3
(423)
(4,080)
1.5.3 Change in presentation of long-term network capacity assets
Our communication assets include long-term network capacity
assets arising from Indefeasible Right of Use (IRU) arrangements
which represent resources generating future economic benefits.
These assets used to be presented as part of our communication
assets in property, plant and equipment. In the absence of any
specific guidance, we assessed that such presentation best
reflected their nature and was not inconsistent with industry
practices.
However, new guidance in regard to accounting for different types of
IRU arrangements emerged following the adoption of AASB 16 and
recent International Financial Reporting Interpretations Committee
decisions. As a result, we have made a decision to change the
presentation of our existing long-term network capacity assets and
reclassify them retrospectively from property, plant and equipment
to intangible assets.
The presentation changes do not impact our reported results other
than restatement of the presentation of line items in our financial
statements (as described in Table A) recognised as at the beginning
of the comparative period, i.e. as at 1 July 2018 and subsequent
reporting periods.
Table A: Summary of retrospective changes in presentation of our
long-term network capacity assets in the respective financial
statements.
Table A
Telstra Group
Statement of financial position
Reclassification from property,
plant and equipment to
intangible assets
Income statement
Reclassification from
depreciation to amortisation
expense
Statement of cash flows
Reclassification from payments
for property, plant and
equipment to payments for
intangible assets
As at
30 June
2019
Year
ended
30 June
2019
As at
30 June
2018
$m
$m
$m
496
n/a
535
n/a
68
n/a
n/a
28
n/a
The presentation changes are retrospective. However, they do not
impact the recognition or measurement of the results reported in the
prior periods, and the presentation adjustments impact the same
nature of line items, i.e. there is no change in total amortisation and
depreciation expense or total cash flows from investing activities.
None of the presentation changes impact earnings per share.
92 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F13
F14 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 93
Notes to the financial statements (continued)Notes to the financial statements (continued) 2020.Financial Report.book Page 15 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 16 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Section 2. Our performance
Section 2. Our performance
This section explains our results, performance of our segments,
This section explains our results, performance of our segments,
which are reported on the same basis as our internal
which are reported on the same basis as our internal
management structure, and our earnings per share for the
management structure, and our earnings per share for the
period. It also provides disaggregated revenue, details of
period. It also provides disaggregated revenue, details of
selected income and expense items, information about taxation
selected income and expense items, information about taxation
and a reconciliation of our profit to net cash generated from
and a reconciliation of our profit to net cash generated from
operating activities.
operating activities.
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.1 Operating segments (continued)
Segment
Operation
SECTION 2. OUR PERFORMANCE
2.1 Segments and disaggregated revenue
2.1.1 Operating segments
Telstra InfraCo
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 functions 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.
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.
During the financial year 2020, there were no changes to our
operating segments. However, following the adoption of the new
lease accounting standard, we have adjusted the measure of
segment profit or loss as detailed below the description of our
reportable segments.
In our segment results, the ‘All Other’ category includes functions
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 Business Services and
Product and Technology Group.
We have four reportable segments as follows:
Segment
Operation
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 large business and government customers in Australia and
globally
• management of Telstra's networks outside Australia in conjunction with Network and 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
• delivery of outcome-based, transformative technology solutions through Telstra Purple, Telstra’s
technology services business
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
• wholesale 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. Effective from 1
July 2020, Telstra InfraCo’s asset accountabilities will also include our whole fibre network (including
mobile backhaul) and mobile towers, but exclude PSTN and legacy fixed, and satellite infrastructure
• providing access to our fixed network infrastructure assets to other Telstra functions, 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,
respectively
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.
An exception to the above is how we manage Telstra InfraCo, which is
presented on a standalone basis and inclusive of its transactions
with other functions. Other functions, however, do not reflect those
transactions with Telstra InfraCo in their segment results. The
paragraphs below describe types of transactions reported in Telstra
InfraCo segment that are not included in the results of other
functions. These transactions are eliminated at the Group level.
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).
EBITDA contribution differs from our reported EBITDA. In particular,
following the adoption of the new lease accounting standard on 1
July 2019, for the financial year 2020 we have adjusted the measure
of segment result to include the depreciation expense related to the
right-of-use assets for mobile handsets arising from leases (Telstra
as a lessee) which we sublease to our TC&SB customers in back-to-
back arrangements. This is because given the nature of these leases,
for management reporting purposes we continue to treat the
depreciation of the mobile handsets right-of-use assets as an
operating expense in order to provide a transparent view of our
operating performance. To ensure comparability, we have restated
the segment results for the financial year 2019 by removing the
rental expenses arising from all but mobile handset leases, as
reported in our management reports but previously classified as
operating leases (Telstra as a lessee) and included in the ‘All Other’
category.
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 access revenue from transactions with
other segments. The inter-segment charges are for the use of the
infrastructure assets and are not included in the EBITDA
contribution of these other segments within Telstra Group. The
access revenue is charged on the fixed network infrastructure
allocated to Telstra InfraCo. Where such assets are shared with
other functions, an allocation of the assets to Telstra InfraCo has
been determined based on historical usage. This access revenue is
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.
• 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 are eliminated at the Group level. The costs have not been
excluded from the N&IT segment or ‘All Other’ category. 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 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 segment to Telstra InfraCo segment),
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
• Telstra InfraCo also includes costs associated with support
functions, such as human resources, which have not been
removed from other segments. We allocate these costs by utilising
a 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
prepaid 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 ‘All Other’ category includes income from nbn disconnection
fees and the associated costs.
94 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F15
F16 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 95
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 17 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 18 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (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 2020
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
Access 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
equity accounted entities
EBITDA contribution
Depreciation of mobile handsets
right-of-use assets
Telstra Group EBITDA
Depreciation and amortisation
Telstra Group EBIT
Net finance costs
Telstra Group profit before
income tax expense
10,124
2,604
6
12,734
576
13,310
6,876
655
37
7,568
346
7,914
n/a
n/a
13,310
16
13,326
-
7,914
56
7,970
3
-
-
-
-
13
13
n/a
13
74
87
-
(92)
5
3
(84)
8
(76)
n/a
16,908
3,264
46
20,218
943
21,161
2,546
3
-
2,549
-
2,549
-
-
-
-
-
-
19,454
3,267
46
22,767
943
23,710
n/a
1,690
(1,690)
-
(76)
21,161
2,121
2,045
2,267
23,428
(308)
(305)
4,239
184
4,423
-
(1,690)
23,710
-
(1,690)
2,451
26,161
-
(305)
4,738
3,418
(1,761)
(80)
6,315
2,833
(737)
8,411
494
8,905
(5,338)
3,567
(771)
2,796
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 2019 (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
Access 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 equity
accounted entities
EBITDA contribution
Operating lease expenses for all
but mobile handset leases
Telstra Group EBITDA
Depreciation and amortisation
Telstra Group EBIT
Net finance costs
Telstra Group profit before
income tax expense
10,714
2,869
9
13,592
674
14,266
7,121
810
31
7,962
251
8,213
1
-
-
1
34
35
n/a
n/a
n/a
(58)
2
4
(52)
9
(43)
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)
-
14,266
15
14,281
-
8,213
30
8,243
2
35
35
70
-
(43)
22,471
2,199
2,156
10
2,279
24,750
12
4,679
269
4,948
-
(1,891)
25,259
-
(1,891)
2,548
27,807
-
12
5,645
3,502
(1,722)
(1,330)
6,095
3,210
(871)
8,434
(450)
7,984
(4,282)
3,702
(630)
3,072
During the financial year 2019, in the ‘All Other’ category we
recognised total impairment loss of $499 million, including $442
million related to intangible assets and $57 million related to
property, plant and equipment.
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). 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 $292
million (2019: $254 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 (2019:
$11 million) of inter-segment expenses treated as external
revenue in the Telstra InfraCo and eliminated in the ‘All Other’
category.
During the financial year 2020, in the 'All Other' category we
recognised our share of net loss of $308 million, which included
impairment of our investment in NXE Australia Pty Limited. Refer to
note 6.2.1 for further details.
96 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F17
F18 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 97
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 19 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 20 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (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 (NAS)
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 2020
3,794
3,791
3
8,236
7,766
470
102
102
-
354
354
-
725
725
-
-
-
-
99
(4)
103
12,734
576
13,310
13,310
12,734
576
-
-
-
13,310
203
203
-
1,640
1,634
6
1,555
1,555
-
2,526
2,195
331
1
1
-
1,998
1,990
8
(9)
(10)
1
7,568
346
7,914
6,185
5,833
352
1,729
1,735
(6)
7,914
-
-
-
-
-
-
-
-
-
13
-
13
-
-
-
-
-
-
-
-
-
-
13
13
13
-
13
-
-
-
13
12
12
-
(22)
(22)
-
-
-
-
14
14
-
48
48
-
(292)
(292)
-
164
156
8
(84)
8
(76)
219
211
8
(295)
(295)
-
(76)
582
582
-
230
230
-
395
395
-
472
472
-
-
-
-
-
-
-
870
870
-
2,549
-
2,549
2,549
2,549
-
-
-
-
2,549
4,591
4,588
3
10,084
9,608
476
2,052
2,052
-
3,379
3,035
344
774
774
-
1,706
1,698
8
1,124
1,012
112
22,767
943
23,710
22,276
21,327
949
1,434
1,440
(6)
23,710
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 (NAS)
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.
‘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 revenue amounts related 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 2019 (restated)
4,144
4,142
2
8,685
8,171
514
162
162
-
311
311
-
791
791
-
-
-
-
173
15
158
13,592
674
14,266
14,266
13,592
674
-
-
-
14,266
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
-
40
40
-
(254)
(254)
-
168
159
9
(52)
9
(43)
193
184
9
(236)
(236)
-
(43)
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
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
2020
2019
$m
$m
30,918
1,920
32,838
28,914
1,926
30,840
98 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F19
F20 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 99
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 21 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 22 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
Section 2. Our performance (continued)
2.1 Segments and disaggregated revenue (continued)
2.1.2 Segment results and disaggregated revenue (continued)
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 intangible assets
Net gain on disposal of businesses and investments
Net foreign currency translation gains
Government grants
nbn disconnection fees
Other miscellaneous income
Total income (excluding finance income)
Finance income
Finance income (excluding income from finance leases)
Finance income from finance leases (Telstra as a lessor)
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 Table B, respectively.
Revenue from other sources includes income from:
• our lease arrangements, including finance leases where Telstra is
a dealer-lessor, operating leases and operating subleases, as
detailed in note 3.3
• 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).
Net gain on disposal of business and investments includes $12
million gain on sale of assets and liabilities classified as held for sale
as at 30 June 2019. Refer to note 3.10 for further details.
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.
nbn disconnection fees earned under the Subscriber Agreement with
nbn co are recognised as other income because they do not relate to
our ordinary activities. We recognise this income when we have met
our contractual obligations under this agreement.
Year ended 30 June
2020
2019
$m
22,767
943
23,710
402
13
22
189
1,721
104
2,451
26,161
261
13
274
26,435
$m
24,291
968
25,259
686
1
9
200
1,611
41
2,548
27,807
222
16
238
28,045
Finance income from finance leases (Telstra as a lessor) for the
financial year 2020 relates to all finance leases accounted for under
the new lease accounting standard from 1 July 2019, whereas the
comparative period only includes finance leases accounted for under
the previous lease accounting requirements.
2.2 Income (continued)
2.2.1 Our contracts with customers
We generate revenue from customer contracts, which vary in their
form (standard or bespoke), 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 post-paid 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
post-paid 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.
In prior reporting periods we offered post-paid plans as either fixed
term contracts, where early termination charges applied if the
customer cancelled the contract; or casual month-to-month
contracts, where the customer could cancel the contract at any time
without any significant termination penalty. Fixed term contracts
were typically short term and rarely exceeded two to five years, with
the majority of mobile and fixed contracts in this category being 24
months and some small business contracts with a longer term.
Our fixed term mobile contracts often offered a bundle of hardware
and services, where the customer paid a monthly fee and received a
discount. These arrangements included two separate legal contracts
with a customer which were combined for accounting purposes.
In June 2019, for both consumer and small business customers we
introduced no-lock-in fixed and mobile service plans which will
ultimately replace our fixed term contracts. In those arrangements,
our customers can also purchase hardware together with the no-
lock-in service plans and pay one monthly fee for both, i.e. pay for
hardware on deferred payment terms. However, if customers stop
renewing their no-lock-in services, any outstanding hardware
balance becomes payable immediately.
Under our no-lock-in plans with hardware, separate legal contracts
for hardware and services with the same customer are not combined
for accounting purposes unless there is a price dependency between
the contracts, in which case both legal contracts constitute a
combined accounting contract with a term of one month.
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.
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).
Under some of our mobile and fixed contracts with hardware we offer
customers deferred payment terms for handsets or other devices.
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.
We separately account for a significant
financing component in our mass market
contracts offering handsets and other
devices on deferred payment terms.
We measure the financing component at
contract inception using a discount rate
reflecting credit characteristics of the
customer.
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 launched the Telstra Plus loyalty program under which our
consumer and small business customers can earn points
redeemable for certain goods and services in the future. Membership
of the program also gives customers access to tier benefits in the
form of free or discounted services like entertainment or technical
support. Points awarded for purchases of Telstra goods and services
are accounted for as material rights with any allocated revenue
received in advance for these performance obligations recognised as
a contract liability in the statement of financial position until such
rights are either exercised or forfeited. Discretionary bonus points
that reward behaviour and do not relate to accounting contracts are
classified as a marketing offer and expensed at the time of awarding
the points. Tier benefits are treated as a discount arising from a
framework arrangement and reduce revenue of the related
accounting contracts.
In the prior reporting periods we offered mobile plans where the
customer could lease a handset and purchase a bundle of services.
We ceased to offer these plans from 25 June 2019, however all such
contracts represent transitioning contracts on adoption of the new
lease accounting standard and we continue to account for them until
the earlier of the end of the lease or customer termination.
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 were separated under the
previous lease accounting standard based on the fair values of lease
and aggregate of non-lease components.
100 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F21
F22 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 101
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 23 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 24 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(a) Telstra Consumer and Small Business (TC&SB) contracts
(continued)
Determining
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 sometimes 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. Under our legacy fixed term contracts
customers often had rights included in the original contract to move
up and/or down within the plan family, however these rights had not
often been used. Our no-lock-in mass market fixed and mobile
service plans are monthly contracts, which customers can change
once a month or leave.
(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 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-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 dealer-lessor
finance leases with finance lease receivables recognised in the
statement of financial position.
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.
Our bespoke TE contracts are varied or renegotiated 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.
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 a 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 relative
standalone selling prices of those leases as required by the new
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.
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(b) Telstra Enterprise (TE) contracts (continued)
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 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.
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 service 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 post-paid 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.
102 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F23
F24 | 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 2020 2020.Financial Report.book Page 25 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 26 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
Section 2. Our performance (continued)
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(d) Agreements with nbn co (continued)
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 below.
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 27 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 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.
The nbnTM network rollout progress and its completion date are controlled by nbn
co and the final number of the fixed line premises may continue to change even
after all the relevant assets have been transferred to nbn co. Therefore the final
price adjustments, including interest where relevant, may not be known until nbn
co declares that the nbnTM network rollout is complete in accordance with the DAs.
We have applied management judgement in determining the amounts of IOP and
IAP recognised for the financial year 2020. Should evidence exist in the future
reporting periods that changes these amounts, other income and revenue will be
adjusted in the future reporting periods.
2.2 Income (continued)
2.2.1 Our contracts with customers (continued)
(d) Agreements with nbn co (continued)
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.
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, 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 3.8.1
and 3.8.2, 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.
We disclose the aggregate transaction price allocated to goods and
services which will be transferred after 30 June 2020 but arise from
contracts existing as at that date, including contracts with an initial
term of one year or less.
The aggregate transaction price excludes any future amounts arising
from mass market no-lock-in contracts, usage based contracts,
excess charges and legacy casual contracts or one-off transactions.
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.
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 2020.
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
2020
2019
$m
5,194
2,567
3,947
5,915
13,699
11,471
42,793
$m
6,935
3,174
4,068
5,793
13,412
13,016
46,398
2.2.3 Recognition and measurement
Our revenue recognition accounting policies are described below.
(a) Revenue from contracts with customers
Revenue from contracts with customers arises from goods and
services sold as part of our ordinary activities.
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 3.9.1.
(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.
104 | Telstra Corporation Limited and controlled entities
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F26 | 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 2020 2020.Financial Report.book Page 27 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 28 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
Section 2. Our performance (continued)
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)
(i) Step 1: Identify the contract with customer (continued)
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.
(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
control of which is transferred from Telstra to the customer and
material rights, but exclude fulfilment activities (i.e. 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 the customer purchasing additional distinct goods or
services receives an incremental discount of at least 5% 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 or 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 as government
taxes).
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.
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 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.
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 for which 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.
2.2 Income (continued)
2.2.3 Recognition and measurement (continued)
(a) Revenue from contracts with customers (continued)
(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.
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 some of our lease arrangements described in
note 3.3, in particular from:
• transitioning 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.
• finance leases where Telstra is a dealer-lessor of customer
premise equipment. We recognise revenue from sale of these
goods at point in time at the commencement date of the lease.
Where a (combined) accounting contract includes lease and non-
lease components and Telstra is a lessor, we allocate the
consideration to lease and non-lease components applying the
relative standalone selling prices requirements for revenue from
contracts with customers. Refer to note 3.3.3 for our updated lease
accounting policies following the adoption of the new lease
accounting standard.
106 | 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 2020 2020.Financial Report.book Page 29 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 30 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (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
Expenses relating to lease arrangements
Service contracts and other agreements
Promotion and advertising
General and administration
Other operating expenses
Depreciation and amortisation
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Finance costs
Interest on borrowings (excluding interest on finance leases in the comparative period)
Interest on lease liabilities (Telstra as a lessee)
Other
Less: interest on borrowings capitalised
Year ended 30 June
2020
2019
$m
$m
157
23
210
51
3,155
3,490
129
-
256
1,473
268
1,089
369
3,584
2,757
1,017
1,564
5,338
678
109
315
1,102
(57)
1,045
642
23
226
52
2,791
3,771
608
1,349
-
1,590
310
990
387
5,234
2,742
-
1,540
4,282
771
21
181
973
(105)
868
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.
• ‘rental expenses on operating leases’ were accounted for under
the previous lease accounting requirements. Following adoption of
the new lease accounting standard from 1 July 2019, ‘other
expenses’ continue to include ‘expenses relating to lease
arrangements’ (Telstra as a lessee) for certain types of costs and
losses accounted for under the new requirements. These amounts
have been detailed in note 3.3.1.
• ‘impairment losses’ include $124 million impairment of deferred
contract costs (2019: $100 million) and $5 million impairment of
property, plant and equipment and software assets (2019: $499
million). Refer to notes 3.1, 3.2 and 3.9 for further details on the
impairment of property, plant and equipment, intangible assets
and deferred contract costs, respectively.
• ‘other operating expenses’ include a $50 million provision related
to the Australian Competition and Consumer Commission (ACCC)
investigation. Refer to note 7.3 for further details.
• ‘interest on borrowings’ has been capitalised using a capitalisation
rate of 4.6 per cent (2019: 4.9 per cent)
• ‘interest on lease liabilities’ for the financial year 2020 relates to all
leases accounted for under the new lease accounting standard,
whereas the comparative period only includes interest on finance
leases accounted for under the previous requirements
• 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.
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% (2019: 30%)
Notional income tax expense differs from actual income tax expense due to the tax effect of:
Non-taxable and non-deductible items
Deferred tax assets derecognised
Amended assessments
Over provision of tax in prior years
Different tax rates in overseas jurisdictions
Income tax expense on profit
Income tax (benefit)/expense recognised during the year directly in other comprehensive income or equity
Year ended 30 June
2020
2019
$m
980
(16)
(7)
957
$m
953
(20)
(10)
923
2,796
839
3,072
922
118
18
1
(7)
(12)
957
(9)
37
1
(18)
(10)
(9)
923
13
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 the 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
2020
2019
Group
34.2%
34.5%
Australia
35.2%
35.1%
Group
30.0%
30.8%
Australia
33.2%
34.4%
The effective income tax rate for the Telstra Group of 34.2 per cent
(2019: 30.0 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 34.5 per cent (2019: 30.8 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 2019 TTC ETRs have been updated to include the impact of the
net over provision of tax and amended 2019 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.
108 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F29
F30 | 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 2020 2020.Financial Report.book Page 31 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 32 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
Section 2. Our performance (continued)
2.4 Income taxes (continued)
2.4.1 Income tax expense (continued)
Non-taxable and non-deductible items include the tax effect of:
Table D details the amount of deferred tax assets and liabilities
recognised in the statement of financial position. These deferred tax
assets and liabilities include impact of foreign exchange movements.
2.4.2 Deferred tax assets/(liabilities) (continued)
2.4.2 Deferred tax assets/(liabilities)
2.4 Income taxes (continued)
2.4.4 Recognition and measurement
• non-deductible impairment of our investment in NXE Australia Pty
Limited of $308 million included in our share of associate’s net loss
• non-deductible provision of $50 million for the ACCC investigation
• attributable taxable income from Controlled Foreign Companies of
Table D
Telstra Group
$26 million.
Deferred tax items recognised in the
income statement
Trade and other receivables and
contract assets
Allowance for doubtful debts
Deferred contract costs
Investments
Property, plant and equipment
Right-of-use assets
Intangible assets
Trade and other payables
Provision for employee entitlements
Other provisions
Lease liabilities (finance lease
liabilities in prior year)
Defined benefit liability
Borrowings and derivative financial
instruments
Contract liabilities and other revenue
received in advance
Capital tax losses
Income tax losses
Other
Deferred tax items recognised in other
comprehensive income or equity
Investments
Defined benefit asset
Borrowings and derivative financial
instruments
Other
Net deferred tax liability
Comprising:
Deferred tax assets
Deferred tax liabilities
We derecognised deferred tax assets related to property assets
considered disposed of for tax purposes.
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
2020
2019
Income tax expense
Over provision in prior years
Temporary differences recognised in
deferred tax expense
Trade and other receivables and
contract assets
Deferred contract costs
Property, plant and equipment
Right-of-use assets
Intangible assets
Trade and other payables
Provision for employee entitlements
Lease liabilities (finance lease
liabilities in prior year)
Contract liabilities and other revenue
received in advance
Other
Current tax expense
Income tax (refunds)/payments for
prior years
Income tax payable next year
Other
Income tax paid
$m
957
7
22
20
11
(239)
(33)
41
32
195
(37)
4
16
980
(4)
(224)
2
754
$m
923
10
1
(56)
(101)
-
169
52
(15)
(5)
(28)
3
20
953
103
(103)
3
956
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 assessing
recognition of deferred tax balances 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.
Year ended 30 June
2020
2019
$m
$m
(203)
(209)
63
(376)
(47)
(1,566)
(867)
(533)
123
257
141
925
106
(48)
445
20
31
(11)
(1,540)
(32)
(143)
176
-
1
(1,539)
66
(1,605)
(1,539)
36
(227)
(143)
(1,546)
-
(571)
174
289
148
19
98
(57)
405
120
29
(28)
(1,463)
(30)
(168)
190
1
(7)
(1,470)
59
(1,529)
(1,470)
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
2020
2019
$m
$m
1,907
292
138
2,337
1,736
240
167
2,143
2.4.3 Tax consolidated group
Under the 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 $55 million (2019: $46
million) and payable by the Telstra Entity of $24 million (2019: $109
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.
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 the 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.
Our current and deferred taxes must also recognise the impact of any
uncertain tax positions. If it is probable that a relevant tax authority
would accept our tax treatment, our tax balances are recognised
under that tax treatment. Otherwise, for each uncertain tax position
for which it is not probable that the relevant tax authority will accept
the tax treatment, we use the most likely amount or the expected
value to estimate our tax balances.
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.
110 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F31
F32 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 111
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 33 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 34 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 2. Our performance (continued)
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.
Telstra Group
Earnings used in the calculation of
basic and diluted EPS
Profit for the year attributable to equity
holders of Telstra Entity
Year ended 30 June
2020
2019
$m
$m
1,819
2,154
Weighted average number of ordinary
shares
Number of shares
(millions)
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
Basic EPS
Diluted EPS
11,880
11,880
15
20
11,895
11,900
cents
cents
15.3
15.3
18.1
18.1
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.
Table A
Telstra Group
Profit for the year
Add/(subtract) items classified as
investing/financing activities
Finance income
Finance costs
Net gain on disposal of property, plant
and equipment and intangible assets
Net (gain)/loss on disposal of
businesses, controlled entities and
equity accounted investments
Revenue of a dealer-lessor
Net loss on lease related transactions
Government grants received relating to
investing activities
Add/(subtract) non-cash items
Depreciation and amortisation
Share-based payments
Defined benefit plan expense
Share of net loss/(profit) from joint
ventures and associated entities
Impairment losses (excluding
inventories, trade and other
receivables)
Other
Cash movements in operating assets
and liabilities
(Increase)/decrease in trade and other
receivables and contract assets
Decrease in inventories
Increase in prepayments and other
assets
Increase in deferred contract costs
(Decrease)/increase in trade and other
payables
Decrease in contract liabilities and
other revenue received in advance
Increase/(decrease) in net taxes
payable
Decrease in provisions
Net cash provided by operating
activities
Year ended 30 June
2020
2019
$m
1,839
$m
2,149
(274)
1,045
(402)
(13)
(122)
(2)
(16)
5,338
23
51
305
5
(24)
(169)
37
(15)
(109)
(544)
(62)
203
(84)
(238)
868
(686)
85
-
-
(11)
4,282
23
52
(12)
501
(8)
177
28
(51)
(78)
121
(431)
(33)
(55)
7,010
6,683
Table B
Telstra Group
Cash at bank and on hand
Bank deposits and negotiable
certificates of deposit
Cash and cash equivalents in the
statement of cash flows
Year ended 30 June
2020
2019
$m
238
261
499
$m
219
385
604
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.
112 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F33
F34 | 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 2020 2020.Financial Report.book Page 35 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 36 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Section 3. Our core assets, lease
Section 3. Our core assets, lease
arrangements and working capital
arrangements and working capital
This section describes our core long-term tangible (owned and
leased) and intangible assets underpinning the Group’s
This section describes our core long-term tangible (owned and
performance and provides a summary of our asset impairment
leased) and intangible assets underpinning the Group’s
assessment. This section also describes our short-term assets
performance and provides a summary of our asset impairment
and liabilities, i.e. our working capital supporting the operating
assessment. This section also describes our short-term assets
liquidity of our business.
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, LEASE ARRANGEMENTS 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 2018
Reclassification of long-term capacity assets
Restated net book value at 1 July 2018
Additions
Depreciation expenses
Impairment losses
Disposals
Disposals through sale of controlled entities
Assets held for sale
Net foreign currency exchange differences
Other transfers
Restated net book value at 30 June 2019
At cost
Accumulated depreciation and impairment
Net book value at 1 July 2019
Change in accounting policy arising from AASB 16:
'Leases'
Restated net book value at 1 July 2019
Additions
Transfers from assets held for sale
Depreciation expenses
Impairment losses
Disposals
Derecognition due to finance leases
Net foreign currency exchange differences
Other transfers
Net book value at 30 June 2020
At cost
Accumulated depreciation and impairment
$m
49
-
49
-
(3)
-
-
-
-
-
16
62
65
(3)
62
-
62
-
-
(1)
-
(3)
-
-
-
58
62
(4)
$m
612
-
612
141
(98)
(3)
-
-
(44)
2
(9)
601
1,390
(789)
601
(43)
558
65
-
(61)
(1)
-
-
1
4
566
1,278
(712)
$m
21,065
(535)
20,530
2,975
(2,544)
(51)
(21)
-
(60)
47
(16)
20,860
60,683
(39,823)
20,860
(14)
20,846
2,467
15
(2,607)
-
-
(3)
24
(115)
20,627
61,879
(41,252)
$m
382
-
382
60
(97)
(3)
-
(2)
(13)
3
(17)
313
1,251
(938)
313
(12)
301
22
8
(88)
(2)
-
-
-
7
248
1,075
(827)
$m
22,108
(535)
21,573
3,176
(2,742)
(57)
(21)
(2)
(117)
52
(26)
21,836
63,389
(41,553)
21,836
(69)
21,767
2,554
23
(2,757)
(3)
(3)
(3)
25
(104)
21,499
64,294
(42,795)
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
3.1 Property, plant and equipment (continued)
The following paragraphs provide further information about our fixed
asset classes:
• additions to property, plant and equipment include $41 million
(2019: $74 million) of capitalised borrowing costs directly
attributable to qualifying assets
• buildings include leasehold improvements related to right-of-use
assets recognised under our leasing arrangements (Telstra as a
lessee)
• our property, plant and equipment assets include building assets
which are mainly used by us to generate revenue, however we also
generate an insignificant rental income from those assets under
our operating leases (Telstra as a lessor). Given the dual use of
these assets and the insignificance of the rental income, those
assets continue to be presented as owned assets not subject to
operating leases.
• communication assets include certain network land and building
assets that are essential to the operation of our communication
assets
• as at 30 June 2020, we had property, plant and equipment under
construction amounting to $1,158 million (2019: $1,006 million).
As these assets were not installed and ready for use, no
depreciation has been charged on these assets.
3.1.1 Impairment assessment
(a) Impairment testing
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 assets 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.
(b) Telstra Entity ubiquitous telecommunication network
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
determine our CGUs.
We have determined that assets that
form part of the Telstra Entity
ubiquitous telecommunications
network, comprising the customer
access network and the core network,
are considered to be working together
to generate our cash inflows. 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.
During the financial year 2020 we have identified the potential
impacts arising from the COVID-19 pandemic as an impairment
indicator. As a result we have performed impairment testing of our
Telstra Entity ubiquitous telecommunications network using a value
in use calculation to determine the recoverable amount of this CGU.
To the extent possible we have utilised the estimates, assumptions
and judgements that reflect the COVID-19 pandemic uncertainties in
our impairment testing. We have concluded that the discounted cash
flows generated by our ubiquitous telecommunications network
continue to support its carrying value, thus no impairment loss was
required.
3.1.2 Recognition and measurement
(a) Initial recognition
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
2020
2019
5 - 55
3 - 57
4 - 13
5 - 55
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, a determination of when the
asset may be superseded
technologically or made obsolete.
The net effect of the assessment of
useful lives was a $37 million (2019:
$253 million) decrease in depreciation
expense.
114 | Telstra Corporation Limited and controlled entities
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F36 | 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 2020 2020.Financial Report.book Page 37 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 38 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.2 Goodwill and other intangible assets
This note provides details of our goodwill and other intangible
assets and their impairment assessment.
Our impairment assessment compares the carrying values 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
Net book value at 1 July 2018
Reclassification of long-term capacity assets
Restated net book value at 1 July 2018
Additions
Acquisition of controlled entities
Amortisation expense
Impairment losses
Disposal through sale of controlled entities
Net foreign currency exchange differences
Other transfers
Restated net book value at 30 June 2019
At cost
Accumulated amortisation and impairment
Net book value at 1 July 2019
Additions
Amortisation expense
Impairment losses
Net foreign currency exchange differences
Other transfers
Net book value at 30 June 2020
At cost
Accumulated amortisation and impairment
$m
1,049
-
1,049
-
1
-
-
-
26
-
1,076
1,171
(95)
1,076
-
-
-
9
-
1,085
1,172
(87)
$m
4,520
-
4,520
1,091
-
(1,216)
(442)
(5)
3
32
3,983
10,917
(6,934)
3,983
734
(1,234)
(1)
1
27
3,510
11,046
(7,536)
$m
2,195
-
2,195
56
-
(230)
-
(1)
1
2
2,023
2,878
(855)
2,023
403
(239)
(1)
-
3
2,189
3,265
(1,076)
$m
158
535
693
29
-
(94)
-
-
4
(8)
624
1,432
(808)
624
22
(91)
-
(1)
74
628
1,508
(880)
$m
7,922
535
8,457
1,176
1
(1,540)
(442)
(6)
34
26
7,706
16,398
(8,692)
7,706
1,159
(1,564)
(2)
9
104
7,412
16,991
(9,579)
The following paragraphs detail further information about our
intangible assets classes:
• additions to software assets include $16 million (2019: $31
million) of capitalised borrowing costs directly attributable to
qualifying assets
• as at 30 June 2020, we had software assets under development
amounting to $211million (2019: $372 million). As these assets
were not installed and ready for use, no amortisation has been
charged on the amounts.
• impairment expense of $442 million recognised in the financial
year 2019 related to our legacy IT systems
• software assets mostly comprise internally generated assets
• licences comprise of the spectrum licenses and apparatus
licenses obtained to operate a range of radiocommunications
devices.
During the financial year 2020, there have been no changes to our
CGUs with allocated goodwill except for the integration of three
entities previously disclosed within ‘Other’ into Telstra Enterprise
Australia Group. Prior to the integration, these three entities were
assessed individually.
In addition to at least annual impairment testing requirements for
CGUs with allocated goodwill, during the financial year 2020 we have
also identified the potential impacts arising from the COVID-19
pandemic as an impairment indicator.
As a result, and to the extent possible, we have utilised the
estimates, assumptions and judgements that reflect the COVID-19
pandemic uncertainties in our impairment testing. We have
concluded that the discounted cash flows generated continue to
support the carrying values, thus no impairment loss was required.
(c) 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
Telstra Enterprise
International Group
Telstra Enterprise
Australia Group
Discount rate
Terminal value
growth rate
2020
2019
2020
2019
%
9.5
%
9.2
13.1
12.8
%
2.0
2.3
%
3.0
3.0
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 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 47 basis points (2019: 293 basis points) or the terminal
value growth rate would need to decrease by 82 basis points (2019:
413 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.
3.2 Goodwill and other intangible assets (continued)
3.2.1 Impairment assessment
(a) Impairment testing
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 amount 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 different period is
justified. The forecasts use management
estimates to determine income,
expenses, capital expenditure and cash
flows for each asset and CGU.
(b) Cash generating units with allocated goodwill
The carrying amount of goodwill has been allocated to the CGUs as
detailed in Table B.
Table B
Telstra Group
Telstra Enterprise International Group ¹
Telstra Enterprise Australia Group ²
Other ³
As at 30 June
2020
2019
$m
587
437
61
1,085
$m
578
367
131
1,076
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.
116 | 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 2020 2020.Financial Report.book Page 39 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 40 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.2 Goodwill and other intangible assets (continued)
3.2.2 Recognition and measurement
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.
3.2 Goodwill and other intangible assets (continued)
3.3 Lease arrangements
3.2.2 Recognition and measurement (continued)
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.
(a) Amortisation
The weighted average amortisation periods of our identifiable
intangible assets are as follows:
Table D
Telstra Group
Software assets
Licences
Other intangibles
Expected benefit
(years)
As at 30 June
2020
2019
8
14
16
8
14
16
Useful lives of
intangible
assets
We apply management judgement to
determine the amortisation period
based on the expected useful lives of
each asset class.
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 2020 was a $87 million
(2019: $130 million) decrease in
amortisation expense.
This note provides details about our leasing arrangements,
where Telstra is either a lessee or a lessor, including
arrangements where Telstra is an intermediate lessor (i.e.
subleases).
We have adopted the new lease accounting standard from 1 July
2019. Note 1.5 details changes in our accounting policies and a
summary of impacts on the first time adoption. This note provides
disclosures required under the new accounting standard and relates
to all our lease arrangements in place during the financial year 2020.
3.3.1 Telstra as a lessee
Our lease arrangements where Telstra is a lessee include the
following lease categories:
• properties, including office buildings, retail space, warehouses
and network sites (mainly land and data centre buildings)
• spaces on mobile towers
• mobile handsets leased under transitioning contracts, which are
subleased to our consumer and small business customers
• communication assets dedicated to solution management that we
provide to our customers largely in a back-to-back finance lease
arrangements and which arise from our transitioning contracts
with the financiers
• renewable energy plants
• motor vehicles
• audio visual communications equipment
• personal computers, laptops, printers and other related
equipment, which are accounted for as leases of low value assets.
From 25 June 2019, we ceased to offer subleases for mobile
handsets to our retail customers. Amounts recognised in relation to
those leases relate to contracts entered into in the prior reporting
periods which will continue to be accounted for till the earlier of the
end of the lease or its termination.
None of our leases include residual value guarantees. Other features
of our leases are described below.
(a) Leases with extension, termination and purchase options
Leases for communication assets dedicated to solution
management, which arise from our transitioning finance leases,
include purchase options. These assets are largely provided to our
enterprise customers in a back-to-back dealer-lessor finance lease
arrangements (refer to note 3.3.2 for further details about Telstra as
a lessor) and purchase options allow us to transfer the legal title to
the relevant equipment to the end customer at the end of the lease.
Our mobile handset leases, which arise from our transitioning
operating leases, include purchase options if certain conditions are
met to provide flexibility to the end retail customer in these back-to-
back arrangements.
We do not have any significant purchase options in our property
leases.
Extension options are included in a number of our commercial and
network property leases and are taken up to maximise the
operational flexibility in terms of managing the assets used in our
core business operations.
118 | 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 2020 2020.Financial Report.book Page 41 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 42 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.3 Lease arrangements (continued)
3.3.1 Telstra as a lessee (continued)
(a) Leases with extension, termination and purchase options
(continued)
Our mobile handset leases and motor vehicle leases include both
extension and termination options to allow flexibility in managing our
customer subleases for mobile handsets and our business needs for
motor vehicles.
The majority of extension and termination options in our lease
contracts are exercisable only by us and not by the respective lessor,
with the exception of ‘holdover periods’ in our property leases, where
generally either party can terminate the lease.
The extension, termination and purchase options are considered
when determining lease term.
Determining lease term We apply management judgement to determine a lease term for leases with
extension, termination or purchase options. We also consider lease modifications
where we continue to use the same underlying asset for an extended term.
Our property lease terms are negotiated on an individual basis and contain a wide
range of different terms and conditions, with typical fixed term periods between
five and 15 years. Where Telstra is a lessee of mobile handsets, our communication
assets dedicated to solution management and motor vehicles, i.e. the leased
assets are more generic in nature and/or of lower values, generally master lease
agreements are in place with a range of fixed lease terms between two and five
years.
In determining the lease term, we consider all facts and circumstances that create
an economic incentive to exercise an extension, termination or purchase option,
including holdover periods where relevant. These factors differ depending on the
contractual arrangements and the nature of the underlying assets.
In particular, we consider contractual terms on which the lease term can be
extended or terminated, the price value at which a purchase option (if relevant) can
be exercised, potential relocation costs, asset specific factors and any relevant
leasehold improvements, our wider strategy and policy decisions, and any other
relevant facts.
Extension options are only included in the lease term if the lease is reasonably
certain to be extended. Periods beyond termination options are only included in the
lease term if it is reasonably certain that the lease will not be terminated.
The level of certainty required to make the judgements about the lease term is high.
The longer the fixed lease term, the less certain a lessee is to exercise an option to
extend the lease.
When determining lease term for our office buildings, the extension options have
generally not been included in the lease liabilities due to a competitive market
place and our commercial ability to either substantially renegotiate or replace
these assets instead of exercising the extension options.
For our back-to-back leases of mobile handsets offered to mass market
customers, the determined lease term generally matches the legal contract term
because it is not reasonably certain at each contract level that these leases will be
either extended or terminated or that the purchase option will be exercised.
None of our termination options have been considered reasonably certain to be
exercised; therefore, the lease terms have not been shortened and all future cash
flows have been included in the lease liability.
The lease term assessment is reviewed if a significant event or a significant change
in circumstances occurs which affects this assessment and that is within our
control as a lessee.
(c) Leases with variable lease payments that do not depend on an
index or a rate
Some of our leases, such as leases of renewable energy plants,
include variable lease payments that do not depend on an index or a
rate. Such payments are not included in the measurement of the
lease liability and are expensed as incurred in ‘other expenses’ in the
income statement.
(d) Right-of-use assets
Table A shows movements in net book value of our right-of-use
assets during the financial year 2020.
Right-of-use assets for underlying assets
Land
Buildings
Other
Total
$m
-
1,480
1,480
173
4
(184)
(4)
-
-
1,469
1,657
(188)
$m
-
1,419
1,419
136
44
(270)
(5)
(9)
(2)
1,313
1,573
(260)
$m
-
852
852
122
-
(563)
(155)
(8)
-
248
612
(364)
$m
-
3,751
3,751
431
48
(1,017)
(164)
(17)
(2)
3,030
3,842
(812)
3.3 Lease arrangements (continued)
3.3.1 Telstra as a lessee (continued)
(b) Leases with lease payment increases
Under most of our lease arrangements, we pay fixed lease payments,
which are included in the measurement of lease liabilities on initial
recognition or at the time of reassessment. The fixed lease payments
include average fixed increases of three per cent in a number of our
property leases. However, some of our property leases contain other
escalation clauses, including increases subject to the consumer
price index, the greater of fixed increase or the consumer price index
or increases subject to market rates. Market rent review terms are
used to respond to competitive market trends for these type of
properties and to minimise our fixed costs. No material adjustments
to lease liabilities resulting from such escalation clauses were
recognised during the financial year 2020.
Table A
Telstra Group
Net book value at 1 July 2019
Change in accounting policy arising from AASB 16: 'Leases'
Restated net book value at 1 July 2019
Additions
Transfers from assets held for sale
Depreciation expense
Terminations
Derecognition due to finance subleases
Net foreign currency exchange differences
Net book value at 30 June 2020
At cost
Accumulated depreciation and impairment
The following paragraphs provide further information about our
right-of-use asset classes:
• leased data centre land and building classified as held for sale at
30 June 2019 were reclassified to right-of-use assets during the
financial year 2020 as they are no longer held for sale. Refer to note
3.10 for further details.
• other terminated leases mainly include derecognised right-of-use
assets for our mobile handset leases (Telstra as a lessee), which
ceased following terminations of the back-to-back customer
operating leases.
Table B provides information about the weighted average useful lives
of our right-of-use assets.
Table B
Telstra Group
Right-of-use assets, including:
Land
Buildings
Other
Weighted
average
useful life
(years)
As at
30 June
2020
12
9
2
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 43 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 44 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.3 Lease arrangements (continued)
3.3.1 Telstra as a lessee (continued)
(e) Lease liabilities
From 1 July 2019, lease liabilities are shown separately in the
statement of financial position, with the exception of amounts not
included in the measurement of lease liabilities. These include
leases of low value assets or leases with variable payments which do
not depend on an index or a rate, for which associated outstanding
rental payments as at balance date continue to be included in trade
and other payables. In the 2019 comparative information, finance
lease balances are included in the statement of financial position
within borrowings.
We use the incremental borrowing rate for property leases which
comprise the majority of our lease portfolio. The weighted average
discount rate as at 30 June 2020 was 2.8 per cent.
Determining
incremental
borrowing rate
for property
leases
We apply management judgement to
determine incremental borrowing
rates for our property leases because
the interest rates implicit in leases are
not readily determinable for those
arrangements.
The incremental borrowing rates are
determined with reference to rates
sourced from market based credit
adjusted yield curves which are
independently derived and reasonably
reflect the credit risk of the lessee. The
discount rates also reflect:
• the lease term (based on the
weighted average repayment term)
• any guarantees which may be in
place
• the impact of any security if
significant to pricing.
Table C presents maturity analysis of our lease liabilities.
Table C
Telstra Group
As at 30 June
2020
2019
Undiscounted future cash flows
Within 1 year
Within 1 to 2 years
Within 2 to 5 years
After 5 years
Total undiscounted lease liabilities
Future finance charges
Present value of lease liabilities
Included in the financial statements
as:
Current
Non-current
$m
633
471
1,105
1,560
3,769
(471)
3,298
611
2,687
3,298
$m
91
62
73
116
342
(51)
291
78
213
291
Measurement of lease liabilities reflects judgements made about
discounted future cash flows arising from reasonably certain
extension options and lease modifications, which must be
reassessed should the circumstances change.
Potential future cash outflows of $2,750 million are not reflected in
the measurement of lease liabilities as they relate to leases which
are yet to commence and/or extension options that we assessed as
not reasonably certain. More than 80 per cent of those cash flows will
occur after five years. These outflows represent contractual
undiscounted future cash flows estimated based on fixed lease
payments only, payable over the legally non-cancellable lease term
(for leases yet to commence) and/or over all extension options
exercisable only by us (i.e. excluding holdover periods) for leases
already recognised in the statement of financial position and for
those yet to commence.
The weighted average incremental
borrowing rate as at 30 June 2020 was
2.5 per cent.
Such cash flows are not contractually payable until options have
been legally exercised (if at all) and/or until the effective dates of
already executed new contracts.
3.3 Lease arrangements (continued)
3.3.1 Telstra as a lessee (continued)
(f) Amounts recognised in the income statement and cash outflows
for leases
Table D presents amounts recognised in the income statement and
the cash outflows in the financial year 2020 related to our lease
arrangements where Telstra is a lessee. The comparative
information has not been presented as we have adopted the new
lease accounting standard from 1 July 2019 without restatement of
the comparative periods.
Table D
Telstra Group
Amounts recognised in the income statement
Income from operating subleases of right-of-use
assets (Telstra as an intermediate lessor) (included
in revenue from other sources)
Depreciation of right-of-use assets (included in
depreciation and amortisation expense)
Interest expense on lease liabilities (included in
finance costs)
Net loss on termination of leases (included in other
expenses)
Net gain on sale and leaseback transactions
(included in other income)
Expense relating to leases of low value assets
(included in other expenses)
Expense relating to variable lease payments
(included in other expenses)
Cash outflows for leases
Lease payments reported in cash flows from
operating activities
Lease payments reported in cash flows from
financing activities (principal portion)
Lease payments reported in cash flows from
financing activities (interest portion)
Year
ended
30 June
2020
$m
468
(1,017)
(109)
(226)
4
(27)
(3)
(30)
(993)
(109)
Net loss on termination of leases mainly includes early termination
charges for our mobile handset leases (Telstra as a lessee), which
have been partly recovered from revenue recognised on termination
of the back-to-back customer operating leases disclosed as part of
the ‘income from operating subleases of right-of-use assets (Telstra
as an intermediate lessor)’.
3.3.2 Telstra as a lessor (including a dealer-lessor and an
intermediate lessor)
Our lease arrangements where Telstra is a lessor, including a dealer-
lessor and intermediate lessor, include the following main
categories:
• leases of owned properties and subleases of right-of-use property
assets, including office and network buildings
• subleases of mobile handsets to our consumer and small business
customers arising from transitioning contracts as we ceased to
offer this product from 25 June 2019
• finance leases where Telstra is a dealer-lessor of communication
assets dedicated to solution management.
None of our leases include residual value guarantees. Our key
finance and operating leases are described below.
(a) Finance leases
(i) Finance leases where Telstra is a dealer-lessor
We enter into finance lease arrangements predominantly for
communication assets dedicated to solution management that we
provide to our customers under our customer sales contracts. We
account for these leases as dealer-lessor finance leases and
recognise selling profit in accordance with our policy for outright
sales at the lease commencement date. Therefore, we have no risks
associated with remaining rights in the underlying assets. The
weighted average remaining term of the finance leases in our
customer contracts is five years (2019: five years).
(ii) Subleases of right-of-use assets
Generally, we rent office and network buildings for own use only and
not with the intention to earn rental income. However, where our
needs or the intended use of the rented properties change and we
have assessed that exiting a lease is uneconomical, we sublease
right-of-use property assets under finance lease arrangements and
on the market terms for the remaining non-cancellable lease term of
the head lease.
These subleases are classified as finance leases and at the lease
commencement date we record a selling profit or loss on the de-
recognised right-of-use asset and recognise a finance lease
receivable. Given these are subleases of the right-of-use assets, we
have no risks associated with any retained rights in the underlying
assets as the properties are vacated and returned to the landlords at
the end of the non-cancellable lease term.
(iii) Finance lease receivable maturity analysis
Table E sets out the maturity analysis of undiscounted lease
payments receivable and the unearned finance income for our
finance lease receivables. No unguaranteed residual values accrue
under our finance leases.
Table E
Telstra Group
Undiscounted lease payments
receivable under finance leases
Within 1 year
Within 1 to 2 years
Within 2 to 3 years
Within 3 to 4 years
Within 4 to 5 years
After 5 years
Total undiscounted lease payments
receivables
Less: unearned finance income
Net investment in the lease
Allowance for doubtful debts
Included in the financial statements
as
Current finance lease receivables
Non-current finance lease receivables
As at 30 June
2020
2019
$m
$m
99
79
47
28
21
48
322
(33)
289
(1)
288
90
198
288
109
58
35
20
12
55
289
(36)
253
(1)
252
99
153
252
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 45 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 46 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.3 Lease arrangements (continued)
(c) Amounts recognised in the income statement
3.3.2 Telstra as a lessor (including a dealer-lessor and an
intermediate lessor) (continued)
(a) Finance leases (continued)
(iii) Finance lease receivable maturity analysis (continued)
Following adoption of the new lease accounting standard from 1 July
2019, the balances at 30 June 2020 include all finance lease
receivables accounted for under the new requirements. The
balances at 30 June 2019 have been accounted for under the
previous lease accounting requirements, therefore finance lease
receivables excluded any balances arising from finance subleases of
right-of-use assets recognised on transition on 1 July 2019.
The interest rate implicit in the leases is fixed at lease inception for
the entire lease term. The average interest rate implicit in the leases
was 3.8 per cent (2019: 5.0 per cent) per annum.
During the financial year 2020, we added $171 million new finance
lease receivables, including $25 million resulting from the first time
adoption of the new lease accounting standard, recognised interest
income of $13 million and received $135 million for the principal
portion of finance lease receivables.
Refer to note 3.4 for details regarding impairment assessment of our
finance lease receivables.
(b) Operating leases
(i) Subleases of mobile handsets
In prior financial years, we offered mobile plans to our consumer and
small business customers where the customer could lease a
handset and purchase a bundle of services under a term accounting
contract. Leases of those handsets were in back-to-back
arrangements with a third party, where Telstra was a lessee. From 25
June 2019, we ceased to offer these mobile plans, however, all such
lease arrangements represented transitioning contracts on adoption
of the new lease accounting standard and we continue to account for
them until the earlier of the end of the lease term or customer
termination.
To provide flexibility to our mass market retail customers, the
handset lease plans include options to extend the lease, terminate
the lease early or to purchase the handset at the end of the lease. The
lease term has not been adjusted for any of these options because
none of them are considered reasonably certain at the lease contract
level.
(ii) Maturity analysis of undiscounted future lease payments
receivable
Table F sets out maturity analysis of undiscounted future lease
payments receivable under our operating leases.
Table F
Telstra Group
Within 1 year
Within 1 to 2 years
Within 2 to 3 years
Within 3 to 4 years
Within 4 to 5 years
After 5 years
As at 30 June
2020
2019
$m
78
2
2
1
-
3
86
$m
388
126
7
5
1
3
530
Table G presents amounts recognised in the income statement in the
financial year 2020 related to our lease arrangements where Telstra
is a lessor, including amounts related to lease arrangements where
Telstra is an intermediate lessor. The comparative information has
not been presented as we have adopted the new lease accounting
standard from 1 July 2019 without restatement of the prior period.
Table G
Telstra Group
Revenue from finance leases (Telstra as a dealer-
lessor) (included in revenue from other sources)
Income from operating leases (Telstra as a direct or an
intermediate lessor) (included in revenue from other
sources)
Net gain on derecognition due to finance leases,
including subleases (included in other income)
Finance income from finance leases (Telstra as a
lessor) (included in finance income)
Year
ended
30 June
2020
$m
122
474
1
13
Income from operating leases includes mostly income from
operating subleases of right-of-use assets (Telstra as an
intermediate lessor) as disclosed in Table D in note 3.3.1.
3.3.3 Recognition and measurement
(a) Lease identification and lease term
A contract (or linked contracts) is, or contains, a lease if it conveys the
right to control the use of an identified asset, including a physically
distinct portion of an asset, for a period of time in exchange for
consideration. The customer has the right to control the use of an
identified asset if the supplier has no substantive substitution rights,
and the customer obtains substantially all of the economic benefits
from use of the identified asset and has the right to direct its use.
A (combined) contract may include lease and non-lease
components, which are accounted for separately. Lessee allocates
the consideration to lease and non-lease components based on their
relative standalone prices. Lessor allocates the consideration to
lease and non-lease components applying the relative standalone
selling prices requirements for revenue from customer contracts
(refer to note 2.2 for further details).
If a lease has been identified at inception of the arrangement, a lease
term is determined considering a non-cancellable period and
reasonably certain extension, termination or purchase options. This
includes consideration of any holdover periods, where either
counterparty has enforceable rights to terminate the lease. Holdover
periods relate to periods when, for a variety of reasons, the lessee
continues to occupy the property or use the asset beyond the legally
agreed lease term and either party can terminate the lease during
the holdover period by giving a notice.
In determining the lease term, all facts and circumstances that
create an economic incentive to exercise an extension, termination
or purchase options must be considered. These factors differ
depending on the terms of contractual arrangements, the nature of
the underlying assets, leasehold improvements, industry practices
and strategic planning. Leases are accounted for from the lease
commencement date, i.e. the date when the lessor makes the
underlying asset available for use by the lessee.
3.3 Lease arrangements (continued)
3.3.3 Recognition and measurement (continued)
(b) Telstra as a lessee
A lessee recognises a right-of-use asset and a lease liability at a
lease commencement date. The lease liability is initially measured
as a net present value of the following lease payments:
Where we lease right-of-use property assets, costs of improvements
to these properties are capitalised under our property, plant and
equipment policy as leasehold improvements and amortised over
the shorter of the useful life of the improvements and the term of the
lease.
We reassess lease liability (and a make a corresponding adjustment
to the related right-of-use asset) whenever:
• fixed payments (including any in-substance lease payments), less
• the lease term has changed (reflecting reassessment of or
any lease incentives receivable
• variable lease payments that are based on an index or a rate,
initially using the index or rate as at the commencement date
• amounts expected to be payable by the lessee under residual
value guarantees
exercise of an extension or termination options previously not
included in the measurement of the lease liability) or there is a
change in the assessment of exercise of a purchase options, in
which case the lease liability is remeasured by discounting the
revised lease payments using a revised discount rate
• the exercise price of a purchase option, if the purchase option was
• the lease payments change due to changes in an index or a rate or
assessed as reasonably certain to be exercised
• payments for penalties for terminating the lease, if the lease term
reflects that the lessee will exercise that option.
Lease payments expected to be made under a reasonably certain
extension option are also reflected in the measurement of the lease
liability.
Where lease arrangements include market rent review clauses,
which generally can be triggered by either counterparty within a set
time frame by a notice given either during the non-cancellable lease
period or when the extension option is exercised, until the outcome of
a market rent review (if triggered) is concluded, the legal obligations
are to pay previously agreed lease payments. Therefore, lease
liabilities are measured excluding any expected impacts from
market rent reviews until they are legally binding and can be reliably
measured.
The lease payments are discounted using the interest rate implicit in
the lease, unless that rate is not readily determinable, in which case
the lessee’s incremental borrowing rate is used.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to the income statement over the lease
term so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Variable lease payments that do not depend on an index or a rate are
recognised in the income statement in the period in which the event
or condition that triggers those payments occurs.
Payments associated with leases of low value assets are recognised
on a straight-line basis as an expense in the income statement.
Right-of-use assets cost comprises the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement date and any initial direct costs. Where an
obligation exists to dismantle, remove or restore a leased asset or
the site it is located on and a provision has been raised, the right-of-
use asset also includes these restoration costs.
Right-of-use assets are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are generally depreciated on a straight-line
basis over the shorter of the asset’s useful life and the lease term. If
it is reasonably certain that we will exercise the purchase option, the
right-of-use asset is depreciated over the underlying asset’s useful
life. The depreciation starts at the commencement date of the lease.
Right-of-use assets are reviewed for impairment under the same
policy as our property, plant and equipment assets. Refer to note
3.1.1 for further details regarding impairment testing.
change in the expected lease payments under a guaranteed
residual value, in which case the lease liability is remeasured by
discounting the revised lease payments using the initial discount
rate
• a lease contract is modified and the lease modification is not
accounted for as a separate lease, in which case the lease liability
is remeasured by discounting the revised lease payments using a
revised discount rate.
In the statement of cash flows, cash payments for both the principal
portion and the interest portion of the lease liability are classified as
cash flows from financing activities. Cash payments for leases of low
value assets and variable lease payments that do not depend on an
index or a rate and are not included in the measurement of the lease
liability are classified as cash flows from operating activities.
Proceeds from sale of leases, including proceeds from sale and
leaseback transactions, are classified as cash flows from investing
activities.
(c) Telstra as a lessor (including a dealer-lessor and an
intermediate lessor)
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. Lease classification is made at the inception date and
is only reassessed if there is a lease modification.
Where we are an intermediate lessor, we account for the head lease
and the sublease as two separate contracts. The sublease is
classified as a finance or operating lease by reference to the right-of-
use asset arising from the head lease.
Where we lease assets via a finance lease, a finance lease receivable
(i.e. a net investment in the lease) is recognised at the lease
commencement date and measured at the present value of the lease
payments receivable plus the present value of any unguaranteed
residual value expected to accrue at the end of the lease term and
discounted using the interest rate implicit in the lease.
Finance lease receipts are allocated between finance income and a
reduction of the finance 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.
In the statement of cash flows, cash receipts for both the principal
portion and the interest portion of the finance lease receivable are
classified as cash flows from investing activities.
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 47 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 48 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.3 Lease arrangements (continued)
3.4 Trade and other receivables and contract assets
3.3.3 Recognition and measurement (continued)
(c) Telstra as a lessor (including a dealer-lessor and an
intermediate lessor) (continued)
Where we are a dealer-lessor, at the commencement of the lease, we
also recognise a selling profit or loss (being the difference between
revenue from other sources and the cost of sale) from the sale of the
underlying asset in addition to the finance lease receivable. The sale
is recognised in accordance with our policy for outright sales from
contracts with customers as described in note 2.2.
Income from operating leases is recognised on a straight-line basis
over the term of the relevant lease and presented as revenue from
other sources in the income statement.
(d) Sale and leaseback transactions
When we sell and lease back the same asset, the accounting
treatment depends on whether the control of the asset has been
transferred as assessed under our policy for outright sales from
contracts with customers as described in note 2.2.
If the transfer of the asset satisfies the revenue recognition
requirements, we measure the right-of-use asset arising from the
leaseback at the proportion of the previous carrying amount of the
asset that relates to the right-of-use retained by us as a seller-
lessee. Accordingly, we recognise only the amount of any gain or loss
that relates to the rights transferred to the buyer-lessor.
If the transfer of an asset does not satisfy the revenue recognition
requirements, as a seller-lessee we continue to recognise the
transferred asset and we recognise a financial liability equal to the
transfer proceeds.
3.4.1 Current and non-current trade and other receivables and
contract assets
Table A
Telstra Group
As at 30 June
2020
2019
Note
$m
$m
Current
Trade receivables from
contracts with customers
Finance lease receivables
3.3
Accrued revenue
Other receivables
Contract assets
Non-current
Trade receivables from
contracts with customers
Finance lease receivables
Amounts owed by joint ventures
and associated entities
Other receivables
Contract assets
3.8
3.3
6.2
3.8
3,248
3,151
90
565
355
4,258
863
5,121
977
198
16
8
1,199
229
1,428
99
795
159
4,204
1,188
5,392
473
153
-
17
643
137
780
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 and 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 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 3.8 for further details regarding trade receivables from
contracts with customers and contract assets.
3.4 Trade and other receivables and contract assets
(continued)
3.4.1 Current and non-current trade and other receivables and
contract assets (continued)
(a) 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.
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 or a
combination of a portfolio approach and/or an individual account by
account assessment.
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.
(i) Portfolio approach
The portfolio approach is based on historical credit loss experience
and, where appropriate, adjusted to reflect current conditions and
estimates of future economic outlook. This approach is mostly
applied to balances arising from our consumer and small business
customer contracts. Under this 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.
For each grouping, the expected credit loss is then calculated on the
probability that an account within the group will default, that is it will
become past due by more than 90 days, and the expected loss rate
should they default, both represented as a percentage of the
exposure at default determined at customer account level.
Our provision rates range from 0.2 per cent (2019: 0.2 per cent) for
balances not past due to 81.7 per cent (2019: 91.0 per cent) for
balances where the payment is overdue by more than 90 days and
the customer’s services have been deactivated.
(ii) Individual approach
The individual approach is an account by account assessment based
on past credit history, knowledge of debtor’s financial situation, such
as insolvency or entering a payment plan, or other known credit risk
specific to the debtor, such as judgement based on the debtor’s
industry. This approach is applied to balances arising from contracts
with large corporate and government customers as well as to
accounts in Telstra Enterprise, Telstra InfraCo and Telstra Consumer
& Small Business segments where some detrimental change in
payment behaviour has been noticed or certain thresholds have been
exceeded by a customer.
Balances arising from our transactions with nbn co (reported in
Telstra InfraCo segment and in ‘All Other’ category) are separately
assessed based on the Australian government credit risk rating.
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.
For trade receivables and contract
assets arising from our Telstra
Consumer & 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.
Our prior analysis showed that
generally overall macroeconomic
factors, such as unemployment rates,
interest rates or gross domestic
product had no strong correlation with
our bad debt losses. However, if the
macroeconomic factors are above
certain thresholds, a correlation with
those factors becomes observable.
Due to the COVID-19 pandemic
impacts, it is expected that an
increase in unemployment rates and
decline in gross domestic product will
exceed the relevant thresholds.
Therefore, when estimating the
expected credit loss we have
incorporated assumptions of eight to
10 per cent unemployment rates and
approximately eight per cent decline in
gross domestic product as well as
multiple possible recovery scenarios.
We have also considered impacts from
specific management actions, our
observable customer behaviours so far
and how the pandemic may impact our
industry in particular.
As a result, we have increased the
allowance for doubtful debts by $36
million to reflect risks and
uncertainties brought about by the
COVID-19 pandemic. Should the
macroeconomic assumptions change
in the future, it could have a material
impact on our allowance for doubtful
debts in the subsequent years.
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 49 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 50 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.4 Trade and other receivables and contract assets
(continued)
3.4.1 Current and non-current trade and other receivables and
contract assets (continued)
Movements in the allowance for doubtful debts in respect of all our
trade and other receivables and contracts assets, regardless of the
method used in measuring the impairment allowance, are detailed in
Table C.
3.4 Trade and other receivables and contract assets
(continued)
3.6 Trade and other payables
3.4.2 Recognition and measurement (continued)
Telstra Group
(a) Impairment of trade and other receivables and contract assets
(continued)
Table C
The impairment allowance for trade receivables from contracts with
customers, finance lease receivables and contract assets is
measured using a simplified approach (i.e. based on the probability
of default over the lifetime of the financial asset and loss given
default). The aging analysis and loss allowance in relation to these
are detailed in Table B.
Table B
As at 30 June
Telstra Group
2020
2019
Gross
Allow-
ance
Gross
Allow-
ance
$m
$m
$m
$m
Not past due,
including measured
at:
- amortised cost
- fair value
Past due 1 - 30 days
Past due 31 - 60
days
Past due 61 - 90
days
Past 91 days
3,516
1,346
4,862
447
141
89
267
5,806
(33)
-
(33)
(2)
(2)
(9)
3,008
1,506
4,514
481
138
86
(13)
-
(13)
(2)
(4)
(5)
(155)
(201)
125
5,344
(119)
(143)
Ageing analysis in Table B is based on the original due date of trade
receivables, including where repayment terms for certain long
outstanding trade receivables have been renegotiated.
Contract assets are not yet due for collection, thus the entire balance
has been included in the ‘not past due’ category.
Accrued revenue, amounts owed by joint ventures and associated
entities and other receivables (before allowance for doubtful debts)
totalling $953 million (2019: $980 million) are subject to impairment
assessment using the general approach and include 79 per cent
(2019: 86 per cent) of balances with counterparties with an external
credit rating of A- 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 2020, the securities we
called upon were insignificant. 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. As part of our response to the COVID-19
pandemic, we temporarily suspended ceasing the services towards
the end of the financial year 2020. The impairment allowance has
been adjusted, as relevant.
Telstra Group
Opening balance 1 July
Additional allowance
Amount used
Amount reversed
Closing balance 30 June
Year ended 30 June
2020
2019
$m
(152)
(113)
19
36
(210)
$m
(192)
(45)
35
50
(152)
Impairment allowance related to accrued revenue, amounts owed by
joint ventures and associated entities and other receivables (i.e.
balances not presented in Table B) amounted to $9 million (2019: $9
million).
3.4.2 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) 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, however, 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 (applicable to accrued revenue, amounts
owed by joint ventures and associated entities, 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).
Any customer account with debt more than 90 days past due is
considered to be in default.
(a) Impairment of financial assets (continued)
Trade and other 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.
3.5 Inventories
Telstra Group
Current
Goods for resale
Raw materials and network inventory
Non-current
Network inventory
As at 30 June
2020
2019
$m
$m
353
65
418
28
28
369
79
448
35
35
3.5.1 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.
Current
Trade payables
Accrued expenses
Accrued capital expenditure
Accrued interest
Other payables
Non-current
Other payables
As at 30 June
2020
2019
$m
$m
988
1,774
438
221
559
3,980
4
4
849
2,163
239
267
1,010
4,528
68
68
Trade payables and other payables are non-interest bearing
liabilities. Our payment terms vary, however payments are generally
made within 20 days to 90 days from the invoice date.
From time to time, Telstra’s suppliers utilised or offered supply
finance arrangements at their sole discretion. When that took place,
Telstra was not a party to contracts under which the suppliers
received financing from third parties, and Telstra did not receive any
fees or commissions associated with the supply chain finance
arrangements. Under the use of supply chain finance arrangements,
suppliers transferred their rights to the amounts due from Telstra to
third parties, i.e. the counterparty that was paid changed. We have
assessed that amounts financed by our vendors under supply chain
finance arrangements did not represent financing activities for
Telstra. This was because payments made by Telstra continued to
represent a payment for goods and services, and the payment terms
did not significantly differ, if at all, from our standard contract terms.
During the financial year 2020, we made the decision to stop
enabling a supply chain finance option facilitated by Telstra and to
implement this in a way that did not disadvantage our suppliers. As
of 30 June 2020, the vast majority of suppliers who previously had
access to this supply chain finance arrangement no longer had
access to it, and we have moved suppliers with a low annual spend to
20 day payment terms. However, this supply chain financing
arrangement remains in place for an interim period for some
suppliers, including a small number of our larger suppliers and for
some others who saw the early payment as being helpful to their
liquidity especially during the period of the COVID-19 pandemic.
As at 30 June 2020, the amount payable under supply chain finance
arrangements which was reclassified from ‘Trade payables’ to ‘Other
payables’ was $143 million (2019: $593 million).
3.6.1 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.
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Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 51 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 52 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 3. Our core assets, lease arrangements and working capital (continued)
Section 3. Our core assets, lease arrangements and working capital (continued)
3.7 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
As at 30 June
2020
2019
Note
$m
$m
Contract liabilities
3.8
1,540
1,431
Other revenue received in
advance
Non-current
Contract liabilities
Other revenue received in
advance
3.8
71
226
1,611
1,657
947
255
1,006
265
1,202
1,271
3.8 Trade receivables from customer contracts, contract
assets and contract liabilities
3.8.1 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
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.
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 our legacy mass market
contracts. In those cases we would recognise a contract liability and
a contract asset, respectively.
Under our mass market no-lock-in mobile and fixed service plans
and under our legacy mobile fixed term contracts 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 hardware
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 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.
3.8.2 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 Definitive Agreements, 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
As at 30 June
2020
2019
Current contract assets
Non-current contract assets
Total contract assets
Current contract liabilities
Non-current contract liabilities
Total contract liabilities
Total net contract liabilities
Increase in net contract liabilities for
the year
$m
863
229
1,092
(1,540)
(947)
(2,487)
(1,395)
(283)
$m
1,188
137
1,325
(1,431)
(1,006)
(2,437)
(1,112)
(43)
3.8 Trade receivables from customer contracts, contract
assets and contract liabilities (continued)
3.8.2 Movements in net contract assets and contract liabilities
(continued)
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.
The overall increase of $283 million (2019: $43 million) in the net
contract liabilities incorporated the $1,722 million (2019: $1,521
million) revenue recognised in the reporting period that was included
in the contract liabilities balance at the beginning of the period.
Refer to note 3.4.1 for details regarding impairment assessment of
contract assets.
3.9 Deferred contract costs
Certain costs related to our contracts with customers 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 values of the deferred contract costs.
Table A
Telstra Group
Net book value at 1 July 2018, including
Current
Non-current
Additions
Amortisation expense
Impairment losses
Net book value at 30 June 2019, including
Current
Non-current
Net book value at 1 July 2019, including
Current
Non-current
Additions
Amortisation expense
Impairment losses
Net book value at 30 June 2020, 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
1,026
n/a
1,026
553
(394)
(100)
1,085
n/a
1,085
1,085
n/a
1,085
607
(407)
(124)
1,161
n/a
1,161
$m
61
-
61
25
(29)
-
57
-
57
57
-
57
9
(19)
-
47
-
47
$m
162
69
93
586
(563)
-
185
95
90
185
95
90
677
(634)
-
228
82
146
$m
223
69
154
611
(592)
-
242
95
147
242
95
147
686
(653)
-
275
82
193
$m
1,249
69
1,180
1,164
(986)
(100)
1,327
95
1,232
1,327
95
1,232
1,293
(1,060)
(124)
1,436
82
1,354
130 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F51
F52 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 131
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 53 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 54 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Telstra Financial Report 2019
Section 3. Our core assets, lease arrangements and working capital (continued)
3.9 Deferred contract costs (continued)
3.10 Assets and liabilities held for sale
As at 30 June 2019, $121 million of assets and $79 million of
liabilities of a disposal group were classified as held for sale,
including assets and liabilities related to three data centres within
the Telstra Enterprise segment.
On 1 April 2020 we sold off one of the data centres and recognised
sale proceeds of $58 million and a net gain of $12 million.
We did not receive the consents required for sale of the remaining
two data centres. As a result we have ceased to classify these assets
and liabilities as held for sale and measured them at their carrying
amounts before they were classified as held for sale, adjusted for
depreciation of property, plant and equipment and right-of-use
assets, and respective lease payments and interest expense for
lease liabilities.
3.9.1 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 period of benefit is 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.
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.
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.
Section 4. Our capital and risk management
Section 4. Our capital and risk management
This section sets out the policies and procedures applied to manage
This section sets out the policies and procedures applied to manage
our capital structure and the financial risks we are exposed to. Our
our capital structure and the financial risks we are exposed to. Our
total capital is defined as equity and net debt. We manage our
total capital is defined as equity and net debt. We manage our
capital structure in order to maximise shareholders’ return,
capital structure in order to maximise shareholders’ return,
maintain optimal cost of capital and provide flexibility for strategic
maintain optimal cost of capital and provide flexibility for strategic
investments.
investments.
SECTION 4. OUR CAPITAL AND RISK MANAGEMENT
4.1 Dividend
This note includes dividends paid for the previous year final
dividend and the current year interim dividend. From the
financial year 2018, our dividend comprises both ordinary and
special dividends.
As the current year final dividend resolution was passed on 13
August 2020, no provision had been raised as at 30 June 2020.
We currently pay dividend to equity holders of the Telstra Entity twice
a year, an interim and a final dividend. Table A below provides details
of the dividends paid during the financial year 2020.
Table A
Year ended 30 June
Telstra Entity
2020
2019
2020
2019
Previous year final
dividend paid
Interim dividend
paid
$m
$m
cents
cents
951
1,308
952
951
8.0
8.0
1,903
2,259
16.0
11.0
8.0
19.0
The Dividend Reinvestment Plan (DRP) will continue to operate for
the final dividend in the financial year 2020. The election date for
participation in the DRP is 28 August 2020.
On 13 August 2020, the Directors of Telstra Corporation Limited
resolved to pay a fully franked final dividend for the financial year
2020 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 27 August 2020, with payment to be
made on 24 September 2020. From 26 August 2020, shares will trade
excluding entitlement to the dividend.
As at 30 June 2020, the final dividend for the financial year 2020 was
not determined or publicly recommended by the Board, therefore no
provision for the dividend had 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
2020
2019
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
98
207
305
$m
168
87
255
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 2021, will be
sufficient to fully frank our 2020 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 (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 details components of our share capital balance.
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
2020
2019
$m
4,530
(7)
(39)
(33)
$m
4,530
(10)
(50)
(23)
4,451
4,447
132 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F53
F54 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 133
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 55 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 56 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
(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.
4.2 Equity (continued)
4.2.1 Share capital (continued)
(a) Contributed equity
As at 30 June 2020, we have 11,893,297,855 (2019: 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 2020, the number of shares held by employee share
plans totalled 9,107,647 (2019: 10,200,395). During the financial
year 2020, 6,091,319 shares were purchased on-market for the
purposes of the employee incentive schemes at the average price per
share of $3.64.
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 the Telstra Entity shares
underpinning our employee share plan as a reduction in share
capital.
General
reserve
Total
reserves
4.3 Capital management
Table B
Telstra Group
Balance at 1 July 2018
Other comprehensive income
Balance at 30 June 2019
Other comprehensive income
Balance at 30 June 2020
Cash flow
hedging
reserve
Foreign
currency
transla-
tion
reserve
Foreign
currency
basis
spread
reserve
Fair value
of equity
instru-
ments
reserve
$m
70
39
109
21
130
$m
(211)
2
(209)
32
(177)
$m
(6)
(15)
(21)
(4)
(25)
$m
23
47
70
14
84
The table below details the nature and purpose of our reserve
balances.
Reserve
Nature and purpose
$m
(7)
-
(7)
-
(7)
$m
(131)
73
(58)
63
5
Foreign currency
translation reserve
Represents 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
Represents 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.
Our capital management is undertaken in accordance with
financial parameters regularly reviewed and approved by the
Board.
We manage our capital structure which aims 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 or return capital to shareholders.
As part of our capital management we monitor net debt. This
note provides information about components of our net debt
and related finance costs.
Our dividend policy together with dividends paid during the financial
year 2020 have been detailed in note 4.1.
4.3.1 Net debt
Net debt equals total interest bearing financial liabilities and
derivative financial instruments, less cash and cash equivalents. At
30 June 2020 net debt was $16,844 million (2019: $14,727 million).
Table A lists the carrying value of our net debt components and
includes totals of current and non-current balances.
Table A
Telstra Group
Lease liabilities
Borrowings
Net derivative financial instruments
Gross debt
Cash and cash equivalents
Net debt
As at 30 June
2020
2019
$m
(3,298)
(15,829)
1,784
(17,343)
499
(16,844)
$m
-
(17,253)
1,922
(15,331)
604
(14,727)
Our gross and net debt increased following the adoption of the new
lease accounting standard on 1 July 2019 under which lease
liabilities are recognised for all our leases (Telstra as a lessee) and
included in debt balances at 30 June 2020.
The 30 June 2020 borrowings balance excludes any lease liabilities
which are presented separately in the statement of financial
position. The 30 June 2019 borrowings balance includes finance
lease liabilities of $291 million accounted for under the previous
lease accounting requirements.
No significant components of net debt are subject to any externally
imposed capital requirements. With the exception of a minor ($8
million) breach in our subsidiary, we did not have any defaults or
breaches under any of our agreements with our lenders during the
financial year 2020.
Table B summarises the key movements in net debt during the
financial year and provides our gearing ratio.
Table B
Telstra Group
Year ended 30 June
2020
2019
Net debt at 1 July
Debt issuance
Commercial paper (net)
Revolving bank facilities (net)
Debt repayments
Lease liability payments
Finance lease payments
Net cash outflow
Fair value gain/(loss) impacting:
Equity
Other expenses
Finance costs
Other non-cash movements
Lease liability (Telstra as a lessee)
Finance leases
Other loans
Total non-cash movements
Total (increase)/decrease in gross
debt
Net decrease in cash and cash
equivalents (includes effects of foreign
exchange rate changes)
Total (increase)/decrease in net debt
Net debt at 30 June
Total equity
Total capital
Gearing ratio
$m
(14,727)
(1,180)
(255)
(260)
2,781
993
-
2,079
50
(24)
(5)
(4,000)
-
(112)
(4,091)
(2,012)
(105)
$m
(14,739)
(1,570)
537
200
801
-
79
47
(23)
(10)
19
-
(5)
-
(19)
28
(16)
(2,117)
(16,844)
12
(14,727)
(15,147)
(31,991)
%
52.7%
(14,530)
(29,257)
%
50.3%
Leases (Telstra as a lessee) included in non-cash movements during
the period incorporate the lease liability recognised on transition on
1 July 2019 as disclosed in note 1.5.
134 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F55
F56 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 135
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020
2020.Financial Report.book Page 57 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 58 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
4.3.1 Net debt (continued)
During the financial year 2020, we repaid $2,659 million of term debt
(Australian dollar equivalent). This included:
Gearing ratio equals net debt divided by total capital, where total
capital equals equity, as shown in the statement of the financial
position, plus net debt. The gearing ratio for the financial year 2020
reflects changes from the adoption of the new lease accounting
standard.
(a) Borrowings and repayment of debt
Debt issuance for the financial year 2020 of $1,180 million
(Australian dollar equivalent), comprised:
• 10 year €500 million Euro bond ($856 million Australian dollar
equivalent)
• three year $150 million bilateral facility
• $174 million other loans.
• $1,499 million Euro bond
• $300 million Australian dollar floating rate note
• $800 million Australian dollar bilateral facility
• $60 million Australian dollar private placements.
We also repaid other loans of $122 million. The above also includes
the cash settlement of derivative instruments, where applicable.
4.3.2 Borrowings
Table C details the carrying and fair values of borrowings included in
the statement of financial position.
4.3 Capital management (continued)
(b) Finance costs
4.3.2 Borrowings (continued)
(a) Recognition and measurement
Table D presents our net finance costs. Interest expense 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.
Recognition and measurement
Table D
Telstra Group
Year ended 30 June
2020
2019
Initial
recognition
and
measurement
Borrowings are recognised initially on the
trade date (the date on which we become a
party to the contractual provisions of the
instrument).
Table C
Telstra Group
Current borrowings
Domestic - bonds and private placements
Offshore - bonds and private placements
Bank and other loans
Commercial paper
Finance leases
Non-current borrowings
Domestic - bonds and private placements
Offshore - bonds and private placements
Bank and other loans
Finance leases
Total borrowings
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.
Generally, all our borrowings are unsecured. No assets are pledged
as security for our borrowings. All our borrowings are interest
bearing.
Refer to Table F in note 4.3.4 for the principal value of our borrowings.
As at 30 June 2020
As at 30 June 2019
Carrying
value
Fair value
Carrying
value
Fair value
$m
$m
$m
$m
Subsequent
measurement
985
971
432
375
-
2,763
1,047
11,740
279
-
13,066
15,829
995
971
435
378
-
2,779
1,219
12,744
285
-
14,248
17,027
360
1,622
23
139
78
2,222
2,031
11,881
906
213
15,031
17,253
364
1,678
24
139
78
2,283
2,239
12,698
957
213
16,107
18,390
All loans and borrowings are initially
recorded at fair value, which typically
reflects the proceeds received, net of
directly attributable transaction costs.
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.
Derecognition
Borrowings are derecognised when our
contractual obligations are discharged,
canceled or expired.
Borrowings are classified as non-current borrowings except for
those that mature in less than 12 months from the reporting date,
which are classified as current borrowings.
Interest income on cash
Finance income from finance leases
(Telstra as a lessor)
Finance income from contracts with
customers
Net interest income on defined benefit
plan
Total finance income
Interest expense on:
Borrowings
Lease liabilities
Finance leases
Gross interest on debt
Finance costs from contracts with
customers
Net gains on financial instruments
included in remeasurements
Interest capitalised
Total finance costs
Net finance costs
$m
13
13
244
4
274
(678)
(109)
-
(787)
(326)
11
(315)
57
(1,045)
(771)
$m
17
16
197
8
238
(771)
-
(21)
(792)
(217)
36
(181)
105
(868)
(630)
Net finance costs for the financial year 2020 include interest on lease
liabilities related to all leases accounted for under the new lease
accounting standard from 1 July 2019, whereas the comparative
period only includes interest expense on finance lease liabilities
accounted for under the previous lease accounting requirements.
Net gains on financial instruments included in remeasurements
comprise unrealised valuation impacts on our borrowings and
derivatives, and 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.
136 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F57
F58 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 137
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 59 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 60 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
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
Table E shows the carrying value of each class of derivative financial
instruments.
4.3 Capital management (continued)
4.3.3 Derivatives (continued)
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
(b) Use of derivatives to manage risks
hedging instrument
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
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
As at 30 June 2020
As at 30 June 2019
Assets
Liabilities
Assets
Liabilities
$m
128
18
1
147
1,781
230
2,011
2,158
$m
-
(2)
(52)
(54)
(91)
(229)
(320)
(374)
$m
118
43
18
179
1,738
345
2,083
2,262
$m
-
(54)
(3)
(57)
(12)
(271)
(283)
(340)
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 fluctuate, which is reflected in
the change in 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.
Refer to note 4.4.3 for information about our credit risk policies.
Instruments used
(a) Recognition and measurement
Initial recognition and
subsequent
measurement
Derivative financial instruments are recognised on the date on which we commit to purchase or sell an
asset or liability. 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 the designation of the derivative as a
hedging instrument and the nature of the item being hedged.
Derivative financial instruments are 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.
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.
• 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.
To the extent permitted by Australian Accounting Standards, we
formally designate and document our financial instruments by
hedge type as follows:
Objectives of this hedging
arrangement
Fair value hedges
Cash flow hedges
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.
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 foreign currency cash flows.
We enter into cross currency and interest
rate swaps to mitigate our exposure to
changes in the fair value of our long-term
borrowings.
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.
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.
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.
(c) 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 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.
138 | 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 2020 2020.Financial Report.book Page 61 Wednesday, August 12, 2020 7:08 PM
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Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.3 Capital management (continued)
4.3.4 Gross debt by hedge type
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 2020.
Table F
Telstra Group
Borrowings by hedge designation
Fair value hedges
Cash flow hedges
Not in a hedge relationship
Finance leases
Total borrowings
Lease liabilities
Total borrowings and lease liabilities
Derivative assets by hedge designation
Fair value hedges
Cash flow hedges
Not in a hedge relationship
Total derivative assets
Derivative liabilities by hedge designation
Fair value hedges
Cash flow hedges
Not in a hedge relationship
Total derivative liabilities
Total gross debt
As at 30 June 2020
As at 30 June 2019
Carrying
value
Principal
value
Carrying
value
Principal
value
$m
$m
$m
$m
(5,052)
(7,522)
(3,255)
-
(15,829)
(3,298)
(19,127)
945
1,213
-
2,158
(50)
(279)
(45)
(374)
(17,343)
(4,802)
(7,541)
(3,256)
-
(15,599)
(3,298)
(18,897)
763
1,212
-
1,975
(44)
(8)
(44)
(96)
(17,018)
(4,320)
(9,045)
(3,597)
(291)
(17,253)
-
(17,253)
1,016
1,243
3
2,262
-
(337)
(3)
(340)
(15,331)
(3,951)
(9,073)
(3,600)
(291)
(16,915)
-
(16,915)
733
1,259
13
2,005
-
-
(11)
(11)
(14,921)
(a) 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
2020
2019
$m
(4,799)
8
(4,791)
$m
(3,951)
9
(3,942)
(261)
(378)
(5,052)
(4,320)
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
Remeasurement of hedged item used
to measure ineffectiveness
Change in value of hedging instruments
Net loss/(gain) before tax from
ineffectiveness
Net loss/(gain) after tax
Year ended 30 June
2020
(Gain)/
loss
2019
(Gain)/
loss
$m
(111)
122
11
8
$m
92
(115)
(23)
(16)
4.3 Capital management (continued)
4.3.4 Gross debt by hedge type (continued)
(b) 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
• included in the measurement of the initial cost of the assets where
the hedged item is for purchases of property, plant and equipment
• 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
2020
2019
$m
$m
72
200
(115)
(334)
(27)
128
(4)
(16)
38
(12)
151
(2)
(1)
2
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
2020
2019
$m
$m
(592)
(1,234)
(85)
(97)
(275)
(5,086)
(3,061)
(9,099)
(1,898)
(3,763)
(4,554)
(11,546)
Non-capital items will be recognised in the income statement in the
same period in which the cash flows are expected to occur. For
capital items, the hedged assets affect the income statement as the
assets are depreciated over their useful lives.
(c) 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.
4.4 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 2019.
Our financial risk management strategies ensure that we can
withstand market disruptions for extended periods. In relation to
liquidity risk we continue to have access to ample liquidity to support
our short term liquidity requirements and protect against
unforeseen events.
At the outset of the COVID-19 pandemic we took additional measures
to enhance our liquidity reserves by further increasing access to
committed bank facilities.
140 | Telstra Corporation Limited and controlled entities
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F62 | 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 2020 2020.Financial Report.book Page 63 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 64 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
Our credit risk exposure is spread across a number of highly rated
counterparties. The fair value measurement includes the valuation
of counterparty credit risk and whilst there has been some increase
in credit spreads the impact has had no material impact to our
financial results. Counteracting this is the reduction in risk free rates
as a result of actions taken by governments to stimulate the
economy.
Post the COVID-19 pandemic we were able to successfully access
debt capital markets in a window where there was high liquidity and
successfully issued a benchmark Euro bond in the amount of €500
million.
The impact of the COVID-19 pandemic has had no impact to our
hedge relationships which continue to meet the criteria for hedge
accounting.
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, from June 2020 debt issued
at a fixed rate or hedged from floating to fixed is considered fixed for
the life of the transaction. Comparative information has been
restated to accord with the current year presentation.
Table A
Telstra Group
Fixed rate
Floating rate
Total borrowings
As at 30 June 2020
As at 30 June 2019
Pre-hedge
borrowings
Post-hedge
borrowings
Pre-hedge
borrowings
Post-hedge
borrowings
Note
4.3
$m
(14,849)
(980)
(15,829)
$m
(9,794)
(6,035)
(15,829)
$m
(15,813)
(1,440)
(17,253)
$m
(11,493)
(5,760)
(17,253)
4.4 Financial instruments and risk management (continued)
4.4.2 Managing our foreign currency risk
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. In
accordance with our policy to swap foreign currency borrowings into
Australian dollars, interest rate sensitivity relates primarily to
movements in the Australian interest rates.
We have selected a sensitivity range of plus 100 basis points (2019:
10 per cent) and minus 25 basis points (2019: 10 per cent) as a
reasonably possible shift in interest rates based on the current level
of both short-term and long-term interest rates and historical
volatility. The sensitivity reflects a change in benchmark rates only.
This is not a forecast or prediction of future market conditions.
Table B shows the results of our sensitivity analysis on the impacts
to profit after tax and on equity.
Table B
As at 30 June
Telstra Group
2020
Basis point
Gain/(loss)
2019
Per cent
Equity
Net
profit/
(loss)
Equity
Net
profit/
(loss)
$m
(36)
10
$m
37
(10)
$m
(8)
8
$m
15
(15)
Interest rates
(+100bp;+10%)
Interest rates
(-25bp;-10%)
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
• 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 the interest rate shifts were to
occur.
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.
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
• translation risk associated with our net investments in
foreign controlled entities (foreign operations).
(a) Borrowings
We mitigate the foreign currency exposure on foreign currency
denominated borrowings by converting borrowings to Australian
dollars using cross currency swaps.
Table C shows the Australian dollar equivalent carrying value of
offshore bonds and private placements by underlying currency. As at
30 June 2020, all offshore borrowings were swapped into Australian
dollars (2019: all Australian dollars).
Table C
Telstra Group
Euro
United States dollar
Japanese yen
Other
Total offshore bonds and private
placements
As at 30 June
2020
2019
$m
(8,697)
(3,628)
(138)
(248)
$m
(9,555)
(3,562)
(136)
(250)
(12,711)
(13,503)
As at 30 June 2020, we also held $260 million United States dollar
denominated commercial paper (2019: $50 million) with an
Australian dollar equivalent carrying value of $375 million (2019: $71
million). Commercial paper denominated in United States dollars
was converted into Australian dollars using foreign exchange swaps.
(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.
142 | Telstra Corporation Limited and controlled entities
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F64 | 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 2020 2020.Financial Report.book Page 65 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 65 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 66 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.2 Managing our foreign currency risk (continued)
4.4.2 Managing our foreign currency risk (continued)
We hedge the above risks using forward foreign exchange contracts.
(b) Trading (continued)
Table D summarises the impact of outstanding forward foreign
We hedge the above risks using forward foreign exchange contracts.
exchange contracts that are hedging our transactional currency
Table D summarises the impact of outstanding forward foreign
exposures.
exchange contracts that are hedging our transactional currency
exposures.
Table D
As at 30 June 2020
As at 30 June 2019
Telstra Group
Table D
Telstra Group
Exposure
Exposure
Commercial paper borrowings
United States dollars
Commercial paper borrowings
Transactions to and from WOCE
United States dollars
British pounds sterling
Transactions to and from WOCE
United States dollars
British pounds sterling
Other (various currencies)
United States dollars
Forecast transactions
Other (various currencies)
United States dollars
Forecast transactions
Indian Rupee
United States dollars
Philippine peso
Indian Rupee
Trade payables
Philippine peso
United States dollars
Trade payables
Total in Australian dollars
United States dollars
Total in Australian dollars
(c) Natural offset
m
m
(260)
(260)
(27)
(372)
(27)
-
(372)
-
(447)
(1,413)
(447)
-
(1,413)
-
(65)
(65)
Local currency
Local currency
As at 30 June 2020
Forward foreign exchange
contract receive/(pay)
Forward foreign exchange
Austra-
contract receive/(pay)
lian
Austra-
dollars
lian
dollars
Average
exchange
Average
rate
exchange
$
rate
$m
m
$m
(396)
$
0.66
Exposure
Exposure
Local currency
Local currency
As at 30 June 2019
Forward foreign exchange
contract receive/(pay)
Forward foreign exchange
Austra-
contract receive/(pay)
lian
Austra-
dollars
lian
dollars
Average
exchange
Average
rate
exchange
$
rate
$m
m
m
50
$m
(70)
$
0.72
m
260
260
30
200
30
-
200
-
195
565
195
-
565
-
65
65
(396)
(54)
(314)
(54)
6
(314)
6
(289)
(11)
(289)
-
(11)
-
(98)
(1,156)
(98)
(1,156)
0.66
0.55
0.64
0.55
-
0.64
-
0.66
51.95
0.66
-
51.95
-
0.67
0.67
m
m
(50)
(50)
(24)
(345)
(24)
-
(345)
-
(904)
-
(904)
(1,422)
-
(1,422)
(91)
(91)
50
21
266
21
-
266
-
351
-
351
1,138
-
1,138
91
91
(70)
(38)
(380)
(38)
(4)
(380)
(4)
(487)
-
(487)
(30)
-
(30)
(130)
(1,139)
(130)
(1,139)
0.72
0.55
0.70
0.55
-
0.70
-
0.72
-
0.72
38.24
-
38.24
0.70
0.70
(c) Natural offset
Our direct foreign exchange exposure arising from the impact of
translation of the results of our foreign entities to Australian dollars
Our direct foreign exchange exposure arising from the impact of
is, in part, naturally offset at the Group level by foreign currency
translation of the results of our foreign entities to Australian dollars
denominated operating and capital expenditure of business units,
is, in part, naturally offset at the Group level by foreign currency
for which we do not have hedge accounting in place.
denominated operating and capital expenditure of business units,
for which we do not have hedge accounting in place.
(d) Sensitivity
(d) Sensitivity
We have performed a sensitivity analysis based on our foreign
currency risk exposures existing at balance date. Table E shows the
We have performed a sensitivity analysis based on our foreign
impact that a 10 per cent shift in applicable exchange rates would
currency risk exposures existing at balance date. Table E shows the
have on our profit after tax and on equity.
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
Table E
Telstra Group
2020
As at 30 June
2019
2020
Gain/(loss)
2019
Net
profit/
Net
(loss)
profit/
(loss)
$m
$m
26
26
(32)
(32)
Exchange rates
(+10%)
Exchange rates
Exchange rates
(+10%)
(-10%)
Exchange rates
(-10%)
Equity
Gain/(loss)
Equity
$m
$m
(56)
(56)
68
68
Net
profit/
Net
(loss)
profit/
(loss)
$m
$m
45
45
(55)
(55)
Equity
Equity
$m
$m
(47)
(47)
57
57
A shift of 10 per cent has been selected as a reasonably possible
change taking into account the current level of exchange rates and
A shift of 10 per cent has been selected as a reasonably possible
the volatility observed both on a historical basis and on market
change taking into account the current level of exchange rates and
expectations of future movements. This is not a forecast or
the volatility observed both on a historical basis and on market
prediction of future market conditions. We have disclosed the
expectations of future movements. This is not a forecast or
sensitivity analysis on a total portfolio basis and not separately by
prediction of future market conditions. We have disclosed the
currency.
sensitivity analysis on a total portfolio basis and not separately by
currency.
We are exposed to equity impacts from foreign currency movements
associated with our offshore investments and our derivatives in cash
We are exposed to equity impacts from foreign currency movements
flow hedges of offshore borrowings. The translation of our foreign
associated with our offshore investments and our derivatives in cash
entities’ results into the Group’s presentation currency has not been
flow hedges of offshore borrowings. The translation of our foreign
included in the above sensitivity analysis as this represents
entities’ results into the Group’s presentation currency has not been
translation risk rather than transaction risk.
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
Any unhedged foreign exchange positions associated with our
foreign currency movements.
transactional exposures will directly affect profit or loss as a result of
foreign currency movements.
Our largest concentration of foreign currency risk on our offshore
borrowings is attributable to the Euro and United States dollar.
Our largest concentration of foreign currency risk on our offshore
However, there is no significant impact on profit or loss from foreign
borrowings is attributable to the Euro and United States dollar.
currency movements associated with our borrowings portfolio in
However, there is no significant impact on profit or loss from foreign
effective fair value or cash flow hedges as an offsetting entry will be
currency movements associated with our borrowings portfolio in
recognised on the associated hedging instrument.
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.
The analysis does not include the impact of any management action
that might take place if these events occurred.
4.4 Financial instruments and risk management (continued)
4.4.4 Managing our liquidity risk
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
undrawn bank facilities
• closely monitoring rolling forecasts of liquidity reserves on the
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.
We have access to commercial paper programs which continue to be
supported by a combination of liquid financial assets, and access to
committed bank facilities. Table F shows our total and undrawn
committed bank facilities as at 30 June. These facilities are
traditionally shorter term in nature and mature on a staggered basis
over the next five years, including $2 billion maturing in the next 12
months. Drawings under our bank facilities and commercial paper
issues are shown on a gross basis in the statement of cash flows.
Table F
Telstra Group
Facilities available
Facilities used
Facilities unused
As at 30 June
2020
2019
$m
4,090
(260)
3,830
$m
3,200
-
3,200
We reduce refinancing risk by ensuring that our borrowings mature
at different periods.
4.4.3 Managing our credit risk
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 7.4.2.
(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.
Refer to note 3.4 for details about our trade and other receivables
and contract assets and how we manage customer credit risk.
(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 2020, 95 per cent (2019: 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.
144 | Telstra Corporation Limited and controlled entities
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F66 | 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 2020 2020.Financial Report.book Page 67 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 68 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.4 Managing our liquidity risk (continued)
Table G shows the maturity profile of our financial liabilities including
estimated interest payments. The amounts disclosed are
undiscounted contractual future cash flows and therefore do not
reconcile to the amounts in the statement of financial position.
4.4 Financial instruments and risk management (continued)
4.4.5 Valuation and disclosures within fair value hierarchy
(continued)
The table below summaries the methods used to estimate the fair
value of our financial instruments.
Table G
Telstra Group
Domestic - bonds and
private placements
Offshore - bonds and
private placements
Commercial paper
Bank and other loans
Interest on borrowings,
excluding lease liabilities
Lease liabilities
Finance lease liabilities
Trade/other payables and
accrued expenses
Derivative financial assets
Derivative financial
liabilities
Total
Contractual maturity
As at 30 June 2020
As at 30 June 2019
1 to 2
years
2 to 5
years
Total
More
than 5
years
Less
than 1
year
1 to 2
years
2 to 5
years
Total
More
than 5
years
$m
$m
$m
$m
$m
$m
$m
$m
$m
-
(500)
(550)
(2,035)
(360)
(985)
(500)
(550)
(2,395)
Less
than 1
year
$m
(985)
(947)
(2,820)
(4,964)
(3,752)
(12,483)
(1,623)
(938)
(6,204)
(4,400)
(13,165)
(377)
(432)
(809)
(633)
-
(3,980)
-
(53)
(348)
(471)
-
(4)
-
(227)
(702)
-
-
(377)
(712)
(214)
(2,073)
(1,105)
-
(1,560)
-
(3,769)
-
(139)
(24)
(551)
-
(91)
-
-
(3,984)
(4,528)
-
(80)
(459)
-
(62)
(7)
-
(528)
(776)
-
(73)
(14)
-
(300)
(139)
(932)
(301)
(2,087)
-
(116)
-
(342)
(47)
(4,596)
2,504
2,972
5,384
3,920
14,780
3,345
1,283
6,638
4,621
15,887
(2,474)
(2,314)
(4,650)
(3,945)
(13,383)
(3,332)
(1,238)
(5,393)
(4,532)
(14,495)
(8,133)
(3,038)
(6,764)
(6,101)
(24,036)
(7,303)
(2,486)
(6,850)
(5,625)
(22,264)
4.4.5 Valuation and disclosures within fair value hierarchy
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.
Fair value hierarchy:
• level 1: quoted (unadjusted) market prices in active markets for
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 financial year 2020, 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.
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.
146 | Telstra Corporation Limited and controlled entities
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Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 4. Our capital and risk management (continued)
Section 4. Our capital and risk management (continued)
4.4 Financial instruments and risk management (continued)
4.4.5 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
Total
As at 30 June 2020
As at 30 June 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
-
-
-
2,158
-
-
2,158
(374)
(374)
1,784
1,346
-
-
21
1,367
-
-
1,367
1,346
2,158
-
21
3,525
(374)
(374)
3,151
-
-
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
Our borrowings as per Table C in note 4.3.2 are classified as level 2 in
the fair value hierarchy.
Table J details movements in the level 3 trade receivables from
contracts with customers.
Table I details movements in the level 3 unlisted security balances.
Table I
Telstra Group
Opening balance 1 July
Purchases
Remeasurement recognised in other
comprehensive income (net of tax)
Contribution to Telstra Ventures Fund
II, L.P.
Closing balance 30 June
Table J
Year ended 30 June
Telstra Group
2020
2019
$m
16
7
(2)
-
21
$m
25
1
1
(11)
16
Opening balance 1 July
Recognised during the period
Settlements by customers
Net interest income recognised in the
income statement
Remeasurements recognised in the
income statement
Closing balance 30 June
Year ended 30 June
2020
2019
$m
1,506
1,564
(1,756)
37
(5)
$m
1,502
1,632
(1,664)
44
(8)
1,346
1,506
During the financial year 2020, 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.
We recognise trade receivables from contracts with customers as
part of our ordinary activities. Settlements of those receivables are
part of the receipts from customers in the operating cash flows.
4.4 Financial instruments and risk management (continued)
4.4.6 Offsetting and netting arrangements
Table K presents financial assets and financial liabilities that are
offset, or subject to, enforceable master netting arrangements or
other similar agreements but not offset. The column ‘net amounts’
shows the impact on the statement of financial position if all set-off
rights were exercised.
Table K
Telstra Group
Effects of offsetting in the statement of
financial position
Related amounts not offset in the
statement of financial position
Gross
amounts
Gross
amounts
offset in the
statement of
financial
position
Net amounts
presented in
the
statement of
financial
position
Financial
instruments
Collateral
received or
pledged
Net amounts
$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
640
(429)
2,158
(374)
1,995
829
(473)
2,262
(340)
2,278
As at 30 June 2020
563
(352)
2,158
(374)
1,995
As at 30 June 2019
696
(340)
2,262
(340)
2,278
65
(65)
344
(344)
-
54
(54)
337
(337)
-
77
(77)
-
-
-
133
(133)
-
-
-
10
-
-
-
10
10
-
-
-
10
488
(287)
1,814
(30)
1,985
632
(286)
1,925
(3)
2,268
Related amounts not offset in the statement of financial position
reflect amounts subject to conditional offsetting arrangements.
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.
148 | Telstra Corporation Limited and controlled entities
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2020.Financial Report.book Page 72 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Section 5. Our people
Section 5. Our people
We are working to attract and retain employees with the
We are working to attract and retain employees with the
skills and passion to best serve our markets. This section
skills and passion to best serve our markets. This section
provides information about our employee benefits
provides information about our employee benefits
obligations. It also includes details of our employee share
obligations. It also includes details of our employee share
plans and compensation paid to key management
plans and compensation paid to key management
personnel.
personnel.
SECTION 5. OUR PEOPLE
5.1 Employee benefits
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 current and non-current employee benefits) and
• redundancy provisions (presented within current other
provisions).
Table A provides a summary of all these employee obligations.
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
As at 30 June
2020
2019
$m
435
$m
495
Table A
Telstra Group
As at 30 June
2020
2019
Leave obligations expected to be
settled after 12 months
Accrued labour and on-costs
Current employee benefits
Non-current employee benefits
Current redundancy provisions
$m
424
727
127
-
1,278
$m
644
804
158
1
1,607
We apply estimates and judgement in measuring our provisions for
employee benefits.
Long service
leave provision
We applied management judgement to
determine the following key
assumptions used in the calculation of
long service leave entitlements:
• 3.5 per cent (2019: 4.0 per cent)
weighted average projected
increases in salaries
• 2.3 per cent (2019: 2.7 per cent)
discount rate.
The discount rate used to calculate the
present value has been determined by
reference to market yields at 30 June
2020 on nine year (2019: 10 year) high
quality corporate bonds which have
due dates similar to those of our
liabilities.
5.1.2 Recognition and measurement
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.
Notes to the financial statements (continued)
Telstra Financial Report 2020
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.
Table A provides a summary of the restricted shares that were
outstanding at 30 June 2020.
Table A
Telstra Group
able A
Financial year
granted
Restriction period
Number of restricted
shares allocated and
outstanding at
30 June 2020
EVP restricted shares
FY20
FY19
FY18
1 to 4 years from the end
of the initial performance
period
The restricted shares for
FY20 will be allocated in
the first half of the
financial year 2021
2 years from the end of
the initial performance
period
1 to 2 years from the end
of the initial performance
period
1,252,021
277,694
Short-term incentive (STI) restricted
shares
FY20, FY19, FY18, FY17
3 years from the end of
the performance period
Employee Share Plan (ESP) restricted
shares
FY18
3 years from February
2018
TESOP 99 restricted shares
FY00, FY98
Until the loan has been
paid in full
5,914,876
1,699,200
2,024,900
Upon vesting, the EVP and STI restricted shares will be transferred to
the executive in August on the first day of Telstra’s share trading
window under its Securities Trading policy following Telstra’s full
year results announcement.
150 | 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 2020
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2020.Financial Report.book Page 74 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 5. Our people (continued)
Section 5. Our people (continued)
5.2 Employee share plans (continued)
Table B provides a summary of the EVP performance rights that
existed at 30 June 2020.
Table B
Telstra Group
Financial year
granted
Date of testing
against
performance
hurdles
Performance
hurdles
EVP performance rights
FY20
30 Jun 2024
Relative Total
Shareholder Return
(RTSR)
Number of
performance
rights allocated
and outstanding at
30 June 2020
The performance
rights for FY20 will be
allocated in the first
half of the financial
year 2021
FY19
FY18
30 Jun 2023
RTSR
1,878,032
50% 30 Jun 2021
50% 30 Jun 2022
RTSR
833,082
The definition of RTSR is set out in the Remuneration Report
Glossary.
5.2.1 Description of share based payment arrangements
(a) Executive Variable Remuneration Plan (EVP)
The EVP has been implemented for the CEO and eligible Group
Executives since the 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 certain factors, including Telstra’s
performance against certain predetermined performance measures
and the executive’s individual performance (including their
performance relative to other executives), with the Board retaining
discretion to adjust the outcome to ensure it is appropriate. A
component of the amount earned under the EVP is provided in
restricted shares and a component in performance rights. Refer to
the Remuneration Report for further details on the FY20 EVP
structure.
The FY20 allocation of restricted shares and performance rights
under the FY20 EVP are expected to be made in November 2020.
Shareholder approval will be sought at the 2020 Annual General
Meeting for the CEO’s EVP equity grants.
(i) Restricted shares (equity-settled)
FY20 EVP restricted shares will be granted in four equal tranches,
with one tranche eligible to vest each year for the four years following
the end of the initial one year performance period. Refer to Table A for
the restriction periods for the prior years’ plans. 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 (malus) events occur before the restricted shares
are transferred to the executive following the end of the relevant
restriction period.
(ii) Performance rights (equity-settled)
Once allocated, the FY20 EVP performance rights will be tested
against a RTSR measure over a five year period (FY19 EVP: over five
years) inclusive of the initial one year performance period.
The number of the FY20 EVP performance rights that vest will be
determined on a straight-line basis, with 50 per cent of the
performance rights vesting if Telstra’s RTSR ranks at the 50th
percentile of the Comparator Group over the performance period, up
to 100 per cent of the performance rights vesting where Telstra’s
RTSR ranks at the 75th percentile of the Comparator Group or above.
No FY20 EVP performance rights will vest if Telstra’s RTSR ranks
below the 50th percentile of the Comparator Group. Any
performance rights that do not vest following testing against the
RTSR measure will lapse.
The financial year 2019 and 2018 EVP 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 (Comparator Group) over the performance period. If the
RTSR measure is not satisfied, all of the applicable performance
rights in the relevant tranche will lapse.
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.
If an executive leaves Telstra other than for a Permitted Reason
before the end of the performance period, the performance rights
will lapse. Performance rights may also lapse if certain clawback
(malus) events occur before the performance rights vest following
the end of the performance period.
5.2 Employee share plans (continued)
(e) TESOP99 (equity-settled)
5.2.1 Description of share based payment arrangements
(continued)
(a) Executive Variable Remuneration Plan (EVP) (continued)
(iii) Cash rights (cash-settled)
As at 30 June 2020 we recorded a $4 million liability (2019: $4 million)
pertaining to the outstanding cash rights issued to the former
executives that ceased employment for a permitted reason in the
financial year 2019.
(b) Retention rights (equity-settled)
During the financial year 2019, Telstra issued one-off retention
rights to eligible employees. As at 30 June 2020, 7,610,669 retention
rights were outstanding.
The retention rights were allocated in August 2018 in two tranches –
5,065,355 (40 per cent) of the retention rights vested 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. Retention rights may also lapse if certain clawback (malus)
events occur before the retention rights vest.
(c) STI restricted shares
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 2,024,900 outstanding equity instruments as at 30
June 2020 (2019: 2,903,300) with a total fair value of $6 million
(2019: $11 million). This plan did not have a material impact on our
results.
The employee share loan balance as at 30 June 2020 was $7 million
(2019: $10 million), the weighted average loan still to be repaid was
$3.27 (2019: $3.39) per instrument.
5.2.2 Fair value measurement
(a) EVP restricted shares
EVP restricted shares were measured based on the Board approved
fixed dollar outcome for the financial year 2020, with a final number
of shares to be allocated in November 2020. The estimated fair value
per share was $3.44 (2019: $2.95).
(b) EVP performance rights
Table C provides a weighted average of the inputs used in measuring
the fair value of EVP performance rights at grant date.
Under the STI arrangements, 25 per cent of an eligible executive’s
actual STI payment is provided as restricted shares which are
restricted for three years from the end of the performance period.
Table C
Telstra GroupT
Performance hurdles are applied in determining the number of
restricted shares allocated to executives, and therefore, restricted
shares are not subject to any other performance hurdles once they
have been allocated. During the restriction period, from the actual
grant date, executives are entitled to vote and earn dividends on their
restricted shares. However, they are restricted from dealing with the
shares during this period.
If an executive leaves Telstra other than for a Permitted Reason
before the end of the relevant restriction period, the restricted
shares are forfeited. Restricted shares may also be forfeited if
certain clawback (malus) events occur before the restricted shares
are transferred to the executive following the end of the relevant
restriction period.
Measurement date
Share price
Risk free rate
Dividend yield
Expected life in years
Expected stock volatility
Fair value ($)
Year ended 30 June
2020
Aug 2019
$3.87
0.67%
5.22%
4.9 years
19%
$1.91
2019
Oct 2018
$3.11
2.26%
6.14%
4.7 years
20%
$1.98
The expected stock volatility is a measure of the amount by which the
price is expected to fluctuate during a period. This is based on an
annualised historical daily volatility of closing share prices over a
certain period to the measurement date.
(d) Employee Share Plan (ESP) restricted shares (equity-settled)
(c) Retention rights
Restricted shares provided under the ESP were allocated to certain
eligible employees at no cost (executives were excluded from the
ESP).
The restricted shares are held by the Trustee on behalf of employees
until the restriction period ends. For Australian based employees,
the shares are released from trust on the earlier of three years from
the date of allocation or the date on which the participating
employee ceases relevant employment. Although the Trustee holds
the restricted shares in trust, the employees retain beneficial
interest (dividends, voting rights, bonus issues and right issues) in
these shares until the end of the restriction period.
There are no performance hurdles for these restricted shares.
No retention rights were granted in the financial year 2020.
Table D
Telstra GroupT
Retention
rights
Measurement date
Share price
Risk free rate
Dividend yield
Expected life in years
Fair value ($)
2019
Aug 2018
$3.08
1.99%
5.84%
2.3 years
$2.71
5.2.3 Expense recognised in profit or loss
For details of the related employee benefit expenses, refer to note
2.3.
152 | 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 2020 2020.Financial Report.book Page 75 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 76 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 5. Our people (continued)
Section 5. Our people (continued)
5.2 Employee share plans (continued)
5.3 Post-employment benefits
5.3 Post-employment benefits (continued)
(c) Categories of plan assets
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
Performance rights
Retention rights
We measure the value of the
award by reference to the
fixed dollar outcome
approved by the Board
Black-Scholes methodology
and utilises Monte Carlo
simulations
Market value of Telstra’s
share at grant date excluding
estimated dividends lost
between the grant date and
the allocation date
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.
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
2020
2019
$m
$m
1,781
2,108
1,666
115
123
(8)
115
1,884
224
232
(8)
224
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.
5.3.2 Telstra Superannuation Scheme (Telstra Super) (continued)
(a) Reconciliation of changes in fair value of defined benefit 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.
Table B provides a reconciliation of fair value of defined benefit plan
assets from the opening to the closing balance.
Table D
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 (loss)/gain
Fair value of defined benefit plan
assets at end of year
As at 30 June
2020
2019
$m
$m
2,108
2,423
15
24
31
28
(400)
(465)
Telstra Super
Asset allocations
Equity instruments
Australian equity ¹
International equity ¹
Private equity
Debt instruments
Fixed interest ¹
(7)
49
(8)
(7)
82
16
Property
Cash and cash equivalents
Other
1,781
2,108
As at 30 June
2020
2019
%
6
7
2
63
9
11
2
100
%
7
8
3
58
8
11
5
100
1 These assets have quoted prices in active markets.
(i) Related party disclosures
As at 30 June 2020, Telstra Super owned 49,396,553 (2019:
51,190,265) shares in the Telstra Entity at a cost of $184 million
(2019: $145 million) and a market value of $155 million (2019: $197
million). All these shares were fully paid at 30 June 2020. During the
financial year 2020, we paid a dividend to Telstra Super of $8 million
(2019: $8 million). We own 100 per cent of the equity of Telstra Super
Pty Ltd, the Trustee of Telstra Super.
Telstra Super also holds promissory notes and bonds issued by the
Telstra Entity. As at 30 June 2020, these securities had a cost of $16
million (2019: $14 million) and a market value of $17 million (2019:
$15 million).
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.
(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 due to change in financial
assumptions
Actuarial loss/(gain) due to change in
demographic assumptions
Actuarial loss due to experience
Present value of wholly funded
defined benefit obligation at end of
year
As at 30 June
2020
2019
$m
$m
1,876
2,173
61
45
10
(8)
(400)
49
1
24
65
74
13
(10)
(465)
2
(2)
26
1,658
1,876
The actual return on defined benefit plan assets was 1.5 per cent
(2019: 3.7 per cent).
Net actuarial loss recognised in other comprehensive income for
Telstra Super amounted to $82 million (2019: $10 million net loss).
As a result of restructuring program, we settled the defined benefit
plan obligations relating to the employees impacted by the
redundancy and recognised a $8 million gain (2019: $10 million) on
settlement. This is reflected in the past service credit.
154 | Telstra Corporation Limited and controlled entities
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F76 | 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 2020 2020.Financial Report.book Page 77 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 78 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 5. Our people (continued)
Section 5. Our people (continued)
5.3 Post-employment benefits (continued)
5.3.2 Telstra Superannuation Scheme (Telstra Super) (continued)
Table F shows the expected proportion of benefits paid from the
defined benefit obligation in future years.
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 2020 and 2019, and provides
information about other transactions with our KMP and their
related parties.
5.4.1 KMP aggregate compensation
During the financial years 2020 and 2019, 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
2020
2019
$000
18,052
301
555
1,100
5,826
25,834
$000
20,531
309
316
2,865
3,527
27,548
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 2020 and 2019, 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.
(d) Actuarial assumptions and sensitivity analysis
Table F
Telstra Super
Year ended 30 June
2020
2019
Defined benefit
plan
Management judgement was used to
determine the following key
assumptions used in the calculation of
our defined benefit obligations:
• 2.5 per cent (2019: 2.5 per cent)
average expected rate of increase in
future salaries
• 2.1 per cent (2019: 2.4 per cent)
discount rate.
We have used an eight year (2019:
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.
Table E summarises how the defined benefit obligation as at 30 June
2020 would have increased/(decreased) as a result of a change in the
respective assumptions by one percentage point (1pp).
Table E
Telstra Super
Discount rate
Expected rate of increase in future
salaries
(e) Employer contributions
Defined benefit
obligation
1pp
increase
1pp
decrease
$m
(109)
86
$m
125
(77)
During the year, we paid contributions totalling $15 million (2019:
$31 million) at the average rate of five per cent (2019: eight 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 2021. This contribution rate
could change depending on market conditions and actuarial review
during the financial year 2021.
Within 1 year
Between 1 and 4 years
Between 5 and 9 years
Between 10 and 19 years
After 20 years
%
13
22
23
36
6
100
%
7
24
23
39
7
100
The weighted average duration of the defined benefit plan
obligations at the end of the reporting period was eight years (2019:
nine 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 to the extent that 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.
156 | Telstra Corporation Limited and controlled entities
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F78 | 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 2020 2020.Financial Report.book Page 79 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 80 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Section 6. Our investments
Section 6. Our investments
This section outlines our group structure and includes
This section outlines our group structure and includes
information about our controlled entities, joint ventures and
information about our controlled entities, joint ventures and
associated entitites. It provides details of changes to these
associated entities. It provides details of changes to these
investments and their effect on our financial position and
investments and their effect on our financial position and
performance during the financial year. It also includes the
performance during the financial year. It also includes the
results of our material joint ventures and associated entities.
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 2020 (or ownership changes to such entities) determined by
reference to 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
Telstra Health Pty Ltd
Fred IT Group Pty Ltd 1, 2
Neto E-Commerce Solutions Pty Ltd
O2 Networks Pty Ltd
Ooyala Holdings Inc. 5
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
2020
2019
2020
2019
%
%
%
%
100.0
100.0
100.0
100.0
50.0
67.4
100.0
-
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
67.4
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
67.4
100.0
-
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
67.4
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Country of
incorporation
Australia
Bermuda
Ireland
Australia
Australia
Australia
Australia
Australia
United States
China
Bermuda
Australia
Hong Kong
Bermuda
Philippines
United Kingdom
Bermuda
Australia
Notes to the financial statements (continued)
Telstra Financial Report 2020
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
Telstra Global (HK) Limited
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 Services (Taiwan) Inc. 3
Telstra Services (USA) Inc.
Telstra Services Asia Pacific (HK) Limited
Telstra Singapore Pte Ltd
Sapio 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
2020
2019
2020
2019
%
%
%
%
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
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
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
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
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
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, with the exception of Telstra Telecommunications Private Limited which has a 31 March reporting date.
5 We disposed of this entity during the year.
158 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F79
F80 | 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 2020 2020.Financial Report.book Page 81 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 82 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 6. Our investments (continued)
Section 6. Our investments (continued)
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.
Table B
Closed Group
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
Right-of-use assets
Intangible assets
Derivative financial assets
Defined benefit asset
Total non-current assets
Total assets
As at 30 June
2020
2019
$m
$m
489
4,330
78
398
147
211
5,653
1,429
1,354
28
3,165
909
16
20,567
2,823
6,138
2,011
123
38,563
44,216
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
6.1 Investments in controlled entities (continued)
6.1.2 Deed of cross guarantee (continued)
Table B (continued)
Closed Group
Current liabilities
Trade and other payables
Employee benefits
Other provisions
Lease liabilities
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
Lease liabilities
Borrowings
Derivative financial liabilities
Deferred tax liabilities
Contract liabilities and other revenue
received in advance
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained profits
Equity available to the closed group
As at 30 June
Table C
2020
2019
Closed Group
$m
$m
Year ended 30 June
2020
2019
$m
$m
Income
Revenue (excluding finance income)
Other income
Expenses
Labour
Goods and services purchased
Net impairment losses on financial
assets
Other expenses
Share of net (loss)/profit 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
22,219
2,346
24,565
3,653
8,324
200
3,686
15,863
23,803
2,534
26,337
4,843
8,307
179
5,686
19,015
(307)
8
16,170
19,007
8,395
7,330
4,973
3,422
275
1,022
747
2,675
965
1,710
3,995
3,335
241
804
563
2,772
942
1,830
3,528
710
123
553
3,951
54
209
1,522
10,650
4
126
135
2,485
14,465
320
1,546
4,095
790
102
-
3,242
57
96
1,575
9,957
68
157
145
-
14,932
283
1,461
613
660
19,694
30,344
13,872
4,451
19
9,402
13,872
17,706
27,663
14,104
4,447
(47)
9,704
14,104
6.1 Investments in controlled entities (continued)
6.1.2 Deed of cross guarantee
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
Australian Securities and Investments Commission (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
• Kloud Solutions Pty Ltd
• Merricks NewCo Pty Ltd
• Mobile Tracking and Data 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 Purple Pty Ltd (formerly Telstra Digital Innovation Group
Pty Ltd)
• Telstra Health Pty Ltd
• Telstra Holdings Pty Ltd
• Telstra International (Aus) Limited
• 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
Merricks NewCo Pty Ltd was added as a party to the Deed via an
assumption deed on 19 March 2020 and is also part of the Closed
Group.
A revocation deed, which was lodged with ASIC on 19 December 2019
to revoke and release DCA eHealth Solutions Pty Ltd, iCareHealth Pty
Ltd, Kloud Solutions (National) Pty Limited, MSC Mobility Pty Ltd and
Telstra iVision Pty Ltd from the Deed, took effect on 20 June 2020 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.
160 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F81
F82 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 161
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020
2020.Financial Report.book Page 83 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 84 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 6. Our investments (continued)
Section 6. Our investments (continued)
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 arising from
adoption of AASB 16: 'Leases'
Effect on retained profits from addition
of entities to the Closed Group
Effect on retained profits from removal
of entities to the Closed Group
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
2020
2019
$m
$m
9,704
10,140
(2)
(2)
(48)
-
-
-
1,653
1,823
(1,903)
(2,259)
9,402
9,704
6.1.3 Sale of units in a controlled trust
During the financial year 2020, we sold a 49 per cent minority interest
in a property trust, The Exchange Trust, set up by Telstra holding a
portfolio of 36 Telstra exchanges in Australia. The trustee of the
property trust is Merricks NewCo Pty Ltd, our wholly owned
controlled entity. Telstra retains the control over the trust and thus
continues to consolidate these assets. The cash proceeds from the
sale of the minority stake totalling $698 million are presented as
non-controlling interest in the statement of financial position.
Table C (continued)
Closed Group
Items that will not be reclassified to
the Closed Group income statement
Retained profits
Actuarial loss on defined benefit plans
Income tax on actuarial loss on defined
benefit plans
Fair value of equity instruments
reserve
Gain 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
2020
2019
$m
$m
(82)
25
-
16
(2)
(43)
54
(16)
(6)
2
34
(9)
(10)
3
3
66
(22)
40
3
(1)
(22)
7
(13)
27
1,701
1,857
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 reduces 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
Net impairment loss recognised in the income statement
Share of net (loss)/profit
Share of distributions
Share of reserves
Carrying amount of investments at end of year
Share of net loss for the financial year 2020 includes $308 million
impairment of our investment in NXE Australia Pty Limited. Refer to
6.2.1 for further details.
Share of joint ventures’ reserves includes $16 million (2019: $66
million) of our share of other comprehensive income.
As at 30 June
Joint ventures
Associated entities
2020
2019
2020
2019
$m
348
28
-
-
376
(9)
(117)
16
266
$m
296
29
-
(2)
323
(6)
(35)
66
348
$m
950
5
(4)
-
951
(296)
(18)
(6)
631
$m
941
-
-
-
941
18
(9)
-
950
162 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F83
F84 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 163
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 85 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 86 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 6. Our investments (continued)
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
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 (c)
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 (d)
Pay television
Pacific Carriage Holdings Limited (a)(b)
Network cable provider
Pacific Carriage Holdings Limited Inc. (a)(b) Network cable provider
Southern Cross Cables Holdings Limited
(a)(b)
Network cable provider
Australia
Australia
Australia
Australia
Australia
Ownership interest
As at 30 June
2020
2019
%
%
50.0
50.0
45.0
62.5
50.0
50.0
45.0
62.5
46.9
100.0
46.9
100.0
30.0
30.0
28.1
-
40.0
49.0
48.0
20.0
35.0
25.0
25.0
25.0
28.1
15.0
40.0
49.0
48.0
20.0
35.0
-
-
-
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 2020 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
• Pacific Carriage Holdings Limited – 31 December
• Pacific Carriage Holdings Limited Inc. – 31 December
• Southern Cross Cables Holdings Limited – 31 December.
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.
(b) Additions
On 1 October 2019, the following entities were acquired as
associated entities:
• Pacific Carriage Holdings Limited
• Pacific Carriage Holdings Limited Inc.
• Southern Cross Cables Holdings Limited
(c) Disposals
We sold our investment in PharmX Pty Ltd on 2 April 2020.
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.
(d) NXE Australia Pty Limited
Telstra has a 35 percent interest in NXE Australia Pty Limited, an
associated entity which provides subscription TV and streaming
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 financial year 2020 is summarised in Table C based on
their consolidated management financial statements prepared in
accordance with the 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 and impairment of
our investment.
Table C
Year ended 30 June
NXE Australia Pty Limited
2020
2019
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Telstra's share in equity 35% (2019:
35%)
Equity accounting adjustments
Telstra's carrying amount of the
investment
Revenue
Operating expenses
Loss before tax
Income tax benefit/(expense)
Loss for the year
Other comprehensive income
Total comprehensive income for the
year
Equity accounting adjustments
Adjusted comprehensive income for
the period
Telstra's share of comprehensive
income for the year (35%)
$m
530
4,563
(763)
(3,182)
1,148
402
28
430
2,801
(3,893)
(1,092)
7
(1,085)
(16)
(1,101)
143
(958)
(335)
$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)
164 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F85
F86 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 165
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 87 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 88 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 6. Our investments (continued)
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 investments are 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 growth
rate and discount rate based on past experience and our
expectations for the future.
6.2 Investments in joint ventures and associated entities
(continued)
6.2.1 List of our investments in joint ventures and associated
entities (continued)
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
Dividend income
Expenses
Purchase of goods and services
Interest expense on amounts owed to
joint ventures and associated entities
Total amounts receivable as at 30
June
Current
Trade receivables
Other receivables
Non-current
Amounts owed by joint ventures and
associated entities
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
Trade payables
Amounts owed to joint ventures and
associated entities
Non-current
Amounts owed to joint ventures and
associated entities
Year ended/As at
30 June
2020
2019
$m
$m
202
1
845
8
39
52
24
(8)
16
(8)
-
(8)
201
-
859
8
41
-
8
(8)
-
(7)
(1)
(8)
147
89
163
-
1
79
(d) NXE Australia Pty Limited (continued)
During the financial year 2020, our investment in NXE Australia Pty
Limited has been impaired and a loss of $308 million was recognised
in our share of the net loss from joint ventures and associated
entities for the year. The impairment reflected the challenges of
disruption in the industry and the impact of the COVID-19 pandemic
as global sports are put on hold, pubs are temporarily closed, and
advertisers are forced to carefully reconsider their investments.
6.2.2 Other joint ventures and associated entities
Table D presents our share of the aggregate financial information
(including joint ventures and associated entities where equity
accounting has been suspended).
Table D
Year ended/As at 30 June
Telstra Group
Joint ventures
Associated
entities
2020
2019
2020
2019
$m
266
(12)
13
$m
348
$m
631
(5)
(294)
61
(6)
$m
950
20
(1)
1
56
(300)
19
Carrying amount of
investment
Group's share of:
(Loss)/gain
Other
comprehensive
income
Total
comprehensive
income
6.2.3 Suspension of equity accounting
Table E presents our unrecognised share of profits/(losses) for the
financial year 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
2020
2020
2019
2019
$m
$m
$m
$m
Joint ventures
Reach Limited
Associated entities
Australia-Japan
Cable Holdings
Limited
(3)
(550)
2
(1)
(67)
(617)
1
2
3
(547)
(69)
(616)
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 2020 were as
follows:
• we purchased pay television services amounting to $706 million
(2019: $777 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 $38
million (2019: $35 million) and wholesale services of $57 million
(2019: $55 million).
(b) Amounts owed by joint ventures and associated entities
Loans provided to joint ventures and associated entities relate to
loans provided to NXE Australia Pty Limited of $16 million (2019: nil)
and Reach Limited of $8 million (2019: $8 million).
In February 2020 we entered into a subordinated loan agreement
with NXE Australia Pty Limited under which we made available to
NXE Australia Pty Limited a loan facility of up to $170 million at
commercial rates of interest. The facility matures on 22 December
2027. As at 30 June 2020 the balance drawn under this facility was
$16 million.
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) Amounts owed to joint ventures and associated entities
As at 30 June 2020, we had a loan payable amount of $90 million
(2019: $79 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. The current
amount of $89 million matures in 31 December 2020 and the non-
current amount of $1 million matures in 30 July 2024.
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.
166 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F87
F88 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 167
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 89 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 90 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Notes to the financial statements (continued)
Section 7. Other information
Section 7. Other information
This section provides other information and disclosures
This section provides other information and disclosures
not included in the other sections, for example our
not included in the other sections, for example our
external auditor’s remuneration, commitments and
external auditor’s remuneration, commitments and
contingencies, parent entity disclosures and significant
contingencies, parent entity disclosures and significant
events occuring after reporting date.
events occurring after reporting date.
SECTION 7.
7.1 Other accounting policies
OTHER INFORMATION
7.1.1 New accounting standards to be applied in future reporting
periods
A number of new standards are effective for annual periods
beginning after 1 July 2020 and earlier application is permitted;
however, the Group has not early adopted the new or amended
standards in preparing these consolidated financial statements
except for those listed in note 1.5.
In May 2019, the AASB issued AASB 2019-1: ‘Amendments to
Australian Accounting Standards - References to the Conceptual
Framework’, effective for Telstra Group from 1 July 2020. We do not
expect that either this accounting standard or any other recently
issued accounting standards or amendments will have a material
impact on our financial results upon their adoption.
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 the 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
Foreign currency amount
Exchange 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.
7.2 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 details
the total fees to our external auditors.
Telstra Group
Fees to Ernst & Young (Australia)
Category 1
Category 2
Category 3
Category 4
Total fees to Ernst & Young (Australia)
Fees to other overseas member firms
of Ernst & Young (Australia)
Category 1
Category 2
Category 3
Category 4
Total fees to overseas member firms
of Ernst & Young (Australia)
Total auditor’s remuneration
Year ended 30 June
2020
2019
$m
$m
7.741
-
2.009
0.107
9.857
2.429
0.054
-
0.054
2.537
7.192
-
3.160
0.082
10.434
2.256
0.050
-
0.055
2.361
12.394
12.795
Following the 2019 discussion Parliamentary Joint Committee on
Corporations and Financial Services' Inquiry into the Regulation of
Auditing in Australia a recommendation was made to adopt a
consistent disclosure of audit and non-audit fees.
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 7. Other information (continued)
7.2 Auditor’s remuneration (continued)
As a result we have restated the comparative period balances and
disclosed our audit and non-audit fees in the following categories:
• Category 1: fees to the group auditor for auditing the statutory
financial report of the parent covering the group, and for auditing
the statutory financial report of any controlled entities
• Category 2: fees for assurance services that are required by
legislation to be provided by the auditor
• Category 3: fees for other assurance and agreed-upon procedures
services where there is discretion as to whether the service is
provided by the auditor or another firm
• Category 4: fees for other services (e.g. tax compliance).
Services in Category 3 included IT security control assessments.
Services in Category 4 included tax services and other advisory
services.
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 and policies in place
to ensure auditor independence.
7.3 Other provisions
The table below provides a summary of our current and non-current
other provisions.
We have been undertaking a comprehensive customer remediation
program and are also already committed to a wide range of existing
and future measures that provide direct benefits to Indigenous
communities, including in the areas of digital literacy and inclusion.
Resolution of this matter may involve undertaking additional
measures. Given the uncertainty, no provision has been made to
cover further liabilities that may arise.
There remains a material possibility that the ACCC will commence
enforcement action against Telstra. Any such enforcement action
arising from the ACCC investigation may involve significant financial
penalties, which are set out in the Act and are applicable to each act
or omission found to have breached the Act. Maximum penalties set
out in the Act are not automatically applied and are assessed by a
court on a case by case basis. Future developments may result in
adjustments to the provision we have made.
Refer to note 7.4.2 for further details regarding contingent liabilities
related to investigations by regulators.
7.4 Parent entity disclosures
This note provides details of Telstra Entity financial
performance and financial position as a standalone entity. The
results include transactions with its controlled entities.
Telstra Group
As at 30 June
2020
2019
Tables A and B provide a summary of the financial information for the
Telstra Entity.
Current other provisions
Non-current other provisions
$m
124
143
$m
103
158
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
7.3.1 Provision for Australian Competition and Consumer
Commission (ACCC) investigation
The ACCC is undertaking an investigation, launched in March 2019,
into our sales, complaint handling and debt collection practices, to
determine whether Telstra has engaged in misleading or deceptive
conduct, unconscionable conduct, or made false or misleading
representations, in breach of the Competition and Consumer Act
2010 (Act). The investigation has a specific focus on conduct towards
Indigenous Australians, including in particular locations in the NT,
WA, QLD, NSW and SA. It is also examining our conduct more broadly,
including our sales, complaints handling and debt collection
procedures, as they have been applied to our customers generally,
and particularly vulnerable customers. The investigation, which
involves extensive information and document requests, is ongoing,
and its scope may change and broaden.
The ACCC's investigation follows investigations by both the
Telecommunications Industry Ombudsman, one commencing in
December 2016 and one in October 2018, and the ACMA, which
commenced in June 2018, during which issues were raised and
concerns were expressed about our sales practices, including in
relation to Indigenous Australians. These investigations concluded in
2018 and 2019 and did not result in enforcement action by these
bodies.
We are cooperating with the ACCC's investigation and continue to
engage with the ACCC. In our financial statements for the half-year
ended 31 December 2019 this matter was disclosed as a contingent
liability as we were unable to determine a reliable estimate of any
penalty or other remedies. As at 30 June 2020, having considered all
available information at the date of this report we have made a
provision of $50 million for any penalties.
As at 30 June
2020
2019
$m
$m
6,248
41,352
47,600
14,025
19,592
33,617
4,451
(177)
(25)
201
9,533
13,983
6,959
38,194
45,153
13,378
17,625
31,003
4,447
(209)
(21)
201
9,732
14,150
168 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F89
F90 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | 169
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 91 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 92 Wednesday, August 12, 2020 7:08 PM
Notes to the financial statements (continued)
Telstra Financial Report 2020
Notes to the financial statements (continued)
Telstra Financial Report 2020
Section 7. Other information (continued)
Section 7. Other information (continued)
7.4 Parent entity disclosures (continued)
Table B
Telstra Entity
Statement of comprehensive income
Profit for the year
Total comprehensive income
Year ended 30 June
2020
2019
$m
$m
1,764
1,735
2,358
2,337
Total non-current assets include $329 million (2019: $603 million)
impact of impairment losses recognised during the financial year.
Within that amount, impairment losses relating to our associated
entities were $308 million (2019: nil), and relating to our controlled
entities amounted to $16 million (2019: $104 million). The latter has
been eliminated on consolidation of the Telstra Group. Refer to note
6.2 for further details regarding impairment of our associated
entities, and to note 2.3 for impairment losses on property, plant and
equipment and software.
7.4.1 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
7.4.2 Contingent liabilities and guarantees
(a) Investigations by regulators
As at 30 June
2020
2019
$m
331
$m
471
Telstra recognises the fundamental importance of doing business
responsibly. A critical aspect of this is recognising the importance of
continuously striving to improve outcomes for our customers and
taking action if we don't meet the standards we set for ourselves.
This reflects the business environment in which we operate, and the
heightened expectations of the community, of regulators, and of our
shareholders, as well as the expectation that regulators will
investigate and take action if they believe that misconduct has
occurred.
Telstra is subject to a range of laws and regulations in Australia and
overseas, including in the areas of telecommunications, corporate
law, consumer and competition law and occupational health and
safety. Telstra is also subject to investigations and reviews from time
to time by regulators, including in circumstances where Telstra has
self-reported issues where it has not complied with relevant laws
and regulations. In Australia, the principal regulators that Telstra
interacts with are the Australian Competition and Consumer
Commission (ACCC), the Australian Communications and Media
Authority (ACMA), the Australian Securities and Investments
Commission and the Australian Securities Exchange. Any regulatory
investigations and reviews may result in enforcement action,
litigation (including class action proceedings) or civil or criminal
penalties. We assess each investigation and review that we are
subject to for the purposes of preparing our financial statements in
accordance with the accounting standards.
In the ordinary course of our business, we identify, and may continue
to identify, issues that have the potential to impact our customers
and reputation, or which do not meet our standards. There have been
instances, which are among those the ACCC is investigating referred
to in note 7.3.1, where we have failed to meet the standards we set
for ourselves. These include instances where our sales processes
were not followed, and where our complaint and debt recovery
procedures were applied in a way that did not deliver good customer
outcomes. While, as noted in note 7.3.1, we have taken steps to
respond to these issues, and will continue to do so, contingent
liabilities may exist in respect of actual or potential claims,
compensation payments and/or refunds arising from issues which
we identify and instances such as these. Where we identify these
issues, we make disclosures in accordance with the accounting
standards, or our other legal disclosure obligations, or provide for
such liabilities as required.
Refer to note 7.3.1 for details regarding the ACCC investigation which
has been provided for.
(b) Common law claims
Certain common law claims by employees and third parties are yet to
be resolved. As at 30 June 2020, 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.
(c) 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 $292 million (2019: $229 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
$126 million (2019: $135 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 2020, this guarantee remains
unchanged and $142 million (2019: $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.
(d) 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 2020, 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.
7.4 Parent entity disclosures (continued)
7.6 Events after reporting date
We are not aware of any matter or circumstance that has occurred
since 30 June 2020 that, in our opinion, has significantly affected or
may significantly affect in future years:
• our operations
• the results of those operations
• the state of our affairs
other than the following:
7.6.1 Final dividend
The details of the final dividend for the financial year 2020 are
disclosed in note 4.1.
7.6.2 Disposal of Clayton data centre property
On 5 August 2020, Telstra entered into an agreement with Centuria
Industrial REIT for the disposal of the underlying land and buildings
that house the Clayton data centre in Victoria, Australia. Under the
terms of the agreement, the cash proceeds are $417 million and
Telstra will lease the property under a triple-net lease for an initial
period of 30 years with two 10-year options for Telstra to extend the
lease. In the event that there is a change of ownership in relation to
the property during a lease term, Telstra has the option to
repurchase the property at the end of such term. Due to the long
tenure of the leaseback, the transaction will not be treated as a sale
under accounting standards, therefore no accounting gain will arise.
The transaction is expected to be completed by the end of August
2020.
7.4.3 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.
7.5 Commitments and contingencies
This note provides details of our commitments for capital
expenditure arising from our contractual agreements.
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.
7.5.1 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
2020
2019
$m
336
62
$m
480
398
Property, plant and equipment commitments include the Telstra
Entity capital expenditure commitments of $331 million (2019: $471
million) as disclosed in note 7.4.
7.5.2 Contingent liabilities and contingent assets
Details and estimated maximum amounts (where reasonable
estimates can be made) of contingent liabilities for the Telstra Entity
are disclosed in note 7.4.2.
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.
We have no significant contingent assets as at 30 June 2020.
170 | Telstra Corporation Limited and controlled entities
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F92 | 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 2020 2020.Financial Report.book Page 93 Wednesday, August 12, 2020 7:08 PM
DIRECTORS’
Directors’
DECLARATION
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 2020 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 2020 and of the performance of Telstra
Corporation Limited and the Telstra Group, for the
year ended 30 June 2020
(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
13 August 2020
Andrew R Penn
Chief Executive Officer and
Managing Director
2020.Financial Report.book Page 94 Wednesday, August 12, 2020 7:08 PM
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 Share holders 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 2020, the consolidated income statement, the 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 2020 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 APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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.
Why significant
How our audit addressed the matter
Revenue recognition
The Group exercises significant judgment relating to revenue
recognition in the following areas:
• accounting for new products and plans including bundles of
products and/or services;
• 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
bundles; and
• assessment of significant financing components.
Disclosures relating to revenue recognition can be found at Section
2.1 Segment Information and 2.2 Income.
The accuracy 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.
We evaluated the design and operating effectiveness of key controls
over the capture and measurement of revenue transactions across
all significant revenue streams, including evaluating the relevant IT
systems.
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 significant revenue streams, for a sample of revenue
transactions recorded during the year, we obtained supporting
evidence such as customer contracts, statements of work, other
contractual agreements, service detail records and evidence of
customer payment.
For the 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.
172 | Telstra Corporation Limited and controlled entities
Telstra Corporation Limited and controlled entities | F93
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F94
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Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 95 Wednesday, August 12, 2020 7:08 PM
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Why significant
The complexity of the billing systems was also considered as part of
the reliance on automated processes and controls Key Audit Matter
outlined below.
How our audit addressed the matter
In performing this testing, we assessed the appropriateness of the
assumptions and estimates supporting the accounting for these
major contracts as follows:
• 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 determined whether the future forecasts reflected the
contract terms, testing any significant changes (such as new
services) to contract amendments or other supporting
documentation.
• For a sample of recorded revenue and cost transactions we
obtained evidence to support 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
supporting 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 Section 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.
Why significant
How our audit addressed the matter
Impairment of goodwill, intangible assets and investments
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.
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.
During the current year, Telstra’s investment in NXE has been
impaired and a loss of $308 million was recognised in their share of
the net loss for the year. Further disclosure regarding the Group’s
impairment testing can be found in Section 3.2.
We assessed the Group’s determination of cash generating units
(CGU) used for their impairment assessment.
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 and
investment. Additionally, 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 evaluate 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, including any potential
impact of the COVID-19 pandemic. 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 Section
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:
Our audit procedures included the following:
• Assessed the effectiveness of the Group’s controls over the
acquisition and disposal of assets.
• Evaluated the appropriateness of capitalisation policies.
• the decision to capitalise or expense costs;
• the annual asset life review;
• Selected a sample of costs capitalised during the year to
determine whether capitalisation was appropriate.
• the timeliness of the transfer from assets in the course of
• Assessed the appropriateness of the date from which assets
construction; and
commenced being depreciated.
• 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 Sections 3.1 and 3.2.
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 asset 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 judgements 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 Sections 3.1
and 3.2.
174
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
F95
F96
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Liability limited by a scheme approved under Professional Standards Legislation
Notes to the financial statements (continued)Telstra Financial Report 2020 2020.Financial Report.book Page 97 Wednesday, August 12, 2020 7:08 PM
2020.Financial Report.book Page 98 Wednesday, August 12, 2020 7:08 PM
Why significant
How our audit addressed the matter
Implementation of AASB 16 Leases
The Group adopted AASB 16 Leases (AASB 16) on 1 July 2019. The
adoption of the standard resulted in an increase in the Group’s right
of use assets and lease liabilities of $3.8 billion and $3.9 billion
respectively as at 1 July 2019.
We evaluated the design and operating effectiveness of the
processes and controls to capture and measure the right of use
assets and lease liabilities, including the completeness of the
balances and evaluating the relevant IT systems.
The adoption of this accounting standard is inherently complex due
to:
We evaluated the appropriateness of key assumptions used in
calculating the impact upon adoption which included:
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement 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
• the volume of leases held by the Group; and
• determining lease terms including options that are reasonably
by the Directors.
• the judgements and estimates required to be applied by
management including determination of the lease term and
appropriate discount rate for each lease.
Accordingly, this was considered a key audit matter.
Disclosures relating to the adoption of AASB 16 can be found at
Sections 1.5 and 3.3.
certain to be exercised; and
• assessing the appropriateness and consistency of the discount
rate used (i.e. incremental borrowing rate) by using our
specialists to benchmark the Group’s rate curves to market
curves.
We agreed a sample of leases to the original lease contract terms or
other supporting documentation and recalculated the right of use
asset and lease liability for each to assess the accuracy of the
Group’s AASB 16 calculation.
We evaluated the completeness of the Group’s lease population by
auditing management’s reconciliation of the Group’s lease
commitments at 30 June 2019 to the opening AASB 16 calculation
and examined the process and controls over the capture and
assessment of arrangements that may contain a lease.
We assessed the Group’s accounting policies as set out in Sections
1.5 and 3.3, and the adequacy of disclosures for compliance with
AASB 16.
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 2020
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.
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.
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.
• 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, actions taken to eliminate threats or safeguards applied.
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.
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 2020.
In our opinion, the Remuneration Report of Telstra Corporation Limited for the year ended 30 June 2020, complies with section 300A of the
Corporations Act 2001.
Responsibilities
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.
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 relating 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.
Ernst & Young
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.
Andrew Price
Partner
Melbourne
13 August 2020
176
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
F97
F98
177
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Notes to the financial statements (continued)Notes to the financial statements (continued)Telstra Financial Report 2020 Shareholder information
Shareholder information | Telstra Annual Report 2020
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).
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.
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.
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 24 July 2020:
Title of class
Listed shares
Identity of person or group
Amount owned
Listed shareholders
11,893,297,855
%
100
Distribution of shares
The following table summarises the distribution of our listed shares as at 24 July 2020:
Size of holding
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of shareholders
%
Number of shares
%
605,430
47.62%
331,576,461
2.79%
454,315
35.73%
1,084,613,216
9.12%
112,271
8.83%
803,454,328
6.76%
96,064
7.56%
2,298,339,841
19.32%
3,271
0.26%
7,375,314,009
62.01%
1,271,351
100.00%
11,893,297,855
100.00%
The number of shareholders holding less than a marketable parcel of shares was 43,428 holding 4,335,186 shares (based on the
closing market price on 24 July 2020).
As at 24 July 2020, we are not aware of any substantial shareholders.
Twenty largest shareholders as at 24 July 2020
The following table sets out the Top 20 holders of our shares (when multiple holdings are grouped together):
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Shareholder name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
ARGO INVESTMENTS LIMITED
NETWEALTH INVESTMENTS LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
NETWORK INVESTMENT HOLDINGS PTY LTD
NAVIGATOR AUSTRALIA LTD
PACIFIC CUSTODIANS PTY LTD
AMP LIFE LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
MILTON CORPORATION LIMITED
TELSTRA GROWTHSHARE PTY LTD
UBS NOMINEES PTY LTD
BKI INVESTMENT COMPANY LIMITED
DYNAMIC SUPPLIES INVESTMENTS PTY LTD
THE SENIOR MASTER OF THE SUPREME COURT
Total for Top 20
Total other Investors
Grand Total
Amount owned
2,659,212,404
1,507,395,357
824,573,643
611,616,552
600,944,367
54,510,000
45,514,800
38,118,962
34,769,170
31,946,047
24,457,137
21,980,256
18,855,392
17,729,083
15,236,961
10,602,353
9,568,981
8,524,451
8,500,000
8,351,929
6,552,407,845
5,340,890,010
11,893,297,855
%
22.36%
12.67%
6.93%
5.14%
5.05%
0.46%
0.38%
0.32%
0.29%
0.27%
0.21%
0.18%
0.16%
0.15%
0.13%
0.09%
0.08%
0.07%
0.07%
0.07%
55.09%
44.91%
100.00%
178
179
Reference tables
Reference tables | Telstra Annual Report 2020
Guidance versus reported results
This schedule details adjustments made to the reported results for the current and comparative periods to reflect the
performance of the business on the basis on which we provided guidance to the market, which is EBITDA on an underlying basis
and assuming wholesale product price stability and no impairments in and to investments or property, plant and equipment and
intangible assets, and exculded any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum.
The guidance also assumed the nbn rollout and migration in FY20 was broadly in accordance with the nbn Corporate Plan 2020.
Underlying EBITDA excluded net one-off nbn DA receipts less nbn net C2C, guidance adjustments including one-off restructuring
costs, but included depreciation of mobile lease right-of-use assets.
The following adjustments provide a detailed reconciliation from reported to guidance results for each guidance measure:
Total Income
FY19
$m
FY20
$m
Underlying EBITDA
FY19
$m
FY20
$m
Reported1
Total Income
.27,807
26,161
Reported1
EBITDA
.7,984
.8,905
Reported1
Free Cashflow
Free Cashflow
FY19
$m
FY20
$m
.3,068
.4,034
2020
2019
20181
2017
2016
Continuing operations
$m
$m
$m
$m
$m
Total income (excluding finance income)
26,161
27,807
28,841
28,205
27,050
EBITDA2
EBIT
Profit for the year from continuing operations
Profit for the year from discontinued operations3
Profit for the year from continuing and
discontinued operations
8,905
3,567
1,839
–
7,984
3,702
2,149
–
10,197
10,679
10,465
5,727
3,557
–
6,238
3,874
–
6,310
3,832
2,017
1,839
2,149
3,557
3,874
5,849
Adjustments
Dividends declared per share (cents)
16.0
16.0
22.0
31.0
31.0
M&A2
Impairment3
Lease4
Restructuring costs5
Net one-off
NBN receipts6
Spectrum payments7
(3)
n/a
n/a
n/a
n/a
n/a
(20) M&A2
88
(20) M&A2
89
(39)
n/a
Impairment3
493
308
Impairment3
n/a
n/a
n/a
Lease4
450
(494)
Lease4
n/a
(1,015)
n/a
Restructuring costs5
801
246
Restructuring costs5
n/a
Net one-off
NBN receipts6
(1,613)
(1,536)
Net one-off
NBN receipts6
n/a
n/a
n/a
n/a
n/a
Spectrum payments7
n/a
n/a
Spectrum payments7
29
435
Guidance
Total Income
27,804
26,141
Guidance
Underlying EBITDA
8,203
7,409
Guidance
Free Cashflow
3,186
3,415
The adjustments set out in the above tables have been reviewed by our auditor for consistency with the guidance basis as set out
on this page.
Notes:
1. From 1 July 2019 we have adopted AASB16: ‘Leases’ on a prospective basis, i.e. no restatement of the comparative period. As a result, Reported EBITDA and Reported
Free Cashflow for FY20 exclude impact of leases classified as operating leases in FY19 where Telstra was a lessee. The operating lease expenses recognised in ‘other
expenses’ (part of EBITDA) and the operating lease payments included in cash outflows from operating activities for FY19 have been ‘replaced’ by depreciation of right-
of-use assests (below EBITDA) and payments of lease liabilities in cash outflows from financing activities for FY20 respectively.
2. 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. During FY20 we disposed of our investment in Chief Entertainment Pty Ltd, Snap Inc and PharmX Pty Ltd, a data centre held by Telstra
Singapore Pte Ltd, and executed a warrant we held in Ooyala Inc. We also made additional investments in our interest in the Telstra Ventures Fund II, L.P. and Southern
Cross Cable Holdings Limited. FY19 included additional investments in our interest in Telstra Ventures II, L.P., the disposal of our investment in Ooyala Inc, Ooyala AB
and their controlled entities and Orion Health Group Ltd, deferred consideration we received from our disposal of 1300 Australia Pty Ltd and from the sell down of our
interest in the Telstra Ventures Fund II L.P.
3. Adjustments relating to the impairment and write downs of IT legacy assets and WIP in FY19 and the impairment of our investment in NXE Australia Pty Ltd (Foxtel) in FY20.
4. Given different acounting treatment of leases in FY20 compared to FY19 (refer footnote 1) ‘Lease’ provides a like-for-like view of our mobile handset leases (Telstra as a
lessee) which for management reporting purposes continue to be treated as part of operating performance results. In particular FY20 has been adjusted to include the
reported depreciation of mobile handsets right-of-use assets in EBITDA and for illustrative purposes FY19 has been adjusted to exclude proforma operating lease
expense of all but mobile handset leases from EBITDA. FY20 Free Cashflow has been adjusted to included total payments (principal and interest) for leases previously
accounted for as operating leases, which are reported as financing cashflows in FY20 under AASB16.
5. Adjustments for the strategic focus (T22 program) to improve customer experience, simplify structure and cut costs, in addition to our normal business as usual
redundancies for the period.
6. Adjustments for net one-off nbn receipts which is defined as net nbn one off Definitive Agreement receipts (consisting of PSAA, Infrastructure Ownership and
Retraining) less nbn net cost to connect.
7. Adjustment relating to the impact on free cashflow associated with our spectrum purchases and renewals for the period including:
• $28m for renewal of spectrum licences in the 900 MHz band
• $386m for acquisition of spectrum licences in the 3.6 GHz band
• payments for spectrum and apparatus licences in various spectrum bands
n/a Adjustment not relevant to the respective guidance measure
Total assets
Gross debt
Net debt
Total equity
44,403
42,589
42,634
42,133
43,286
17,343
15,331
15,368
16,218
16,009
16,844
14,727
14,739
15,280
12,459
15,147
14,530
14,556
14,560
15,907
Capital expenditure4
3,233
4,140
4,717
4,606
4,045
Free cashflow from continuing and
discontinued operations
Earnings per share from continuing and
discontinued operations (cents)
Dividend payout ratio (%)5
4,034
3,068
4,695
3,496
5,926
15.3
99
18.1
88
30.2
73
32.5
95
47.4
65
1. FY18 results have been restated to account for the adoption of AASB15.
2. 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.
3. Profit for the year from discontinued operations for FY16 included both Sensis and Autohome Group results.
4. 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.
5. Dividend payout ratio from continuing and discontinued operations. Dividend payout ratio from continuing operations FY16: 98%.
180
181
Reference tables
Glossary
Task Force on Climate-related Financial Disclosures
We have begun to align our reporting with the recommendations outlined in the G20’s Financial Stability Board Task Force on
Climate-related Financial Disclosures (TCFD). TCFD provides a voluntary framework for organisations to assess and disclose
material forward-looking financial risks and opportunities arising from physical climate change impacts.
TCFD Recommendations
Reference
Report
Location
Governance – Disclose the organisation’s governance around climate-related risks and opportunities
a) Describe the board’s oversight of
climate-related risks and opportunities
Climate change governance
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
b) Describe management’s role in assessing
and managing climate-related risks and
opportunities
The responsibilities of the
Board
2020 Corporate Governance
Statement
The Board of Directors
Managing our risks
2020 Corporate Governance
Statement
Assurance and risk
management
Climate change governance
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Managing our risks
2020 Corporate Governance
Statement
Assurance and risk
management
Strategy – Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy,
and financial planning where such information is material
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term
b) Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy, and financial planning
c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C or
lower scenario
Managing climate-related
risks and opportunities
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Managing climate-related
risks and opportunities
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Our material risks
2020 Annual Report
Our material risks
Our approach to developing
climate scenarios
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Risk Management – Disclose how the organisation identifies, assesses, and manages climate-related risks
a) Describe the organisation’s processes for
identifying and assessing climate-related risks
Risk management
framework
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Managing our risks
2020 Corporate Governance
Statement
Assurance and risk
management
b) Describe the organisation’s processes for
managing climate-related risks
Risk management
framework
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Managing climate-related
risks and opportunities
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
c) Describe how processes for identifying,
assessing, and managing climate-related risks
are integrated into the organisation’s overall
risk management
Risk management
framework
Managing our risks
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
2020 Corporate Governance
Statement
Assurance and risk
management
Metrics & Targets – Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such
information is material
a) Disclose the metrics used by the organisation
Approach
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
to assess climate-related risks and
opportunities in line with its strategy and
risk management process.
b) Disclose Scope 1, Scope 2, and if appropriate,
Scope 3 greenhouse gas GHG emissions, and
the related risks
Managing our energy and
emissions
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
c) Describe the targets used by the organisation
Approach
to manage climate-related risks and
opportunities and performance against targets
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
Managing our energy and
emissions
2020 Bigger Picture
Sustainability Report
Climate Change and Energy
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 (e.g. 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 premise 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 nbnTM
network rollout, such as rack spaces
in exchange buildings, ducts (and pits/
manholes), dark fibre and certain poles.
4G
The fourth generation of wireless mobile
networks, with typically faster download
and upload speeds and better response
times than previous generations.
4GX
The evolution of our initial 4G offering,
4GX is capable of faster network speeds
and adds another lane of capacity to the
Telstra mobile network.
5G
The fifth generation of wireless mobile
networks, 5G delivers a step change in
typical network speeds, with lower
latency and much greater capacity to
help address the explosion in wireless
devices and data usage.
Agile
Agile is a way of working that brings
people with different skills into one team
and works in short sprints to deliver with
faster speed to market, at a lower cost,
and with a better experience for our
people and customers.
Average Revenue Per User (ARPU)
The measure of the average revenue
generated per unit or user.
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.
C2C
Cost to connect.
Capital expenditure (capex)
Funds invested to purchase, upgrade
or improve long-term assets such as
property, infrastructure or equipment
to create future benefit.
Carbon neutral
Where the amount of carbon dioxide
produced has been reduced to nothing
or is balanced by actions that protect
the environment.
Cleaner Pipes
An initiative to help reduce instances
of customer data being compromised
through malware, ransomware and
phishing. It involves significantly
upscaling our Domain Name System
(DNS) filtering, where millions of malware
communications are being proactively
and automatically blocked every week as
they try to cross Telstra’s infrastructure.
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.
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.
Cyber security
The safe use of information and
telecommunications technology
(including mobile phones) and the
internet.
Dark fibre
An optical fibre network used for data
transmission.
Definitive Agreement (DA)
The documents that record the final,
binding arrangements between Telstra
and nbn co for Telstra’s participation in
the nbnTM network rollout.
Digital transformation
The adoption of digital technologies to
improve processes and productivity, and
deliver better customer and employee
experiences.
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 before interest, income
tax expense, depreciation and
amortisation (EBITDA)
An indicator of a company’s operational
profitability.
nbn™, nbn co and other nbn™ logos and brands are trade marks of nbn co limited and used under licence.
Kayo is a registered trade mark of Streamotion Pty Ltd.
Foxtel is a registered trade mark of Twentieth Century Fox Film Corporation.
Binge is a registered trade mark of Foxtel Management Pty Limited.
Xbox is a registered trade mark of Microsoft Corporation, a Washington corporation.
Ookla is among some of the federally registered trade marks of Ookla, LLC in the US.
All amounts are expressed in Australian dollars ($A) unless otherwise stated.
182
183
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.
LTE-M
An Internet of Things (IoT) technology,
currently operating over Telstra’s 4GX,
that is suitable for applications requiring
data with peak speeds of up to 1Mbps
(typical speeds will be less). LTE-M
devices typically provide greater reach in
distance and depth into buildings and
extended battery life.
Memorandum of Understanding
(MoU)
A document describing the broad
outlines of an agreement that two or
more parties have reached.
Messaging
A way for Telstra customers to
communicate with a Telstra consultant
via the My Telstra app regarding queries
with billing, service, faults, and sales for
consumer and small business customers.
mmWave
A technology that operates on short-
range, high-frequency spectrum and will
play an important role in delivering on
5G’s full potential with faster speeds and
greater capacity.
Mobile data
Wireless internet access delivered over
the mobile network to computers and
other digital devices using portable
modems.
Mobile Virtual Network Operator
(MVNO)
Mobile providers re-selling services via
the Telstra wholesale mobile network.
Service in Operation (SIO)
Refers to an active telecommunications
service to an end-user.
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.
Narrowband (NB) IoT
An Internet of Things (IoT) technology
that operates over Telstra’s 4GX.
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.
PSTN
The public switched telephone network,
which is the world’s circuit-switched
telephone network that provides
infrastructure and services for
communication.
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.
Roaming
A service which allows customers to use
their mobile phone while in a service area
of another carrier.
T22
Telstra’s 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.
Transacting Minimum Monthly
Commitment (TMMC)
This represents the average minimum
monthly commitment, excluding
hardware, of new and existing customers
that have taken up new plans in the
period.
Universal service obligation (USO)
Obligations placed on Telstra 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.
Indicative financial calendar1
Half year results announcement
Thursday 11 February 2021
Annual results announcement
Thursday 12 August 2021
Ex-dividend share trading commences
Wednesday 24 February 2021
Ex-dividend share trading commences
Wednesday 25 August 2021
Record date for interim dividend
Thursday 25 February 2021
DRP election date
Friday 26 February 2021
Interim dividend paid
Friday 26 March 2021
Director nominations open
Friday 4 June 2021
Record date for final dividend
Thursday 26 August 2021
DRP election date
Friday 27 August 2021
Final dividend paid
Thursday 23 September 2021
Annual General Meeting
Tuesday 12 October 2021
Director nominations close (by 5pm)
Friday 6 August 2021
1. Timing of events may be subject to change. Any change will be
notified to the Australian Securities Exchange (ASX).
Registered Office
Sustainability
Level 41, 242 Exhibition Street
Melbourne, Victoria 3000 Australia
Sue Laver
Company Secretary
Email: companysecretary@team.telstra.com
General Enquiries – Registered Office
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
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 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
Keeping informed
To keep up to date with the latest news about Telstra:
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• subscribe to our sustainability newsletter at
telstra.com/sustainability/subscribe
• visit Telstra Exchange at exchange.telstra.com.au
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