About this report

The sections of our Annual Report titled Our Business, Key Highlights, Chairman and CEO Message, Strategy and Performance and Full Year Results and Operations Review comprise our operating and financial review (OFR) and form part of the Directors’ Report. Information about governance at Telstra is also provided in this Annual Report and a copy of our full corporate governance statement is available on our website at www.telstra.com/governance.

Telstra Corporation Limited ABN 33 051 775 556

Online Shareholder Services

Telstra’s Investor Centre at www.telstra.com/investor has all the latest news and information available for shareholders.

Shareholders can also easily manage their shareholding online at www.linkmarketservices.com.au/telstra.

To access your information, you will need your SRN/HIN and postcode. Follow the prompts to log in and select from the following menu options:

Holdings – transaction history, holding balance and value and latest closing share price.

Payment and Tax – dividend payment history, payment instructions and TFN details. You can update your bank details here.

Communication – become an e-Shareholder and update postal/email addresses and communication elections here.

 

Keeping informed

You can keep up to date with the latest news about Telstra by:

 

Annual Report

Telstra’s 2014 Annual Report is available to all shareholders on our Investor Website at www.telstra.com.au/annualreports.

To receive a hardcopy of the Annual Report (free of charge), you can call our Share Registry on 1300 88 66 77 and request that the Report be sent to you.

You may also update your communication preferences online to change the way you receive future copies of the Annual Report. Please refer to the Online Shareholder Services for instructions on how to do this at www.linkmarketservices.com.au/telstra.

Sustainability Reporting

Selected graphs and data presented in this Report are included in the Bigger Picture 2014 Sustainability Report, which is available online at www.telstra.com/sustainability/report. This Report provides more detailed information and analysis for our stakeholders on Telstra’s sustainability approach and performance. You can also subscribe to our sustainability newsletter at www.telstra.com/sustainability/subscribe.

We develop our sustainability reporting with reference to industry and sustainability standards including the United Nations Global Compact Communication on Progress and the Global Reporting Initiative G3.1 Sustainability Reporting Guidelines and Telecommunications Sector Supplement (pilot). This financial year we have applied the GRI framework to application level B+. The full GRI Index can be found online at www.telstra.com/sustainability/report.

®Registered trademark of Telstra Corporation Limited.
™Trademark of Telstra Corporation Limited.
*Registered trademark of Sensis Pty Ltd.
Foxtel marks are used under licence by Foxtel Management Pty Ltd.
All amounts are expressed in Australian Dollars ($A) unless otherwise stated.

 

Our Business

Who We Are

Every Day We Help Millions of Customers Connect to the People and Things That Matter Most to Them

Telstra is Australia’s leading telecommunications and information services company, offering a full range of communications services and competing in all telecommunications markets. We employ close to 32,000 people directly(i), facilitate access to more than 1,900 points of presence across the globe and have one of Australia’s largest shareholder bases, with 1.4 million shareholders.

We have a diverse range of customers, including consumers, small business, large enterprises and government organisations, and we strive to put them at the centre of everything we do. In Australia, our services are offered through 362 Telstra-branded retail stores, 90 Telstra Business Centres, 127 Telstra business and enterprise partners and are distributed by over 15,000 retail points of presence managed by our partners.

In Australia, we provide 16 million domestic retail mobile services, 7.5 million fixed voice services and 3.7 million fixed data services. Telstra’s international businesses include Telstra’s global networks and managed services business and Telstra’s China-based search and advertising business, Autohome Inc.

We understand our customers want technology and content solutions that are simple and easy to use – that’s why we have built networks like Australia’s largest fully integrated internet protocol (IP) network and Australia’s largest and most reliable national mobile network.

Industry Context

Our Industry is Experiencing Rapid Change

The telecommunications industry is experiencing enormous growth in demand for services. In Australia, IP traffic grew by 38 per cent and mobile data traffic by 41 per cent in 2013.(ii)

Digital technology is changing our world. Telstra is at the heart of this change – our ambition is to help make it happen by connecting everything to everyone.

Our Purpose

To Create a Brilliant Connected Future for Everyone

To create is our responsibility. The brilliant connected future won't happen on its own, it has to be delivered and Telstra can bring together all the parts to create it.

A brilliant connected future is our aspiration. It's what we need to build for every one of our customers. It's our responsibility to the nation and to every market we work in.

For everyone is crucial. We serve everyone. Change doesn't happen if only a chosen few benefit. Transformation happens when the technologies that create social, economic and cultural change reach enough people.

This all adds up to why we do what we do.

Our Values

Express What We Stand For and Guide the Way We Do Things

Here at Telstra, we have five core values:

  1. Show you care
  2. Better together
  3. Trust each other to deliver
  4. Make the complex simple
  5. Find your courage

(i) Full Time Equivalent employees
(ii) Cisco Visual Networking Index – Australia – 2013 Year in Review – www.cisco.com.

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(i) Figures on a continuing and discontinued operations basis. For more detail, refer to page 15 of the Full Year Results and Operations Review.

(ii) Total income figures are on a continuing operations basis and exclude finance income. For more detail see the Full Year Results and Operations Review.

Chairman and CEO Message

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Catherine Livingstone AO, Chairman, David Thodey, Chief Executive Officer

Dear Shareholders,

We are pleased to present this review of Telstra’s progress in the 2014 financial year where consistent earnings growth delivered increased shareholder returns.

This was a year of accelerating momentum for our company, one in which we saw continued growth in revenue, profit and customer numbers, and demonstrated the value being created by our focus on improving customer advocacy, while investing in our core and growth businesses.

Our customers remain our highest priority. Throughout the year, and right across the company, we worked to find ways to build advocacy, by improving how we interact with our customers every day, and to have a positive impact on their lives with our products and services.

Telstra operates in a dynamic and competitive environment; ongoing changes in mobile, broadband and other technologies are transforming the communications industry and the world we all live in. Competing in this environment requires a commitment to customer service excellence and innovation, areas where we continuously strive to improve.

We are pleased to have again delivered on our financial commitments and to have delivered a 29.5 cent fully franked dividend for the 2014 financial year, distributing $3.7 billion to shareholders. After considering our capital management options, we have also announced an off-market share buy-back of up to approximately $1 billion of Telstra shares. A buy-back was considered the most effective and appropriate way to deploy surplus capital from ongoing performance and key divestitures. Shareholders will receive detailed information about this offer shortly.

Our 2014 results reflect the fundamental financial strength of our business. Total income (excluding finance income) totalled $26.3 billion, up 6.1 per cent; EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) totalled $11.1 billion, up 9.5 per cent; and our Net Profit after Tax was $4.3 billion, up 14.6 per cent.(i)

(i) Total income and EBITDA figures are on a continuing operations basis and net profit figure is on a 4 Telstra Annual Report continuing and discontinued operations basis.

Our strategy

During the year we announced refinements to our long-term strategy supported by business unit changes aligning senior leaders to growth opportunities in Australia and overseas. Our strategy focuses Telstra on the three pillars of improving customer advocacy, driving value from the core and building new growth businesses. It makes our ambitions clear and also shows where you can expect us to continue building value.

Improve Customer Advocacy

Throughout the year we remained committed to improving the services, products and experiences we provide to our customers. Much of this work is informed by our Net Promoter System (NPS) program where we actively seek feedback and measure our progress. Through the year we introduced many initiatives to improve the customer experience.

Our overall NPS score improved by three points over the 2014 financial year, building on the improvements we saw last year, but we still have a lot of work to do to consistently deliver our customers a great service experience.

Drive value from the core

Our products and services mix continues to change, illustrating how fundamentally our business has been redefined by mobility, connectivity and data demand. Fixed voice revenue now accounts for only 16 per cent of total sales revenue, whereas, mobiles now account for 38 per cent of sales revenue.

Much of Telstra’s reputation and core strength is built on the foundation of providing customers with outstanding mobile service in cities and in regional and remote Australia. We are committed to maintaining our network leadership and this year we invested $1.1 billion in our mobile network, including significant expansion of our 4G mobile coverage, to now reach 87 per cent of the Australian population – with four times the geographical coverage area of any other 4G network. Our 3G service provides coverage to 99.3 per cent of the population.

During the year we added 937,000 new domestic retail mobile customer services. We now have 16 million domestic mobile customer services. As a part of our strategy to provide customers with flexibility and choice in connection, we recently started designing Australia’s largest national public Wi-Fi access network, in a five-year $100 million project which will deliver 13 million Wi-Fi hot spots around the world within five years.

Throughout the year we continued to transform our internal business processes to streamline how we work and remove internal barriers that impede productivity, collaboration, innovation and better customer service. The total value of benefits from our FY14 productivity program, which includes $550 million of expense benefits as well as revenue, capital expenditure and avoided costs is $1 billion. We have reinvested these benefits in the business to support our customer advocacy initiatives, growth in our customer base and building new growth businesses.

Build New Growth Businesses

We continue to execute our growth strategy in Network Applications and Services, extending our application service offerings into Asia, and launching Global Managed Network Services and Global Infrastructure as a Service. Our strategy is supported by the establishment of a new business unit, Global Enterprise and Services. This is an industry-based services and solutions business operating at a global scale to deliver innovation, integration and service for our customers locally and around the globe.

Growth in Asia continues to be a key focus. Our international team offers customers connectivity solutions, including managed network services, international data, voice and satellite solutions and they also manage our submarine cable networks and assets. We continue to leverage these assets for growth. We also made further changes to our international business, creating Country Managers in each market.

In China, we have a 63.2 per cent stake in Autohome Inc., the country’s  leading online destination for car buyers, which was listed on the New York Stock Exchange on 11 December 2013.

Other emerging opportunities include Telstra Health, which continued to work towards its objective of establishing a connected health IT ecosystem capable of creating transformative change in the healthcare sector. We also announced we would increase our stake in Ooyala to 98 per cent. Ooyala is a leader in video streaming and analytics, and this is the first investment for our Global Applications & Platforms (GAP) group.

We are pleased to have met our full year guidance and to have delivered a 29.5 cent fully franked dividend for the 2014 financial year.

Portfolio Management

We continued to be active and disciplined in our approach to portfolio management this year, with announcements of the sale of our 76.4 per cent stake in the Hong Kong mobile business CSL New World Mobility Limited (“CSL”), and the sale of a 70 per cent interest in our Sensis directories business.

We understand the need to be innovative in our investments for the future as we explore new opportunities. This thinking was reflected in the investments we made during the year in new growth areas for the business, as well as our proposed joint venture with Telkom Indonesia, a proposed arrangement for the provision of network applications and services, primarily in Indonesia.

National Broadband Network (NBN)

We have provided a separate update on our renegotiation of the NBN Definitive Agreements below (which forms part of this Chairman & CEO Message).

Part of the Community

Telstra is committed to helping build better communities and showing that we care in the way we respond to important economic, social and environmental challenges. Our sustainability strategy details how we believe we can create the most value. Part of this strategy lies in providing opportunities for our employees to be involved in the community and in issues that matter to them.

We believe that all Australians should enjoy the benefits of being connected to modern communications technologies, regardless of age, income, ability or location. We want everyone to have the confidence and skills to participate safely in the digital world and we partner with experts in the field to offer wide-ranging training courses and information. As a company, we also remain committed to reducing our environmental impact and to helping our customers and suppliers to do the same. These initiatives are not just the right thing to do; they are part of who we are.

We continue to place the highest priority on the safety of our employees and the wider community. During the year, we implemented improvements to our asbestos management procedures after a number of incidents involving subcontractors carrying out pit remediation work in our network. This included requiring all contractors to complete new training before they can work on our network, the appointment of additional supervisors to monitor worksites and co-operating with Comcare in its investigation into the matter, which investigation is now closed.

Looking Ahead

We have a clear strategy and our focus for the year ahead will be on improving our customer service, investing to maintain our network advantage and investing in future capability to build a foundation for sustainable long-term growth.

Our network advantage is significant. As more and more devices are connected to networks our investment in spectrum, greater network intelligence and machine to machine technologies will help maintain this leadership position.

Just as importantly, as software solutions dramatically change how other industries operate, we will continue to build our capability in software solutions and platforms that run over our networks, building on the good progress made in the areas of eHealth, media and Global Enterprise and Services (including Network Applications and Services).

We will also continue to pursue opportunities to expand our business in Asia.

In 2015 Telstra expects continued low single-digit income and EBITDA growth to offset the absence of CSL 2014 operating revenue and EBITDA. As a result, and after excluding the $561 million profit on sale of CSL in 2014, Telstra’s income and EBITDA guidance for 2015 is broadly flat.

Telstra expects 2015 free cashflow of between $4.6 billion and $5.1 billion and capital expenditure to be around 14 per cent of sales.

This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, the cost of acquisitions and spectrum purchases.

We also thank you for your loyalty as a shareholder and we welcome your comments and feedback via [email protected]

 

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Catherine Livingstone AO
Chairman

 

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David Thodey
Chief Executive Officer



NBN Renegotiation Update

Update on NBN Renegotiation

On 23 June 2011 Telstra entered into agreements with NBN Co and the Commonwealth (referred to as the “Definitive Agreements”) for Telstra’s participation in the rollout of the National Broadband Network (NBN). The Definitive Agreements became unconditional following Telstra shareholder approval gained at the Annual General Meeting in November 2011 and ACCC acceptance of Telstra’s structural separation undertaking in March 2012. The Definitive Agreements, together with the regulatory undertakings given to the ACCC and associated Government policy commitments, established the framework for Telstra’s participation in the rollout of the NBN.

Under the Definitive Agreements Telstra agreed to progressively decommission its copper network and voice services on its HFC network in NBN fibre areas as the new network was rolled out. Following the Federal Election in September 2013, the newly elected Government determined the design of the NBN would be modified to use a range of technologies, including a copper-based fibre to the node network and HFC, instead of the previous Government’s predominantly fibre to the premises approach. As a result, the Government is currently engaged with Telstra and NBN Co in a renegotiation of some aspects of the Definitive Agreements to enable this multi-technology model.

The renegotiation of the Definitive Agreements is progressing well within an agreed commercial framework, but the complexity of the arrangements and the need to consider all of the elements of the Definitive Agreements means the renegotiations are still incomplete. Telstra continues to work with the Government in the best interests of Telstra shareholders, and shares the Government’s aim of finalising the revised arrangements as soon as possible.

In participating in the renegotiations, Telstra’s objective is that it must be “kept whole” – meaning that Telstra should not be materially worse off under any renegotiated arrangements than under the current Definitive Agreements. The agreed commercial framework within which the parties are negotiating acknowledges this objective, but final agreement is yet to be reached so there is no guarantee that this objective will be realised.

This agreed commercial framework anticipates a change in the approach taken in respect of the copper and HFC network assets, from staged decommissioning, to NBN Co owning some or all of such assets progressively as the NBN is rolled out. As the current arrangements already provide that Telstra is progressively restricted in its ability to use the copper and HFC network assets, the agreed commercial framework does not contemplate any incremental value to be received by Telstra for the transfer of ownership.

Telstra’s continued ownership of these assets did provide Telstra with some protection in respect of future changes in the NBN project. As part of the current renegotiations, Telstra is seeking to agree other contractual mechanisms which are designed to protect Telstra against future changes in the project. These matters will be part of Telstra’s assessment as to whether it is kept whole. If ownership of the assets is transferred from Telstra to NBN Co, Telstra does not expect there will be any impact on its continued access to the HFC network to supply Foxtel services, consistent with the current Definitive Agreements.

Telstra and NBN Co are also negotiating in respect of the provision of design, construction and maintenance services by Telstra to NBN Co on commercial terms, which may potentially deliver additional revenues to Telstra.

It should be noted that any renegotiated arrangements between Telstra, NBN Co and the Government will need to be reviewed by relevant regulators (including the ACCC) who may seek to impose further regulatory measures. These would be taken into account in assessing the extent to which Telstra’s objective to be kept whole, has been met.

We will keep shareholders informed of the renegotiation process.

Strategy and Performance

 

We refined our long-term strategy to drive our growth towards 2020 and beyond.

Our strategy makes our ambitions clear. It shows where you can expect us to focus our efforts towards building value. The strategy now has been consolidated into three pillars.

Our Strategic Priorities

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Improve Customer Advocacy

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MAYA TIZZARD
TELSTRA RETAIL

Our NPS score improved by three points over FY14.

 

Improving customer advocacy is our number one priority. Over the past 12 months, Telstra has worked hard to transform the experience for our customers from one of service, to one with a higher level of customer care. We have also continued our cultural change program, which puts the customer at the centre of everything we do.

While we have made many changes, we still have more to do on our journey to move from satisfying and retaining customers to creating customer advocates. Advocates stay with us longer, spend more and recommend us more often.

Net Promoter System (NPS)

We have been listening closely to what our customers are telling us and track and monitor a number of different NPS metrics.

We measure NPS at two levels - our customers’ overall perception of Telstra, measured through an external third party and our customers’ experience in dealing with Telstra directly, measured through internal surveys.

Our overall NPS score has improved by three points over the last twelve months. We have also seen consistent improvement in our internal measures of our customers’ experience in dealing with us across all areas. We remain committed to focusing on improving the customer experience in the coming year.

Product Differentiation

Customers have told us that while technology is an essential part of their lives keeping track of usage levels can be complicated. To address this and to give customers greater peace of mind over data usage, we introduced a number of improvements during the year including:

  • reduced excess data charges with our current Mobile Accelerate mobile plans from 10 cents per megabyte to just 3 cents per megabyte
  • reduced our international roaming pay-as-you-go data prices by 80 per cent, introduced SMS usage alerts for roaming data and increased the data allowance in our international roaming data packs five-fold at no extra cost
  • implemented a $130 excess voice safety net, which ensures that customers on Mobile Accelerate plans will pay no more than $130 per month in domestic voice and MMS charges to standard Australian numbers
  • introduced Telstra Broadband Assistant, a software application that provides customers with immediate online help with common connectivity, email and password issues
  • launched the free Telstra Wi-Fi Maximiser™ App which enables customers to better understand the performance of the wireless network in their home and measure the signal strength on devices connected to their gateway.

Our commitment to caring for our customers is also focused on providing them with a better experience with our world-class products on Australia’s leading mobile network. During the year we launched New Phone Feeling, which gives participating customers the option, after the first 12 months of their plan, to purchase a new smartphone as an add-on with selected handsets across our new 24-month consumer plans. Telstra was the first carrier in Australia to make this offer available to consumers across a range of plans.

We also launched Telstra Platinum, a premium service that offers customers end-to-end technical support across access, devices and applications.

To help customers get back online quickly if anything happens to their mobile device, we launched our “swap, replace and restore” service called Telstra StayConnected. Since the launch, over 305,000 customers have taken up this service. StayConnected is a market-leading service available only to Telstra customers.

Process Focus

One of our key commitments to improving customer advocacy is to provide our customers with a more personalised service. In our contact centres, we now give customers the name and contact details of the person they spoke to after each call. This means that if customers need to get back in touch with us they can contact the person they last spoke with.

In our stores, new post-paid mobile customers receive, within 48 hours of their purchase, a call from the consultant who served them to check that they are satisfied. We also give every store customer personalised business cards with direct staff phone numbers. When installing new services or fixing existing services, our communications technicians now provide customers with cards listing their name and contact number so customers can follow up directly with the technician.

Our Philippines-based operations continue to demonstrate their growing capability at delivering positive experiences for our customers. During the year we opened, in conjunction with our partners, our second customer operations centre in the Philippines, providing our team with an environment designed from the ground up to foster customer advocacy. We also made significant improvements to the training, tools and processes provided to our people. Providing more personalised service is also about making sure customers can choose how they engage with Telstra. For a growing number of customers, this is about connecting with us online. Customers are choosing to do business with us online more than ever, as evidenced by the following statistics:

  • 46 per cent of our service transactions, across all segments, are now performed online, up from 40 per cent in FY13

  • over six million unique visitors to telstra.com and 200,000 Live Chat sessions each month

  • 1.4 million customers regularly use our Telstra 24x7® App, which enables customers to access accounts and services on the go at any time of day.

We are increasing our investment in our digital service for customers through our multi-year Digital First program. This will give our customers even greater control of their accounts and services, technical appointments and support options.

We are aligning our online and social media activities and opportunities under a single strategy that aims to consolidate and grow Telstra’s social identity to a position of leadership where we are truly social in everything we do, inside and outside the business. Telstra’s first Chief Social Officer, who was appointed in April 2014, is focused on ensuring all social media activity across the company is aligned to our business strategy of building customer advocacy.

46 per cent of our service transactions are now performed online.

Unique Customer Service Experience

Our commitment to personalised service is also about personally rewarding customers for their loyalty with Telstra. In March 2013 we launched our Telstra Thanks loyalty program to help customers enjoy a number of unique experiences. Since then, over one million customers have taken up our movie, sports and music offers featuring One Direction, Michael Bublé, Jessica Mauboy and Katy Perry. We will continue to improve our loyalty program so we truly recognise our customers.

Our Thanks a Million program has also seen more than one million customers receive personal phone calls and a further 3.5 million receive emails simply thanking them for being a Telstra customer. These phone calls and emails are a simple way to recognise the loyalty of our customers.



Drive Value From The Core

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GARY TANG
TELSTRA OPERATIONS

Driving value from the core concentrates on customer and revenue growth, network leadership and driving productivity through simplifying the business.

Customer and Revenue Growth

Our mobiles portfolio had another strong year, with continued growth in revenue and customer services.

Extended 4G coverage helped us increase the penetration of 4G devices. We now have more than 5.2 million 4G devices on our network, comprising 3.8 million handsets, 500,000 tablets, 400,000 dongles and 550,000 Wi-Fi hotspots.

While in our fixed business there was a decline in the number of households with a fixed voice service, this is consistent with global trends. Nevertheless the revenue decline for fixed voice services was the lowest in four years. Our fixed data business continued to grow, driven by customers choosing bundled plans, such as our popular Entertainer bundles, which include Foxtel through T-Box®. We now have 1.9 million retail customers on a bundled plan. You can read more detail on this topic in the Full Year Results and Operations Review.

Network Leadership

Telstra has delivered world-class mobile networks for Australia since 1987 and today we have Australia’s leading mobile network based on a range of coverage, performance and reliability measures.

The Telstra mobile network is the nation’s largest, covering more than 2.3 million square kilometres of the Australian landmass and 99.3 per cent of the population. This reflects our commitment to providing customers with outstanding mobile service in cities and in regional and remote Australia.

We have invested more than $5.5 billion in our mobile network since the launch of our 3G service in 2006, including $1.1 billion this past financial year.

Mobile data on our network continues to grow at a rapid rate. We will continue to meet this demand by exploring new capacity and broadcast technologies, including spectrum aggregation techniques, LTE-Broadcast and use of small network cells.

Additionally, in September 2014 we will pay the $1.3 billion we committed in the 2013 financial year to secure an important holding of 700MHz and 2.5GHz spectrum in Australia. This spectrum will provide additional mobile coverage and capacity in the future. The 2.5GHz licence will commence on 1 October 2014 (except for parts of Western Australia which commence from 2016), while the 700MHz licence will commence 1 January 2015.

We recently started designing Australia’s largest national public Wi-Fi access network as part of a five-year $100 million project. It is anticipated that this Wi-Finetwork, as part of an Australian exclusive agreement with global Wi-Fi provider Fon, will give Australians access to two million hotspots across Australia and a further 13 million hotspots around the world within five years.

We recently started designing Australia’s largest national public Wi-Fi access network as part of a five year $100 million project.

Drive Productivity through Simplifying the Business

We rebalanced our portfolio to reflect the changing nature of Telstra’s business as well as promoting innovation through investments in emerging businesses. We also realigned our structure to provide increased focus and resources to growth areas.

Simplifying the business remains a critical part of our strategy. The total value of benefits from our FY14 productivity program, which includes $550 million of expense benefits as well as revenue, capital expenditure and avoided costs is $1 billion. These benefits were reinvested in the business to support growth in our customer base, customer service initiatives and the development of new growth businesses.

During the year we introduced a range of initiatives and improved feedback channels between our frontline staff and senior management that helped improve processes, reduce complexity and improve customer service.

Our approach to process and service improvement is to:

  • review the performance of each process using agreed metrics, then prioritise improvement areas

  • analyse data to understand factors behind poor performance

  • simplify the process to remove problem root causes, while providing customers with a more seamless experience

  • use technology to automate processes, so employees can help customers more effectively.


Build New Growth Businesses

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Build new growth businesses focuses on Network Applications and Services (NAS), Asian expansion and longer term growth opportunities such as Telstra Health, Telstra Media and Global Applications and Platforms (GAP).

We have a clear strategy in place designed to realise the opportunities that exist in these portfolios and pursue growth opportunities that focus on leveraging our current strengths.

Network Applications and Services

The NAS portfolio provides business and government customers of all sizes with an extensive range of network based information and communication technologies products and services.

Telstra made two acquisitions during the year – NSC Group and O2 Networks – to expand our capabilities in contact centre services and consulting domestically. A major contract win was a 15-year $457 million managed services partnership to build and manage a new wireless network for the Queensland Government.

We signed a 15 year $457 million managed services partnership to build and manage a new wireless network for the Queensland Government.

Asia

In Asia, we offer connectivity solutions, including managed network services, international data, voice and satellite solutions, and manage our submarine cable networks and assets.

During the year we continued to strengthen our business operations in the region. We are licensed to operate in 19 countries worldwide, including 12 in Asia and facilitate access to over 1,900 points of presence across the globe. Together with our offshore subsidiaries, we now have a total of seven data centres operated directly, plus partnership arrangements for a further 11 data centres operating outside Australia, as well as interests in over 20 cable systems.

We have extended our applications service offerings into Asia, including signing a non-binding Memorandum of Understanding with Telkom Indonesia to form a new joint venture for the proposed provision of network applications and services, primarily in Indonesia.

We also have a presence in China, where we have a 63.2 per cent stake in Autohome Inc., the country’s leading online destination for car buyers, which was listed on the New York Stock Exchange on 11 December 2013. Another key event in Asia during the year was the sale of our 76.4 per cent interest in Hong Kong-based mobile business CSL New World Mobility Limited to HKT Limited, which was completed on 14 May 2014. We made this decision as there were a number of dynamics in the Hong Kong mobiles market that meant this was the right opportunity for Telstra to maximise our return on this successful asset.

Emerging Opportunities

Telstra Health

Throughout the year Telstra Health continued to work towards its objective of establishing a connected health IT ecosystem capable of creating transformative change in the healthcare sector. Growth to date has been through strategic acquisition and investments, partnership and commercial relationships. Key events this year include the acquisition of DCA eHealth Solutions Pty Ltd, a 50 per cent interest in Fred IT Group Pty Ltd, further investment in HealthEngine Pty Ltd and licensing agreements for iScheduler, InstantPHR and Dr Foster Intelligence’s Quality Investigator and Global Comparators products. These investments enable us to play a role in eHealth solutions via means such as connectivity of health services, electronic health records and electronic prescriptions.

Global Applications and Platforms (GAP)

Telstra’s GAP strategy is to build new growth businesses and take advantage of the considerable growth in the software-driven business applications and integrated services.

Fostering local technology innovation is another key strategic pillar of this group, with the launch this year of muru-D®, Telstra’s start-up accelerator. The name muru-D combines "muru", an indigenous word meaning "road to" and "D" for "Digital". muru-D promotes local technology innovation and helps grow and retain entrepreneurial talent in Australia, by identifying and supporting start-ups to develop their products and services through a six-month acceleration program. muru-D also invests approximately $40,000 in each start-up for an equity stake of approximately six per cent. The inaugural round attracted more than 300 applications, with the selected top nine starting their six month program in February 2014.

Telstra Media

Telstra Media is Australia’s largest IPTV service provider and through the award winning Telstra T-Box, a close partnership with Foxtel and other premium content partners delivers premium movies, music, live sport and entertainment across a full range of devices.

This year, more than fifty new mobile and tablet apps were launched for the AFL and NRL Club Network and we also introduced the AFL Live Pass and NRL Digital Pass, which provide live AFL and NRL on smartphones and tablets.

During the year, we also completed the sale of a 70 per cent stake in our Sensis directories business to Platinum Equity on 28 February 2014. We believe our partnership with Platinum Equity will maximise the value of the Sensis asset for Telstra shareholders.



Outlook

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We have a clear and consistent strategy to improve customer advocacy, drive value from the core and build new growth businesses.

We will continue to focus on delivering a differentiated and quality customer service experience for all of our customers to build advocacy. While we are seeing promising results in this area there is more to do in the year ahead.

In our core businesses, we will continue to drive innovation and maintain our network leadership. Our fixed data network differentiation will be enhanced by the implementation of Australia’s largest national public Wi-Fi access network. As the NBN rolls out to more communities around Australia, we will be focused on bringing customers the benefits of Telstra services on the NBN. We will continue our negotiations with NBN Co and the Federal Government on potential changes to the current agreements that may result from the government’s intention to move to a multi-technology NBN roll out.

Our network leadership in mobiles will be enhanced in 2015 through the roll out of 4G services on 700MHz and 2.5GHz. This will enable our customers to have access to higher speeds and better capacity in more places when using mobile phones, tablets and mobile broadband devices.

We will also continue to drive for efficiency in our core business, simplifying both the way we operate and the way we interact with our customers, making it easier for our customers to do business with us.

Like other Australian companies, Telstra has aspirations to grow our business in Asia. For us, this means leveraging our core network capabilities in the region, building our Global Enterprise and Services business and looking for other growth opportunities.

Additional information on our outlook can be found in the Chairman and CEO Message.



Managing Our Risks

 

Identifying and managing risks with the potential to affect our objectives is an essential part of our governance framework.

Our Risk Management Approach

Our risk management approach facilitates appropriate identification, assessment and control of risks to our operations and corporate strategy. It provides the framework for various activities to enhance our ability to achieve our financial, customer and people goals and meet our legal and compliance responsibilities so as to protect and enhance value for our shareholders.

Throughout the year we continued to mature and refine our risk management approach. Recent activities included the continued clarification and enhancement of our risk accountabilities. This was facilitated through our Three Lines of Defence model and the formation of the Management Risk Committee – management’s peak governance committee for risk management across the Telstra Group.

Risks are regularly reviewed and monitored, especially those internal and external risks that could have a material impact on our objectives. These Material Business Risks are also regularly reported to the Board, along with their controls and mitigation treatments. We conduct an Enterprise Risk Maturity Assessment on a regular basis to track and focus on the development of the Risk Management Framework.  We report the results of this assessment to the Audit & Risk Committee. The Audit & Risk Committee has reviewed Telstra’s risk management framework and satisfied itself that the Framework continues to be sound.

Three lines of defense 

 managing-our-risk-three-lines-of-defence

 

Material Business Risks

There are a number of risks, both specific to Telstra and of a more general nature, that individually or together could have an adverse effect on achieving our objectives.

The following section summarises those material business risks that could adversely affect our financial performance and growth potential for future years, including any material exposure to economic, environmental or social sustainability risks and how we seek to mitigate or manage them.

Business disruption

A high dependency on technology and increased integration of customer services means outages can significantly impact the continuity of our business operations and delivery of services to our customers. We also have a vast geographical spread, which increases our exposure to natural disasters that can disrupt our operations. We have a response capability to address business disruption events, with incident management and emergency management capability. We continually review and improve this capability, via assessments that consider our business’ core activities while taking into account relevant external factors, such as supplier impacts and customer expectations.

Information security

Protecting the security and privacy of our customer data and company data is a critical focus for us and remains a key driver of customer advocacy. In order to counter cyber security risks and improve the protection of our networks and information from external threats, we have developed numerous security controls for our networks that are based on our understanding of known threats and best practice industry knowledge. We continually reassess these controls to verify that they are appropriate given the evolving nature of such threats. We also have programs in place to raise awareness, and support employee and vendor compliance with our information security and privacy standards.

Third parties

Third party contractors, suppliers and strategic partners are critical to our capability to derive value from our core businesses and deliver on our growth strategy. Support and delivery of core business functions and customer service by these third parties mean that supply chain incidents, issues and single points of failure can also cause significant impacts to our customers. We manage this risk centrally through our Procurement and Enterprise Services Group by undertaking a due diligence process for new third parties, assessing their compliance with our business continuity requirements, and conducting training on key Telstra policies, while the day-to-day relationship is conducted and managed within the relevant business units. We have also introduced a Supplier Code of Conduct outlining our expectations of suppliers in terms of labour and human rights, environment, ethical practices and diversity, and have engaged with suppliers to help them understand how to meet our requirements.

Innovation and agility

Effective innovation is fundamental in securing revenue streams and withstanding challenges from a changing competitor and industry landscape. Our capacity and ability to respond to the innovation challenge are related to the agility of our internal process and the capability and flexibility of our people. To manage this risk we are focused on enhancing the skills of our people and engaging with strategic partners to identify innovative products and services that could deliver long-term, predictable earnings growth. We are also actively simplifying our processes, IT and network infrastructure as we aim to deliver them profitably and can respond quickly to disruptive innovations on a global scale.

Regulatory environment

We operate in a highly regulated environment. The Australian Government and its regulatory agencies have broad powers to impose obligations on certain parts of our business. This regulation includes the Australian Competition and Consumer Commission’s (ACCC’s) powers to regulate the price and non-price terms on which we provide access to our infrastructure and core services on our network to our Australian competitors. As we consider investment opportunities in offshore markets we also face exposure to regulation and regulatory bodies in those jurisdictions.

We work actively with government, regulators, industry and the communityto minimise and mitigate the risk of inefficient or poorly targeted regulation, and to proactively seek to have removed unnecessary regulation that affects our cost of doing business. In terms of new and emerging risks domestically and internationally, we are monitoring proposed changes in relevant laws or regulations and responding to various policy and regulatory reviews where appropriate. In an Australian context these include a review of competition policy, the NBN, ACCC pricing reviews for core network services and a review of the regulatory framework for spectrum.

NBN execution

Our Chairman and CEO’s message in this report includes an update on our negotiations on potential changes to our agreements with NBN Co and the Commonwealth to adapt to the current Australian Government’s multitechnology policy for the NBN. In our day-to-day operations, the introduction of the NBN and the change to the industry structure is likely to expose us to increased fixed line competition, and also presents operational challenges as we migrate our customers off our copper and HFC networks. We are focused on developing efficient processes and systems within Telstra to support the transition of our customers to the NBN, while also improving customer advocacy. This also necessitates establishing an effective access seeker relationship with NBN Co to support delivery of a quality service experience for our customers. We closely monitor customer experience, operational performance, costs and competitor activity so we can identify improvement opportunities. We will also continue to evolve our offerings as the NBN roll out grows, including adapting to NBN Co’s multi-technology approach to its network roll out.

People

The skills and experience of our people have an influence on our ability to deliver against our growth strategy. One factor that influences our exposure to this risk is our high demand for a limited number of technical, sales and leadership capability skills within key growth and international areas. Key mitigation strategies intended to further enhance our people capability and competitive advantage include: succession planning, recruitment processes and capability frameworks focused on building expertise in our growth areas, and targeted learning and development programs and retention strategies. We are building a strategic workforce planning practice that looks five to ten years out for critical skills. We are also looking at more flexible and diverse practices in reward and recognition.

Reputation and communication

We focus on protecting and promoting Telstra’s reputation and being a good corporate citizen in the countries in which we operate. There are clear connections between how Telstra is perceived in the community and customer advocacy and, ultimately, the financial performance of the business. Every risk giving rise to an incident can harm our reputation and customer advocacy. While the short-term negative impact from such events cannot be fully protected against, such incidents are managed through scenario analysis, planning and preparation, and stakeholder management. Reputational robustness and stakeholder support helps improve recovery times from any such impacts. Social media plays an ever-increasing part in representing the organisation and engaging openly with issues that can impact our reputation. It also assists, as does our sustainability approach, with engaging customers, investors, key influencers, government, business, employees and the broader public.



Full Year Results and Operations Review

Summary Financial Results

  FY14
$m
Restated(i)  FY13 $m Change %
Sales revenue

25,119

24,298

3.4

Total income (excluding finance income)

26,296

24,776

6.1

Operating expenses

15,185

14,607

4.0

EBITDA

11,135

10,168

9.5

Share of net profit/(loss) from joint ventures and associated entities

24

(1)

n/m

Depreciation and amortisation

3,950

4,078

(3.1)

EBIT

7,185

6,090

18.0

Net finance costs

957

933

2.6

Tax

1,679

1,517

10.7

Profit for the period from continuing operations

4,549

3,640

25.0

(Loss)/profit for the period from discontinued operation

(204)

151

(235.1)

Profit for the period from continuing and discontinued operations

4,345

3,791

14.6

Profit attributable to equity holders of Telstra

4,275

3,739

14.3

Capex(ii)

3,661

3,689

(0.8)

Free cashflow from continuing and discontinued operations

7,483

5,024

48.9

Earnings per share (cents)

34.4

30.1

14.3

(i) Restatements due to the retrospective adoption of AASB 119: Employee Entitlements (refer note 2.1(e) of the Financial Report for details).
(ii) Capex is defined as additions to property, equipment and intangible assets including capital lease additions, measured on an accrued basis.

full-year-result-and-operation-review-summary-financial-results

Guidance versus Reported Results(ii)

  FY14 FY14 FY14 FY13
 

Reported results $m

Adjustments $m

Guidance basis $m

Guidance basis $m

Total income(iii)

26,296

(662)

25,634

24,776

EBITDA

11,135

(491)

10,644

10,168

Free cashflow

7,483

(2,356)

5,127

5,024

Results on a Guidance Basis(ii)

  FY14 FY14 guidance

Total income growth(iii)

 3.5%

Low single digit growth

EBITDA growth

 4.7%

Low single digit growth

Capex/sales ratio

 14.6%

~ 15% of sales

Free cashflow

$5.1 billion

$4.6 - $5.1 billion

full-year-result-and-operation-review-guidance-result-on-guidance-basis

(ii) Adjusted for the sales proceeds from CSL and 70 per cent of our Sensis directories business, M&A activity, Octave foreign currency reserve loss, Sequel Media impairment and 30% equity share of Sensis directories business. Please refer to the guidance versus reported results reconciliation. This reconciliation forms part of the Full Year Results and Operations Review, and has been reviewed by our auditors.
(iii) Excludes finance income.

Reported Results

During financial year 2014 there were two significant divestments. In February we completed the sale of a 70 per cent stake in our Sensis directories business and in May we completed the sale of our 76.4 per cent shareholding in the Hong Kong-based mobiles business, CSL New World Mobility Limited (“CSL”). In accordance with accounting standards, the Sensis directories business is disclosed as a discontinued operation. CSL does not meet the criteria to be classified as a discontinued operation as we continue to operate a mobiles business in Australia.

The numbers and commentary in the product and expense performance sections have been prepared on a continuing operations basis and aligns with the statutory financial statements. The segment performance and financial position sections have been prepared on a continuing and discontinued operations basis (that is, includes the results of the Sensis directories business) unless otherwise noted.

Our results highlight consistent earnings growth and increased shareholder returns while investment in innovation, networks and improving the customer experience has set the foundation for future growth. Our strategy is to improve customer advocacy, drive value from the core and build new growth businesses.

On 14 August 2014, the Directors of Telstra resolved to pay a fully franked final dividend of 15 cents per share. Shares will trade excluding entitlement to the dividend on 27 August 2014, with payment on 26 September 2014. We have also announced an off-market share buy-back of up to approximately $1 billion of Telstra shares. Detailed process information regarding the buy-back will be released to shareholders on 27 August 2014.

Key Product Revenue

  FY14
$m
FY13
$m
Change
%
Fixed 7,245

7,305

(0.8)

Mobile 9,668

9,200

5.1

Data and IP 2,968

3,041

(2.4)

NAS 1,896

1,484

27.8


full-year-result-and-operation-review-guidance-key-product-revenue

Product Profitability EBITDA Margins(i)

  FY14

FY13

2H14

1H14

2H13

Mobile 40%

38%

41%

39%

39%

Fixed voice(ii) 60%

62%

59%

61%

63%

Fixed data(ii) 44%

41%

46%

42%

43%

Data and IP 65%

65%

66%

65%

64%

Telstra Group 42%(iii)

42%

42%(iii)

42%

43%

(i) The data in this table includes minor adjustments to historic numbers to reflect changes in product hierarchy
(ii) Margins exclude NBN voice and data products
(iii) Profit on the sale of CSL has been excluded from these figures

full-year-result-and-operation-review-product-profitability


Product Sales Revenue Breakdown

 

full-year-result-and-operation-review-product-sales-revenue-breakdown

Product Performance

Fixed

Telstra’s fixed portfolio comprises fixed voice, fixed data and other fixed revenue (which includes inter-carrier services, customer premises equipment and infrastructure access revenue from the NBN agreements).

Revenue from our fixed business decreased by 0.8 per cent to $7,245 million, although there was growth in fixed data and increased infrastructure access revenue from the NBN agreements. Customers moving onto bundled plans and retention strategies led to the lowest rate of decline in our fixed voice business for five years, with a revenue decrease of 7.5 per cent to $4,034 million and a loss of 232,000 customer services. Retail customer services declined by 278,000 and wholesale customer services increased by 46,000. There are now 7.5 million fixed voice services.

Fixed data revenue increased by 6.3 per cent to $2,218 million. We again saw strong growth in retail fixed data, with revenue increasing by 7.5 per cent to $1,889 million. This was driven by growth in bundled plans with 259,000 new bundled customers. The total number of customers on a bundled plan is 1.9 million, or 63 per cent of the retail fixed data customer base. Retail fixed data average revenue per user (ARPU) increased by 0.8 per cent to $54.98.

Other fixed revenue increased by 15.6 per cent to $993 million, driven by increased infrastructure access revenue from the NBN agreements.

Fixed voice EBITDA margins decreased to 60 per cent driven by revenue decline, while fixed data EBITDA margins increased to 44 per cent due to revenue growth and reduced service delivery costs.

Mobile

Our strong performance in mobiles continued with revenue growth of 5.1 per cent, or $468 million to $9,668 million.

Retail mobile services revenue grew 6.7 per cent with growth across mjajor product categories. Domestic retail customer services increased by 937,000, bringing the total number to 16.0 million. EBITDA margins increased to 40 per cent.

Post-paid handheld revenue grew 4.2 per cent to $5,006 million. ARPU, excluding the impact of mobile repayment options (MRO), increased 0.7 per cent to $65.80 as customers used more data. The annual post-paid handheld deactivation rate improved 0.5 percentage points to 10.3 per cent, and remains at world leading levels.

Pre-paid handheld revenue increased 20.9 per cent to $879 million with an increase of 249,000 unique pre-paid handheld users. Growth was driven by a full year’s contribution from the Boost retail partnership and the continuing popularity of our Cap Encore plans. ARPU grew by 11.4 per cent due to increased data usage.

We added 109,000 customer services in the mobile broadband category. Revenue grew by 7.6 per cent to $1,287 million. ARPU declined slightly to $29.59. Machine to machine (M2M) services experienced revenue growth of 12.2 per cent to $101 million, adding 291,000 services.

We continue to invest in our 4G network, which is four times the geographical coverage area of any other 4G network in Australia. This has helped us grow penetration of 4G devices with 34 per cent of our handheld customers on 4G. We have more than 5.2 million 4G devices on our network, comprising 3.8 million handsets, 500,000 tablets, 400,000 dongles and 550,000 Wi-Fi hotspots.

Domestic Retail Customer Services
(millions)

full-year-result-and-operation-review-domestic-retail-customer-services

Mobile Revenue Growth ($b)

full-year-result-and-operation-review-mobile-revenue-growth

Data and IP

Data and IP includes revenue from IP access, ISDN services and other data and calling products. There was growth in IP Access revenue which grew by 3.3 per cent to $1,166 million. IP MAN services growth continued, with a 6.8 per cent increase bringing the total number of services to 32,679. However, overall revenue in this portfolio declined by 2.4 per cent or $73 million to $2,968 million resulting from the continued decline in ISDN and other legacy products. Data and IP EBITDA margins remained steady at 65 per cent.

Network Applications and Services (NAS)

We continue to build momentum in the domestic NAS portfolio. NAS builds on the value which our IP network delivers to enterprise, government and business customers by providing unified communications, cloud, managed networks and security services. During the year we made acquisitions to complement our capability. NSC Group is a leading provider of unified communications solutions in Australia and has strengthened our contact centre technology services, while O2 Networks is a leader in network and security consultation and integration services.

There was revenue growth in the domestic portfolio of 27.8 per cent to $1,896 million. This growth was driven by revenue from contracts signed in previous years, such as the six year Department of Defence contract.

Major NAS categories had strong revenue growth, with managed network services increasing by 55.7 per cent with a significant portion of this increase attributable to the Department of Defence contract, unified communications increasing by 21.1 per cent and cloud services increasing by 32.2 per cent.

NAS Revenue ($b)

full-year-result-and-operation-review-nas-revenue

Media

Media product portfolio revenue declined by 0.5 per cent or $5 million to $982 million. This portfolio previously included our Sensis directories business, of which 70 per cent was sold in February for $454 million. TV revenue increased by 5.0 per cent to $699 million with growth in both Premium Pay TV and Foxtel on T-Box® ‘paylite’ services. This was offset by a decline in Sensis voice and advertising services of 22.0 per cent.

CSL New World Mobility

In May 2014 we announced the sale of our 76.4 per cent stake in CSL to HKT Limited, and received US$1.99 billion in proceeds (A$2.11 billion gross cash proceeds which are subject to completion audit). Our results include ten months of CSL’s results. In that period revenue grew by 3.4 per cent to $1,045 million driven by strong post-paid handheld revenue and favourable foreign exchange movements.

Other

Global Connectivity and NAS offshore revenue grew by 19.8 per cent to $678 million. In our China digital media portfolio, revenue increased by 71.6 per cent. This includes Autohome which holds a strong position in digital marketing in the rapidly growing Chinese auto market. On 11 December 2013, Autohome Inc. was listed on the New York Stock Exchange. Our ownership interest in Autohome Inc. is 63.2 per cent.

Operating Expenses

  FY14 $m FY13 $m Change %
Fixed 7,245

7,305

(0.8)

Mobile 9,668

9,200

5.1

Data and IP 2,968

3,041

(2.4)

NAS 1,896

1,484

27.8

 

  FY14

FY13

2H14

1H14

2H13

Mobile 40%

38%

41%

39%

39%

Fixed voice(ii) 60%

62%

59%

61%

63%

Fixed data(ii) 44%

41%

46%

42%

43%

Data and IP 65%

65%

66%

65%

64%

Telstra Group 42%(iii)

42%

42%(iii)

42%

43%

 

 

FY14 $m

FY13 $m

Change %

Labour

4,732

4,527

4.5%

Goods and services purchased

6,465

6,247

3.5%

Other expenses

3,988

3,833

4.0%

Total operating expenses

15,185

14,607

4.0%

Expense Performance

Labour Performance

Total labour expenses increased by 4.5 per cent or $205 million to $4,732 million. Full time staff and equivalents decreased by 107 to 31,931. This decrease was driven by the acceleration of restructuring programs across Telstra Operations and the divestment of CSL, offset in part by expenses supporting NAS and NBN-related activity. Salary and associated costs increased by 3.2 per cent or $106 million to $3,399 million. This included the impact of salary and wage increases and unfavourable bond rate movements impacting long service leave and workers compensation provisions which contributed $58 million. Redundancy expenses increased by 32.8 per cent or $62 million to $251 million due to continued restructuring to support a changing product and service mix, and simplification of our business.

Goods and services purchased

Goods and services purchased increased by 3.5 per cent or $218 million to $6,465 million. Cost of goods sold (COGS) increased marginally by 0.9 per cent or $25 million to $2,906 million. The main driver was an increase in NAS COGS supporting revenue growth and CSL mobile COGS impacted by higher smartphone unit rates and the translation of a weaker Australian Dollar, offset by lower domestic post-paid mobile COGS. Other goods and services purchased increased by 7.7 per cent or $130 million to $1,828 million to support growth in some large NAS contracts. Network outpayments increased by 3.8 per cent or $63 million to $1,731 million, driven by increased voice usage in line with revenue growth in CSL. A reduction in the mobile terminating access (MTA) rate resulted in continued savings. This was offset by increased SMS/ MMS costs due to higher volumes, however this also had a favourable revenue impact.

Other Expenses

Total other expenses increased by 4.0 per cent or $155 million to $3,988 million. Service contracts and agreements increased 7.4 per cent or $101 million to $1,468 million, driven mainly in support of GES revenue growth. The remaining other expenses increased $78 million to $2,260 million, driven by an increase in light and power costs resulting from our 4G roll out, higher property rental costs across our network and data sites and a write off of $98 million from the foreign currency translation reserve for our Octave investment in China. The prior year also included a loss recognised on the sale of TelstraClear of $127 million.

Finance costs

Net finance costs increased year on year by 2.6 per cent or $24 million, which comprised a reduction in net borrowing costs of $54 million offset by a reduction in capitalised interest of $38 million, and an increase in other finance costs of $40 million.

The reduction in net borrowing costs was predominantly due to a reduction in the net average interest cost. The average net interest yield for the year was 6.2 per cent compared to 6.4 per cent in the prior year. The reduction in yield arose through a combination of a reduction in market base rates (resulting in lower costs on the floating rate debt component of our debt portfolio), and from re-financing at lower rates.

The primary driver for the increase of $40 million in other finance costs was a decrease in other interest revenue of $61 million relating to interest on tax refunds (prior year included $64 million interest on tax refunds). This increase was partially offset by a reduction in the net interest charge relating to defined benefit plans and a reduction in valuation impacts.

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. Commentary on the performance of our business segments follows.

Telstra Retail

Telstra Retail brings together our key retail facing businesses including Telstra Consumer, Telstra Business, Telstra Media Group and Telstra Health. Telstra Retail provides the full range of telecommunications products, services and solutions to consumer customers and to Australia’s small to medium sized enterprises, as well as the provision of Foxtel and digital content services. Income in this segment grew by 3.6 per cent to $16,350 million and EBITDA increased by 3.8 per cent to $9,307 million. Income in our Consumer business unit grew by 4.6 per cent, with strong growth in mobiles of 10.6 per cent driven by increased data usage, as well as a 7.2 per cent increase in fixed data revenue offset by an 8.2 per cent decline in fixed voice revenue. Telstra Business income grew by 0.8 per cent, with continued strong growth in the NAS portfolio, which increased 44.2 per cent. A 6.3 per cent growth in fixed data was offset by an 8.5 per cent decline in fixed voice revenue. Telstra Health contributed income of $40 million in its first year. Commentary on the performance of Telstra Media Group is provided within the Media product performance section.

Global Enterprise and Services

Global Enterprise and Services (GES) is responsible for sales and contract management support for business and government customers in Australia and globally. It also provides product management for advanced technology solutions including Data and IP networks, and NAS products such as managed network, unified communications, cloud, industry solutions and integrated services. Technical delivery for NAS customers in Australia and globally is also provided by GES. Income for GES increased by 4.1 per cent to $5,284 million, driven by NAS domestic and global connectivity, offset by declines from Australian enterprise and government customers for fixed telephony, mobiles and data connectivity. Investment to support growth in NAS contracts and GES global customers resulted in an increase in operating expenses of 21.9 per cent, leading to an EBITDA decline of 9.1 per cent. This decline moderated in the second half.

Telstra Wholesale

Wholesale income grew by 10.1 per cent to $2,328 million. This was largely driven by revenue growth from the NBN Infrastructure Service Agreement, partly offset by one off reductions to fixed and mobile roaming revenues from customer exits during FY13. We also saw an increase in unconditioned local loop (ULL) services of 160,000. External expenses increased by 16.8 per cent largely due to higher bad debts from customer insolvencies and increased network outpayments from Telstra International. EBITDA contribution increased by 9.5 per cent to $2,127 million.

 

Segment Income

 

FY14
$m

FY13
$m

Change
%

Telstra Retail

16,350

15,784

3.6

Global Enterprise and
Services

5,284

5,074

4.1

Telstra Wholesale

2,328

2,115

10.1

Telstra
International Group

1,887

1,163

62.3

Telstra Operations

161

156

3.2

Other

838

1,688

(50.4)

Total Telstra segments

26,848

25,980

3.3

 

full-year-result-and-operation-review-segment-income-piechart

 

 

Telstra International Group

The Telstra International Group income grew by 62.3 per cent to $1,887 million and EBITDA contribution grew by 156.9 per cent to $817 million. This segment comprises our China digital media portfolio and CSL . During the year Telstra ceased operations in the Octave investment in China and commenced liquidation of the legal entities in the Octave Group. A write-off of $98 million from the foreign currency translation reserve associated with this investment was recorded during the year. CSL was also sold in May 2014 and we recognised $561 million profit on sale. Refer to note 20 in the financial statements for further details.

Further commentary on the performance of these businesses is provided within the product performance section.
 

Telstra Operations Group

Telstra Operations is primarily a service delivery centre supporting the revenue generating activities of other segments. The underlying EBITDA contribution improved 1.6 per cent on the prior year with reductions in labour expenses, partially offset by higher network accommodation costs.

Other

Our Other category includes the costs of corporate centre functions, payments received under certain NBN agreements, impairments, adjustments to employee provisions for bond rate movements and short term incentives, and redundancy expenses for the parent entity. The results of our New Zealand subsidiary TelstraClear, sold in October 2012, and the 70 per cent stake of our Sensis directories business, sold in February 2014, are also included in this category. The declining revenues in the Sensis directories business and the associated impairment charges represent the major movement for the year in this segment compared with the prior period.

Financial Position

Capital expenditure and cash flow

Capital expenditure decreased by 0.8 per cent to $3,661 million (excluding expenditure in relation to the Sensis directories business) and is in line with our capex to sales guidance of around 15 per cent. This investment has enabled us to meet ongoing customer demand from the growth in our customer base, support the accelerated roll out of 4G and internet and content delivery infrastructure platforms, as well as meet ongoing NBN commitments.

Free cashflow generated from operating and investing activities was $7,483 million, which increased 48.9 per cent. Included in free cashflow were gross cash proceeds from the sale of CSL of $2,107 million (subject to completion audit) and $454 million from the sale of our 70 per cent shareholding in the Sensis directories business. The prior year included cash proceeds from the sale of TelstraClear of $669 million. Cash from operating activities increased by $254 million or 3.0 per cent due to the continued strong performance of our mobility products combined with a program to reduce inventory levels. This was partially offset by an increase in income taxes paid due to legislative changes requiring income tax instalments be remitted monthly rather than quarterly, resulting in additional instalments being paid in the current year. Cash outflows from investing activities decreased as a result of lower payments for spectrum licence purchases, offset partially by an increase in mergers and acquisitions activities.

Summary Statement of Cash Flows

 

FY14 $m

FY13 $m

Change %

Net cash provided by operating activities

8,613

8,359

3.0

Total capital expenditure (including investments)

(4,018)

(4,545)

(11.6)

Sale of shares in controlled entities
(net of cash disposed)

2,397

693

245.9

Other investing activities cash flows

491

517

(5.0)

Net cash used in investing activities

(1,130)

(3,335)

(66.1)

Free cashflow

7,483

5,024

48.9

Net cash used in financing activities

(4,430)

(6,526)

(32.1)

Net increase in cash and cash equivalents

3,053

(1,502)

303.3

Financial Settings

  FY14
Actual

Target
zone

Debt servicing(i) 0.9x

1.3 – 1.8x

Gearing(ii) 43%

50% to 70%

Interest cover(iii) 13.8x

>7x

(i) Debt servicing ratio equals net debt to EBITDA.
(ii) Gearing ratio equals net debt to net debt plus total equity.
(iii) Interest cover equals EBITDA to net interest.

Debt position

Our gross debt position increased by $420 million to $16,048 million. This increase included short term debt issuance of $252 million, finance lease additions of $121 million and revaluation impacts on our debt portfolio of $204 million, partially offset by finance lease repayments of $91 million and a net reduction in long term debt of $67 million. The reduction in long term debt comprised debt maturities of $565 million offset by a domestic bond issue with net proceeds of $498 million. The domestic bond issue was used to refinance maturing domestic debt.

Net debt decreased by $2,628 million to $10,521 million. This movement comprises the increase in gross debt of $420 million offset by an increase in cash and cash equivalents of $3,048 million. The higher liquidity reflects proceeds from divestments of our shareholding in the Sensis directories business and CSL. The impact of the higher liquidity is reflected in the reduction in our net debt gearing ratio (net debt to capitalisation) from 50.5 per cent at 30 June 2013 to 43.0 per cent at 30 June 2014 and also our debt servicing ratio. Liquidity will be reduced in the first quarter of financial year 2015 to fund planned cash outflows such as spectrum licence payments and dividend payments.

Financial Position

Summary Statement of Financial Position

 

FY14 $m

FY13 $m

Change %

Current assets

10,438

7,903

32.1

Non current assets

28,922

30,624

(5.6)

Total assets

39,360

38,527

2.2

Current liabilities

8,684

7,522

15.4

Non current liabilities

16,716

18,130

(7.8)

Total liabilities

25,400

25,652

(1.0)

Net assets

13,960

12,875

8.4

Total equity

13,960

12,875

8.4

Return on average assets (%)

20.4

17.9

2.5pp

Return on average equity (%)

32.3

31.0

1.3pp

 

Statement of Financial Position

Our balance sheet remains in a strong position with net assets of $13,960 million.

Current assets increased by 32.1 per cent to $10,438 million. An increase in cash and cash equivalents and a decline in trade and other receivables was mainly due to divestments of CSL and 70 per cent of our Sensis directories business. Tax receivables decreased due to the receipt of tax amendment refunds.

Non current assets decreased by 5.6 per cent to $28,922 million. Property, plant and equipment declined as ongoing depreciation and retirements exceeded the level of additions. Intangible assets decreased largely due to the Sensis and CSL divestments and a portion of Sensis goodwill recognised as an impairment loss. This was partially offset by acquisitions made during the period. The increase in derivative assets is primarily attributable to net foreign currency and other valuation impacts arising from measuring to fair value.

Current liabilities increased by 15.4 per cent to $8,684 million. There was an increase in current borrowings and derivative liabilities reflecting transactions that will mature within the next 12 months and higher refinancing demands during the financial year 2015. Trade and other payables decreased primarily as a result of lower capital and labour accruals due to the Sensis divestment. It also includes a decline in trade creditors driven by payments in June to a large volume of vendors with a July clearing date. Current tax payables decreased largely due to increased tax instalments paid on transition from a quarterly to monthly instalment regime.

Non current liabilities decreased by 7.8 per cent to $16,716 million. The decrease in non current borrowings was due to a reclassification of debt into current borrowings, partially offset by a domestic bond issue during the year, foreign currency movements and other valuation impacts. The decrease in derivative liabilities was due to reclassification to current for maturities within the next 12 months, and included foreign currency and other valuation impacts arising from measuring to fair value.

Return on average assets and return on average equity improved primarily due to the increase in profit. The return on average equity was partly offset by a favourable movement in the foreign currency translation reserve, with the translation differences transferred to the income statement.

Sustainability

Our goal is to embed social and environmental considerations into the heart of our business in ways that create value.

Our Approach

At Telstra, our purpose is to create a brilliant connected future for everyone. The success of our business relies on it, and our sustainability agenda is key to achieving it.

Governance

Our CEO chairs the Telstra Sustainability Council, which governs Telstra’s sustainability strategy and performance. Membership comprises Telstra’s Executive Committee. Regular reports on sustainability progress and key developments are provided to the CEO and the Telstra Board. Telstra’s Chief Sustainability Officer provides strategic leadership for sustainability and is responsible for the implementation of our approach and programs.

Key Issues

We seek to identify the ways in which we can use our core telecommunications capabilities, assets and expertise to make a genuine contribution to the communities in which we operate.

To support this ambition we identify and respond to the key sustainability issues and opportunities that are important to our business and our stakeholders. We consider issues, risks and opportunities from a wide variety of sources. These include regular stakeholder consultation, participation in industry and crosssector initiatives, customer research, benchmarking and future trends analysis. We prioritise issues according to their impact on our business and on stakeholders. The key issues identified through this process during the 2014 financial year are outlined in the diagram below. Please refer to our Bigger Picture 2014 Sustainability Report for a more detailed overview of these issues and our performance.

Sustainability Priorities

Our sustainability priorities focus on the areas where we believe we can make the most difference, based on our assessment of key issues and opportunities. Our three strategic sustainability priorities are:

Employee involvement

We aim to make Telstra a great place to work, enhance our reputation and strengthen the communities in which we operate by providing opportunities for our people to get involved with their local communities and addressing the issues that matter.

Everyone Connected

We believe that the more connected people are, the more opportunities they have. We want everyone to enjoy the benefits that new communication technologies can bring - regardless of age, income, ability or location. Our Everyone Connected programs focus on making our products and services more accessible, enhancing digital literacy and cyber safety as well as supporting technological innovation for social good.

Environmental leadership

We are seeking to be more proactive and strategic in our approach to the environment. We’re doing this by identifying and minimising the material environmental impacts of our operations, working with our suppliers to reduce the impacts of the products and services they provide to us, and considering the environment when developing our own products and services.

 

Key Sustainability Issues

 

our-approach-key-sustainability-issues

Customer Experience

We want to ensure that everyone enjoys the benefits of being connected to modern communications technologies.

Customers Experiencing Disadvantage

Our Access for Everyone program is designed to help people on low incomes or facing hardship stay connected. Since 2002, this program has provided benefits to the value of more than $2 billion. We work with over 2,000 community agencies across Australia to deliver the program that includes benefits such as discounts on fixed line home phone services for around 980,000 pensioners, home phone line rental relief for 76,000 households and distribution of around 113,000 calling cards.

Customers with Disability

For more than 25 years we have been committed to ensuring our products are accessible for customers with communication challenges. Telstra’s sixth Disability Action Plan (2013–2016) recognises the benefits that modern communications technologies bring to people with disability and extends Telstra’s commitment to improving the accessibility and affordability of our products and services.

Privacy and Data Protection

Millions of people trust us with their personal information and we continue to work diligently every day to honour this trust. We take customer privacy and data security very seriously. Our priority is making sure we keep personal information safe and secure at all times.

We continue to invest in controls to protect the privacy of our customers and to be transparent in the way we manage this information. In March 2014, we published our new Privacy Statement in response to the introduction of the new Australian Privacy Principles. This statement reaffirms our commitment to protecting the personal information of our customers.

In March 2014, the Privacy Commissioner and the Australian Communications and Media Authority found us in breach for an incident that was identified in May 2013, where some of our customer details were available online. As soon as possible after we learnt about the issue, we disabled all public access to the data and apologised to the people affected. We have since made significant investments into more stringent controls around our systems.

customers-experiencing-meet-the-creeps

MEET THE CREEPS
A CYBER SAFETY INITIATIVE OF TELSTRA
AND THE QUEENSLAND GOVERNMENT

Cyber Safety

Cyber safety is an important social issue. We play an active role as a member of the Australian Government’s Online Safety Consultative Working Group and as cochair of the Technology and Wellbeing Roundtable with ReachOut.com by Inspire Foundation. Telstra is the only Australasian member of the Family Online Safety Institute (FOSI), an international, non-profit organisation that convenes industry, government and the non-profit sectors to collaborate and innovate in the area of cyber safety.

This year, we partnered with the Queensland Department of Education, Training and Employment to develop "Meet the Creeps", a cyber safety quiz designed to help students make the most of their digital opportunities while remaining safe online. We also distributed around 65,000 cyber safety kits across Australia during the year, providing practical information on areas such as protecting personal information, cyberbullying and protecting against scams and phishing.

Responsible Business

We are committed to responsible business practice, wherever we operate.

United Nations Global Compact

We have been a signatory to the United Nations Global Compact since 2011 and are committed to supporting its principles – on human rights, labour rights, environment and anti-corruption – wherever we operate. We implement our commitment through a range of policies, strategies, management systems and initiatives that reflect the diverse range of conditions in which our businesses operate.

Supply Chain

This year, the Telstra Group purchased $6.5 billion in goods and services from around 4,800 suppliers. Our spend can be leveraged to positively influence the behaviour and actions of our suppliers and, in turn, benefit the environment and communities. To help realise this we developed a three-year sustainable procurement strategy, with a focus on identifying key social and environmental risks, embedding consideration of these risks into our processes and working to monitor compliance. We also refined our Supplier Code of Conduct to clarify the expectations we have of our suppliers. As part of the process, we held a forum for key suppliers, representing around $3 billion in annual spend, on the proposed changes and to obtain consensus on our implementation approach.

A more thoughtful approach to supply chain management has resulted in initiatives such as our Supported Workforce program which contracts non-profit groups to conduct grounds maintenance at around 4,000 of our network sites. These groups currently employ 413 people with disability or who are experiencing disadvantage. This year, we established a similar pilot program for Indigenous people in remote locations.

Mobile Phones, Towers and Health

We acknowledge that some people are genuinely concerned about possible health effects from electromagnetic energy (EME), and we are committed to addressing these concerns responsibly. We are proactive, transparent and fact based in our communication regarding EME and comply with the standards set by regulators. We rely on the expert advice of national and international health authorities including the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA) and the World Health Organisation (WHO) and actively contribute to scientific research in EME and health.

Helping our customers and the community keep abreast of the latest information is important to us. We provide information on EME on our website at www.telstra.com/eme and invite customers to go directly to the WHO, ARPANSA and EMF Explained websites for further information. We have a dedicated EME help desk and team that proactively reviews new site proposals, develops community consultation plans and works with the community to determine acceptable sites for new base stations. This year, we continued our mobile safety SMS campaign, sending out more than eleven million messages referring customers to www.telstra.com/mobiletips, our information site for safe and responsible phone use. In addition, all new mobile customers receive information on EME in their welcome pack.

Transparency Report

This year we released our first Transparency Report to keep our customers informed of the requests we receive for access to information from national security and law enforcement agencies in Australia and overseas. The aim of the report is to raise awareness about the various reasons an agency may request assistance, such as enforcing criminal law, protecting public revenue and safeguarding national security. We also provide assistance to emergency services agencies in response to life threatening situations and Triple Zero emergency calls.

responsible-business-bottom

Our People

We are working to attract and retain employees with the skills and passion to best serve our markets.

 

our-people-employee-egagement-score-of

 

Employee Engagement

We are committed to making Telstra a great place to work and seeking employee feedback is an important part of the process. Over April and May 2014, we conducted a pulse employee engagement survey, with an 84 per cent response rate. We achieved an engagement score of 82 per cent, putting us five percentage points above the Australian National Norm and within two percentage points of the Global High Performing Norm.

The largest improvements were seen in the areas of ethics and integrity (four per cent improvement on 2013 survey), health and wellbeing (two per cent improvement) and diversity and inclusion (two per cent improvement).

 

Employee Engagement(i)

our-people-employee-engagement

(i) Telstra Group. 2013 results adjusted to exclude CSL and Sensis Group (79% was previously reported).

Health and Safety

The health and safety of our people is paramount to us and is critical to the success of our business. We have governance structures at Board and executive levels to guide and monitor health and safety performance and have continued to focus on identifying and controlling workplace health and safety hazards and risks. This year, Telstra categorised its workforce into 12 main workgroups that cover our main work activities and the risks likely to face our employees. This approach allows us to implement risk management programs that address risks and reduce the incidence and severity of workplace injuries and illness with a particular focus in FY14 on driver safety, contractor management, the management of asbestos, employee wellbeing and musculoskeletal injuries.

We have managed the risk of asbestos in our network for many years and place the highest priority on the health and safety of employees, contractors and members of the public. This financial year we introduced a number of stringent measures to improve asbestos handling practices within Telstra after several incidents in FY13 involving contractors failing to meet our minimum standards. We also implemented stronger community engagement guidelines to better inform the community about work in their neighbourhoods, including longer notification periods and improved signage at worksites alerting residents to asbestos-related works.

Lost Time Injury Frequency Rate (LTIFR)(ii)

 

our-people-Lost-time-injury-frequency-rate

 

(ii) LTIFR is the reported number of accepted workers’ compensation claims for work-related injury or disease that incur lost time for each million hours worked. This data relates to Telstra Corporation Limited only and does not include subsidiaries or contractors.

Diversity and Inclusion

Diversity and inclusion help us improve business results, enhance our reputation, and attract, engage and retain talented people. Our people value working in an organisation where differences are respected. In addition, having a diverse range of employees better enables us to provide the best service to our customers.

At Telstra, the focus on diversity and inclusion relates to differences in gender, age, ethnicity, race, cultural background, disability, religion and sexual orientation. It also includes differences in background and life experience, communication styles, interpersonal skills, education, functional expertise and problem solving skills.

Employee diversity and inclusion is led by our Diversity Council, which is chaired by the CEO and comprises the entire CEO Leadership Team. Through this forum, as well as performance planning and development processes, we reinforce our expectations of all leaders to lead in an inclusive way and to value difference.

Our diversity policies provide the framework for the Board to set our measurable objectives for achieving diversity and to assess annually our progress in achieving them. The table below summarises, as at the end of the 2014 financial year, our measurable objectives for achieving gender diversity set by the Board and our progress towards achieving them.

Diversity Targets and Performance

Measure Objective and Progress/Result
in respect of FY14
(or as otherwise stated)
Objective in respect of FY15
(or as otherwise stated)
Women on
the Board
Objective - There will be 3 women on the Board, representing a female
gender representation among non-executive Directors of at least 30%
Progress - As at 30 June 2014, there were 3 female Directors on the
Board (including the Chairman of the Board), representing a female
gender representation among non-executive Directors of 33.3%
There will be at least 3 women
on the Board, representing a
female gender representation
among non-executive Directors
of at least 30%
Female
representation
in graduate
intake
Objective - 45% female representation in graduate intake selected in
2015, with an aspiration of 50% female representation by 2020
Progress - 41% female representation in graduate intake selected in
2014
45% female representation
in graduate intake selected in
2015, with an aspiration of 50%
female representation by 2020
Promotion rates
for women
Objective - To exceed their representation at Business Unit level
Result – Achieved in Telstra overall and in 6 out of 9 business units.
To exceed their representation at
Business Unit level
Engagement
of identified
groups(i)
Objective - Equal to or greater than Telstra-wide engagement score,
with any negative differences not statistically significant
Result - Engagement of all identified groups exceeded Telstra-wide
engagement score, except for Indigenous employees and employees
with a disability. The negative difference for employees with a disability
was statistically significant, but the score for this group was stable
compared to 2013. All other groups were more engaged than in 2013.
Equal to or greater than Telstra-
wide engagement score, with
any negative differences not
statistically significant
Female
representation(ii)
at 30 June
Objective - FY15 - 32% (Telstra Total) and 30% (Executive
Management)
Progress - 30.1% (Telstra Total) and 25.9% (Executive Management)
FY15 - 32% (Telstra Total) and
30% (Executive Management)
FY20 - 35% (Telstra Total) and
40% (Executive Management)

(i) Identified groups are female employees, Indigenous employees, culturally and linguistically diverse employees, employees with a disability, and, gay, lesbian, bisexual, transgender and intersex (GLBTI) employees. FY14 result does not include Chief Entertainment Pty Ltd, 02 Networks Pty Ltd and DCA Direct Health Pty Ltd, as they did not participate in the 2014 Employee Engagement Survey.

(ii) Full time and part time staff in Telstra Corporation Limited and its wholly owned subsidiaries, excluding casual and agency staff.

Telstra is required by the Workplace Gender Equality Act 2012 to report our workforce gender profile as at 31 March each year. Our 2014 report was lodged with the Workplace Gender Equality Agency on 27 May 2014 and is provided in the corporate governance section of our website at www.telstra.com/diversity.

 

Representation of Women in Telstra as at 30 June 2014

Role Number Percentage
Board(i) 3 33.3%
Executive management*(ii)
CEO
CEO-1 (Band A)
CEO-2 (Band B)
CEO-3 (Band C)
68
0
3
14
51
25.9%
0%
23.1%
19.7%
28.7%
Middle management*(iii) 2,567 27.2%
Operational*(iv) 6,970 31.4%
Telstra Total* 9,605 30.1%
Telstra Group Total** 10,302 30.2%

* Includes full time, part time and casual staff in Telstra Corporation Limited and its wholly owned subsidiaries, excluding contractors. It does not include staff in any other controlled entities within the Telstra Group.

** Includes full time, part time and casual staff in controlled entities within the Telstra Group, excluding contractors and agency staff.

For a list of the entities in the Telstra Group, please refer to Note 25 to the Financial Statements.

Notes:

(i) Number and percentage relate to non-executive Directors.

(ii) Executive management comprises persons holding roles within Telstra designated as Band A, B or C, or equivalent.

(iii)Middle management comprises persons holding roles within Telstra designated as Band 1 or 2, or equivalent.

(iv)Operational comprises persons holding roles within Telstra designated as Bands 3 or 4, or equivalent.


Gender Equality

Overall female representation across the Telstra Group remained flat this year at 30.2 per cent. While we made good progress in the first half, the result was adversely affected by the sale of our Sensis directories business which saw a reduction of 1,320 women. Last year, we reported an over representation of women among departures from Telstra. We took local action to retain women in our business with a focus on flexibility and career development. We have started to see a closing of the gap with female commencements now exceeding female departures.

We know that diversity and inclusion helps us to improve business results, enhance our reputation, and attract, engage and retain talented people.

Board Diversity

Information on the initiatives the Board has in place to meet its strategic imperative of ensuring the Company has a diverse Board and to achieve its Board diversity measurable objective can be found in the Board Composition and Director Appointment section of our Corporate Governance Statement, which is available on our website.

Employee Diversity and Inclusion

During the year our initiatives to enhance diversity and inclusion at Telstra included:

  • Gender equality - our CEO continued his involvement in the Male Champions of Change group which models effective leadership by male executives in relation to gender equality. Key initiatives this year included the "panel pledge" to increase female representation in conference panels and speaking opportunities and the Plus One initiative, which encourages managers to add at least one woman to their teams as roles arise.

  • All Roles Flex - this is a companywide approach whereby flexibility is now considered the starting point for all roles. We are the first large company in Australia to implement such an initiative, and are committed to ensuring our employees are able to balance work with other responsibilities.

  • Pay equity - the Board reviewed Telstra’s remuneration philosophy and principles to ensure they remained aligned to our strategy and values. A new principle was added that specifically highlights diversity and acknowledges Telstra’s commitment to providing equitable and fair pay.

  • White Ribbon - we received formal accreditation as a White Ribbon Workplace recognising our work, since 2009, in helping to stop violence against women.

At Telstra, flexibility is the starting point for all roles.

Employee Volunteering and Giving

Our employees want the opportunity to contribute to the communities in which they live and work. This year Telstra people contributed more than 5,000 days volunteering their time and expertise to a range of community organisations across Australia and beyond. This year our dollar for dollar matched payroll giving resulted in a total contribution of more than $1.4 million in donations to over 300 charities.

Community Impact

We use our technology, expertise, scale and presence to make a positive contribution to the community.

 

 community-impact-we-reached

 

community-compact-sev-and-shirl

Sev and Shirl, Ambassadors for the ILC NSW's Everyone Connects Workshops

Telstra Foundation

The Telstra Foundation’s social innovation program works in partnership with community organisations. We invest in "tech for good" collaborations across Australia and look to the power of smart devices, social media, platforms and apps to champion social change and community connection.

This year we committed $1.1 million to four new social innovation grants, including the Independent Living Centre NSW (pictured) where we explored how mobile and tablet technologies can be used to improve connectedness for people with severe or profound communication disability. According to census data this affects 280,000 people in Australia. The project was delivered across metropolitan, regionaland rural New South Wales in early 2014. It involved hands on workshops for people with communication challenges and the development of online resources to increase awareness of assistive technologies, including mainstream mobile and tablet technologies, accessories and accessibility options. Young people (aged 12 to 25) and adults who attended the workshops were able to trial a range of technologies including tablets, smart phones, software and apps – many for the first time.

This year our Executive Committee approved a new framework to guide our community investment approach in our international operations. Consistent with this, we established Telstra Foundation Philippines to deliver on Telstra’s local community relations responsibilities. This is an important signal of our commitment to expand and maintain our market presence long term.

Digital Literacy

Being confident and literate with technology is an essential skill in the digital age. This year, our Everyone Connected digital literacy programs reached more than 143,000 people.

Our most significant digital literacy program this year, the Tech Savvy Seniors partnership with the New South Wales (NSW) Government, delivered training to around 17,000 seniors through 92 community colleges and local libraries, particularly in regional and remote areas of NSW. To extend the program’s reach to as many seniors as possible, self-help DVDs were distributed to libraries and key community agencies. They cover subjects such as getting started with smartphones and tablets, social networking, and online banking and shopping.

eSmart Libraries

In August 2012, we launched eSmart Libraries, a multi-year, $8 million partnership between the Telstra Foundation and The Alannah and Madeline Foundation. This world-leading cyber safety program is designed to better equip Australia’s 1,500 public libraries to support library users with the skills they need for smart, safe and responsible use of technology. To date, more than a third of public libraries across Australia (approximately 500 libraries) have started the eSmart journey, exceeding our FY14 target of 260.

Indigenous Communities

This year, we announced a new $5 million, multi-year partnership with the National Centre of Indigenous Excellence (NCIE) to create an Indigenous Digital Excellence Initiative to develop platforms, apps, programs and events to improve community wellbeing. The partnership will support Aboriginal and Torres Strait Islander peoples to take their next digital step – whether it’s enjoying the strength of connections through purpose-built online networks and apps or running an online business.

Disaster Relief and Recovery

In times of natural disaster, our technicians are often among the first to enter affected areas. Our priorities include assisting emergency and essential services organisations with their telecommunications requirements and restoring services to our customers. Along with technical support, we provide telecommunications services such as temporary internet access and loan handsets to evacuation centres. We also support affected residential and small business customers through relief assistance packages.

In FY14, Telstra provided assistance following four natural disasters across Australia. We also improved the Emergency Alert System, the first of its kind in the world, to enable disaster warning messages to be sent to Telstra 4G handsets in areas covered by our 4G network. Since its introduction, location-based emergency alerts have been used almost 320 times, and the system has successfully issued more than 1.3 million messages.

This year we also assisted almost 17,000 customers wishing to check on family and friends affected by Typhoon Haiyan in the Philippines. For two weeks, voice calls and SMS were provided free to the Philippines for Telstra fixed line and post-paid mobile customers and pre-paid customers were reimbursed. Telstra was the first telco worldwide to respond with an offer of this kind.

We invested $217 million in the community in FY14.


Breakdown of Social and Community Investment in FY14

community-impact-breakdown-of-social-and-community-investment-in-fy14-updated

Environmental Stewardship

Telstra’s new Environment Strategy signals an important step change in our approach to environmental management.

 

 environmental-stewardship-we-achieved-a-reduction-of

 

Environment Strategy

Telstra’s new Environment Strategy signals an important step change in our approach to environmental management. It builds on and extends our existing programs to manage and minimise the environmental impacts across our value chain. It is focused on addressing the environmental issues that matter most to our stakeholders, and is aligned to Telstra’s purpose and values. Specifically it focuses on:

  • Operational Excellence - actively identifying and minimising material environmental impacts and operating costs.

  • Sustainable Supply Chain - working with and influencing suppliers to manage and reduce the environmental and social impacts of their operations and of the products and services they provide to Telstra.

  • Environmental Customer Value Proposition (ECVP) - embedding environmental considerations into the development of products and services.

The strategy was informed by a detailed identification and assessment of the material environmental risks and impacts of our operations, our products and services, and our supply chain.

Energy Efficiency and Carbon Emissions

Energy use in our networks is our most material environmental impact, accounting for around 86 per cent of our total carbon emissions (Scope 1, 2 and 3) in FY14. Large amounts of energy are required to power our network equipment and keep it at an optimum operating temperature. In FY14, Telstra used almost six million gigajoules of energy.

As data volumes continue to increase - 39 per cent in the 2014 financial year - we are improving the utilisation and efficiency of our network equipment. This year we achieved a 30 per cent decrease in carbon emissions intensity (tCO2e per terabyte of data) from the previous year, surpassing our 15 per cent reduction target.

Consistent with our aspiration to become an Australian environmental leader, we have set a longer term target to reduce our carbon emissions intensity by 55 per cent over the three year period from FY15 to FY17, from a baseline year of FY14.

Total emissions (Scope 1, 2 and 3) have decreased 2.5 per cent over the reporting period as a result of a program of works to improve our carbon and energy efficiency as well as reduced emission factors published by the Federal Government. Emission factors were reduced due to changes in Australia’s electricity generation mix, such as increased generation from renewable energy sources. The change in emission factors between FY13 and FY14 led to a decrease in our reported emissions of approximately 36,000 tCO2e.

We are three years into a five year, $41.3 million capital investment program aimed at improving energy efficiency and reducing the carbon intensity of our network and data centre facilities. We have spent $29 million to date, including $6 million in FY14, on initiatives that will deliver positive net present value outcomes. Projects are focused on delivering energy efficient air conditioning solutions, decommissioning old and redundant equipment and integrating energy efficiency measures into existing capital work projects. A further $6 million is committed for next financial year. Collectively, the initiatives completed in FY14 have reduced carbon emissions by 36,824 tCO2e and saved over 35,000MWh of electricity consumption in FY14.

Total Carbon Emissions(i)
(Scope 1, 2 & 3)


Tonnes of carbon dioxide
equivalent (tCO2e)

 

environmental-stewardship-total-carbon-emissions

(i) Australian operations for Telstra Corporation Limited. This includes relevant Australian subsidiaries, joint ventures and partnerships. Sensis Group has been included from 1 July 2013 until 28 February 2014.

 

Carbon Emissions Intensity (ii)

Tonnes of carbon dioxide equivalent
per terabyte (tCO2e/TB)

 environmental-stewardship-carbon-emissions-intensity

(ii) Australian operations for Telstra Corporation Limited. This includes relevant Australian subsidiaries, joint ventures and partnerships. Sensis Group has been included from 1 July 2013 until 28 February 2014.

We are committed to minimising our environmental impacts and working with our customers to achieve better environmental outcomes.

Thought Leadership

We believe that the information and communications technology (ICT) sector is in an ideal position to support government, businesses and consumers to reduce their energy consumption, leading to considerable cost savings and reduced greenhouse gas emissions. To explore this potential, this year we released a report, Connecting with a Low Carbon Future, that examines the role of technology in unlocking the benefits of a low-carbon economy.

Building on the findings from our 2007 Climate Risk report, Connecting with a Low Carbon Future found that if ICT opportunities such as remote appliance power management, decentralised working and real time fleet management are realised, they could help Australians to achieve cost savings of almost $8.1 billion per year while cutting national carbon emissions by 4.7 per cent.

Paper Use – Directories

Yellow Pages* and White Pages* (print and online) have received carbon neutral certification through Low Carbon Australia since February 2010. We offset our FY13 emissions by purchasing, in December 2013, 54,009 tonnes of offsets from three carbon reduction projects located in India and China.

In February 2014, we sold a 70 per cent stake in our Sensis directories business. Sensis will continue to produce and distribute the White Pages for Telstra.

environmental-stewardship-gavin-night-and-anthony-quayle

GAVIN KNIGHT AND ANTHONY QUAYLE, TELSTRA OPERATIONS, GREENSBOROUGH EXCHANGE, MELBOURNE

Office, Billing and Printing Paper

We reduced our total paper usage by more than 15 per cent this year due to our focus on producing online and digital content. Paper used to print bills continues to reduce as more customers opt for online billing and a greater proportion of online advertising has reduced our need to print information flyers and brochures. Our "follow-me" printing initiative continues to be rolled out across our largest corporate offices. This initiative enables employees to print from almost any device, using their building access cards to activate printing and has led to a 12 per cent reduction in office paper use.

E-waste

E-waste is an important element of Telstra’s Environment Strategy. We collected 1,978 tonnes of e-waste this year, including 15 tonnes from a waste management initiative in our commercial offices and buildings. We also assist our customers to deal more effectively with e-waste. Throughout FY14 we collected 15.3 tonnes of mobile phones and accessories from Telstra retail stores, offices and repair centres through the MobileMuster program, a nine per cent increase in collections for the year.

 

 

Board of Directors

board-of-directors-catherine

Catherine B Livingstone AO
BA (Hons), Hon DBus
(Macquarie),Hon DSc
(Murdoch),FCA, FTSE,
FAICD, FAA

Ms Livingstone has been a non-executive Director since November 2000, was appointed as Chairman in May 2009 and was last re-elected in 2011. She is Chairman of the Nomination Committee and a member of the Audit & Risk Committee and the Remuneration Committee. Ms Livingstone is a Chartered Accountant and has held several finance and general management roles primarily in the medical devices sector. Ms Livingstone was the Chief Executive of Cochlear Limited from 1994 to 2000. She was Chairman of CSIRO from 2001 to 2006 and has also served on the boards of Goodman Fielder Limited and Rural Press Limited. In 2008, Ms Livingstone was appointed an Officer of the Order of Australia for service to the development of Australian science, technology and innovation policies to the business sector. In 2014, Ms Livingstone was appointed President of the Business Council of Australia.

Other listed company directorships in the past three years:
Director, WorleyParsons Limited (from 2007), Macquarie Bank Limited (2003-2013) and Macquarie Group Limited (2007-2013).

Other directorships/appointments:
President, Business Council of Australia (from 2014) and President, Australian Museum Trust (from 2012); Member, Advisory Board for the John Grill Centre for Project Leadership at University of Sydney (from 2013); Director, The George Institute for Global Health (from 2012) and Saluda Medical Pty Ltd (from 2013).

board-of-directors-david-i-thodey

David I Thodey
BA, FAICD
Mr Thodey became Chief Executive Officer and an executive Director in May 2009.
Mr Thodey joined Telstra in April 2001 as Group Managing Director of Telstra Mobiles and in December 2002 was appointed as Group Managing Director Telstra Enterprise and Government where he was responsible for the Company's corporate, government and large business customers in Australia, TelstraClear in New Zealand and Telstra's International sales division. Before joining Telstra, Mr Thodey was Chief Executive Officer of IBM Australia/New Zealand and previously held several senior executive positions in marketing and sales with IBM across the Asia Pacific. Mr Thodey holds a Bachelor of Arts in Anthropology and English from Victoria University in New Zealand and attended the Kellogg Post-Graduate School General Management Program at Northwestern University in Chicago.
In January 2013, Mr Thodey joined the Board of the GSM Association, the global body made up of carriers and related companies that supports the standardisation and deployment of mobile technology around the world. He is also co-chair of the Infrastructure and Investment Taskforce of the Australian B20 leadership group – the business advisory forum of the G20.

board-of-directors-geoffrey-a-cousins

Geoffrey A Cousins AM
Mr Cousins has been a non-executive Director since November 2006 and was last re-elected in 2012. He is a member of the Nomination Committee and the Remuneration Committee. Mr Cousins has more than 26 years’ experience as a company director. Previously Chairman of George Patterson Australia, he is also a former Director of Publishing and Broadcasting Limited, the Seven Network, Hoyts Cinemas group and NM Rothschild & Sons Limited. He was the first Chief Executive of Optus Vision and before that held a number of executive positions at George Patterson, including Chief Executive of George Patterson Australia. In 2014, Mr Cousins was appointed a Member of the Order of Australia for significant services to the community and to the visual and performing arts.
Mr Cousins was previously a consultant to the Prime Minister. He was also Chairman of Cure Cancer Australia and has served on the boards of the Insurance Australia Group Ltd, Globe International Limited and a number of cultural institutions and not for profit foundations.

Other directorships/appointments:
Chairman, St James Ethics Foundation (from 2010).

board-of-directors-john-d-zeglis

John D Zeglis
BSc Finance, JD Law
Mr Zeglis has been a non-executive Director since May 2006 and was last re-elected in 2012. Mr Zeglis has had a long and distinguished career in the US telecommunications sector. He joined AT&T in 1984, and was elected its President in 1998 and Chairman and Chief Executive Officer of the AT&T Wireless Group in 1999. He continued as CEO of AT&T Wireless until retiring in November 2004 following the company’s sale to Cingular Wireless. He has also served on the boards of Georgia Pacific Corporation, Illinois Power Company and Sara Lee Corporation. Mr Zeglis has a legal background and became partner with the law firm Sidley & Austin in 1978. He was General Counsel of AT&T from 1986 to 1998. His qualifications include a BSc in Finance from the University of Illinois, and a JD in Law from Harvard.

Other listed company directorships in the past three years:
Director, Helmerich & Payne Corporation (from 1989)

Other directorships/appointments:
Director, The Duchossois Group (from 2011) and State Farm Automobile Insurance (from 2004).

board-of-directors-russell-a-higgins

Russell A Higgins AO
BEc, FAICD
Mr Higgins has been a non-executive Director since September 2009 and was last re-elected in 2012. He is a member of the Audit & Risk Committee. Mr Higgins is an experienced company director who has worked at very senior levels of both government and private sectors. He has served on the boards of a wide range of listed companies, private companies, government business enterprises and international organisations, including as Chairman of the Snowy Mountains Hydro Electric Scheme and the Global Carbon Capture and Storage Institute. From 2003 to 2004, he was Chairman of the then Prime Minister’s Energy Task Force and prior to that he was Secretary of the Department of Industry, Science and Resources.

Other listed company directorships in the past three years:
Director, APA Group (from 2004), Argo Investments Limited (from 2011), Leighton Holdings Limited (2013-2014) and Ricegrowers Limited (SunRice) (2005-2012).

Other directorships/appointments:
Director, St. James Ethics Foundation (from 2010).

board-of-directors-chin-hu-lim

Chin Hu Lim
B Applied Science, Dip EEE
Mr Lim was appointed as a non-executive Director on 9 August 2013 and elected in October 2013. Mr Lim is an experienced company director and has almost 30 years of experience in the technology sector across the Asia Pacific Region. He is the Managing Partner of Stream Global Pte Ltd, a venture fund providing seed funding for technology start ups. He was CEO of Frontline Technologies Corp Inc., a Singapore Exchange-listed company, from 2000 to 2008 and BT South East Asia from 2010 to 2011. Previously he was Managing Director for Sun Microsystems in Singapore and country director for Sun in Thailand, Indonesia, the Philippines and Vietnam during the 1990s, after a career in Hewlett Packard in the 1980s.

Other listed company directorships in the past three years:
Kulicke & Soffa Industries Inc (NASDAQ: KLIC) (from 2011).

Other directorships/appointments:
Director, Heliconia Capital Management Pte Ltd (from 2014), Citibank Singapore Ltd (from 2013), G-Able (Thailand) Ltd (from 2011) and Changi General Hospital & Integrated Health Information Systems (from 2009); Fellow and Council member of Singapore Institute of Directors (from 2012) and Infocomm Development Authority – Personal Data Protection Advisory Committee (from 2013).

board-of-directors-john-p-mullen

John P Mullen
Mr Mullen has been a non-executive Director since July 2008 and was last re-elected in 2011. He is Chairman of the Remuneration Committee and a member of the Nomination Committee.
Mr Mullen is the Managing Director and Chief Executive Officer of Asciano Ltd and has served in that role since 2011. He has worked for over two decades in a multitude of senior positions with different multinationals including 10 years with the TNT Group - two years of those as its Chief Operating Officer. From 1991 to 1994, he held the position of Chief Executive Officer of TNT Express Worldwide. Mr Mullen joined Deutsche Post World Net (DPWN) as an Advisor in 1994, becoming Chief Executive Officer of DHL Express Asia-Pacific in 2002 and Joint Chief Executive Officer, DHL Express, in 2005. Mr Mullen was Global Chief Executive Officer, DHL Express, from 2006 to 2009.

Other listed company directorships in the past three years:
Director, Asciano Ltd (from 2011), Brambles Limited (2009-2011), Embarq Corporation USA (2006-2009) and MAp Airports Limited (2010-2011).

Other directorships/appointments:
Member, Australian Graduate School of Management (from 2005).

board-of-directors-nora

Nora L Scheinkestel
LLB(Hons), PhD, FAICD
Dr Scheinkestel has been a non-executive Director since August 2010 and was last re-elected in 2013. She is Chairman of the Audit & Risk Committee.
Dr Scheinkestel is an experienced company director with a background as a senior banking executive in international and project financing. She currently consults to government, corporate and institutional clients in areas such as corporate governance, strategy and finance. She is also an Associate Professor in the Melbourne Business School at Melbourne University and is a member of the Takeovers Panel. Dr Scheinkestel has held a number of roles in the utility sector, including Chairman and non-executive director of Victorian and national water and energy companies. She has also served on a range of public and private sector boards including, more recently, AMP Limited and its funds management and banking subsidiaries, Mayne Group Limited and Mayne Pharma Limited, Medical Benefits Fund of Australia Ltd, Newcrest Mining Limited and North Limited. In 2003, Dr Scheinkestel was awarded a centenary medal for services to Australian society in business leadership.

Other listed company directorships in the past three years:
Director, Insurance Australia Group Limited (from 2013), Orica Limited (from 2006), Pacific Brands Limited (2009- 2013) and AMP Limited (2003-2013).

board-of-directors-margaret

Margaret L Seale
BA, FAICD
Ms Seale was appointed as a non-executive Director in May 2012 and subsequently elected in October 2012. She is a member of the Audit & Risk Committee.
Ms Seale has over 20 years experience in senior executive roles in Australia and overseas, including in global publishing and the transition of traditional business models to adapt and thrive in a digital environment, as well as sales and marketing. Most recently she was Managing Director of Random House, Australia (with managerial responsibility for Random House New Zealand) and President, Asia Development for Random House Inc, the global company. Previously, she was Chief Executive Officer for The Macquarie Dictionary and Lansdowne Publishing, from 1997 to 1999. Ms Seale was the Chief Executive Officer of the Juvenile Diabetes Research Foundation from 1994 to 1997. She also served on the boards of the Australian Publishers Association and the Powerhouse Museum, and on the Council of Chief Executive Women, chairing its Scholarship Committee from 2011 to 2012.

Other listed company directorships in the past three years:
Director, Bank of Queensland Limited (from 2014).

Other directorships/appointments:
Director, Random House Australia, New Zealand (from 2001) .

board-of-directors-steven

Steven M Vamos
BEng (Hons)
Mr Vamos joined the Telstra Board as a non-executive Director in September 2009 and was last re-elected in 2012. He is a member of the Nomination Committee and the Remuneration Committee.
Mr Vamos has over 30 years experience in the information technology, internet and online media industry. He led Microsoft Australia and New Zealand from 2003 to January 2007 before moving to the United States to become the company’s online business head of worldwide sales and international operations. Previously, he was Chief Executive Officer of ninemsn. Mr Vamos also worked for Apple Computer in the 1990s after spending 14 years in senior management roles at IBM Australia. He is the founding President of the Society for Knowledge Economics (SKE), a notfor- profit think tank that encourages new and better practices in leadership and management.

Other listed company directorships in the past three years:
Director, David Jones (2012-2014).

Other directorships/appointments:
President, Society for Knowledge Economics (from 2005); Director, Reading Room, Inc (from 2013), BDB Soti Pty Ltd (from 2012) and eGeneration Investments Pty Limited (from 1999).

Senior Management Team

senior-management-team-david-i-thodey

David I Thodey
Chief Executive Officer

Mr Thodey became Chief Executive Officer in May 2009.

senior-management-team-gordon-ballantyne

Gordon Ballantyne
Group Executive,
Telstra Retail

Telstra Retail brings together Telstra’s core domestic activities, covering consumer, business, sales and marketing, fixed and mobiles, our National Broadband Network and media products, and our eHealth function.

senior-management-team-timothy-chen

Timothy Chen
President,
Telstra International

Mr Chen’s role is focussed on key relationships and identifying significant growth opportunities throughout Asia, with a particular emphasis on Greater China.

senior-management-team-tracey-gavegan

Tracey Gavegan
Group Executive,
Human Resources

Human Resources is responsible for organisational effectiveness and capability; talent, leadership and succession management; people and culture initiatives; health, safety and environment, workplace relations and all employment and remuneration policies and practices that work towards making Telstra a great place to work and its people a source of competitive advantage.

senior-management-team-stuart-lee

Stuart Lee
Group Executive,
Telstra Wholesale

Telstra Wholesale is responsible for the provision of a wide range of products and services delivered over Telstra networks to non Telstra branded service providers and NBN Co. Telstra Wholesale also buys services from NBN Co and other carriers on behalf of the company.

senior-management-team-kate-mckenzie

Kate McKenzie
Chief Operations Officer,
Telstra Operations

Telstra Operations is responsible for the planning, design, engineering, construction, operation, maintenance and restoration of Telstra’s networks. The group is also responsible for information technology and the company’s innovation portfolio.

senior-management-team-carmel-mulhern

Carmel Mulhern
Group General Counsel,
Telstra Legal Services

Telstra Legal Services provides operational and strategic legal support and advice to the Board and across the company, including on corporate governance and compliance, contracts, consumer law, mergers and acquisitions, regulatory issues and dispute resolution.

senior-management-team-robert-nason

Robert Nason
Group Executive,
Business Support and Improvement

Business Support and Improvement is responsible for driving change that improves the customer experience and delivering Telstra-wide productivity improvements, as well as for credit management, billing and procurement.

 

senior-management-team-andrew-penn

Andrew Penn
Chief Financial Officer
and Group Executive, International

Finance and Strategy is responsible for corporate planning and strategy, accounting and administration, treasury, risk management and assurance, corporate security, investor relations, and mergers and acquisitions. International is responsible for development of Telstra operations and activities outside of Australia.

 

senior-management-team-brendon-biley

Brendon Riley
Group Executive,
Global Enterprise and Services

Global Enterprise and Services brings together a number of rapidly growing portfolio areas and operates as a global-scale, industry-based services and solutions business.

senior-management-team-tony-warren

Tony Warren
Group Executive,
Corporate Affairs

Corporate Affairs is responsible for Telstra’s communications, government relations, regulatory affairs, sustainability (including the Telstra Foundation) and negotiating changes to Telstra’s agreements with NBN Co and the Commonwealth as a result of changes to government policy.



Governance at Telstra

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 our people.

We regularly review our governance arrangements as well as developments in market practice, expectations and regulation. We have decided to early-adopt the third edition of the ASX Corporate Governance Principles and Recommendations and have reviewed and updated our governance and reporting practices to reflect this.

This section outlines some of the more significant aspects of governance at Telstra. Our full corporate governance statement is available on our website at www.telstra.com/governance. We discuss our approach to risk management and assurance at Telstra in the Strategy and Performance (Managing our risks) section of this Annual Report, and diversity and inclusion in the Sustainability (Our people) section.

 

 governance-at-telstra-shareholders

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 providing guidance on the standards of behaviour we expect of our people, to help us deliver on our purpose and achieve our strategy

Engaging with our Shareholders

We are committed to open, clear and timely communications with our shareholders and investors about matters affecting the value of their investment in Telstra. We also recognise the importance of meeting our continuous disclosure and other legal obligations to the market.

We value a direct, two-way dialogue with shareholders and investors. We believe it is important not only to provide relevant information as quickly and efficiently as possible, but also to listen to and understand their perspectives and respond to their feedback.

We have implemented a program to promote effective communication with our shareholders and investors, and to encourage participation at our shareholder meetings. We webcast important events such as our financial results briefings, our annual general meeting and other investor events discussing the performance and strategy for different parts of our business. We also host, around Australia, a series of retail shareholder information briefings with the CEO and/or CFO prior to our AGM.

The Board

The Board is responsible for managing Telstra’s business, and is accountable to shareholders in performing that role. The Board’s key responsibilities include approving our strategy and corporate plan and monitoring the implementation of our strategy and performance against the corporate plan. The Board also monitors and influences our culture, reputation, ethical standards and legal compliance.

Decision making authority on a number of significant matters is reserved to the Board. Outside of those areas, the CEO is responsible for the day today management of Telstra. The CEO, together with the senior management team, is responsible to the Board for the development and implementation of our strategy and the overall management and performance of our Company.

The Board actively seeks to ensure that it has an appropriate mix of diversity (including gender diversity), skills, experience and expertise to enable it to discharge its responsibilities effectively and to be well equipped to help our Company navigate the range of opportunities and challenges we face.

Our process for the selection, nomination and appointment of Directors involves a formal selection process undertaken by the Board, and an executive search firm is generally engaged to assist in the process. As part of this process, the Board establishes criteria about the general qualifications and experience, as well as the specific qualifications, that a candidate should possess. We also undertake appropriate checks on any potential candidates before a person is appointed by the Board or put forward to shareholders as a candidate for election as a Director.

A recommendation to re-elect a Director at the end of their term is not automatic. Before each AGM, the Board determines if it will recommend that shareholders vote in favour of the re-election of the Directors standing for re-election. This decision is made by the Board, having regard to the outcome of the annual Board performance review and any other matters it considers relevant.

The Board also recognises the important contribution that independent Directors make to good corporate governance. The Board intends that the CEO is the only executive Director and that all non-executive Directors should also be independent Directors. All Directors, whether independent or not, are required to act in the best interests of Telstra and to exercise unfettered and independent judgement.

There are currently ten Directors on the Board, comprising nine non-executive Directors and the CEO. With the exception of the CEO, all Directors are non-executive Directors and have been determined by the Board to be independent. Details of the Directors can be found in the Board of Directors section of this report.

During FY14, one new non-executive Director, Mr Chin Hu Lim, was appointed to the Board. The Board determined that it would benefit from additional deep experience in Asia, and in network applications. Following an extensive formal search process, Mr Lim was identified as a candidate with the required skills and experience. He was appointed to the Board in August 2013 and was elected by shareholders at our 2013 AGM.

Board Committees

There are three standing Committees that assist the Board in carrying out its responsibilities:

Audit & Risk Committee Remuneration Committee Nomination Committee
  • Monitors and advises on matters relating to financial reporting, risk management, compliance, external audit, internal control, internal audit, corporate governance and matters that may significantly impact the financial condition or affairs of the business
  • Oversees Telstra’s compliance with its Structural Separation Undertaking (SSU) and the activities of the Director of Equivalence
  • Oversees our relationship with our external auditor, Ernst & Young, including reviewing and assessing their performance, independence and objectivity
  • Provides a forum for communication between the Board, management and both the internal and external auditors
  • Provides a conduit to the Board for external advice on audit, risk management and compliance matters.
Monitors and advises on matters relating to:
  • remuneration of the Board, CEO and Company Secretary
  • performance and remuneration of senior management
  • remuneration strategies, practices and disclosures generally (including non-routine remuneration arrangements)
  • work health and safety
  • diversity (excluding Board diversity)
  • employee equity plans
  • management succession, capability and talent development.
Exercises the administrative powers delegated to it by the Board under Telstra’s equity plans.
Monitors and advises on matters relating to:
  • composition and performance of the Board, including Board diversity
  • Director independence
  • appointment of the CEO and succession planning for this role
  • CEO and Company Secretary performance
  • outside directorship requests from executives in relation to publicly listed companies or managers of listed managed investment schemes.
  • Only independent, non-executive Directors can serve on these Committees.
  • The Board appoints the members and the Chairman of each Committee.
  • Following each Committee meeting, the Board receives a report from that Committee on its deliberations,
    conclusions and recommendations.
Membership as at 30 June 2014

Nora Scheinkestel (Chairman)
Catherine Livingstone
Russell Higgins
Margaret Seale

John Mullen (Chairman)
Catherine Livingstone
Geoffrey Cousins
Steven Vamos

Catherine Livingstone (Chairman)
Geoffrey Cousins
John Mullen
Steven Vamos

 

 

governance-at-telstra-our-purposegovernance-at-telstra-our-strategygovernance-at-telstra-our-values

  


 

Acting Ethically and Responsibly

Our purpose is to create a brilliant connected future for everyone. Our Telstra Values, together with our Telstra Group Code of Conduct and policy framework, define the standards of behaviour we expect of our people and will help us deliver on our purpose and achieve our strategy.

Our Telstra Values

At Telstra, we have five core values.

1. Show you care
2. Better together
3. Trust each other to deliver
4. Make the complex simple
5. Find your courage

Our values express what we stand for and guide the way we do things. Our values are core to our business and we align everything we do with them.

Our Code of Conduct and Policy Framework

Our Code of Conduct and policy framework underpin our Telstra Values. Together they set out, in more detail, the standards of behaviour we expect of our people. They define our commitment to good corporate governance, responsible business practice, our customers, our workforce, the communities in which we operate and the environment. They also provide the structure through which we maintain compliance with our legal obligations.

Our governance framework includes elements that address the following key areas, which are central to how we promote ethical and responsible behaviour:

Our People and Our Community

Health and Safety – recognising our commitment to the health, safety and wellbeing of our staff, contractors and community. This highlights the importance of workplace health and safety and sets out the priority, accountability, measurement, and our commitment to compliance for health and safety at Telstra.

Diversity – setting out our strategy and principles in relation to diversity. This provides the framework for the establishment of our diversity measurable objectives, and monitoring and reporting on diversity matters across Telstra.

Discrimination and Bullying – aiming to ensure that we have a workplace free of all forms of unlawful discrimination, harassment, bullying and victimisation.

Sustainability – seeking to manage our business to produce an overall positive impact on our customers, employees, shareholders, the wider community and other stakeholders, while minimising our environmental impacts.

Our Customers

Privacy - setting out our commitment to the protection of our customers’ personal information. This outlines how we protect customer personal information, how and why we collect it, how we may use and disclose it, how we keep it secure and accurate, and how customers may access their personal information.

Good corporate governance and responsible business practice

Anti-Bribery and Anti-Corruption – aiming to ensure we comply with applicable anti-bribery and anti-corruption laws. We also seek to ensure that gifts, prizes and hospitality are not accepted in inappropriate circumstances, including where acceptance may (or may be perceived to) compromise independence or be construed as a bribe.

Conflicts of Interest and Outside Activities - assisting our employees and contractors to understand what we consider to be a conflict of interest and how to avoid actual, potential or apparent conflicts of interest.

Whistleblowing – providing an avenue for anyone to report suspected unethical, illegal or improper behaviour. Our whistleblowing process is supported by an independent service provider and all disclosures are treated confidentially and can be made anonymously.

Securities Trading – setting out the rules and restrictions relating to buying, selling and otherwise dealing in Telstra securities by our Directors, CEO, senior management, specified other employees and their closely related parties, through a trading windows approach.

Market Disclosure - outlining responsibilities and the process for the approval of our ASX announcements, including where Board approval is required, as well as the role of our CEO, CFO and Continuous Disclosure Committee in relation to disclosure matters. We aim to ensure that we provide our shareholders, investors and the financial community with appropriate and timely information while ensuring that we fulfil our statutory reporting obligations under the Corporations Act and the ASX Listing Rules.

Telstra's 3Rs of Social Media Engagement (Representation, Responsibility and Respect) – providing guidance to employees and contractors who use social media, either as part of their job or in a personal capacity, about our expectations when they talk online about us, our products and services, our people, our competitors and/or other business related individuals or organisations.

 

Directors' Report

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 2014. Financial comparisons used in this report are of results for the year ended 30 June 2014 compared with the year ended 30 June 2013.

The historical financial information included in this Directors’ Report has been extracted from the audited Financial Report of the Annual Report accompanying this Directors’ Report.

Principal activity

Our principal activity during the financial year was to provide telecommunications and information services for domestic and international customers. There has been no significant change in the nature of this activity during the year.

Review and results of operations

Information on the operations and financial position for the Telstra Group is set out in our Operating and Financial Review (OFR), consisting of Our Business, Key Highlights, Chairman and CEO Message, Strategy and Performance and Full Year Results and Operations Review.

Dividends

On 14 August 2014, the Directors resolved to pay a final fully franked dividend of 15.0 cents per ordinary share ($1,866 million), bringing dividends per share for financial year 2014 to 29.5 cents per share. The record date for the final dividend will be 29 August 2014, with payment being made on 26 September 2014. Shares will trade excluding entitlement to the dividend on 27 August 2014.

Dividends paid during the year were as follows:

Dividend Date
resolved
Date
paid
Fully
franked
dividend
per share
Total
dividend
($ million)
Final dividend for
the year ended
30 June 2013
8 Aug
2013
20 Sep
2013
14 cents 1,742
Interim dividend
for the year ended
30 June 2014
13 Feb
2014
28 Mar
2014
14.5 cents 1,803

Capital management

On 14 August 2014, our Board resolved to undertake an off market share buy-back of up to approximately $1 billion. The share buy-back will be available to eligible shareholders and implemented by way of a tender process and at a discount to market price. The shares bought back will be cancelled by the Company, reducing the number of shares the Company has on issue. The buy-back will be funded by accumulated cash surplus in the Company and will be made up of a capital and a dividend component. The dividend component will be fully franked and our estimate of the decrease in franking credits is $243 million, based on the assumption of Testra’s ASX listed share price of $5.30, buy-back discount of 10% and a non-resident shareholding of 21.8%.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of our company during the financial year ended 30 June 2014.

Business strategies, prospects and likely developments

The OFR sets out information on the business strategies and prospects for future financial years, and refers to likely developments in Telstra's operations and the expected results of those operations in future financial years (see Our Business, Key Highlights, Chairman and CEO Message, Strategy and Performance and Full Year Results and Operations Review). Information in the OFR is provided to enable shareholders to make informed assessment about the business strategies and prospects for future financial years of the Telstra Group. Detail that could give rise to likely material detriment to Telstra (for example, information that is commercially sensitive, is confidential or could give a third party a commercial advantage) has not been included. Other than the information set out in the OFR, information about other likely developments in Telstra's operations and the expected results of these operations in future financial years has not been included.

Events occurring after the end of the financial year

Apart from the final dividend for financial year 2014 and the share buy-back, the Directors are not aware of any matter or circumstance that has arisen since the end of the financial year, that, in their opinion, has significantly affected, or may significantly affect in future years, Telstra’s operations, the results of those operations or the state of Telstra’s affairs.

Details of Directors and executives

The only change to the Directors of Telstra Corporation Limited during the financial year and up to the date of this report was:

  • Chin Hu Lim was appointed as a non-executive Director effective 9 August 2013.

With effect from 15 August 2014 Peter Hearl will be appointed as a non-executive Director. Mr Hearl will stand for election at Telstra’s Annual General Meeting in Brisbane on 14 October 2014.

Information about our Directors and senior executives is provided as follows:

  • names of our current Directors and details of their qualifications, experience, special responsibilities and directorships of other listed companies are given in Board of Directors of this Annual Report
  • details of Director and senior executive remuneration are set out in the Remuneration Report and forms part of this Directors’ Report.

Details of Directors’ shareholdings in Telstra are shown in the table below.

Directors’ shareholdings in Telstra

As at 14 August 2014:

Director Number of shares held(1)
Catherine B Livingstone 160,000
David I Thodey 3,318,603
Geoffrey A Cousins 101,765
Russell A Higgins 88,404
Chin Hu Lim -
John P Mullen 26,159
Nora L Scheinkestel 71,765
Margaret L Seale 30,000
Steven M Vamos 40,000
John D Zeglis 103,993

 

(1) The number of shares held refers to shares held either directly or indirectly by Directors as at 14 August 2014. 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 (Table 5.8) for total shares held by Directors, representing those shares held directly, indirectly and beneficially as at 30 June 2014.

Board and Committee meeting attendance

Details of the number of meetings held by the Board and its Committees during financial year 2014, and attendance by Board members, are set out below:

  Board Committees (1)
  a     
 b     
Audit and Risk Nomination Remuneration
a b a b a b
C B Livingstone................................................... 14 14 6 6 7 7 6 6
D I Thodey........................................................... 14 14 - (6) - - - (6)
G A Cousins........................................................ 14 14 - - 7 7 6 6
R A Higgins......................................................... 14 14 6 6 - (6) - -
C H Lim (2)  ............................................................ 12 11 - - - (4) - -
J P Mullen........................................................... 14 14 - - 7 7 6 6
N L Scheinkestel................................................. 14 14 6 6 - (6) - -
M L Seale............................................................ 14 14 6 6 - (6) - -
S M Vamos.......................................................... 14 14 - (1) 7 6 6 5
J D Zeglis............................................................ 14 14 - (1) - (6) - -
               
Total number of meetings held during the year 14 6 7 6

 

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) Appointed as non-executive Director effective 9 August 2013.

Company Secretary

Damien Coleman B Ec, LLB (Hons), FCIS

Damien Coleman was appointed Company Secretary of Telstra Corporation Limited effective 1 January 2012.

Mr Coleman joined Telstra in 1998 and has served in senior legal roles across the company, including in Sensis, Mergers and Acquisitions and Telstra Operations. Most recently, he was General Counsel, Finance and Administration, Office of the Company Secretary and National Broadband Network (NBN). In that role he was responsible for Telstra’s continuous disclosure compliance and all legal aspects of the Annual Report preparation and Annual General Meeting, as well as annual financial results announcements. Mr Coleman also played a key role in the negotiation of the Definitive Agreements for Telstra’s participation in the roll out of the NBN. Before joining Telstra, Mr Coleman was a senior lawyer at a leading Australian law firm. He holds a Bachelor of Economics and a Bachelor of Laws (Hons) from the Australian National University.

Directors’ and officers’ indemnity

Constitution

Telstra’s constitution provides for it to indemnify each officer, to the maximum extent permitted by law, for any liability and legal costs incurred as an officer of Telstra or a related body corporate. If one of Telstra’s officers or employees is asked by Telstra to be a director or other officer of a company which is not related to it, Telstra’s constitution provides for it to indemnify the officer or employee for any liability he or she incurs. This indemnity applies only if the liability was incurred in the officer’s or employee’s capacity as an officer of that other company. This indemnity is to the maximum extent permitted by law, as if that liability had been incurred in the capacity as an officer of Telstra. Telstra’s constitution also allows it to indemnify employees and outside officers in some circumstances. The terms "officer", "employee" and "outside officer" are defined in Telstra’s constitution.

Deeds of indemnity in favour of directors, officers and employees

Telstra has also executed deeds of indemnity in favour of (amongst others):

  • Directors of Telstra (including past Directors)
  • secretaries and senior managers of Telstra, secretaries and senior managers of Telstra’s wholly owned subsidiaries (other than Telstra Super Pty Ltd)
  • directors, secretaries and senior managers of a related body corporate of Telstra (other than a wholly owned subsidiary) while the director, secretary or senior manager was also an employee of Telstra or a director or employee of a wholly owned subsidiary of Telstra (other than Telstra Super Pty Ltd)
  • the officers listed above (other than Telstra Directors) and certain employees of Telstra or a related body corporate of Telstra who are appointed as directors or secretaries of a company which is not a related body corporate of Telstra, at the request of Telstra
  • certain employees of non-wholly owned subsidiaries of Telstra who are appointed as directors of such non-wholly owned subsidiaries at the request of Telstra.

Each of these deeds provides an indemnity as permitted under Telstra’s constitution and the Corporations Act 2001. The term “senior manager” is defined in the Corporations Act 2001. The deeds in favour of Directors of Telstra also give Directors certain rights of access to Telstra’s books and require it to maintain insurance cover for the Directors.

Additionally, Telstra has executed an indemnity in favour of employees (including officers other than Directors) in respect of certain liabilities incurred in the formulation of, or entering into or carrying out, of a Telstra Sale Scheme (as defined in the Telstra Corporation Act 1991 (Cth)). This indemnity is provided as permitted under Telstra’s constitution and the Corporations Act 2001. Although all Telstra Sale Schemes conducted by the Commonwealth Government have been completed, the indemnity will remain in place while it is possible for claims to arise under a Telstra Sale Scheme.

Telstra has also executed a deed of indemnity in favour of certain employees (including certain officers) in respect of liabilities and legal costs that may be incurred as part of the NBN transaction. The indemnity is to the maximum extent permitted by law and is subject to the employee performing his or her duties, such as acting in good faith and complying with all applicable laws.

Directors’ and officers’ insurance

Telstra maintains directors' and officers' insurance policies that, subject to some exceptions, provide worldwide insurance cover to past, present and future directors, secretaries and officers and certain employees of Telstra and its subsidiaries. Telstra has paid the premiums for the policies. The directors' and officers' insurance policies prohibit disclosure of the premiums payable under the policies and the nature of the liabilities insured.

Environmental regulation and performance

Information on Telstra's environmental and sustainability performance is included in the Sustainability section of this Annual Report and on the Telstra website.

Telstra, as a minimum, seeks to be compliant with all applicable environmental laws and regulatory permissions 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 procedures further require that the relevant governmental authorities are notified of any environmental incidents (where applicable) in compliance with statutory requirements.

Telstra has not been prosecuted for, or convicted of, any significant breaches of environmental regulation during the financial year. During 2013, Telstra received several prohibition and improvement notices from Comcare in relation to issues arising from Telstra's management of asbestos after a number of incidents involving subcontractors failing to meet Telstra's minimum standards. In response, we implemented improvements to our asbestos management procedures, including requiring all contractors to complete new training before they can work on our network, the appointment of additional supervisors to monitor worksites, and co-operating with Comcare in its investigation into the matter, which investigation is now closed.

In Australia, Telstra is subject to the reporting requirements of both the Energy Efficiency Opportunities Act 2006 and the National Greenhouse and Energy Reporting Act 2007.

The National Greenhouse and Energy Reporting Act 2007 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 2014 and will again be supported with an independent assurance audit to a reasonable assurance standard.

The Energy Efficiency Opportunities Act 2006 requires Telstra to assess its energy usage in Australia, including the identification, investigation and evaluation of energy-saving opportunities, and to report publicly the outcomes of all implementation decisions. Telstra completed its first five year cycle in 2011, and has transitioned into the second five year cycle with the Assessment and Reporting Schedule approved in June 2013. Telstra's 2013 Energy Efficiency Opportunities Report was made available to the public in December 2013 and is available on our website.

Non-audit services

During financial year 2014, 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 8 to the financial statements.

The Directors are satisfied that the provision of non-audit services during financial year 2014 is consistent with the general standard of independence for auditors imposed by the Corporations Act 2001 (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 recurring audit engagements are approved by the Audit and Risk Committee each year through the Audit and Risk Committee’s approval of the annual audit plan
  • additional audit and non-audit services up to $100,000 require approval from the Chief Financial Officer
  • additional audit and non-audit services between $100,000 and $250,000 require approval from the Chairman of the Audit and Risk Committee and services greater than $250,000 require approval from the Audit and Risk Committee
  • where the nature or scope of an external engagement changes such that the prior approval obtained is insufficient, subsequent approval from the Chief Financial Officer must be obtained for the revised engagement as shown in the table below. Where the change is not covered in the following table, approval of the revised engagement must be obtained in accordance with the approval levels described above.

 

Type of Service Type of Change
Additional audit work related
to the half-year review and full
year audit
Scope and / or fee variations
Other audit services Scope increases of up to 10 per
cent in total of the pre-approved
fee
Other assurance services Scope increases of up to 10 per
cent in total of the pre-approved
fee

 

  • all additional engagements approved as per the above points are reported to the Audit and Risk Committee at the next meeting
  • fees earned from non-audit work undertaken by EY are capped at 1.0 times the total audit and audit related fees
  • the provision of non-audit services by EY is monitored by the Audit and Risk Committee via periodic reporting to the Audit and Risk Committee.

EY is specifically prohibited from performing any of the following services:

  • bookkeeping services and other services related to preparing our accounting records or financial statements
  • financial information system design and implementation services
  • operation or supervision of IT systems
  • appraisal or valuation services, fairness opinions or contribution in kind reports
  • actuarial services
  • internal audit services
  • management or human resources functions, including the provision of advice and benchmarking services in relation to executive remuneration
  • temporary staff assignments
  • broker or dealer, investment advisor or investment banking services
  • legal services or expert services unrelated to the audit
  • tax planning and strategy services
  • receiver/liquidation services.

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.



REMUNERATION REPORT

 

This report sets out the remuneration arrangements for Directors and other Key Management Personnel (KMP) of the Telstra Group for the year ended 30 June 2014 (FY14), and is prepared in accordance with section 300A of the Corporations Act 2001(Corporations Act). The information in this report has been audited as required by section 308(3C) of the Corporations Act.

The report is presented in five sections:

Section   What it covers
1. Remuneration Snapshot   
1.1 Key points Provides a summary of the remuneration outcomes for FY14.
1.2 Changes in FY14 Details the key remuneration changes in FY14.
1.3 Key Management Personnel Lists the names and roles of the KMP whose remuneration details are disclosed in this report.
1.4 Actual pay and benefits which crystallised in FY14 Lists the actual crystallised pay and benefits received by Senior Executives in FY14.
1.5 Looking forward Provides an overview of remuneration changes proposed for FY15.
2. Setting Senior Executive Remuneration   
2.1 Remuneration policy, strategy and governance Explains Telstra’s remuneration policy and strategy, and how the Board and Remuneration Committee make decisions, including the use  of external consultants.
2.2 Remuneration components Shows how executive remuneration is structured to support business objectives and how it aligns with company performance, and explains the FY14 Short Term Incentive (STI) Plan and Long Term Incentive (LTI) grants made in FY14.
2.3 Policy and practice Provides examples of how we implement our policy in practice, explaining the executive remuneration mix as well as our shareholding, trading and hedging policies.
3. Executive Remuneration Outcomes   
3.1 Financial performance Provides a breakdown of our performance, share price, and dividends over the past five years.
3.2 Short Term incentive outcomes Details the STI outcomes, including payments as a percentage of the maximum opportunity, achievement by key performance indicators (KPI) and a comparison of payments to the previous year.
3.3 Long Term incentive outcomes Details the LTI outcomes for plans with a performance test at 30 June 2014
3.4 Senior Executive contract details Lists the key contract terms governing the employment of Senior Executives (including termination entitlements where relevant).
4. Non-executive Director Remuneration   
4.1 Remuneration structure Provides details of the fee structure for Board and Committee roles.
4.2 Remuneration policy and strategy Provides a summary of our approach to non-executive Director fees, together with a summary of our shareholding guidelines for non-executive Directors.
4.3 Remuneration components Describes how non-executive Directors can allocate their remuneration between cash and superannuation components.
5. Remuneration Tables and Glossary   
5.1 – 5.8 Remuneration Tables Provides the remuneration disclosures required by the Corporations Act and the relevant Australian Accounting Standards.
5.9 Glossary Explains abbreviations and key terms used in the Report.

1. REMUNERATION SNAPSHOT

1.1 Key points

Telstra performed strongly again in FY14, delivering growth in financial results and achieving a Total Shareholder Return (TSR) of approximately 15.2 per cent, following two consecutive years with TSR growth of approximately 37%. These results were underpinned by progress against our key strategic priorities, including continued growth in customer numbers and improvements in customer service and productivity, and serve to reinforce Telstra’s position as a leading telecommunications and technology company.

Remuneration outcomes in FY14 were consistent with the company’s positive performance against financial objectives and although we did not achieve the customer advocacy targets we set, we still improved in a number of areas. The governance of these outcomes remains a key focus of the Board and Remuneration Committee, and we regularly review our policies to ensure that remuneration for our executives continues to be aligned with company performance.

The structure and layout of this year’s report is similar to the FY13 report.

Highlights for the FY14 year include:

Total Shareholder Return of 15.2% Telstra’s share price continued to rise in FY14, and with a full year dividend payment of 28.5c we delivered a total shareholder return of 15.2 per cent over the financial year.
Chief Executive Officer (CEO)
Remuneration
The CEO’s Fixed Remuneration (FR) was not increased during FY14 as his Fixed Remuneration of $2,650,000 is close to the median of the ASX20 CEO positions. Total reported remuneration for the CEO in Table 5.1 decreased from $8.8m to $8.2m, primarily due to a lower STI outcome in FY14.
Short Term Incentive Outcomes The STI outcome for Senior Executives was an average of 53.6 per cent of the maximum opportunity based on the assessment of financial, customer and individual performance. This outcome reflects Telstra’s strong financial performance but also that we did not achieve our customer advocacy targets.
Long Term Incentive Outcomes For the FY12 LTI Plan, 78.15 per cent of Performance Rights vested in the form of Restricted shares as a result of top quartile performance in TSR relative to a peer group of global competitors and above target performance on Free Cashflow Return On Investment (FCF ROI) measured over the three year performance period. These shares are subject to a further Restriction Period ending August 2015.
Non-executive Director
Remuneration
There was no increase in Board or Committee fees in FY14.

 

1.2 Changes during FY14

The overall structure and philosophy of Telstra’s approach to remuneration remained consistent throughout FY14, however there were some changes to the organisation structure and Senior Executive roles. We made some position title changes during the year, a number of roles that were previously referred to as Group Managing Directors (GMD) are now Group Executives (GE). We have also made some adjustments to aspects of our remuneration framework and practices to further align with company strategy and enhance remuneration governance. These changes were:

Structural changes

GE Global Enterprise & Services (GES): Brendon Riley was appointed as GE on 28 October 2013 of a newly created business unit that operates a global, industry-based services and solutions business to support the rapid growth in key portfolio areas in the global market that is part of Telstra’s strategy. This business unit incorporates Network Applications and Services (NAS), Telstra Enterprise and Government (TEG) and Telstra Global (TG).

Chief Operations Officer (COO): Kate McKenzie was appointed as COO on 28 October 2013. The COO portfolio now includes the Chief Technology Office and innovation portfolios to better integrate technology development and implementation. Telstra Operations will lead Telstra’s ongoing technical excellence across fixed and mobile networks. As a result of Ms McKenzie’s appointment, her fixed remuneration was increased from $1,040,000 to $1,200,000 effective 1 March 2014 to reflect the increase in scope.

GE Telstra Retail: Gordon Ballantyne’s position of Chief Customer Officer (CCO) changed to GE Telstra Retail effective 28 October 2013. His portfolio no longer contains TEG but incorporates the Products, Marketing and Media portfolios.

Chief Financial Officer (CFO) and GE International: Andrew Penn’s portfolio was expanded effective 7 May 2014 to assume responsibility for our International operations to further support Telstra’s strategy for growth in Asia.

Sale of the Sensis advertising and directories business: following the completion of the sale of our 70 per cent interest in the Sensis advertising and directories business to Platinum Equity Group, the responsibilities of the GE Telstra Media were significantly reduced and the role is no longer part of our structure. Rick Ellis left Telstra on completion of the sale as the role became redundant.

Remuneration Policy enhancements

Diversity and values: the Board reviewed Telstra’s remuneration philosophy and principles to ensure they remained aligned to our strategy and our values. We decided to include a principle that specifically highlights diversity and acknowledges Telstra’s commitment to providing equitable and fair pay. Section 2.1 provides detail on Telstra’s Remuneration Policy, Strategy and Governance.

Clawback mechanisms: clawback provisions have been included in the terms for LTI grants with effect from FY14 to provide the Board with discretion to clawback Performance Rights or Restricted Shares if a clawback event occurs. These mechanisms are now consistent with the STI Deferral Plan. The scenarios in which the Board could consider applying a clawback mechanism have also been broadened to include where the behaviour of a Senior Executive brings Telstra into disrepute or may impact on Telstra’s long term financial strength.

LTI and STI Restricted Shares: grants are now structured so that the Restriction Periods end on 30 June to better align with disclosure of executive remuneration outcomes for the relevant performance periods.

CEO LTI allocation: we sought and obtained shareholder approval for David Thodey’s FY14 LTI allocation at our 2013 AGM and intend to continue this practice.

1.3 Key Management Personnel

KMP comprise the Directors of the company and Senior Executives. The term “Senior Executives” refers to the CEO and those executives with authority and responsibility for planning, directing and controlling the activities of the Company and the Group, directly or indirectly. Our Senior Executive KMP group has not changed from FY13, but during the year some of their respective portfolios were reallocated as discussed in section 1.2.

The Senior Executives disclosed in this report are:

Name and Most Recent KMP title Prior positions held in FY14
David Thodey,
CEO
-

Gordon Ballantyne
GE Telstra Retail
from 28 October 2013

CCO until 27 Oct 2013

Stuart Lee
GE Telstra Wholesale
-
Kate McKenzie
COO from 28 October 2013
GMD TIPM until 27 Oct 2013
Robert Nason
GE Business Support and 
Improvement
-
Andrew Penn
CFO and from 7 May 2014, CFO and
GE International

-

Brendon Riley
GE Global Enterprise and Services
from 28 October 2013
COO until 27 Oct 2013
Rick Ellis
GE Telstra Media (to 31 March
2014)
-

 

1.4 Actual pay and benefits which crystallised in FY14

The table in this section details actual pay and benefits for Senior Executives who were employed as at 30 June 2014. This is a voluntary disclosure and we have continued to include this table in our Remuneration Report. We believe it is helpful to assist shareholders in understanding the cash and other benefits actually received by Senior Executives (from the various components of their remuneration) during FY14.

As a general principle, the Australian Accounting Standards require the value of share based payments to be calculated at the time of grant and accrued over the performance period and Restriction Period. This may not reflect what Senior Executives actually receive or become entitled to during FY14.

Some of the figures in this table have not been prepared in accordance with the Australian Accounting Standards. Those figures are indicated by an asterisk (*) in the table header. They provide additional and different disclosures to Table 5.1 (which provides a breakdown of Senior Executive remuneration in accordance with statutory obligations and the Australian Accounting Standards).

The amounts shown in this table include Fixed Remuneration, STI payable as cash under the FY14 STI Plan, as well as any restricted STI or LTI that has been earned as a result of performance in previous financial years but was subject to a Restriction Period during FY14 ending June 2014 or August 2014.

We believe that including amounts in this table, even though they may not be paid (or the relevant Restriction Period for equity may not end) until early FY15, is an effective way of showing the link between executive remuneration outcomes and the relevant performance year. It is also consistent with changes we have made to the structure of STI Deferral and LTI plans from FY14 so that the Restriction Period ends on 30 June to better align disclosure of executive remuneration outcomes with the relevant performance periods.

Our sustained share price growth over the past three years has driven much of the value in the table below. Telstra uses the volume weighted average share price (VWAP) of Telstra shares for the five days following the annual results announcements for calculating the number of Performance Rights and Restricted Shares to be allocated. The VWAP value for the FY11 LTI Plan was $2.95 and the Telstra share price as at 30 June 2014 was $5.21. This increase of 76.6 per cent is reflected in the value of the equity that became unrestricted, demonstrating the link between executive remuneration and shareholder returns.

Name Fixed
Remuneration
($) (1)
Non-monetary
benefits ($)
(2)
Short Term Incentive
payable as cash ($)
(3)
Value of STI
Restricted Shares
that became
unrestricted ($)
(4) *
$ Value of LTI that
became
unrestricted($)
(5) (6) (7) (8) *
FY14 Total ($) *
David Thodey 2,650,000 8,286 2,112,713 1,000,432 7,064,406 12,835,837
Gordon Ballantyne 1,324,795 57,754 1,005,413 490,756 4,579,548 7,458,266
Stuart Lee 1,029,918 12,452 930,150 305,230 1,621,289 3,899,039
Kate McKenzie 1,083,397 11,557 956,700 381,145 1,576,254 4,009,053
Robert Nason 1,072,438 17,544 804,330 407,495 1,531,219 3,833,026
Andrew Penn 1,437,397 6,480 1,156,013 372,442 251,383 3,223,715
Brendon Riley 1,337,397 8,172 754,059 498,930 - 2,598,558

 
(1) The sum of Salary and Fees and Superannuation as detailed in Table 5.1.

(2) Includes the value of personal home security services provided by Telstra, provision of car parking and in the case of Gordon Ballantyne, return flight benefits to the United Kingdom as per the terms of his service agreement.

(3) Amount relates to the cash component (75 per cent) of STI earned for FY14, which will be paid in September 2014. The remaining 25 per cent will be provided as Restricted Shares. The Restriction Period for half of the shares will end on 30 June 2015 and the other half on 30 June 2016.

(4) Amount relates to the value of STI earned in prior financial years which was provided as Restricted Shares and the Restriction Period in respect of which ends on 30 June 2014 (in relation to FY13 awards) or in August 2014 (in relation to FY12 awards). These represent 50 per cent of the Restricted Shares relating to the FY12 and FY13 performance periods respectively. Equity has been valued based on the Telstra closing share price on 30 June 2014 of $5.21.

(5) Amount relates to Performance Rights with a final test date of 30 June 2013 which vested as Restricted Shares under the FY11 LTI Plan and the Restriction Period in respect of which ends in August 2014. Equity has been valued based on the Telstra closing share price on 30 June 2014 of $5.21. Table 5.1 displays the value of Equity Settled Share-based Payments in accordance with the Australian Accounting Standards.

(6) As disclosed in the 2013 Remuneration Report, the LTI cash value of $4,579,548 for Gordon Ballantyne was for the FY11 LTI Plan where stretch levels of FCF ROI and RTSR were achieved in FY13. Payment was made on 30 June 2014. Due to Gordon Ballantyne’s original engagement on a fixed term contract, his maximum opportunity for the FY11 LTI Plan included amounts representing the pro rata value of the maximum opportunity under the FY12 and FY13 LTI Plans. He received no Performance Rights under the FY12 and FY13 LTI Plans.

(7) The LTI value for Andrew Penn represents 48,250 shares vesting on 14 December 2013 from his total allocation of 96,500 Performance Shares. Equity has been valued based on theTelstra closing share price on 30 June 2014 of $5.21. Andrew Penn did not participate in the FY11 LTI Plan as he had not commenced at Telstra at the date of allocation.

(8) Brendon Riley did not participate in the FY11 LTI Plan as he had not commenced with Telstra at the date of allocation.

1.5 Looking forward

For FY15, no changes are anticipated in our approach to Senior Executive remuneration. There will be no changes to the STI and LTI opportunities as a percentage of Fixed Remuneration for the CEO and Senior Executives.

The Board also determined that there will be no Fixed Remuneration increase for the CEO as he is appropriately positioned against the market and performance is being rewarded through the STI and LTI plans.

2. SETTING SENIOR EXECUTIVE REMUNERATION

2.1 Remuneration policy, strategy and governance

Our remuneration policy is designed to:

  • support the business strategy and reinforce our culture and values
  • link financial rewards directly to employee contributions and company performance
  • provide market competitive remuneration to attract, motivate and retain highly skilled employees
  • achieve remuneration outcomes of internal consistency to ensure employees performing at similar levels in similar roles are remunerated within a broadly similar range
  • ensure that all reward decisions are made free from bias and support diversity within Telstra
  • obtain outcomes that reflect commercially responsible pay decisions.

Our governance framework for determining Senior Executive remuneration includes the aspects outlined below.

The Remuneration Committee

The Remuneration Committee monitors and advises the Board on remuneration matters, and consists only of independent non-executive Directors. It assists the Board in its responsibilities by monitoring and advising on Board, CEO and Senior Executive remuneration, giving due consideration to the law and corporate governance principles.

The Remuneration Committee also reviews and makes recommendations to the Board on Telstra’s overall remuneration strategy, policies and practices, and monitors the effectiveness of Telstra’s overall remuneration framework in achieving Telstra’s remuneration strategy.

Annual remuneration review

The Remuneration Committee reviews CEO and Senior Executive remuneration packages annually to ensure there is a balance between fixed and at risk pay, and that they reflect both short and long-term performance objectives aligned to Telstra’s strategy.

The Board reviews the CEO’s remuneration based on market practice, performance against agreed measures and other relevant factors, while the CEO undertakes a similar exercise in relation to Senior Executives. The results of the CEO's annual review of Senior Executives performance and remuneration are reviewed and subject to Board approval.

Incentive design and performance assessment

The Remuneration Committee oversees the process of setting robust performance measures and targets that encourage strong Senior Executive performance and ethical behaviour. STI and LTI performance measures are set at the beginning of each year. If performance targets are achieved we pay 50 per cent of the total maximum potential. The maximum level is only paid if there is significant over achievement of annual targets. There will be no payment unless a threshold level of performance is achieved. At the end of each financial year, the Board reviews the company’s audited financial results and the results of the other non-financial measures. The Board then assesses performance against each measure to determine the percentage outcome of the STI and LTI plans. The Board considers that it is best positioned to assess whether the applicable measures have been met.

Each performance measure in the STI Plan, and over the longer term, LTI plan, has been selected in the context of achieving our business strategy and increasing shareholder value.

Engagement with consultants

External consultants are required to engage directly with the Remuneration Committee Chairman as the first point of contact whenever market data for Senior Executive positions is supplied to Telstra. To assess market competitiveness in FY14, the Committee engaged Guerdon Associates for the provision of ASX20 market data but did not require a remuneration recommendation. As a result, no disclosures are required under the Corporations Act.

2.2 Remuneration components

Our remuneration structure (detailed below) is designed to support our remuneration strategy and is consistent between the CEO and other Senior Executives in the KMP group. Some tailoring may occur to take into account unique circumstances of an individual role. Where this has occurred, we have specifically disclosed it in this Report.

Attract, motivate and retain highly skilled people Reinforce values and cultural priorities Reward achievement of financial and strategic objectives Align to long term shareholder value creation
FIXED

AT RISK

Fixed Remuneration Short Term Incentive Long Term Incentive
CASH EQUITY
  • Base salary plus superannuation.
  • Set based on market and internal relativities, performance, qualifications and experience.
  • 75% of STI outcome paid in September after the financial year end.
  • STI outcome based on Telstra's financial, customer and individual performance.
  • 25% of the STI outcome is deferred as Restricted Shares.
  • Half of the shares are restricted for 1 year and the other half for 2 years.
  • The shares are subject to clawback at the Board's discretion. The shares are forfeited if employment ends unless for a Permitted Reason (STI).
  • Performance Rights subject to performance conditions.
  • 50% subject to RTSR.
  • 50% subject to FCF ROI.
  • Performance is measured over 3 years with an additional 1 year Restriction Period.
  • Performance Rights are subject to clawback at the Board's discretion and lapse if employment ends unless for a Permitted Reason (LTI).
Base reward market competitive Encourages sustainable performance in the medium to longer term and provides a retention element.

Section 2.2 provides a summary of the STI plan and LTI plan structures including clawback provisions. Section 2.3 summarises the percentage mix of fixed and at-risk components.

2.2.1 FY14 STI Plan

For FY14, all of our Senior Executives participated in the same STI Plan with the exception of the GE Telstra Wholesale (for regulatory reasons as explained below). The performance measures of this Plan were Free Cashflow, EBITDA, Total Income, Net Promoter Score (NPS) and individual performance objectives. The Board selected these performance measures as it believes they are a critical link between achieving the outcomes of Telstra’s business strategy and increasing shareholder value. In relation to these performance measures:

  • the financial measures were set in accordance with our FY14 financial plan and strategy
  • the NPS supports the shift in Telstra’s strategy from the goal of delivering outstanding customer satisfaction to creating customer advocates. An explanation of the way in which NPS is calculated is included in section 3.2.2
  • the individual performance objectives were set at the beginning of FY14 and were based on each Senior Executive’s expected individual contribution to the achievement of our strategy.

The performance measures of the STI plan operate independently of each other. Each measure has a threshold, target and stretch level of performance. Where threshold performance is not achieved, there is no payment for that component of the incentive. Depending on the role they perform, each Senior Executive has a maximum STI opportunity ranging from 150 per cent to 200 per cent of their Fixed Remuneration where stretch targets are met.

A Senior Executive will earn an STI payment of 50 per cent of the maximum opportunity if performance targets are achieved but not exceeded.

The FY14 STI Plan for the GE Telstra Wholesale must comply with the Structural Separation Undertaking (SSU) as part of the NBN Transaction. This provides that the GE Telstra Wholesale may only participate in incentive plans that reflect solely the objectives and performance of the Wholesale business unit. As a result, the performance measures applicable to his FY14 STI Plan were different. The performance measures for the FY14 STI Plan applicable to the GE Telstra Wholesale were Wholesale Total Income, Wholesale EBITDA, Wholesale NPS and individual performance.

Details of the STI outcomes for Senior Executives for FY14 are provided in section 3.2.

2.2.2 STI deferral

Twenty five per cent of Senior Executives’ actual STI payment is provided as Restricted Shares. Half of the shares are restricted for one year and the other half are restricted for two years.

During the Restriction Period, Senior Executives are entitled to earn dividends on and vote on their Restricted Shares as all performance hurdles of the STI Plan have been met. They are, however, restricted from dealing with the shares during this period.

If a Senior Executive leaves Telstra for any reason, other than a Permitted Reason (STI), before the end of the relevant Restriction Period, the Restricted Shares are forfeited.

Restricted Shares may also be forfeited if a clawback event occurs during the Restriction Period. A clawback event includes circumstances where a Senior Executive has engaged in fraud, dishonesty or gross misconduct, or where the financial results that led to the Restricted Shares being granted are subsequently shown to be materially misstated, and also situations where the behaviour of a Senior Executive brings Telstra into disrepute or may impact on Telstra’s long term financial strength.

2.2.3 FY14 LTI Plan

Participation

All of our Senior Executives participated in the same FY14 LTI Plan, with the exception of the GE Telstra Wholesale (as explained below).

Performance Rights form the basis of the reward under the LTI plan. Senior Executives are not required to pay for the Performance Rights. However, for any Performance Rights to vest as Restricted Shares, a minimum threshold performance against the relevant measure must be satisfied.

The LTI plan has two separate performance measures, being Relative Total Shareholder Return (RTSR) and Free Cashflow Return On Investment (FCF ROI).

Details of the Performance Rights granted to Senior Executives in relation to the FY14 LTI Plan are provided in section 5.

Plan structure

Plan component Detail
Performance Measure
Weighting
50% to RTSR
50% to FCF ROI
Performance Period 1 July 2013 to
30 June 2016
RestrictionPeriod End Date 30 June 2017
Minimum Threshold for RTSR
Vesting
50th percentile of peer group
RTSR Vesting Schedule 25% vests at 50th percentile,
straight-line vesting to 75th
percentile where 100% vests
Minimum Threshold for FCF
ROI Vesting
15.10%
FCF ROI Vesting Schedule 50% vests at target of 15.1%,
straight line vesting to stretch of
16.7% where 100% vests
Retesting No


Relative Total Shareholder Return

RTSR measures the performance of an ordinary Telstra share (including the value of any cash dividends and other shareholder benefits paid during the period) relative to the other companies in the comparator group over the same period.

The Board believes that RTSR is an appropriate performance hurdle because it links executive reward to Telstra’s share price performance relative to its global peers.

The comparator group for the FY14 LTI Plan included the following large market capitalisation telecommunication firms: AT&T Inc; Belgacom Group; Bell Canada Enterprises Inc; BT Group plc; Deutsche Telekom AG; Orange SA; Koninklijke KPN N.V.; KT Corporation; Nippon Telegraph & Telephone Corp; NTT DoCoMo Inc; Portugal Telecom SGPS SA; Singapore Telecommunications Ltd; SK Telecom Co Ltd; Sprint Nextel Corporation; Swisscom AG; Telekom Austria AG; Telecom Italia Sp.A.; Telecom Corporation of New Zealand Ltd; Telefonica S.A.; Telenor ASA; TeliaSonera AB; Verizon Communications Inc and Vodafone Group Plc.

The Board has discretion to change members of the comparator group under the LTI plan terms.

No amendments were made to the comparator group in FY14.

Free Cashflow Return On Investment

FCF ROI as determined by the Board is calculated by dividing the average annual Free Cashflow (less finance costs) over the three year performance period by Telstra’s average investment over the same period.

The Board selected the FCF ROI measure as an absolute LTI target on the basis that cash generation by the business is central to the creation of shareholder value.

Vesting of Performance Rights as Restricted Shares

At the end of FY16, the Board will review Telstra’s audited financial results for FCF ROI and RTSR to determine the percentage of Performance Rights that vest as Restricted Shares under the FY14 LTI Plan.

Until the Performance Rights vest as Restricted Shares, a Senior Executive has no legal or beneficial interest in Telstra shares, no entitlement to receive dividends and no voting rights in relation to any securities granted under the FY14 LTI Plan.

If a Senior Executive leaves Telstra for any reason other than a Permitted Reason (LTI), any unvested Performance Rights lapse. If they leave Telstra for a Permitted Reason (LTI), a pro rata number of Performance Rights will lapse based on the proportion of time remaining until 30 June 2017. The pro rata portion relating to the Senior Executive’s completed service may still vest as Restricted Shares subject to achieving the performance measures of the FY14 LTI Plan at the end of the applicable performance period. The Board has a discretion to determine that any unvested Performance Rights do not lapse on cessation of employment and continue to be eligible to vest in accordance with their terms.

In certain limited circumstances, such as a takeover event where 50 per cent or more of all issued fully paid shares are acquired, the Board may exercise discretion to vest Performance Rights that have not lapsed as Restricted Shares.

Any Restricted Shares that are allocated based on the vesting of Performance Rights are subject to a Restriction Period expiring on 30 June 2017. If a Senior Executive leaves Telstra for any reason other than a Permitted Reason (LTI) before the end of the Restriction Period, the Restricted Shares are forfeited, unless the Board exercises its discretion to determine otherwise.

The Performance Rights may lapse and Restricted Shares may be forfeited if a clawback event occurs during the performance period or Restriction Period. A clawback event includes circumstances where a Senior Executive has engaged in fraud, dishonesty or gross misconduct, or where the financial results that led to the equity being awarded are subsequently shown to be materially misstated and also where the behaviour of a Senior Executive brings Telstra into disrepute or may impact on Telstra’s long term financial strength.

The Restricted Shares are transferred to the Senior Executive on the first day after the end of the Restriction Period that the Senior Executive is able to deal in shares under Telstra’s Securities Trading Policy.

Group Executive Telstra Wholesale

Due to SSU requirements the GE Telstra Wholesale participated in a separate equity plan in lieu of the FY13 LTI Plan for other Senior Executives.

In FY14, the GE Telstra Wholesale was allocated 133,595 Restricted Shares based on performance against the FY13 STI measures. They are subject to a Restriction Period that will end on 30 June 2016, during which time the GE Telstra Wholesale is entitled to earn dividends on, and exercise votes attached to, the Restricted Shares.

If the GE Telstra Wholesale leaves Telstra before the end of the three year Restriction Period for any reason, other than a Permitted Reason (STI), the Restricted Shares will be forfeited. If he leaves for a Permitted Reason (STI) he will retain the Restricted Shares.

This Plan contains the same clawback provisions as the FY14 STI Deferral Plan for other Senior Executives.

In lieu of participation in the Senior Executive FY14 LTI Plan the GE Telstra Wholesale will be allocated Restricted Shares based on his performance against his FY14 STI Plan measures, namely Wholesale Total Income, Wholesale EBITDA, Wholesale NPS and individual performance. Clawback provisions relating to these Restricted Shares will be aligned with the STI Deferral Plan for other Senior Executives.

2.3 Policy and practice

2.3.1 Remuneration mix of senior executives

The graph below shows the FY14 remuneration mix for Senior Executives as at 30 June 2014. The variable components of STI (including any potential Restricted Shares) and LTI are expressed at 50 per cent of the maximum opportunity which is representative of the outcome if we achieve our target performance measures. The variable components would only pay at maximum if targets are significantly exceeded. The STI and LTI plans will only provide a reward to a Senior Executive if the threshold performance measures of the relevant plans are met.

 

remuneration-report-policy-and-practice

 

2.3.2 Plan variation guidelines

The Board may, in its absolute discretion, amend the terms of the STI and LTI plan or the targets of the STI plan where an event occurs that means the targets of the relevant plan are no longer appropriate. Situations where this discretion can be applied include:

  • material change of the strategic business plan
  • material regulatory or legislative change
  • significant out of plan business development such as acquisitions and divestments.

In these circumstances the Board may also exercise its discretion in determining the outcomes under the STI plan and LTI plan for similar reasons.

During FY14 no plan terms were amended, however the Board did exercise its discretion in determining outcomes under each of the plans as outlined below.

2.3.3 NBN and remuneration

From FY13 the NBN Transaction was incorporated into Telstra’s established corporate planning processes and Senior Executives continue to be accountable for achieving planned outcomes, including NBN cash flows. The value of the NBN Transaction to be received over the next 30 years is subject to a range of dependencies and assumptions.

Performance measures for future STI and LTI plans will continue to be developed using the most up to date forecasts for the financial impacts of the NBN Transaction.

The Board may use its discretion as outlined in 2.3.2 if, due to external factors, the NBN roll-out does not proceed according to NBN Co’s published business plan at the time the measures are developed to avoid windfall gains and losses. NBN adjustments made in determining the outcomes for the STI plan and the LTI plan are outlined in 3.2.2 and 3.3 respectively.

2.3.4 Executive share ownership policy

The intent of Telstra’s Executive Share Ownership Policy is to align a significant portion of executive remuneration to the creation of longer term shareholder value. Under the policy, Senior Executives are required to hold Telstra shares to the value of 100 per cent of their Fixed Remuneration by the later of 30 June 2015, or within five years of first appointment to Senior Executive level.

Any Restricted Shares held by Senior Executives are included in calculating their shareholding for the purposes of this policy. Senior Executives must obtain Board, or, in certain circumstances CEO or Chairman approval before they sell shares if they have not yet met their share ownership requirements under the policy.

Progress is monitored by the Board on an ongoing basis and Senior Executives are tracking well against this requirement.

2.3.5 Restrictions and governance

All KMP must comply with Telstra’s Securities Trading Policy and shares can only be traded during specified trading windows.

KMP are prohibited from using Telstra shares as collateral in any financial transaction (including margin loan arrangements) or any stock lending arrangement.

They are also prohibited from entering into arrangements which limit the economic risk of their security holdings allocated under Telstra’s equity plans prior to vesting or exercise of those securities or during the Restriction Period. This ensures that KMP are not permitted to hedge against participation in Telstra’s equity plans.

KMP are also required to confirm on an annual basis that they comply with these policy restrictions, which enables Telstra to monitor and enforce our policy.

3. EXECUTIVE REMUNERATION OUTCOMES

The table in section 3.1 provides a summary of the key financial results for Telstra over the past five financial years. The tables in sections 3.2 and 3.3 provide a summary of how those results have been reflected in the remuneration outcomes for Senior Executives.

3.1 Financial performance

Details of Telstra’s performance, share price, and dividends over the past five years are summarised in the table below:

Performance Measures

FY14
$m

FY13 (1)
$m
FY12
$m
FY11
$m
FY10
$m
Earnings
Total Income 26,296 24,776 25,503 25,304 25,029
EBITDA 11,135 10,168 10,234 10,151 10,847
Net Profit(2) 4,275 3,739 3,405 3,231 3,883
Shareholder value
Share price ($) (3) 5.21 4.77 3.69 2.89 3.25
Total dividends paid per share (cents) 28.5 28 28 28 28


(1)
For FY13 Total Income, EBITDA and Net Profit were restated due to the Sensis divestiture (i.e. now we are reporting continuing operations only for FY13 and FY14, Sensis is excluded from these amounts, refer to note 12 to the financial statements). Also contributing to the EBITDA and Net Profit adjustments was a change in the Australian Accounting Standards (AASB 119) which required retrospective application, therefore FY13 expenses were restated which resulted in the additional adjustments to EBITDA and Net Profit. Refer to note 12 to the financial statements for further details.

(2) Net profit attributable to equity holders of the Telstra entity.

(3) Share prices are as at 30 June for the respective year. The closing share price for FY09 was $3.39.

 

3.2 Short Term Incentive outcomes

3.2.1 Average STI payment as a percentage of STI opportunity

The average STI payment for Senior Executives as a percentage of the maximum potential payout is shown in the following table:

Performance year FY14 FY13 FY12 FY11 FY10
STI received as %
of maximum
53.6% 66.0% 65.6% 48.4% 22.7%

 

3.2.2 Overall FY14 STI Plan outcomes

At the end of FY14, the Board reviewed Telstra’s audited financial results and the results of other performance measures. The Board has assessed performance against each measure and determined the percentage of STI that was payable, of which 25 per cent will be provided through Restricted Shares.

The Board determined the outcomes of the financial measures to ensure there were no windfall gains or losses due to the timing of the NBN roll out, spectrum purchases as well as acquisitions and divestments including CSL and the Sensis advertising and directories business.

For the calculation of the NPS measure, NPS is based on asking Telstra’s customers to rate their likelihood of recommending Telstra, out of a score of 10. The overall NPS result for Telstra is the weighted average of the surveys from Telstra’s Consumer (50 per cent), Business (25 per cent), and Enterprise and Government (25 per cent) customers. The surveys are undertaken by third party research companies. The measurement period for the FY14 results is based on the three month average across 1 April 2014 to 30 June 2014 for Consumer and Business, and the six month consolidated result from 1 January 2014 to 30 June 2014 for Enterprise and Government. The final result was audited by Telstra’s Group Internal Audit team.

For determining the Wholesale NPS measure that applies to the GE Telstra Wholesale, its calculation is based on a survey of Wholesale customers only, undertaken by a third party research company undertaken from 28 April 2014 through to 16 May 2014.

The Board believes the methods of calculating the financial and NPS outcomes are appropriate and provided a rigorous assessment of Telstra’s performance.

Senior Executive STI (excluding Group Executive Telstra Wholesale)

Measure Outcome
(% of maximum)
Total Income 100.0%
EBITDA 98.3%
Free Cashflow 100.0%
NPS 0.0%


Group Executive Telstra Wholesale STI

Measure Outcome
(% of maximum)
Wholesale Total Income 100.0%
Wholesale EBITDA 100.0%
Wholesale NPS 75.0%


Section 3.2.3 provides a summary of STI payments as a percentage of the maximum opportunity for each Senior Executive.

Definitions for the STI financial measures of Total Income, EBITDA and Free Cashflow are provided in the Glossary at the end of the Remuneration Report.

3.2.3 FY14 STI Plan payment results

The table below displays FY14 STI payments as a percentage of Fixed Remuneration and also as a percentage of the maximum opportunity for both FY14 and FY13 STI plans for current Senior Executives:

Name FY14 %
of FR
FY14 %
of max
FY13 %
of max
David Thodey 106.3% 53.2% 66.4%
Gordon Ballantyne 99.3% 49.7% 63.9%
Stuart Lee 119.3% 79.5% 85.0%
Kate McKenzie 106.3% 53.2% 63.9%
Robert Nason 99.3% 49.7% 66.4%
Andrew Penn 106.3% 53.2% 66.4%
Brendon Riley 74.5% 37.2% 63.9%
KMP Average: 101.6% 53.6% 66.0%

 

The graph below shows how STI payments as a percentage of the maximum opportunity have tracked closely to Total Revenue growth over four of the past five years. Telstra’s incentive plans measure performance against a range of financial and non-financial metrics with varied weightings. Accordingly, the pay for performance relationship is based on the performance against these metrics as a whole and may not always align with revenue growth, as is the case for FY14,where the lower STI payment reflects that we did not achieve our customer advocacy target.

remuneration-report-fy14-sti-plan-payment-results-linegraph

3.3 Long Term Incentive outcomes

The performance period for the FY12 LTI Plan concluded on 30 June 2014.

The results of Telstra’s RTSR was calculated by an external provider and audited by Telstra’s Group Internal Audit team. The RTSR vesting result was based on Telstra ranking at the 95th percentile of the global peer group.

Consistent with prior years the Board determined the FCF ROI outcome to ensure there are no windfall gains or losses due to the timing of the NBN roll out. The Board also excluded spectrum purchases as well as acquisitions and divestments including CSL, the Sensis advertising and directories business and TelstraClear. The result was reviewed by Telstra’s Group Internal Audit team and our external auditor Ernst & Young.

The Board has determined that the vesting outcomes are in accordance with the results and the LTI plan rules. Vesting outcomes for both the RTSR and the FCF ROI performance measures for the FY12 LTI Plan can be found in 3.3.1.

3.3.1 FY12 LTI Plan testing as at 30 June 2014

The vesting table for the FY12 LTI Plan is detailed below, reflecting performance up to 30 June 2014 against the two performance measures of RTSR and FCF ROI.

Test Date Performance measure % of total plan
vested
30 June 2014 Relative Total Shareholder
Return (100% vesting)
50.00%
Free Cashflow ROI (56.3%
vesting)
28.15%
Total: 78.15%


Upon vesting, each participant was allocated Restricted Shares which are subject to a Restriction Period (concluding August 2015), during which Senior Executives are not permitted to trade those shares.

3.3.2 Historical LTI plan performance relative to Telstra share price

The following chart compares Telstra’s LTI plan vesting results for the past five LTI plans as a percentage of plan maximum opportunity to the share price history during the same performance period:

remuneration-report-historical-lti-plan-performance

In FY12 Telstra had two LTI plans with a final performance test as the FY09 LTI was the last LTI plan format where performance testing was done in years 2, 3 and 4. This was different to the current format of a 3 year performance period plus 1 year Restriction Period.

3.4 Senior Executive contract details

The key terms and conditions of service contracts for current Senior Executives are summarised in the table below.

The service contracts for current Senior Executives are ongoing subject to their individual terms and conditions.

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. Any termination payment is calculated based on the Senior Executive’s Fixed Remuneration as at the date of termination.

There will be no payment if termination is a result of serious misconduct, or redundancy in those cases where Telstra’s redundancy policy overrides the termination provisions of a Senior Executive’s service contract.

Separation payments for Mr Rick Ellis are detailed in Table 5.1 and have been paid in accordance with his employment contract and Part 2.D of the Corporations Act 2001.

Name Fixed
Remuneration
at the end of
FY14
Notice
Period
Termination
Payment
David Thodey 2,650,000 6 months 12 months (1)
Gordon Ballantyne 1,350,000 6 months 6 months
Stuart Lee 1,040,000 6 months 12 months
Kate McKenzie 1,200,000 6 months 6 months
Robert Nason 1,080,000 6 months 6 months
Andrew Penn 1,450,000 6 months 6 months
Brendon Riley 1,350,000 6 months 12 months


(1)
In relation to David Thodey’s contract, if the Board forms the view that the CEO is not performing to the standard required of a CEO, Telstra may terminate him by providing four months’ written notice.

4. NON-EXECUTIVE DIRECTOR REMUNERATION

4.1 Remuneration structure

The Telstra Board and Committee fee structure (inclusive of superannuation) during FY14 was:

Board fees Chairman Non-executive
Director
Board 705,000 235,000
Committee fees Committee
Chair
Committee
Member
Audit and Risk Committee 70,000 35,000
Remuneration Committee 50,000 25,000
Nomination Committee - 7,000

 

The Chairman of the Board does not receive Committee fees in respect of her role as a Chair or a member of any Board Committee.

There was no increase in Board or Committee fees in FY14.

Telstra’s non-executive Directors are remunerated in accordance with Telstra’s Constitution, which provides for an aggregate fee pool which is set and varied only by approval of a resolution of shareholders at the annual general meeting (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 FY14 remained within the approved fee pool.

4.2 Remuneration policy and strategy

Telstra’s 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.

To align the non-executive Directors’ interests with the interests of our shareholders, the Board has established guidelines to encourage non-executive Directors to hold Telstra shares equivalent to at least 50 per cent of their annual fees. Such shares are to be acquired over a five year period from the later of 1 July 2009 or the date of appointment.

Progress is monitored on an ongoing basis and non-executive Directors are tracking well against the guidelines. Details of non-executive Directors’ (and their related parties) interests in Telstra shares as at 30 June 2014 are set out in Table 5.8 of this report.

4.3 Remuneration components

Superannuation contributions, in accordance with the ASX Listing Rules and Telstra policy, are included within each non-executive Director’s Total Remuneration. Non-executive Directors may choose to increase the proportion of their remuneration taken as superannuation, subject to legislative requirements.

Telstra does not provide retirement benefits for non-executive Directors other than the superannuation contributions noted above.

Table 5.7 provides full details of non-executive Director remuneration for FY14.

Section 2.3.5 of this Report provides details on the Telstra securities trading restrictions which apply to all KMP, including non-executive Directors.

5. REMUNERATION TABLES AND GLOSSARY

5.1 Senior executives remuneration (main table)

This table below has been prepared in accordance with the requirements of the Corporations Act and the relevant Australian Accounting Standards. The figures provided under the equity settled share based payments columns are based on accounting values and do not reflect actual payments received by Senior Executives in FY14.

  Short Term Employee Benefits Post-
Employment
Benefits
Termination
Benefits
Other Long Term
Benefits
Equity Settled
Share-based Payments
 
Name and title Year Salary and
fees
($) (1) 
Short term
incentives
(cash)
($) (2) 
Non-monetary
benefits
($) (3)
Superannuation
($)(4)
Termination
benefits
($) (5)
Accrued
leave
benefits
($)
Other
($) (6)
Accounting value
(at risk) (7)
Total
($)
Short term
incentive
shares
($) (8)
Other
equity
($) (9)
David Thodey
Chief Executive
Officer
2014
2013
2,620,224
2,580,094
2,112,713
2,637,413
8,286
9,568
29,776
16,470
-
-
66,250
64,914
-
-
793,931
701,786
2,580,070
2,793,368
8,211,250
8,803,613
Gordon Ballantyne
GE Telstra Retail
2014
2013
1,287,051
1,213,562
1,005,413
1,197,188
57,754
80,585
37,744
36,438
-
-
33,120
31,250
4,579,548
-
377,843
346,094
323,575
-
7,702,048
2,905,117
Stuart Lee
GE Telstra
Wholesale
2014
2013
1,012,142
971,603
930,150
956,250
12,452
14,090
17,776
46,642
-
-
25,748
24,715
-
-
296,639
219,409
510,601
339,704
2,805,508
2,572,413
Kate McKenzie
Chief Operations
Officer
2014
2013
1,039,194
925,427
956,700
957,750
11,557
14,297
44,203
61,970
-
-
27,085
24,685
-
-
318,977
265,724
744,371
793,401
3,142,087
3,043,254
Robert Nason
GE Business Support
and Improvement
2014
2013
1,054,662
1,020,927
804,330
1,045,013
17,544
19,747
17,776
16,470
-
-
26,811
25,935
-
-
312,728
284,828
768,547
735,634
3,002,398
3,148,554
Andrew Penn
Chief Financial
Officer and GE
International
2014
2013
1,419,621
1,383,530
1,156,013
1,393,350
6,480
4,357
17,776
16,470
-
-
35,935
35,000
-
-
386,923
275,633
820,089
506,078
3,842,837
3,614,418
Brendon Riley
GE Global
Enterperise
and Services
2014
2013
1,319,621
1,270,927
754,059
1,245,075
8,172
9,882
17,776
16,470
-
-
33,435
32,185
-
-
347,501
347,537
796,861
755,721
3,277,425
3,677,797
Rick Ellisformer 
GE Telstra Media
2014
2013
676,323
889,644
-
729,825
17,812
21,265
18,061
22,753
1,020,456
-
17,360
22,810
-
-
123,340
156,303
(340,245)
398,224
1,533,107
2,240,824
TOTAL CURRENT
AND FORMER KMP
2014
2013
10,428,838
10,255,714
7,719,378
10,161,864
140,057
173,791
200,888
233,683
1,020,456
-
265,744
261,494
4,579,548
-
2,957,882
2,597,314
6,203,869
6,322,130
33,516,660
30,005,990

Footnotes to Table 5.1:

If the former GE Telstra Media Rick Ellis is removed from both the FY13 and FY14 totals, the FY14 total is $31,983,553 compared to FY13 of $27,765,166, an increase of 15.2 per cent compared to FY13. This increase is due to the cash LTI payment for Gordon Ballantyne outlined in footnote (6).

(1) Includes salary, salary sacrifice benefits (excluding salary sacrifice superannuation which is included under Superannuation) and fringe benefits tax.

(2) Short term incentives (cash) relates to performance in FY13 and FY14 respectively and is based on actual performance for Telstra and the individual.

(3) Includes the value of personal home security services provided by Telstra, provision of car parking and in the case of Gordon Ballantyne, return flight benefits to the United Kingdom as per the terms of his service agreement. Also includes the value of non recourse loans under TESOP 99 (which have not been expensed as they were issued prior to 7 November 2002 and were therefore included in the exemption permitted under AASB 1 “First-time Adoption of Australian Equivalence to International Financial Reporting Standards”).

(4) Represents company contributions to superannuation as well as any additional superannuation contributions made through salary sacrifice by Senior Executives.

(5) Termination Benefits for Rick Ellis of $1,020,456 is comprised of $462,500 payment in lieu of notice as per his service agreement plus $451,518 pro rata at target FY14 STI as per Telstra STI Policy and $106,438 redundancy payment.

(6) Gordon Ballantyne did not participate in any LTI for FY12 and FY13 due to the fixed term nature (four years) of his initial employment contract. He participated in a cash based LTI beginning 7 March 2011 (details of which are included in Telstra’s 2011 Remuneration Report) and his maximum opportunity for the FY11 LTI Plan included amounts representing the pro rata value of the maximum opportunity under the FY12 and FY13 LTI Plans. The stretch levels of FCF ROI and RTSR were achieved in FY13 and the stretch amount of $4,579,548 was paid to Gordon Ballantyne on 30 June 2014.

(7) In accordance with AASB 2, the accounting value represents a portion of the fair value of Performance Rights, Restricted Shares and Performance Shares that had not yet fully vested as at the commencement of the financial year. This value includes an assumption that Performance Rights, Restricted Shares and Performance Shares will vest at the end of the vesting period. The amount included as remuneration is not related to, nor indicative of the benefit (if any) that may ultimately be realised by each Senior Executive should the Performance Rights, Restricted Shares and Performance Shares vest. Refer to footnote (9) and Table 5.4 for further information.

(8) This includes the amortised value of Restricted Shares allocated under the FY11 (only applicable to FY13 comparatives), FY12, FY13 and FY14 STI plans whereby 25 per cent of the STI payment was provided as Restricted Shares which are subject to a Restriction Period, half for one year and half for two years, subject to the Senior Executive’s continued employment.

(9) As required under AASB 2, accounting expense that was previously recognised as remuneration has been reversed in FY14. For FY14, this occurred for a portion of the FY12 LTI Plan that failed to satisfy the FCF ROI performance target at 30 June 2014, a non-market (i.e. non-RTSR) measure, resulting in equity instruments lapsing. For Rick Ellis, accounting expense that was previously recognised as remuneration has been reversed in FY14 for the FY14, FY13 and FY12 LTI Plans due to his departure. There was no accounting expense that was reversed in FY13. Refer to section 3.3 on LTI outcomes for FY14 for further information.

 

5.2 Payments (cash and shares)

Name Year Maximum
potential STI
opportunity ($)
(1)
Current year grant of STI ($)
(2)
% of the
maximum
potential
opportunity
% forfeited Total grant of
STI ($)
75% cash
component
25% deferred
shares component
(3) (4)
David Thodey 2014
2013
5,300,000
5,300,000
2,112,713
2,637,413
704,237
879,137
53.2%
66.4%
46.8%
33.6%
2,816,950
3,516,550
Gordon Ballantyne 2014
2013
2,700,000
2,500,000
1,005,413
1,197,188
335,137
399,062
49.7%
63.9%
50.3%
36.1%
1,340,550
1,596,250
Stuart Lee 2014
2013
1,560,000
1,500,000
930,150
956,250
310,050
318,750
79.5%
85.0%
20.5%
15.0%
1,240,200
1,275,000
Kate McKenzie 2014
2013
2,400,000
2,000,000
956,700
957,750
318,900
319,250
53.2%
63.9%
46.8%
36.1%
1,275,600
1,277,000
Robert Nason 2014
2013
2,160,000
2,100,000
804,330
1,045,013
268,110
348,337
49.7%
66.4%
50.3%
33.6%
1,072,440
1,393,350
Andrew Penn 2014
2013
2,900,000
2,800,000
1,156,013
1,393,350
385,337
464,450
53.2%
66.4%
46.8%
33.6%
1,541,350
1,857,800
Brendon Riley 2014
2013
2,700,000
2,600,000
754,059
1,245,075
251,354
415,025
37.2%
63.9%
62.8%
36.1%
1,005,413
1,660,100
Rick Ellis (5) 2014
2013
1,850,000
1,850,000
n/a
729,825
n/a
243,275
n/a
52.6%
n/a
47.4%
n/a
973,100

 

(1) Represents the maximum potential STI specific to FY14 and FY13 respectively, where the Senior Executive was a KMP, adjusted for any variation in Fixed Remuneration throughout FY14 and FY13 that impacts the maximum potential STI available. If the minimum threshold performance is not met, the minimum possible STI payment is nil.

(2) The STI for FY14 and FY13 was approved by the Board on 13 August 2014 and 7 August 2013 respectively.

(3) The grant date for the equity component of the FY14 STI will be subsequent to the date of this Remuneration Report.

(4) The Restricted Shares are subject to a Restriction Period, half for one year, half for two years ending 30 June 2015 and 30 June 2016 respectively, subject to the Senior Executive’s continued employment. Refer to section 2.2.2 for further details.

(5) Rick Ellis did not receive an STI payment for FY14 due to his position becoming redundant on 31 March 2014. Refer to footnote (5) to Table 5.1 for a breakdown of his termination payment.

 

5.3 Summary of LTI plans and other equity plans as at 30 June 2014 (*)

Name Plan Type of
instrument
granted
Performance period End date
(1)
% of total
plan tested
at 30 June
2014
% of grant
expired in
current year (2)
Future
financial
dates in
which
grants may
Vest
Accounting value
yet to Vest (3)
Min ($) Max ($)
David Thodey FY11 Performance
Rights
1/07/2010 - 30/06/2013 20/08/14 n/a - n/a nil -
FY12 Performance
Rights
1/07/2011 - 30/06/2014 19/08/15 100 21.85% 30/06/15 nil 711,183
FY13 Performance
Rights
1/07/2012 - 30/06/2015 17/08/16 n/a n/a 30/06/16 nil 1,884,908
FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 2,381,873
Gordon Ballantyne FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 970,724
Stuart Lee (4) FY11 Performance
Rights
1/07/2010 - 30/06/2013 20/08/14 100 - n/a nil -
FY13 Restricted
Shares
n/a 17/08/15 n/a n/a 17/08/15 nil 148,179
FY14 Restricted
Shares
n/a 01/07/16 n/a n/a 01/07/16 nil 453,332
Kate McKenzie FY11 Performance
Rights
1/07/2010 - 30/06/2013 20/08/14 n/a - n/a nil -
FY12 Performance
Rights
1/07/2011 - 30/06/2014 19/08/15 100 21.85% 30/06/15 nil 221,698
FY13 Performance
Rights
1/07/2012 - 30/06/2015 17/08/16 n/a n/a 30/06/16 nil 569,030
FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 747,820
Robert Nason FY11 Performance
Rights
1/07/2010 - 30/06/2013 20/08/14 n/a - n/a nil -
FY12 Performance
Rights
1/07/2011 - 30/06/2014 19/08/15 100 21.85% 30/06/15 nil 233,365
FY13 Performance
Rights
1/07/2012 - 30/06/2015 17/08/16 n/a n/a 30/06/16 nil 597,479
FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 776,579
Andrew Penn (5) FY12 Performance
Shares
14/12/2011 - 14/12/2014 14/12/14 n/a n/a 14/12/14 nil 20,345
FY13 Performance
Rights
1/07/2012 - 30/06/2015 17/08/16 n/a n/a 30/06/16 nil 796,640
FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 1,042,633
Brendon Riley FY12 Performance
Rights
1/07/2011 - 30/06/2014 19/08/15 100 21.85% 30/06/15 nil 291,707
FY13 Performance
Rights
1/07/2012 - 30/06/2015 17/08/16 n/a n/a 30/06/16 nil 739,738
FY14 Performance
Rights
1/07/2013 - 30/06/2016 30/06/17 n/a n/a 30/06/17 nil 970,724
Total nil 13,557,957

 

(1) End Date refers to end of the Restriction Period for Performance Rights and Restricted Shares and the date that Performance Shares vest.

(2) Represents the percentage of the grant that expired as performance criteria was not satisfied in the financial year. Not applicable (n/a) reates to LTI and other equity plans that either will be performance tested in future financial years or have met the relevant performance hurdles but are subject to a Restriction Period.

(3) The values included in the table above have been calculated by applying valuation methodologies as described in note 27 to the financial statements.

(4) The FY14 Restricted Shares grant to Stuart Lee was made in lieu of participation in the FY13 LTI Plan. See section 2.2.3 for more information.

(5) As part of his Service Agreement negotiated upon appointment, Andrew Penn was allocated 96,500 Performance Shares in FY12. The first tranche of 48,250 vested on 14 December 2013.
The second tranche is scheduled to vest on 14 December 2014 subject to Andrew Penn’s continued employment and satisfactory performance.

(*) As Rick Ellis ceased to be a KMP as at 31 March 2014, he has been excluded from the table above.

 

5.4 Accounting value of all LTI and other equity instruments

  Accounting value of LTI equity allocations
(1) (2)
Total Accounting value as a
% of total
remuneration (3)
Name Year Performance
Rights ($)
Performance
Shares ($)
Restricted shares
($)
($) (%)
David Thodey 2014
2013
2,580,070
2,793,368
-
-
-
-
2,580,070
2,793,368
31.40%
31.70%
Gordon Ballantyne 2014
2013
323,575
-
-
-
-
-
323,575
-
4.20%
-
Stuart Lee 2014
2013
135,756
191,525
-
-
374,845
148,179
510,601
339,704
18.20%
13.20%
Kate McKenzie 2014
2013
744,371
793,401
-
-
-
-
744,371
793,401
23.70%
26.10%
Robert Nason 2014
2013
768,547
735,634
-
-
-
-
768,547
735,634
25.60%
23.40%
Andrew Penn 2014
2013
745,864
398,320
74,225
107,758
-
-
820,089
506,078
21.30%
14.00%
Brendon Riley 2014
2013
796,861
755,721
-
-
-
-
796,861
755,721
24.30%
20.50%
Rick Ellis 2014
2013
(340,245)
398,224
-
-
-
-
(340,245)
398,224
-22.20%
17.80%

 

(1) The value of each equity instrument is calculated by applying valuation methodologies as described in note 27 to the financial statements and is then amortised, based on the maximum achievable allocation, over the relevant vesting period. The values included in the table relate to the current year amortised value of all LTI instruments detailed in the Equity Settled share based payments section in the remuneration Table 5.1.

(2) As required under AASB 2, accounting expense that was previously recognised as remuneration has been reversed in FY14. For FY14, this occurred for a portion of the FY12 LTI Plan that failed to satisfy the FCF ROI performance target at 30 June 2014, a non-market (i.e. non-RTSR) measure, resulting in equity instruments lapsing. There was no accounting expense that was reversed in FY13. Refer to section 3.3 on LTI outcomes for FY14 for further information.

(3) Total remuneration is the sum of short term employee benefits, post employment benefits, termination benefits, other long term benefits and equity settled share based payments as detailed in Table 5.1.

 

5.5 Number of equity instruments granted, vested and exercised during FY14 (LTI and other equity)

  Equity Movements   Equity Outcomes
Name Instrument Total held at
30 June 2013 (^)
Granted during
FY14 (1)
Vested /
Exercised during
FY14 (2)
Other changes
(3)
Total held at 30
June 2014 (^)(*)
  Achieved
performance
target during
FY14
(4)
Achieved
performance
target as at
30 June 2014
(5)
David Thodey Options 389,547 - (389,547) - -   - -
Performance Rights 5,040,128 1,041,256 (725,274) (342,574) 5,013,536   1,225,272 2,581,204
Gordon Ballantyne Performance Rights - 424,360 - - 424,360   - -
Stuart Lee Options 81,555 - (81,555) - -   - -
Performance Rights 438,111 - (126,923) - 311,188   - 311,188
Restricted Shares 116,371 133,595   - 249,966   - -
TESOP99 400 - - - 400   - -
Kate McKenzie Options 148,720 - (148,720) - -   - -
Performance Rights 1,401,623 326,916 (190,385) (106,791) 1,431,363   381,955 684,499
Robert Nason Performance Rights 1,341,785 339,488 (92,473) (112,411) 1,476,389   402,057 695,957
Andrew Penn Performance Rights 587,926 455,796 - - 1,043,722   - -
Performance Shares (6) 96,500 - (48,250) - 48,250   - -
Brendon Riley Performance Rights 1,189,018 424,360 - (140,514) 1,472,864   502,572 502,572
Rick Ellis Performance Rights 613,532 290,766 - (783,367) 120,931   120,931 120,931


In the table above, vest has the meaning defined in the Australian Accounting Standards. A Performance Right vests when it has been performance tested and the resultant Restricted Share has been released from restriction and provided to the executive. Table 5.8 includes details of such Restricted Shares allocated during FY14.

All service and performance conditions for each of the options or rights granted in previous financial years and that have vested or been exercised in FY14 are summarised in the Remuneration Report for each relevant year of grant. Each equity instrument granted, vested or exercised in FY14 (where applicable) in the table above was issued by Telstra and resulted or will result in one ordinary Telstra share per equity instrument granted, vested or exercised.

(1) Performance Rights granted on 16 October 2013 relate to the FY14 LTI Plan. The FY14 Restricted Shares grant to Stuart Lee on 15 August 2013 was made in lieu of participation in the FY13 LTI Plan. See section 2.2.3 for more information.

(2) Relates to options exercised during the year or Performance Rights coming out of restriction or Performance Shares being provided as shares. Options exercised during FY14 relate to the FY09 LTI Plan. Performance Rights vested during FY14 relate to the FY10 LTI Plan. Performance Shares vested in FY14 are the first tranche of the Performance Shares allocated in FY12 for Andrew Penn, see footnote (5) in Table 5.3. For more information on our KMPs’ interests in Telstra Shares refer to Table 5.8.

(3) Relates to Performance Rights lapsing or being forfeited due to the specified performance hurdles not being achieved or KMP departing during the year.

(4) Relates to instruments that have been performance tested for the performance period ending on 30 June 2014 and met the specified performance hurdles. Performance Rights in this column relate to the FY12 LTI Plan and will be provided as Restricted Shares early in FY15.

(5) Relates to instruments that have met the specified performance hurdles as at 30 June 2014. Performance Rights in this column include the FY12 LTI Plan that was performance tested at the end of FY14 as well as the FY11 LTI Plan that was performance tested at the end of FY13 and have been provided as Restricted Shares during FY14. The FY12 LTI Plan will be provided as Restricted Shares in the next financial year. For more information on our KMPs’ interests in Telstra Shares refer to Table 5.8.

(^) There are no Performance Rights or options held indirectly or beneficially by our KMP or their related parties.

(*) As at 30 June 2014, there were no options or Performance Rights vested, vested and exercisable or vested and unexercisable.

 

5.6 Value of LTI and other equity instruments granted, exercised and expired/forfeited in FY14

  Granted during period ($)
(1) (2)
Vested/Exercised ($)
(3)
Expired/Forfeited
($) (4)
Name Performance
rights
Restricted
shares
Performance
rights
Options Performance
shares
Performance
rights
David Thodey 3,175,831 - 3,568,348 296,056 - 1,658,202
Gordon Ballantyne 1,294,298 - - - - -
Stuart Lee - 679,999 624,461 66,875 - -
Kate McKenzie 997,094 - 936,694 135,335 - 516,910
Robert Nason 1,035,438 - 454,967 - - 544,117
Andrew Penn 1,390,178 - - - 239,803 -
Brendon Riley 1,294,298 - - - - 680,145
Rick Ellis 886,836 - - - - 3,582,761


(1) The grant date of the FY14 LTI Plan was 16 October 2013. The fair value of the RTSR and FCF ROI Performance Rights granted in FY14 at the grant date is $1.97 and $4.13 respectively. The fair value reflects the valuation approach required by AASB 2 using an option pricing model, as explained in note 27 to the financial statements.

(2) The FY14 Restricted Share grant to Stuart Lee was made in lieu of participation in the FY13 LTI Plan. See section 2.2.3 for more information. The fair value of Restricted Shares granted on 15 August 2013 was $5.09 and is based on the market value of Telstra shares on allocation.

(3) The value of the equity instruments exercised reflects the market value at the date of exercise after deducting any exercise price paid. The exercise price for options exercised was $4.36 for the FY09 LTI Plan.

(4) The value of equity instruments that have lapsed during the year represents the value foregone and is calculated at the date the equity instruments lapsed using valuation methodologies as described in note 27 to the financial statements.


5.7 Non-executive Director remuneration

  Short Term Employee Benefits Post-Employment Benefits  
Name Year Salary and  Fees ($) (1) Non-monetary
benefits ($) (2)
Superannuation ($) Total ($)
Catherine B Livingstone
Chairman
2014
2013
687,225
688,530
4,425
5,952
17,775
16,470
709,425
710,952
Geoffrey A Cousins (3)
Director
2014
2013
267,000
250,530
-
-
4,444
16,470
271,444
267,000
Russell A Higgins
Director
2014
2013
252,225
253,530
-
388
17,775
16,470
270,000
270,388
Chin Hu Lim (4) (7)
Director
2014
2013
199,033
-
-
-
5,701
-
204,734
-
John P Mullen
Director
2014
2013
274,225
275,530
-
1,013
17,775
16,470
292,000
293,013
Nora L Scheinkestel
Director
2014
2013
287,225
288,530
-
-
17,775
16,470
305,000
305,000
Margaret L Seale
Director
2014
2013
252,225
243,366
-
-
17,775
16,470
270,000
259,836
Steven M Vamos (5)
Director
2014
2013
249,225
251,153
-
1,902
17,775
19,491
267,000
272,546
John D Zeglis (7)
Director
2014
2013
230,672
225,204
-
1,590
4,328
16,470
235,000
243,264
Total (6) 2014
2013
2,699,055
2,476,373
4,425
10,845
121,123
134,781
2,824,603
2,621,999

(1) Includes fees for membership on Board Committees.

(2) For FY14, Telstra has applied the exemption for transactions with KMP that are not remuneration and are trivial or domestic in nature (Corporations Regulation 2M.3.03 (3B)) such as Foxtel or the provision of phones or computers. The non monetary value of $4,425 for FY14 is the value of a car parking benefit.

(3) Due to an administrative error, we made insufficient superannuation contributions for Geoffrey Cousins of $13,331. Salary and fees were overpaid by $4,444 in FY14. The amounts actually paid are included in the table above. The overpayment and the under contribution of superannuation will be rectified in FY15.

(4) Chin Hu Lim was appointed as a non-executive Director on 9 August 2013 and the amount included in the table above is for the period 9 August 2013 to 30 June 2014. Due to an administrative error, excess superannuation contributions of $2,274 were made. The amounts actually paid are included in the table above, The excess contribution will be rectified in FY15.

(5) In the 2013 Remuneration Report, Steven Vamos’ Superannuation Component was overstated by $7,898 and his Salary and Fees was understated by the same amount. However the overall total of $272,546 as disclosed in the 2013 Remuneration Report is correct. These amounts have been restated in the table above.

(6) In the 2013 Remuneration Report the Total Remuneration for non-executive Directors was $2,775,713. The above table show a 2013 total of $2,621,999. The difference is represented by $71,753 for Timothy Y Chen and $81,961 for John W Stocker who were not KMP for any part of FY14.

(7) As Chin Hu Lim and John Zeglis are overseas residents, their superannuation contributions for FY14 are less than the contributions for Australian resident non-executive Directors.

5.8 KMP interests in shares of the Telstra entity

  Total shares held at
30 June 2013
(1)
Equity instruments vested/
exercised
STI Restricted shares granted (3) LTI Restricted shares received during FY14 (3) Net shares
acquired or
disposed of
and other
changes (4)
Total shares held at
30 June 2014
(1)
Shares held
nominally at
30 June 2014
(5)
Non-Executive Directors
Catherine B Livingstone 175,816 - - - 10,000 185,816 181,922
Geoffrey A Cousins 81,765 - - - 20,000 101,765 21,765
Russell A Higgins 88,404 - - - - 88,404 83,084
Chin Hu Lim - - - - - - -
John P Mullen 26,159 - - - - 26,159 26,159
Nora L Scheinkestel 87,297 - - - (13,182) 74,115 74,115
Margaret L Seale 235,755 - - - 4,886 240,641 240,641
Steven M Vamos 40,000 - - - - 40,000 40,000
John D Zeglis 103,993 - - - - 103,993 37,493
Total 839,189 - - - 21,704 860,893 705,179
     
Senior Executives
David Thodey (*) 1,735,326 389,547 172,718 1,355,932 (334,520) 3,319,003 3,319,003
Gordon Ballantyne 196,558 - 78,400 - - 274,958 133,395
Stuart Lee (*) 563,276 81,555 62,622 444,783 (69,375) 1,082,861 746,118
Kate McKenzie (*) 441,676 148,720 62,720 302,544 (148,720) 806,940 407,061
Robert Nason (*) 259,251 - 68,436 293,900 - 621,587 431,332
Andrew Penn 138,909 48,250 91,248 - - 278,407 175,910
Brendon Riley 293,407 - 81,537 - - 374,944 296,602
Rick Ellis (4) 56,607 - 47,794 - - 104,401 73,098
Total 3,685,010 668,072 665,475 2,397,159 (552,615) 6,863,101 5,582,519
     
  4,524,199 668,072 665,475 2,397,159 (530,911) 7,723,994 6,287,698

 

Each equity instrument exercised or granted in FY14 (where applicable) in the table above, was issued by Telstra and resulted or will result in one ordinary Telstra share per equity instrument exercised or granted.

(1) Total shareholdings include shares held by our KMP and their related parties. Unless related to our employee share plans, shares acquired or disposed by our KMP during FY14 were on an arm’s length basis at market price.

(2) STI Restricted Shares granted during FY14 relate to the FY13 STI Plan which were allocated on 1 July 2013. However, the allocation of Restricted Shares under the FY14 STI Plan will be made subsequent to the reporting date of 30 June 2014, therefore they have not been included in the table above.

(3) This column relates to those equity instruments that have been performance tested last financial year and have been provided as Restricted Shares during this financial year. For FY14, this relates to the FY11 LTI Plan.

(4) For Nora Scheinkestel, refers to a shareholding in which she has no beneficial interest and which no longer meets the requisite criteria for a related party shareholding. For all others, refers to shares acquired or disposed of by other means.

(5) Nominally refers to shares held either indirectly or beneficially, including (for non-executive Directors) those aquired under Directshare, as well as (for Senior Executives) certain Restricted Shares. These shares are subject to a Restriction Period, such that the non-executive Director or Senior Executive is restricted from dealing with the shares until the Restriction Period ends. Refer to note 27 to the financial statements for further details.

(6) For Rick Ellis who left Telstra during the year, the quantity represents shares held as at the date of cessation as aKMP.

(*) The opening balance has been adjusted to include those instruments that were performance tested and became Restricted Shares during prior periods, due to regulatory changes and a change in the way we have treated these instruments for disclosure purposes. An additional adjustment was also made to Stuart Lee’s opening balance due to a restatement of a related party’s opening balance.

5.9 Glossary

Average Investment for LTI Average investment over the period is the average of the sum of net debt and shareholders’ funds over the entire three year performance period
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
EBITDA for STI Earnings Before Interest, Tax, Depreciation and Amortisation (excluding profit/loss on Land & Building
disposals)
FCF for LTI FCF for these purposes is annual Free Cashflow less interest paid and adjusting for non-recurring factors such as spectrum purchases, acquisitions and gains on the sale of assets
FCF ROI for LTI A ratio of the average annual Free Cashflow over the entire three year performance period by Telstra’s
average investment over the same period
FCF for STI Free Cashflow (excluding CAPEX for Investment and Spectrum; and proceeds from Land & Building
disposals)
Fixed Remuneration Base salary plus company and private salary sacrificed superannuation contributions. Specifically
defined as Total Fixed Remuneration in the CEO’s contract
Free Cashflow (FCF) Cashflow from operating and investing activities
GE Group Executive
GMD Group Managing Director
KMP Key Management Personnel
LTI Long Term Incentive
NBN National Broadband Network
NBN Transaction Agreements with NBN Co and the Government in relation to Telstra’s participation in the rollout of the NBN
NPS Net Promoter Score. A non financial measure in Telstra’s STI Plan. Refer to section 2.2.1 for further information
Performance Right A right to a Restricted Share at the end of a performance period, subject to the satisfaction of certain performance measures
Permitted Reason (LTI) Death, total and permanent disablement, redundancy, separation by mutual agreement or retirement
where notice of retirement is given six months after the actual date of allocation.
Permitted Reason (STI) Death, total and permanent disablement or redundancy or retirement or fixed-term contract expiry where that notice of retirement is given, or fixed term contract expiry occurs, more than six months after the actual allocation date
Performance Share A right to a Telstra share at the end of a performance period, subject to the satisfaction of certain performance measures
Restricted Share A Telstra share that is subject to a Restriction Period
Restriction Period A period during which a Telstra share is subject to a service condition and cannot be traded. Once the Restriction Period ends, the shares are still subject to the Telstra Securities Trading Policy.
RTSR Relative Total Shareholder Return
Senior Executive Refers to the Chief Executive Officer and those executives with authority and responsibility for planning, directing and controlling the activities of the company and Group, directly or indirectly
Service Agreement A Senior Executive’s contract of employment
SSU Structural Separation Undertaking
STI Short Term Incentive
STI Deferral Plan A plan under which Senior Executives are provided with a percentage of their actual STI payment in the form of Restricted Shares
Straight-line Vesting Describes the vesting calculation between target and stretch of an LTI plan, where the payout between two levels is based on equal increments determined by performance
Total Income Total Telstra Income excluding profit/loss on Land & Building disposals
Total Remuneration The sum of all the fixed and variable components of remuneration as detailed in Table 5.1 for Senior Executives, and all the remuneration components as detailed in Table 5.7 for non-executive Directors

Rounding of amounts

The Telstra Entity is a company of the kind referred to in the Australian Securities and Investments Commission Class Order 98/100, dated 10 July 1998 and issued pursuant to section 341(1) of the Corporations Act 2001. As a result, amounts in this Directors’ Report and the accompanying financial report have been rounded to the nearest million dollars ($m), except where otherwise indicated.

This report is made on 14 August 2014 in accordance with a resolution of the Directors.

 

cblivingstone

Catherine B Livingstone AO
Chairman
14 August 2014

 

davidthodey

David I Thodey
Chief Executive Officer and Executive Director
14 August 2014

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Auditor’s Independence Declaration to the Directors of Telstra Corporation Limited

In relation to our audit of the financial report of Telstra Corporation Limited for the financial year ended 30 June 2014, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

 

ernstyoung

Ernst & Young

sjferguson

SJ Ferguson
Partner
Sydney
14 August 2014

 

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Financial Report

INCOME STATEMENT

for the year ended 30 June 2014

    Telstra Group
    Year ended 30 June
      Restated
    2014 2013
  Note $m $m
       
Continuing operations      
       
Income      
Revenue (excluding finance income) 6 25,320 24,474
Other income 6 976 302
    26,296 24,776
Expenses      
Labour   4,732 4,527
Goods and services purchased   6,465 6,247
Other expenses 7 3,988 3,833
    15,185 14,607
       
Share of net profit/(loss) from joint ventures and associated entities 26 24 (1)
    15,161 14,608
       
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA)   11,135 10,168
Depreciation and amortisation 7 3,950 4,078
Earnings before interest and income tax expense (EBIT)   7,185 6,090
       
Finance income 6 156 219
Finance costs 7 1,113 1,152
Net finance costs   957 933
       
Profit before income tax expense   6,228 5,157
       
Income tax expense 9 1,679 1,517
       
Profit for the year from continuing operations   4,549 3,640
       
Discontinued operation      
(Loss)/profit for the year from discontinued operation 12 (204) 151
       
Profit for the year from continuing and discontinued operations   4,345 3,791
       
Attributable to      
Equity holders of Telstra Entity   4,275 3,739
Non-controlling interests   70 52
    4,345 3,791
       
Earnings per share from continuing operations (cents per share)   cents cents
Basic 3 36.1 28.9
Diluted 3 36.0 28.8
       
Earnings per share (cents per share)      
Basic 3 34.4 30.1
Diluted 3 34.3 30.0

The notes following the financial statements form part of the financial report.

 

STATEMENT OF
COMPREHENSIVE INCOME

for the year ended 30 June 2014

    Telstra Group
    Year ended 30 June
      Restated
    2014 2013
  Note $m $m
       
Profit for the year from continuing and discontinued operations      
Attributable to equity holders of Telstra Entity   4,275 3,739
Attributable to non-controlling interests   70 52
    4,345 3,791
Items that will not be reclassified to the income statement      
Retained profits:      
- actuarial gain on defined benefit plans attributable to equity holders of Telstra Entity 24 116 782
- income tax on actuarial gain on defined benefit plans   (34) (234)
- actuarial gain on defined benefit plans attributable to non-controlling interests 24 1 2
Foreign currency translation reserve:      
- translation differences of foreign operations attributable to non-controlling interests   (4) 23
    79 573
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   39 101
- income tax on movements in the foreign currency translation reserve   (13) 21
- translation differences transferred to the income statement on disposal of controlled entities   239 112
- income tax on translation differences transferred to the income statement on disposal of controlled entities   48 18
- translation differences transferred to the income statement for controlled entities deregistered or in liquidation   100 -
Cash flow hedging reserve:      
- changes in fair value of cash flow hedges   (116) 365
- changes in fair value transferred to other expenses   (140) (617)
- changes in fair value transferred to goods and services purchased   (17) 12
- changes in fair value transferred to finance costs   228 236
- income tax on movements in the cash flow hedging reserve   15 (1)
    383 247
       
Total other comprehensive income   462 820
Total comprehensive income for the year   4,807 4,611
       
Total comprehensive income attributable to equity holders of Telstra Entity   4,740 4,534
Total comprehensive income attributable to non-controlling interests   67 77

The notes following the financial statements form part of the financial report.

 

STATEMENT OF
FINANCIAL POSITION

As at 30 June 2014

    Telstra Group
    As at 30 June
    2014 2013
  Note $m $m
       
Current assets      
Cash and cash equivalents 20 5,527 2,479
Trade and other receivables 10 4,172 4,557
Inventories 11 362 431
Derivative financial assets 17(f) 23 43
Current tax receivables   2 79
Prepayments   329 314
Assets classified as held for sale 12 23 -
Total current assets   10,438 7,903
Non current assets      
Trade and other receivables 10 973 943
Inventories 11 29 27
Investments - accounted for using the equity method 26 196 18
Investments - other   127 38
Property, plant and equipment 13 19,842 20,326
Intangible assets 14 6,382 8,202
Derivative financial assets 17(f) 1,322 1,062
Deferred tax assets 9 7 5
Defined benefit asset 24 44 3
Total non current assets   28,922 30,624
Total assets   39,360 38,527
       
Current liabilities      
Trade and other payables 15 3,834 4,241
Provisions 16 932 918
Borrowings 17(a) 2,277 751
Derivative financial liabilities 17(f) 400 44
Current tax payables   296 444
Revenue received in advance   926 1,124
Liabilities classified as held for sale 12 19 -
Total current liabilities   8,684 7,522
Non current liabilities      
Other payables 15 66 163
Provisions 16 261 276
Borrowings 17(a) 13,547 14,313
Derivative financial liabilities 17(f) 1,169 1,625
Deferred tax liabilities 9 1,286 1,330
Defined benefit liability 24 - 42
Revenue received in advance   387 381
Total non current liabilities   16,716 18,130
Total liabilities   25,400 25,652
Net assets   13,960 12,875
       
Equity      
Share capital 19 5,719 5,711
Reserves   (228) (619)
Retained profits   8,331 7,519
Equity available to Telstra Entity shareholders   13,822 12,611
Non-controlling interests   138 264
Total equity   13,960 12,875

The notes following the financial statements form part of the financial report.

 

STATEMENT OF
CASH FLOWS

for the year ended 30 June 2014

    Telstra Group
    Year ended 30 June
    2014 2013
  Note $m $m
       
Cash flows from operating activities      
Receipts from customers (inclusive of goods and services tax (GST))   28,950 28,585
Payments to suppliers and to employees (inclusive of GST)   (18,710) (18,803)
Government grants received   147 77
Net cash generated by operations   10,387 9,859
Income taxes paid   (1,774) (1,500)
Net cash provided by operating activities 20(a) 8,613 8,359
       
Cash flows from investing activities      
Payments for:      
- property, plant and equipment   (2,868) (2,818)
- intangible assets   (894) (1,691)
Capital expenditure (before investments)   (3,762) (4,509)
- shares in controlled entities (net of cash acquired) 20(c) (165) (9)
- payments for joint ventures and associated entities 26(f) (3) (8)
- payments for other investments   (88) (19)
Total capital expenditure (including investments)   (4,018) (4,545)
Proceeds from:      
- sale of property, plant and equipment   94 57
- sale of intangible assets   - 12
- sale of shares in controlled entities (net of cash disposed) 20(d) 2,397 693
- sale of businesses (net of cash disposed)   - 4
Proceeds from finance lease principal amounts   98 64
Loans to joint ventures and associated entities   - (1)
Interest received   150 236
Settlement of hedges in net investments   (21) (11)
Investments in financial instruments   4 -
Dividends received   1 1
Distributions received from Foxtel Partnership 6 165 155
Net cash used in investing activities   (1,130) (3,335)
Operating cash flows less investing cash flows   7,483 5,024
       
Cash flows from financing activities      
Proceeds from borrowings   1,572 2,074
Repayment of borrowings   (1,387) (4,042)
Repayment of finance lease principal amounts   (91) (97)
Proceeds from sale and finance lease back transactions   - 52
Staff repayments of share loans   3 4
Purchase of shares for employee share plans   (61) -
Proceeds received from exercise of equity instruments   29 29
Finance costs paid   (947) (1,037)
Issue of equity by controlled entities 20(c) 160 -
Payment for share buy-back of non-controlling interests 20(c) (149) (1)
Proceeds from sale of controlled entity shares on behalf of non-controlling interests   8 -
Dividends paid to equity holders of Telstra Entity 4 (3,545) (3,480)
Dividends paid to non-controlling interests   (22) (28)
Net cash used in financing activities   (4,430) (6,526)
       
Net increase/(decrease) in cash and cash equivalents   3,053 (1,502)
Cash and cash equivalents at the beginning of the year   2,479 3,945
Effects of exchange rate changes on cash and cash equivalents   (5) 36
Cash and cash equivalents at the end of the year 20(b) 5,527 2,479

The notes following the financial statements form part of the financial report.

 

STATEMENT OF
CHANGES IN EQUITY

For the year ended 30 June 2014

Telstra Group
      Reserves        
    Share capital Foreign currency translation (a) Cash flow hedging (b) General reserve (c) Retained profits Total Non-controlling interests Total equity
    $m $m $m $m $m $m $m $m
                   
Balance at 1 July 2012   5,635 (751) (87) (29) 6,712 11,480 209 11,689
Profit for the year (restated)   - - - - 3,739 3,739 52 3,791
Other comprehensive income (restated)   - 252 (5) - 548 795 25 820
Total comprehensive income for the year   - 252 (5) - 4,287 4,534 77 4,611
Dividends   - - - - (3,480) (3,480) (28) (3,508)
Transactions with non-controlling interests   - - - 1 - 1 - 1
Amounts repaid on share loans provided to employees   47 - - - - 47 - 47
Additional shares purchased   (42) - - - - (42) - (42)
Exercise of employee share options   29 - - - - 29 - 29
Share-based payments   42 - - - - 42 6 48
Balance at 30 June 2013   5,711 (499) (92) (28) 7,519 12,611 264 12,875
                   
Profit for the year   - - - - 4,275 4,275 70 4,345
Other comprehensive income   - 413 (30) - 82 465 (3) 462
Total comprehensive income for the year   - 413 (30) - 4,357 4,740 67 4,807
Dividends   - - - - (3,545) (3,545) (22) (3,567)
Non-controlling interests on acqusitions   - - - - - - 6 6
Non-controlling interests on disposals   - - - - - - (198) (198)
Transactions with non-controlling interests (d)   - - - 8 - 8 13 21
Amounts repaid on share loans provided to employees   3 - - - - 3 - 3
Additional shares purchased   (61) - - - - (61) - (61)
Exercise of employee share options   29 - - - - 29 - 29
Share-based payments   37 - - - - 37 8 45
Balance at 30 June 2014   5,719 (86) (122) (20) 8,331 13,822 138 13,960

The notes following the financial statements form part of the financial report.

 

(a) The foreign currency translation reserve is used to record exchange differences arising from the conversion of the non-Australian controlled entities’ financial statements into Australian dollars. This reserve is also used to record our percentage share of exchange differences arising from equity accounting our non-Australian investments in joint ventures and associated entities.

(b) The cash flow hedging reserve represents the effective portion of gains or losses on remeasuring the fair value of the hedge instrument, where a hedge qualifies for hedge accounting. These gains or losses are transferred to the income statement when the hedged item affects income or, in the case of forecast transactions, is included in the measurement of the initial cost of property, plant and equipment or inventory.

(c) The general reserve represents other items we have taken directly to equity.

(d) During the year we decreased our ownership of Autohome Inc. from 66.0 per cent at 30 June 2013 to 63.2 per cent at 30 June 2014 via share buy-back, subsequent initial public offering and employee share issues. We also acquired the non-controlling interests of the Octave Group. Neither of these transactions resulted in a change of control. Changes in valuation of non-controlling interests resulting from these transactions are recorded in the general reserve. Refer to note 20 for further details.

Shareholder Information

Listing Information

Markets in which our shares are traded

We are listed, and all our issued shares are quoted on the Australian Securities Exchange (ASX) and the New Zealand Stock Exchange (NZX).

Markets on which our debt securities are listed

We also have debt securities listed on the ASX, the London Stock Exchange, the Singapore Stock Exchange and the Swiss Stock Exchange.

Distribution of securities and security holdings

The following table shows the number of listed shares on issue at 14 July 2014:

Title of class Identity of
person or group
Amount owned %
Listed Shares Listed shareholders 12,443,074,357 100

 

Distribution of shares

The following table summarises the distribution of our listed shares as at 14 July 2014:

Size of Holding Number of Shareholders % Number of Shares %
1-1,000 663,984 47.46% 370,997,925 2.98%
1,001-5,000 507,059 36.25% 1,217,758,309 9.79%
5,001-10,000 122,814 8.78% 875,253,222 7.03%
10,001-100,000 101,333 7.24% 2,430,224,118 19.53%
100,001 and over 3,745 0.27% 7,548,840,783 60.67%
Total 1,398,935 100.00% 12,443,074,357 100.00%

 

The number of shareholders holding less than a marketable parcel of shares was 15,014 holding 659,660 shares (based on the closing market price on 14 July 2014).

Substantial shareholders

As at 14 July 2014, we are not aware of any substantial shareholders

Twenty largest shareholders as at 14 July 2014

The following table sets out the Top 20 holders of our shares (when multiple holdings are grouped together):.

Shareholders Number of Shares % of Issued Capital
1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,879,141,905 15.10%
2 J P MORGAN NOMINEES AUSTRALIA LTD 1,642,592,458 13.20%
3 NATIONAL NOMINEES LIMITED 1,488,764,721 11.96%
4 CITICORP NOMINEES PTY LIMITED 574,279,904 4.62%
5 BNP PARIBAS NOMS PTY LTD 302,590,368 2.43%
6 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD 120,399,393 0.97%
7 AMP LIFE LIMITED 95,608,702 0.77%
8 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD 53,381,807 0.43%
9 AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED 52,445,000 0.42%
10 UBS NOMINEES PTY LTD 42,964,417 0.35%
11 ARGO INVESTMENTS LIMITED 41,504,800 0.33%
12 NEWECONOMY COM AU NOMINEES PTY LIMITED 36,418,851 0.29%
13 QUESTOR FINANCIAL SERVICES LIMITED 31,236,364 0.25%
14 TELSTRA GROWTHSHARE PTY LTD 28,546,744 0.23%
15 NAVIGATOR AUSTRALIA LTD 25,868,444 0.21%
16 NULIS NOMINEES (AUSTRALIA) LIMITED 23,579,363 0.19%
17 SHARE DIRECT NOMINEES PTY LTD 19,461,553 0.16%
18 NETWORK INVESTMENT HOLDINGS PTY LTD 17,309,017 0.14%
19 EQUITAS NOMINEES PTY LTD 16,018,179 0.13%
20 MILTON CORPORATION LIMITED 13,610,253 0.11%
Total for Top 20 6,505,722,243 52.28%

 

Voting Rights

Shareholders (whether residents or non-residents of Australia) may vote at a meeting of shareholders in person, directly or by proxy, attorney or representative, depending on whether the shareholder is an individual or a company.

Subject to any rights or restrictions attaching to our shares, on a show of hands each shareholder present in person or by proxy, attorney or representative has one vote and, on a poll, has one vote for each fully paid share held. Presently, we have only one class of fully paid ordinary shares and these do not have any voting restrictions. If shares are not fully paid, on a poll the number of votes attaching to the shares is pro-rated accordingly.

Reference Tables

Five-Year Summary - Financial Results

  FY14
($m)
FY13(iii)
($m)
FY12
($m)
FY11
($m)
FY10
($m)
Total income (excluding finance income) 26,296 24,776 25,503 25,304 25,029
EBITDA(i) 11,135 10,168 10234 10151 10847
EBIT(ii) 7,185 6,090 5822 5692 6501
Profit for the period from continuing operations 4,549 3,640 n/a n/a n/a
Gain/(loss) for the period from discontinued operations (204) 151 n/a n/a n/a
Profit for the period 4,345 3,791 3424 3250 3940
Dividends declared per share (cents) 29.5 28.0 28 28 28
Total assets 39,360 38,527 39525 37913 39282
Gross debt 16,048 15,628 17222 16232 16031
Net debt 10,521 13,149 13277 13595 13926
Total equity 13,960 12,875 11689 12292 13008
Capital expenditure 3,661 3,689 3591 3410 3471
Free cash flow 7,483 5,024 5197 5477 6225
Earnings per share (cents) 34.4 30.1 27.5 26.1 31.4
Dividend payout ratio (%) 86 93 102 107 89

(i) 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.
(ii) EBITDA less depreciation and amortisation.
(iii) Restated for the retrospective adoption of AASB:119 "Employee Entitlements".

 

Non-Financial Results

Key performance indicator FY14 FY13 FY12
Employee engagement(i)
Score (%)
82 80 77
Health and safety(ii)
Lost Time Injury Frequency Rate (LTIFR)
1.12 1.36 1.32
Gender equality(iii)
Women in executive management (%)
26 25 25
Volunteering during Telstra time(iv)
Total (days)
5,122 4,248 1,375
Payroll giving
Participation rate (%)
5.3 3.6 1.6
Social and community investment(iv)
Value ($m)
217 231 240
Everyone Connected
Targeted community programs (people impacted)(‘000s)
143 146 102
Carbon emissions(v)
Tonnes of carbon dioxide equivalent (tCO2e)(‘000s)
1,592 1,634 1,677
Carbon emissions intensity(v)
tCO2e per terabyte of data
0.58 0.83 1.24
E-waste
Mobile phones (tonnes collected)
15.3 14.0 14.3

(i) Telstra Group. 2013 results adjusted to exclude CSL and Sensis Group (79% was previously reported).
(ii) This data relates to Telstra Corporation Limited only and does not include subsidiaries or contractors.
(iii) Full time and part time staff in Telstra Corporation Limited and its wholly owned subsidiaries, excluding casual and agency staff.
(iv) Sensis Group data included from 1 July 2013 until 28 February 2014.
(v) Australian operations for Telstra Corporation Limited. This includes relevant Australian subsidiaries, joint ventures and partnerships. Sensis Group has been included from 1 July 2013 until 28 February 2014.

 

Guidance versus Reported Results

This schedule details the adjustments made to the reported results for the current year to reflect the performance of the busines on the basis which we provided guidance to the market. Our guidance assumes wholesale product price stability, no impairments to investments and excludes any proceeds or gain on the sale, and purchase of businesses.

  REPORTED ADJUSTMENTS FY14 GUIDANCE BASIS
  FY14
$m
FY13
$m
Growth
%
Sensis(i)
$m
M&A(ii)
$m
CSL(iii)
$m
Octave(iv)
$m
Sequel(v)
$m
FY14
$m
FY13
$m
Growth
%
Sales revenue 25,119 24,298 3.4% 0 (101) 0 0 0 25,018 24,298 3.0%
Total revenue 25,320 24,474 3.5% 0 (101) 0 0 0 25,219 24,474 3.0%
Total income (excl. finance
income)
26,296 24,776 6.1% 0 (101) (561) 0 0 25,634 24,776 3.5%
                       
Labour 4,732 4,527 4.5% 0 (32) 0 0 0 4,700 4,527 3.8%
Goods and services purchased 6,465 6,247 3.5% 0 (42) 0 0 0 6,423 6,247 2.8%
Other expenses 3,988 3,833 4.0% 0 (11) 0 (98) (12) 3,867 3,833 0.9%
Operating expenses 15,185 14,607 4.0% 0 (85) 0 (98) (12) 14,990 14,607 2.6%
                       
Share of net profit/(loss) from joint
ventures and associated entities
24 (1) n/a (24) 0 0 0 0 0 (1) n/a
EBITDA 11,135 10,168 9.5% (24) (16) (561) 98 12 10,644 10,168 4.7%
                       
Depreciation and amortisation 3,950 4,078 (3.1%) 0 (10) 0 0 0 3,940 4,078 (3.4%)
EBIT 7,185 6,090 18.0% (24) (6) (561) 98 12 6,704 6,090 10.1%
                       
Net finance costs 957 933 2.6% 0 0 0 0 0 957 933 2.6%
                       
Profit before income tax expense 6,228 5,157 20.8% (24) (6) (561) 98 12 5,747 5,157 11.4%
Income tax expense 1,679 1,517 10.7% 0 1 0 0 0 1,680 1,517 10.7%
Profit for the year from continuing
operations
4,549 3,640 25.0% (24) (7) (561) 98 12 4,067 3,640 11.7%
                       
(Loss)/profit for the year from
discontinued operation
(204) 151 n/a 0 0 0 0 0 (204) 151 n/a
Profit for the year from continuing
and discontinued operations
4,345 3,791 14.6% (24) (7) (561) 98 12 3,863 3,791 1.9%
Attributable to:                      
Equity holders of the Telstra Entity 4,275 3,739 14.3% 0 (7) (561) 98 12 3,817 3,739 2.1%
Non controlling interests 70 52 34.6% (24) 0 0 0 0 46 52 (11.5%)
                       
Free cashflow 7,483 5,024 48.9% (454) 205 (2,107) 0 0 5,127 5,024 2.1%

 

This table was subject to review by our auditors.

Note:

There are a number of factors that have impacted our results this year. In the table, above, we have adjusted the results for:

(i) Sensis adjustments:

Adjustment for the equity share on the profit of our 30% interests in Project Sunshine I Pty Ltd as an associated entity, the new holding company of the Sensis Group from the reported Telstra Group results. Adjustment for the sale proceeds from the divestment of 70% of our Sensis directories business from the reported Telstra Group results.

(ii) Mergers & Acquisitions adjustments:

Adjustments for material mergers and acquisition activities from the reported Telstra Group results. This includes DCA eHealth Solutions Pty Ltd, Fred IT Group Pty Ltd, NSC Group Pty Ltd, O2 Networks Pty Ltd and Ooyala Inc.

(iii) CSL adjustment:

Adjustment for the net gain on disposal of the CSL Group from the reported Telstra Group results.

(iv) Octave adjustment:

Adjustment for the write off from the foreign currency translation reserve associated with the Octave investment from the reported Telstra Group results. We have commenced liquidation of the legal entities in the Octave Group in FY14.

(v) Sequel Media adjustment:

Adjustment for the impairment of Sequel Media Group from the reported Telstra Group results. The carrying value of Sequel Media Group goodwill was impaired by $12m.

Glossary

Technology Terms

4G (or 4G-LTE) - Fourth generation of wireless networks. It gives users faster download and upload speeds and better response times than previous generations. 4G lets customers do things like downloading files, sending large attachments, web browsing and online multi-tasking faster than previous generations. 4G-LTE also provides more network capacity and thus delivers benefits for network operators. The faster you can deliver data, the greater the capacity you make available for other users on the network.

4G dongle - A small device that plugs into a computer and allows internet access via a 4G wireless network.

ADSL - Asymmetric Digital Subscriber Line. A broadband technology that provides access to the internet at fast speeds. Data is carried over the copper network phone lines. These data speeds can enable the delivery of voice, data and video services.

ADSL 2+ - Extends the capability of basic ADSL by increasing the potential speeds that customers experience. Telstra’s ADSL 2+ service can deliver a maximum download speed of 20Mbps. (The actual customer download speed can vary depending on line conditions. Typical download speeds are 10Mbps).

Cloud - Provision of services, software, storage and security over the internet, typically on a pay-for-use basis. In simple terms, it allows access to information/programs etc on multiple devices in multiple locations.

Cyber safety - The safe use of information and telecommunications technology (including mobile phones) and the internet.

eHealth - eHealth is the sharing of health resources and provision of health care by electronic means. It encompasses three main areas:

  • the delivery of health information, for health professionals and health consumers, through the internet and telecommunications
  • the use of IT and e-commerce to improve public health services (for example, the delivery of training services for health workers)
  • the use of e-commerce and e-business practices in health systems management.

FTTN - Fibre to the Node. A broadband access solution that delivers fibre from a telco’s exchange facility to a street cabinet (the “node”), with the final connections to a premises being the copper network phone lines.

FTTP - Fibre to the Premises. A broadband access solution that delivers fibre from a telco’s exchange facility directly to the outside of a building. Because fibre can deliver faster data transfer speeds than copper, FTTP solutions, which do not depend on copper, offer potential internet speeds faster than FTTN solutions (see definition of FTTN).

HFC - Hybrid Fibre Coax. A way of delivering video, voice and data using both coaxial cables (like the ones used for connecting your television to an antenna) and fibre optic cables. Optical fibre connects a telco’s facility (called a headend) to hubs in suburban streets, and then coaxial cables connect the hubs and customer premises. Telstra uses an HFC network to deliver Foxtel and Big Pond Cable Internet services. Telstra customers using HFC networks can receive download speeds of up to 100Mbps.

IPTV - Television, video signals or other multimedia services that are distributed to subscribers or viewers using Internet Protocol over a broadband connection. Examples include Telstra’s T-Box and Foxtel on T-Box services.

Mobile broadband - Wireless internet access delivered over the mobile phone network to computers and other digital devices using portable modems.

NAS - Network Applications and Services. The NAS business has been identified as an area of strategic growth for Telstra and includes unified communications, video conferencing, cloud
services, managed networks and contact centresolutions.

NBN - National Broadband Network.

Next IP™ - Telstra's high-performance national data network with coverage to over 95% of Australian businesses. It enjoys seamless integration with the wireless Next G® network, making it easier for staff and offices around the nation to work as one. It allows businesses access to the same networks and services as large enterprises, but without the same level of investment.

PSTN - Public switched telephone network. Generic term for public telephone networks. Often referred to as “fixed line”, it is the standard home telephone service, delivered over copper wires.

Roaming - A service which allows customers to use their mobile phone while in a service area of another carrier, for example overseas.

Spectrum - All wireless communications signals travel through the air via radio frequency, known also as spectrum. The government grants telcos licences for dedicated use of portions (bands) of the spectrum. As people increase their use of wireless networks, more spectrum is required.

ULL – Unconditioned Local Loop. The local loop is the copper wire that connects the Telstra exchange in your area to your house. Telstra is required to provide access to this wire to other operators and they can use it to provide customers with their own services such as broadband and voice telephone services.

Unified Communications - An integrated hardware and software offering that combines enterprise communications on a single platform. It is any communications system that encompasses a broad range of technologies and applications that have been designed as a single communications platform. A unified communications system generally enables companies to use integrated data, video and voice from multiple locations in one supported product.

Wi-Fi hotspot - A device that other devices can connect to wirelessly in order to access the Internet. (Wi-Fi refers to a set of wireless standards commonly used by devices for short-distance wireless communication).

 

Financial Terms

EBITDA - Earnings before interest, income tax expense, depreciation and amortisation. An indicator of a company’s operational profitability.

NPAT -Net profit after tax.

EPS - Earnings per share. A company’s profit divided by the number of shares on issue.

DPS - Dividend per share.

Capex - Capital expenditure. This is expenditure on assets such as property, equipment, intangible assets etc.

Free cashflow - Represents the cash that a company is able to generate from its operations after spending money required to maintain or expand its asset base.

Contact Details

Registered Office

Level 41, 242 Exhibition Street
Melbourne Victoria 3000 Australia
Damien Coleman
Company Secretary
email: [email protected]

General Enquiries – Registered Office

Australia: 1300 368 387
All Other: +61 (8) 8308 1721

Shareholder Enquiries
Australian Share Register

Australia: 1300 88 66 77
All Other: +61 1300 88 66 77
Fax: +61 (2) 9287 0303
email: [email protected]
website: www.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: [email protected]
website: www.linkmarketservices.co.nz
Link Market Services Limited
PO Box 91976
Auckland 1142
New Zealand

Investor Relations

Level 32, 242 Exhibition Street
Melbourne Victoria 3000 Australia
Australia: 1800 880 679
All Other: +61 (3) 8647 4954
email: [email protected]

Sustainability

Level 37, 242 Exhibition Street
Melbourne Victoria 3000 Australia
email: [email protected]

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: www.telstra.com.au/investor
Telstra’s Sustainability home page: www.telstra.com.au/sustainability


Indicative Financial Calendar (i)

Final dividend paid Friday 26 September 2014
Annual General Meeting Tuesday 14 October 2014
Half-Year Results announcement Thursday 12 February 2015
Ex-dividend share trading commences Wednesday 25 February 2015
Record date for interim dividend Friday 27 February 2015
Interim dividend paid Friday 27 March 2015
Annual Results announcement Thursday 13 August 2015
Ex-dividend share trading commences Wednesday 26 August 2015
Record date for final dividend Friday 28 August 2015
Final dividend paid Friday 25 September 2015
Annual General Meeting Tuesday 13 October 2015

(i) Timing of events may be subject to change. Any change will be notified to the Australian Securities Exchange (ASX).