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Telstra Corp. Ld (50IM)

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Friday 22 March, 2002

Telstra Corp. Ld

Interim Report

Telstra Corporation Ld
21 March 2002
                                  



Half Year Financial Report 
for the half-year ended 31 December 2001

                                                                     Page number

Half-Year Financial Statements                                           
                                                                  
Statement of Financial Performance                                         2
Statement of Financial Position                                            3
Statement of Cash Flows                                                    4

Statement of Changes in Shareholders' Equity                               8

Notes to the Half-Year Financial Statements

Note 1   -  Summary of accounting policies                                 9
Note 2   -  Profit from ordinary activities                               10
Note 3   -  Unusual items                                                 11
Note 4   -  Income tax expense                                            13
Note 5   -  Segment information                                           14
Note 6   -  Share of net losses of associates and joint venture entities  17
Note 7   -  Investment changes                                            18
Note 9   -  Contingent liabilities and contingent assets                  20
Note 9   -  Events after balance date                                     20
Note 10  -  United States generally accepted accounting principles 
            disclosures                                                   21

Directors' Declaration                                                    26

Independent Review Report                                                 27


                                    - 1 -

Statement of Financial Performance
for the half year ended 31 December 2001

                                                           Telstra Group
                                                          Half-year ended
                                                            31 December
                                                            2001        2000
                                                Note         $m          $m
Ordinary activities
Revenue
Sales revenue                                     1        10,266       9,758
Other revenue                                     3           346       1,553
               
                                                           10,612      11,311

Expenses
Labour                                                      1,459       1,568
Employee redundancy                                            93           3
Direct cost of sales                              1         1,962       1,809
Depreciation and amortisation                               1,574       1,377
Other expenses                                    3         1,921       1,997

                                                            7,009       6,754

Borrowing costs                                   2           417         351
Share of net losses of associates and joint 
 venture entities                                 6            93         164

                                                            7,519       7,269


Profit before Income tax expense                  2         3,093       4,042
Income tax expense                                            992       1,433
Effect of decrease in tax rates on deferred 
 tax balances                                                   -         (13)

Total income tax expense                         3,4          992       1,420


Net profit                                                  2,101       2,622
Outside equity interests in net (profits)/losses               (3)          1

Net profit available to Telstra Entity shareholders         2,098       2,623


Other valuation adjustments to equity
Net exchange differences on conversion of non-
Australian controlled entities' financial statements           (9)          6
Share of associated and joint venture entities' reserves       (2)         14

Valuation adjustments available to Telstra Entity
shareholders and recognised directly in equity                (11)         20

Total changes in equity other than those resulting from 
transactions with Telstra Entity shareholders as owners     2,087       2,643

Dividends provided for or paid                              1,415       1,029

                                                            Cents       Cents

Interim dividend per share (cents)                           11.0         8.0

Basic and diluted earnings per share (cents)                 16.3        20.4

The notes following the half-year financial statements form part of the half-
year financial report.


                                    - 2 -


Statement of Financial Position
as at 31 December 2001

                                                      Telstra Group
                                                          as at
                                             31 Dec       30 June       31 Dec
                                               2001          2001         2000
                                       Note    $m            $m           $m

Current assets
Cash                                            652         1,077          941
Receivables                                   3,940         4,307        3,955
Inventories                                     286           320          379
Other assets                                    656           549          335

Total current assets                          5,534         6,253        5,610

Non current assets
Receivables                                   1,866         1,803          280
Inventories                                      22             8           35
Investments - accounted for using 
the equity method                             1,084         1,259          401
Investments - other                             111           143          258
Property, plant and equipment                23,699        22,803       22,537
Future income tax benefit                        95           114           65
Intangible assets                             3,063         3,012          509
Other assets                                  2,171         2,078        1,566

Total non current assets                     32,111        31,220       25,651

Total assets                                 37,645        37,473       31,261


Current Liabilities
Payables                                      2,531         2,872        2,281
Borrowings                                    3,509         2,604        3,658
Income tax payable                              476           657          618
Provisions                                    1,904         2,018        1,763
Revenue received in advance                     859         1,128          527

Total current liabilities                     9,279         9,279        8,847


Non current Liabilities
Payables                                         95           120          158
Borrowings                                   10,495        11,386        6,554
Income tax payable                               45            91          137
Deferred income tax                           1,880         1,573        1,304
Provisions                                      862           846          900
Revenue received in advance                     462           456          127

Total non current Liabilities                13,839        14,472        9,180

Total Liabilities                            23,118        23,751       18,027

Net assets                                   14,527        13,722       13,234


Shareholders' equity
Telstra Entity
Contributed equity (12,866,600,200 
shares of 50 cents each)                      6,433         6,433        6,433
Reserves                                         56            11           12
Retained profits                              7,507         6,795        6,764
Shareholders' equity available to 
Telstra Entity shareholders                  13,996        13,239       13,209


Outside equity interests
Contributed equity                              702           490           49
Reserves                                         72            33           (1)
Accumulated losses                             (243)          (40)         (23)

Total outside equity interests                  531           483           25

Total shareholders' equity                   14,527        13,722       13,234


Contingent Liabilities and contingent 
assets                                   8

The notes following the half-year financial statements form part of the half-
year financial report.

                                    - 3 -

 

Statement of Cash Flows
for the half-year ended 31 December 2001

                                                           Telstra Group
                                                          Half-year ended
                                                            31 December
                                                            2001        2000
                                                             $m          $m

Cash flows from operating activities
Receipts from trade and other receivables (inclusive 
of goods and services tax (GST) (ii))                      11,003      10,130
Payments of accounts payable and to employees 
(inclusive of GST (ii))                                    (6,356)     (5,867)
Interest received                                              37          41
Borrowing costs paid                                         (476)       (398)
Dividends received                                              4          10
Income taxes paid                                            (893)       (764)
GST remitted to the Australian Taxation Office (ATO)         (463)       (487)

Net cash provided by operating activities                   2,856       2,665

Cash flows from investing activities (excluding GST)
Payments for:
• property, plant and equipment                            (1,391)     (1,631)
• internal use software assets                               (269)       (322)
• deferred expenditure                                         (2)        (26)

Capital expenditure (before investments)                   (1,662)     (1,979)

• shares in controlled entities                               (45)          1
• investment in joint venture entities                        (53)        (61)
• investment in associated entities                             -          (6)
• shares in listed securities and shares in other 
  corporations                                                 (2)        (34)

Investment expenditure                                       (100)       (100)

Total capital expenditure                                  (1,762)     (2,079)

Proceeds from:
• sale of property, plant and equipment                        76         197
• sale of shares in controlled entities                         -           8
• sale of listed securities and shares in other 
  corporations                                                174         386
• sale of patents, trademarks and licences                      -           4
• sale of business                                             29           4

Net cash used in investing activities                      (1,483)     (1,480)

Cash flows from financing activities (excluding GST)
Proceeds from:
• borrowings                                                8,710       7,356
• Telstra bonds                                               494           -
     
Repayment of:
• Telstra bonds                                               (38)       (532)
• borrowings (iv)                                          (9,593)     (6,502)
• finance leases principal amount                              (7)        (16)
Employee share loans (net)                                     20         (18)
Dividends paid                                             (1,415)     (1,287)

Net cash used in financing activities                      (1,829)       (999)

Net increase(decrease) in cash                               (456)        186
Cash at the beginning of the half-year                      1,067         744

Cash at the end of the half-year (i)                          611         930

The notes following the half-year financial statements form part of the half-
year financial report.


                                    - 4 -

 

Statement of Cash Flows(continued)

Cash flow notes

(i) Cash at the end of the year as shown in the statement of cash flows agrees 
    to the net amount of the following items:

                                                            Half-year
                                                             ended
                                                          31 December
                                                           2001            2000
                                                            $m              $m

Cash                                                       652             941
Bank overdraft                                             (41)            (11)

                                                           611             930


(ii) Goods and Services Tax (GST)

Our receipts from trade and other receivables includes estimated GST of $932
million (2000: $880 million) collected by us as agent for the ATO. Our payments
of accounts payable and to employees include estimated GST payments made by us
for goods and services obtained in undertaking both operating and investing
activities. Estimated GST paid associated with operating activities amounted to
$302 million (2000: $248 million) whilst estimated GST paid relating to
investing activities amounted to $167 million (2000: $145 million).

(iii) Financing and investing activities that involve components of non cash

Property, plant and equipment
Our property, plant and equipment includes capitalised borrowing costs of $38
million for the half-year ended 31 December 2001 (2000: $45 million). This
amount has been reclassified into cash flows from operating activities.

We acquired plant and equipment with a fair value of $nil using finance leases
during the half-year ended 31 December 2001 (2000: $4 million).  As these
acquisitions did not involve cash, they are not reported in the statement of
cash flows.

Software assets (internal use software assets)
Our software assets developed for internal use include capitalised borrowing
costs of $16 million for the half-year ended 31 December 2001 (2000: $15
million). This amount has been reclassified into cash flows from operating
activities.

                                      - 5 -

Statement of Cash Flows(continued)

Cash flow notes (continued)

(iv) Acquisitions and disposals

On 12 December 2001, we increased our holding in our joint venture entity
TelstraClear Limited (TelstraClear) (formerly TelstraSaturn Limited) by 8.43%.
As a result, our 58.43% interest represents a controlling interest in this
company. We have consequently ceased equity accounting and have consolidated the
financial position, financial performance and cash flows of the TelstraClear
Group from 1 December 2001.

Consideration for this acquisition was A$40 million (NZD$50 million) for which
we received an additional 52,500,000 shares in TelstraClear.

The amount of cash, other assets and liabilities we acquired as a result of
obtaining this increased interest are presented in the following table.


                                                                 Acquisition of
                                                                  TelstraClear
                                                   
                                                                Half-year ended
                                                                 31 December
                                                                     2001
                                                                     A$m

Consideration for acquisition
Cash                                                                       40

Fair value of assets and liabilities 
acquired by major class
Net overdraft held by TelstraClear on 
gaining control                                                            (5)
Receivables                                                                64
Inventories                                                                18
Property, plant and equipment                                             794
Identifiable intangible assets                                            238
Other assets                                                                6
Payables                                                                  (55)
Borrowings                                                               (406)
Amounts owed to Telstra Corporation Ltd (a)                              (367)
Provisions                                                                (97)
Finance lease liability                                                    (6)
Other liabilities                                                         (72)

Fair value of net assets on gaining control                               112
Outside equity interest (41.57%)                                          (47)
Originals 50% interest in fair value of net
assets prior to obtaining increased
shareholding                                                              (56)

Net assets acquired                                                         9
Goodwill on acquisition (b)                                                31

                                                                           40

Outflow of cash on acquisition 
Consideration for acquisition                                             (40)
Net overdraft held by TelstraClear on 
gaining control                                                            (5)

                                                                          (45)


(a) Included in our repayment of borrowings in the statement of cash flows is a
$367 million loan provided to TelstraClear. This funding was used to facilitate
the purchase of the Clear Communications Limited group.

(b) Goodwill recognised from the original acquisition of our 50% interest in
TelstraClear was $49 million as at 1 December 2001. Upon acquisition of our
additional 8.43% controlling interest, the total goodwill relating to
TelstraClear was $80 million.

                                 - 6 -
 
Statement of Cash Flows (continued)

Cash flow notes (continued)

In the half-year ended 31 December 2000, we sold our EFTPOS payments carriage,
installation and maintenance business to Keycorp Limited (Keycorp) for $426
million.  As consideration for this sale, we were issued 38,700,000 shares which
represented a 50.94% controlling interest in Keycorp. The amount of cash, other
assets and liabilities we acquired as a result of obtaining this interest are
presented in the following table:

                                                                  Acquisition of
                                                                      Keycorp

                                                                 Half-year ended
                                                                   31 December
                                                                      2000
                                                                       $m

Consideration for acquisition 
Sale of EFTPOS payments carriage, 
installation and maintenance business                                  426
Costs of acquisition                                                    12

                                                                       438


Less elimination of goodwill
(intercompany transaction)                                             426

                                                                        12

Outside equity interest (49.06%)                                        17

                                                                        29

Fair value of assets and liabilities 
acquired by major class 
Cash held by Keycorp on acquisition                                      1
Receivables                                                             40
Inventories                                                             29
Investments                                                             20
Property, plant and equipment                                            5
Identifiable intangible assets                                          19
Other assets                                                             7
Payables                                                               (37)
Borrowings                                                             (47)
Provisions                                                              (3)

Fair value of net assets acquired                                       34
Less discount on acquisition                                             5

                                                                        29
                             

Inflow of cash on acquisition
Cash held by Keycorp on acquisition                                      1

The notes following the half-year financial statements form part of the 
half-year financial report.



Statement of Changes in Shareholders' Equity
for the half-year ended 31 December 2001




There were no significant disposals of entities in the half-years ended 
31 December 2001 or 31 December

                                 - 7 -

 
 
Statement of Changes in Shareholders' Equity
for the half-year ended 31 December 2001

                                                                              Telstra Group

                                                                      Reserves
                                                                              Consolida-
                                     Contributed    Asset       Foreign           tion  Retained    Outside
                                                                currency          Fair              equity
                                         equity  revaluation  conversion General Value  profits    interests     Total
                                           $m       $m            $m      $m      $m        $m          $m         $m   


Balance at 30 June 2000                   6,433      32          (41)      1      -       5,170          7       11,602
- change in outside equity interests'
capital, reserves and accumulated losses
(apart from net profit/(loss))                -       -            -       -      -           -         19           19
- net profit/(loss)                           -       -            -       -      -       2,623         (1)       2,622
- share of joint venture entities' reserves
(equity accounted)                            -       -           14       -      -           -          -           14
- adjustment on conversion of non-
Australian controlled entities' financial
statements                                    -       -            6       -      -           -          -            6
- fully franked interim dividend (i)          -       -            -       -      -      (1,029)         -       (1,029)
Balance at 31 December 2000               6,433      32          (21)      1      -       6,764         25       13,234
- change in outside equity interests'
capital, reserves and accumulated losses
(apart from net profit)                       -       -            -       -      -           -        454          454
- net profit                                  -       -            -       -      -       1,435          4        1,439
- share of joint venture entities' and
associates' reserves (equity accounted)       -       -          (47)      3      -           -          -          (44)
- adjustment on conversion of non-
Australian controlled entities' financial
statements                                    -       -           55       -      -           -          -           55
-transfer of foreign currency conversion
reserve on sale of controlled entities        -       -          (12)      -      -          12          -            -
- fully franked final dividend (ii)           -       -            -       -      -      (1,416)         -       (1,416)
Balance at 30 June 2001                   6,433      32          (25)      4      -       6,795        483       13,722
- change in outside equity interests'
capital, reserves and accumulated losses
(apart from net profit/(loss)                 -       -            -       -      -           -         74           74
- net profit                                  -       -            -       -      -       2,098          3        2,101
- share of joint venture entities' reserves
(equity accounted)                            -       -           (2)      -      -           -          -           (2)
- adjustment on conversion of non-
Australian controlled entities' financial
statements                                    -       -           (9)      -      -           -          -           (9)
- dilution of outside equity interest on
acquisition of controlled entity through
additional share issue                        -       -            -       -      -          29        (29)           -
- fair value adjustment on acquisition of
controlling interest in joint venture
entity                                        -       -            -       -     56           -          -           56
- fully franked interim dividend (ii)         -       -            -       -      -      (1,415)         -       (1,415)
Balance at 31 December 2001               6,433      32          (36)      4     56       7,507        531       14,527

(i) Franked at 34% tax rate                                      (ii) Franked at 30% tax rate.

The notes following the half-year financial statements form part of the 
half-year financial report.
 
                                 - 8 - 

 

Notes to the Half-Year Financial Statements

1. Summary of accounting policies

In this financial report, we, us, our, Telstra and the Telstra Group - all, mean
Telstra Corporation Limited, an Australian corporation and its controlled
entities as a whole. Telstra Entity is the Legal entity, Telstra Corporation
Limited.

Our half-year financial report is a general purpose financial report and is to
be read in conjunction with our Annual Financial Report as at 30 June 2001. This
also should be read together with any public announcements made by us in
accordance with the continuous disclosure obligations arising under Australian
Stock Exchange listing rules and the Corporations Act 2001, up to the date of
the Directors' Declaration. Our half-year financial report does not include 
notes of the type normally included in the annual financial report. Therefore,
it cannot be expected to provide as full an understanding of the financial
performance, financial position and financing and investing activities of the
Telstra Group as a full financial report.

1.1.Basis of preparation of the financial report The accounting policies and
measurement bases adopted in preparing our half-year financial report are
consistent with those applied in the financial year ended 30 June 2001.

During fiscal 2001, we changed our revenue recognition policy by adopting US
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101,
'Revenue Recognition in Financial Statements' (SAB101). SAB101 provides the SEC
staff's interpretation of existing accounting principles on the timing and
recognition of revenues and associated expenses in the financial statements.

SAB101 was not applied in the preparation of the 31 December 2000 financial
statements. The effect on the 31 December 2000 half-year statement of financial
performance due to the SAB101 change in accounting policy is presented as
follows:

                                                                        SAB101

                                                                      Half-year
                                                                        ended
                                                                     31 December
                                                                         2000
                                                                          A$m

Sales revenue - unusual
Deferral of additional revenues under new
policy for half-year ended 31 December 2000.                              (214)
Part release of cumulative impact for the half-
year ended 31 December 2000                                                303

Total sales revenue - unusual impact                                        89

Direct cost of sales - unusual
Deferral of additional expenses under new
policy for half-year ended 31 December 2000 .                             (102)
Part release of cumulative impact for the half-
year ended 31 December 2000                                                102

Total direct cost of sales - unusual impact                                  -

Increase in profit before income tax expense                                89

Income tax expense at 34%                                                   30

Increase in net profit for half year ended 31
December 2000                                                               59


1.2. Rounding
All dollar amounts in this financial report (except where indicated) have been
rounded to the nearest million dollars ($m) for presentation. This has been done
in accordance with Australian Securities and Investments Commission (ASIC) Class
Order 98/100, dated 10 July 1998, issued under Section 341(1) of the
Corporations Act 2001, and subsequent amending class orders 99/90 and 00/321.


1.3. Comparative figures

Where necessary, we adjust comparative figures to align with changes in 
presentation in the current half-year.

                                   - 9 -
 
 

Notes to the Half-Year Financial Statements (continued)

                                                              Half-year ended
                                                               31 December

                                                                 2001     2000
                                                         Note     $m       $m

2. Profit from ordinary activities

Our profit before income tax expense 
(including both usual and unusual
items) has been calculated after:

(i) crediting
Interest revenue
- associated entities                                              1        1
- other entities                                                  66       37

                                                                  67       38

Dividend revenue
- other entities                                                   -       10

Revenue from the sale of:
- property, plant and equipment                                   76      197
- investments in controlled entities                               -        4
- investments in listed entities and other corporations     3     20      443
- patents, trademarks and licences                                 -        4
- businesses                                                      29        4
 
                                                                 125      652

(ii) charging
Borrowing costs
- other entities                                                 471      410
- finance charges relating to finance leases                       -        1

                                                                 471      411
- borrowing costs capitalised                                    (54)     (60)

                                                                 417      351

Net book value of assets we have sold/disposed:
- property, plant and equipment                                   93      187
- investments in controlled entities(4)                            -       (4)
- investments in listed entities and other corporations      3    18      235
- patents, trademarks and licences                                 -        4
- businesses                                                       2        3

                                                                 113      425
Provisions
- reduction in value of investments                               26       41

Net (profit)/loss we have made on the sale of:
- property, plant and equipment                                   17      (10)
- investments in controlled entities                               -       (8)
- investments in listed entities and other corporations           (2)    (208)
- businesses                                                     (27)      (1)

                                                                 (12)    (227)                                          
                    

                                 - 10 -
 
  

Notes to the Half-Year Financial Statements (continued)


                                                            Half-year ended
                                                             31 December
 
                                                            2001        2000
                                                             $m          $m

3. Unusual items

The following items form part of the ordinary operations of our business but are
considered unusual due to their nature and amount.

Profit before income tax expense has been calculated after crediting/(charging)
unusual revenue and expense items from our ordinary activities as follows:

Unusual items included in other revenue: 
- partial sale of our investment in Computershare Limited (i)  -        386
- writeback of Telstra Superannuation Scheme additional 
 contribution liability (ii)                                   -        725

                                                               -      1,111

Unusual items included in other expenses: 
- book value of partial sale of our investment in 
 Computershare Limited (i)                                     -       (199)
Net unusual items                                              -        912
Income tax expense                                             -       (311)
Net unusual items after income tax expense                     -        601

There are no transactions considered unusual for the half-year ending 31
December 2001. In the half-year ended 31 December 2000, we recorded the
following unusual revenue and expense items:

(i) On 13 July 2000, our controlled entity, Telstra CB.com Limited, sold
approximately 53.3 million ordinary shares in Computershare Limited
(Computershare) at $7.25 per share for $386 million.

As a result of this transaction, our voting interest in Computershare was 
reduced on 18 July 2000 to 26,636,460 ordinary shares (5.2% of the issued 
capital).

On 26 June 2001, we sold our remaining shareholding in this investment.


                                                               Half-year
                                                                ended
                                                              31 December
                                                                 2000
                                                                  $m


Revenue from partial sale of Computershare                        386
Book value of investment in Computershare sold                   (199)

                                                                  187

Tax effect at 34%                                                 (64)

                                                                  123



Notes to the Half-Year Financial Statements (continued)

3. Unusual items (continued)

(ii) On 29 August 2000, the trustee of the Telstra Superannuation Scheme (TSS)
and the Commonwealth (who guaranteed our payments) released us from our
obligation to contribute $121 million per annum to the TSS until 30 June 2011.
As part of the terms of the release, we have agreed to provide such future
employer contributions to the TSS as may be required to maintain the vested
benefits index (VBI - the ratio of fund assets to members vested benefits) in
the range of 100-110%.

The removal of our obligation reduced the assets of the TSS and resulted in the
VBI of the defined benefit divisions reducing from approximately 167% at 30 June
2000 to approximately 148% as at 31 December 2000.

The Trustee agreed to the release of the obligation based on actuarial advice
that the removal of these additional contributions, coupled with the employer
contribution commitment from us, will maintain the solvency level of the TSS at
a satisfactory level.

We anticipate that the surplus in the TSS will continue and no employer
contributions will be required in the current fiscal year or fiscal 2003
assuming the continued sound performance of the TSS.

The net present value of our commitment to the TSS was shown as a liability on
our statement of financial position as at 30 June 2000. This liability has been
written back to the statement of financial performance in the half-year ended 31
December 2000 and has increased our result as follows:
                                                                     Half-year
                                                                      ended
                                                                    31 December
                                                                       2000
                                                                        $m

Writeback of TSS additional contribution
liability                                                              725
Tax effect at 34%                                                     (247)

                                                                       478



                              - 12 -

 

Notes to the Half-Year Financial Statements (continued)

                                                               Half-year ended
                                                                 31 December
                                                             2001        2000
                                                              $m          $m

4. Income tax expense

Notional income tax expense on profit agrees to actual 
income tax expense recorded as follows:

Profit before income tax expense                           3,093        4,042
Australian statutory rate of taxation                        30%          34%

                                                             928        1,374
  
Notional income tax expense on profit calculated 
 at 30% (2000: 34%)                                          928        1,374


Which is adjusted by the tax effect of:
Lower rates of tax on overseas income                       (11)            -
Share of associates' and joint venture entities' net losses  18            48
Estimated non-deductible expenditure                         32             -
Attributed foreign source income                             12             -
Under/(over) provision of tax in prior years                 21            (6)
Other adjustments                                            (8)           17

Income tax expense on profit                                992         1,433
Effect of decrease in tax rates on deferred tax balances (i)  -           (13)

Income tax expense                                          992         1,420

Our income tax expense contains the following items:                    
Current taxation provision                                  737           926
Movement in future income tax benefit                       (74)          (71)
Movement in deferred income tax liability                   305           571
Under/(Over) provision of tax in prior years                 21            (6)

                                                            992         1,420

(i) During the year ended 30 June 2000 the Commonwealth lowered the income tax
rates applicable to companies from 36% to 30% in two stages.  From 1 July 2000
the income tax rates were lowered from 36% to 34%.  From 1 July 2001 the income
tax rate was lowered from 34% to 30%.  As a result we have restated our deferred
tax balance to the rates applicable when the timing differences are expected to
reverse.  This had the effect of lowering our deferred tax balances by $13
million for the half-year ended 31 December 2000.

                                   - 13 -




Notes to the Half-Year Financial Statements (continued)

5. Segment information

We report our segment information on the basis of business segments as our risks
and returns are affected predominantly by differences in the products and
services we provide through those segments.

Business segments

Our business structure was adjusted throughout the half-year ended 31 December
2001. We have restated our comparative information at balance date as if the new
business segments existed in prior years.

• Telstra Retail's primary activities are sales and billing. This covers 
  residential, business and government customers who receive our services, other
  than wholesale services (which are provided by Telstra Wholesale), mobile 
  services (which are provided by Telstra Mobile), and those customers included 
  in Telstra Country Wide. 

This business unit:

• manages our information, connection and payphone services as well as our
  directories business; and sells and provides customer services for a 
  comprehensive range of products, services and customer-driven solutions 
  ranging from basic telephony services to complex voice and data networks.

•TelstraCountryWide is responsible for: 

•  addressing the telecommunication needs of consumer and business customers 
   that reside and operate outside the mainland state capital cities and in 
   Tasmania and the Northern Territory; and 

•  the specific needs of customers which are not as readily addressed as for 
   customers in metropolitan areas.


• Telstra Mobile is responsible for:

  • our mobile and wireless networks and associated systems within Australia; 
    and
  • all mobile retail sales and after sales support, customer service, product
    development and pricing.

• Telstra International manages our interests in: 

  • the Asia-Pacific region, including our operations in Hong Kong, Vietnam, 
    India, Singapore, New Zealand, Japan and Sri Lanka; 

  • and our North American and European retail operations.

• Infrastructure Services responsibilities include: 

  • planning, design, construction and operation of our domestic fixed 
    communication networks and associated systems to deliver technology 
    solutions, our products, services and customer support; 

  • customer service installation and repairs; and competing for some of our 
    annual network expenditure against other suppliers, and also performing 
    construction activities for others, including other telecommunications 
    companies.

• Telstra Wholesale is responsible for: 

  • the provision of domestic wholesale products and services to other carriers 
    and carriage service providers.

  • Corporate Centre is responsible for: 

    • finance & administration, legal & regulatory, human resources, and 
      corporate relations.

Telstra CountryWide and Telstra Retail have been combined as a single reportable 
business segment for reconciliation and disclosure purposes as they are
considered substantially similar. Corporate Centre is not a reportable segment 
and has been aggregated in the 'Other' segment.


                                   - 14 -
 
 

Notes to the Half-Year Financial Statements (continued)

5. Segment information (continued)

The following tables detail the major segments, based 
on the reporting structure as at 31 December 2001.

Half-year ended 31 December 2001

                                                                    Telstra   Infra-    Telstra
                                              Telstra    Telstra    Inter-   structure  Whole-        Elimina- Total of
Business Units                                Retail     Mobile     national Services   sale    Other tions    segments

                                                $m         $m         $m         $m       $m      $m      $m       $m

Sales revenue from external customers          6,472      1,767       688        104     1,210     25      -      10,266
Other revenue from external customers 
(before interest)                                124          5        18         18         4    110      -         279
Total revenue from external customers (before
interest)                                      6,596      1,772       706        122     1,214    135      -      10,545
Less revenues from sale of investments and
dividends                                         39          -        10          -         -      -      -          49
Add inter-segment revenue (a)                    242         21         1        894       483    498  (2,139)         -

Segment revenue                                6,799      1,793       697      1,016     1,697    633  (2,139)    10,496

Segment result                                 3,848        739        27       (691)    1,093 (1,488)    (21)     3,507
Less share of joint venture entities 
net losses                                        23          -        66          -         -      -       -         89
Less share of associated entities' net losses      1          -         3          -         -      -       -          4
Less net book value of investments sold           11          -         9          -         -      -       -         20
Add revenues from sale of investments and 
dividends                                         39          -        10          -         -      -       -         49
Profit before interest and income tax expense  3,852        739       (41)      (691)    1,093 (1,488)    (21)         3


Half-year ended 31 December 2000


                                                                    Telstra   Infra-    Telstra
                                              Telstra    Telstra    Inter-   structure  Whole-        Elimina- Total of
Business Units                                Retail(i)  Mobile     national Services   sale    Other tions    segments
                                                          (ii)                                  (iii)
                                                  $m       $m          $m       $m       $m       $m      $m      $m
Sales revenue from external customers          6,323      1,581       543        161     1,138     12       -     9,758
Other revenue from external customers 
(before interest)                                428          8        90         17        10    962       -     1,515
Total revenue from external customers (before
interest)                                      6,751      1,589       633        178     1,148    974       -    11,273
Less revenues from sale of investments
and dividends                                    390          -        71          -         -      -       -       461
Add inter-segment revenue (a)                    163         15       232        979       395    433  (2,217)        -
Segment revenue                                6,524      1,604       794      1,157     1,543  1,407  (2,217)   10,812

Segment result                                 3,651        705       161       (674)    1,059   (600)    (10)    4,292
Less share of joint venture entities'
net losses                                        22          -        93          -         -      -       -       115
Less share of associated entities' 
net losses                                        49          -         -          -         -      -       -        49
Less net book value of investments sold          195          -        39          -         -      -       -       234
Add revenues from sale of investments 
and dividends                                    390          -        71          -         -      -       -       461
Profit before interest and income tax 
expense                                        3,775        705       100       (674)    1,059   (600)    (10)    4,355

(a) Generally most internal charges between business segments are made on a
direct cost recovery basis. All internal telecommunications usage is accounted
for at market value. We account for all international transactions between
Australian and non-Australian businesses at market value.

                                    - 15 -





Notes to the Half-Year Financial Statements (continued)

5. Segment information (continued)

(i) Unusual revenue of $386 million from the partial sale of Computershare
Limited (refer note 3) is included in Telstra Retail revenue. This increased
profit before income tax expense by $187 million after including the impact of
the related book value of our investment sold.

If SAB101 had been applied in the half-year ended 31 December 2000, Telstra
Retail segment revenue would be adjusted to $6,625 million and profit would be
adjusted to $3,873 million.

(ii) If SAB101 had been applied in the half-year ended 31 December 2000,
Telstra Mobile segment revenue would be adjusted to $1,592 million and profit
would be adjusted to $696 million.

(iii) Unusual revenue of $725  from the writeback of the Telstra Superannuation
Scheme additional liability (refer note 3) is included in other segment revenue.
This increased the other segment profit before income tax expense by $725
million.

                                                                 Half-year ended
                                                                   31 December
                                                                 2001     2000
                                                                  $m       $m
 
Information about our products and services

Sales revenue from
Basic access (a)                                                 1,343     1,146
Local calls                                                      1,023     1,113
National long distance calls                                     1,295     1,277
International telephone services                                   216       524
Mobile goods and services (a)                                    1,753     1,566
Data and internet services                                       1,580     1,645
Directory services (a)                                             714       622
Intercarrier services                                              568       499
Inbound calling products                                           193       229
Solutions management                                               162       146
Other sales and services                                         1,419       991

                                                                10,266     9,758


(a) If SAB101 had been applied in the half-year ended 31 December 2000, the 
following revenue categories would be adjusted (refer note 1 for 
further information):
                 
                                                                Half-year ended
                                                                 31 December
                                                                   2000
                                                                    $m

Basic access                                                        1,149
Mobile telecommunication services                                   1,554
Directory services                                                    720

                                  - 16 -
 


Notes to the Half-Year Financial Statements (continued)

6. Share of net losses of associates and joint venture entities


                                             Ownership interest
                                                  as at         Half-year ended
                                               31 December       31 December
                                                2001   2000     2001   2000
                                                  %      %       $m     $m

Our net loss from joint venture entities and 
associates has been contributed by the
following entities:

Joint venture entities
- FOXTEL Partnerships                           50.0     50.0     24    23
- Stellar Call Centres Pty Ltd                  50.0     50.0     (2)   (1) 
- TelstraClear Limited (i)                      58.4     50.0     75    53
- Xantic 12 B.V. (formerly Station 12 B.V.)     35.0     35.0      -    35
- Telecom Services Kiribati Limited (ii)           -     49.0      -    (1)
- Harmony Telecommunications Pte Ltd (iii)         -     50.0      -     2
- Dynegy Connect LP (i)                            -     20.0     12     4
- Reach Ltd (iv)                                50.0        -    (20)    -

                                                                  89   115


Associated entities
- IBM Global Services Australia Limited         22.6     22.6     (4)   (1)
- Australian-Japan Cable Holdings Limited       39.9     39.9      3     -
- Solution 6 Holdings Limited (v)               19.1     20.3      2    54
- ECard Pty Ltd                                 41.0     41.0      3     3
- PlesTel Operating Trust                          -        -      -   (11)
- Myinternet Ltd (i)                            21.1     13.7      -     4    

                                                                   4    49

                                                                  93   164

(i) Refer to comments in Note 7.

(ii) We sold our investment in Telecom Services Kiribati Limited on 31 May 2001.

(iii) On 1 April 2001 we sold our interest in Harmony Telecommunications Pte Ltd
to DataOne Corporation Pte Ltd (DataOne) in exchange for a 20% interest in
DataOne. DataOne is considered to be a joint venture entity as we have joint
control over decision making. Our share of the losses from this company are
insignificant for the six months ended 31 December 2001.

(iv) On 7 February 2001 Reach Ltd was created as a result of the completion of
our strategic alliance with PCCW.

(v) Our investment in Solution 6 Holdings Limited has decreased due to a
dilution in our shareholding.


                              - 17 -
 
 
Notes to the Half-Year Financial Statements (continued)

7. Investment changes

Below is a list of changes in the composition of the
Telstra Group from 30 June 2001.

                                                                                                Immediate parent
                                                                                                       % of equity
                                                                    Date of change in         %        held after
                                                    Country of      investment           acquired/     change in
Name of entity                                      incorporation                        disposed      investment
Additions
Controlled entities
RWC,HK Limited                                      Hong Kong       17 August 2001          100.0          100.0
TelstraClear Limited(i)                             New Zealand     12 December 2001          8.4           58.4
   • TelstraSaturn Holdings Limited (i)             New Zealand     12 December 2001        100.0          100.0
       • Clear Communications Limited(i)            New Zealand     12 December 2001        100.0          100.0
       • ZFREE Limited (i)                          New Zealand     12 December 2001        100.0          100.0
       • ZTALK Limited (i)                          New Zealand     12 December 2001        100.0          100.0
       • CLEAR Communications (Australia)
         Pty limited (i)                            Australia       12 December 2001        100.0          100.0
   • Kiwi Cable Company Limited (i)                 New Zealand     12 December 2001        100.0          100.0
   • Netlink Limited (i)                            New Zealand     12 December 2001        100.0          100.0
   • Paradise.Net Limited (i)                       New Zealand     12 December 2001        100.0          100.0
   • Saturn Communications Limited (i)              New Zealand     12 December 2001        100.0          100.0
Investment Funding Pty Ltd                          Australia       19 December 2001        100.0          100.0
Keytec Nominees Pty Limited (ii)                    Australia       15 November 2001         60.0          100.0

Associated entities
CityLink Limited (iii)                              New Zealand      12 December 2001         27.1           27.1

Joint venture entities
TNAS Limited (iii)                                  New Zealand     12 December 2001         50.0           50.0

Disposals and Liquidations
Controlled entities
Comtech Asia IT & T Sdn Bhd                         Malaysia       30 September 2001         95.0              -
Telstra eConnect LLC (iv)                           United States  19 December 2001         100.0              -

Joint venture entities
Dynegy Connect LP (v)                               United States  16 September 2001         20.0              -

Other significant investment changes
Nobil Information Technology Corporation Inc (vi)   Canada           1 July 2001
North Point Telecommunications Inc. (vi)            United States   19 December 2001
Telstra Vishesh Communications Private Limited (vii)India            1 May 2001
Myinternet Ltd (vii)                                Australia        26 July 2001
Telstra New Wave Pty Ltd (vii)                      Australia        22 August 2001
Telstra Enterprise Services Pty Limited (vii)       Australia        29 August 2001
Telstra International HK Limited (vii)              Hong Kong         9 November 2001
Keycorp Limited (viii)                              Australia                                               47.9


                                 - 18  -


 
Notes to the Half-Year Financial Statements (continued)

7. Investment changes (continued)

(i) TelstraSaturn Limited changed its name to TelstraClear Limited on 12
December 2001. This coincided with our acquisition of a further 8.4%
shareholding in this entity, giving us a controlling interest. Prior to this
date, TelstraSaturn Limited was a joint venture entity and equity accounted.

(ii) On 15 November 2001, we acquired an additional 60% shareholding in Keytec
Nominees Pty Limited (Keytec) giving us a controlling interest. Prior to this
date, Keytec was classified as an associate.

(iii) CityLink Limited and TNAS Limited are investments of TelstraClear Limited.
Both entities are associates of the TelstraClear Limited group.

(iv) Telstra eConnect LLC was liquidated on 19 December 2001.

(v) On 16 September 2001, we exercised a put option requiring Dynegy Inc. to
return our 20% investment in Dynegy Connect LP. As at 31 December 2001, we
transferred the investment balance to other current receivables. We expect to
receive the carrying amount in full, however final settlement is currently
subject to litigation.

(vi)The following mergers occurred during the half-year ended 31 December 2001:

• Nobil Information Technology Corporation Inc. was merged into 
Tillsmith Systems Inc. on 1 July 2001:

• North Point Telecommunications Inc. was merged into Telstra Inc. on 
19 December 2001.


(vii) The following entities also changed names: 

• Telstra Vishesh Communications Limited changed its name to Telstra Vishesh 
Communications Private Limited on 1 May 2001; 

• myinternet.com.au Pty Ltd changed its name to Myinternet Ltd on 26 July 2001; 
                                      
• Telstra R&D Management Pty Ltd changed its name to Telstra New Wave Pty 
Ltd on 22 August 2001; 

• Advantra Pty Ltd changed its name to Telstra Enterprise Services Pty Limited 
on 29 August 2001; and 

• Telstra Retail (HK) Limited changed its name to Telstra International HK 
Limited on 9 November 2001.

(viii) Our interest in Keycorp Limited (Keycorp) has decreased to 47.9% (from
50.75% at 30 June 2001) due to three separate dilutions in our shareholding. We
have maintained control of the company through our representation on the Board
of Directors and as such we have continued to consolidate the Keycorp group into
our financial report.
                                  - 19 -
 
 

Notes to the Half-Year Financial Statements (continued)

a. Contingent liabilities and contingent assets

There have been no significant changes from 30 June 2001 to guarantees,
indemnities and support provided by us, or to legal actions against us, which
gave rise to contingent liabilities or contingent assets except as noted below:

On 22 October 2001, our controlled entity Hong Kong CSL Limited has indemnified
a financial institution to the value of A$63 million (HK$250 million). The
financial institution has provided a performance bond to the Hong Kong
Government pursuant to our obligations under the third-generation mobile
telecommunication services license.

9. Events after balance date

The directors are not aware of any matter or circumstance that has occurred
since 31 December 2001 that, in their opinion, has significantly affected or may
significantly affect in future years:

• our operations;

• the results of those operations; or

• the state of affairs; 

other than:

FOXTEL

• Since 31 December 2001 our 50% owned partnership FOXTEL has increased its
minimum subscriber guarantee commitments under a new perpetual pay television
programming agreement for Foxsports. The effect of this has been to increase our
share of the FOXTEL minimum subscriber guarantee commitments by approximately
$46 million per annum. The guaranteed minimum number of subscribers under this
new agreement has already been exceeded.

• Subject to certain conditions being met, FOXTEL has granted a non-exclusive
licence to Optus Vision Pty Limited (Optus) to distribute FOXTEL subscription
television channels on the Optus Television cable pay TV service, for the period
1 November 2002 to 31 December 2010. Subject to the consent of content
providers, FOXTEL will supply some Optus channels over the FOXTEL platforms.
FOXTEL will assume certain minimum subscriber obligations of Optus under its
movie and other content arrangements. Our share of these obligations is up to a
maximum of approximately $275 million. Optus will pay fees to FOXTEL for a
guaranteed minimum number of subscribers, which decreases FOXTEL's commitments;
and



• FOXTEL has entered into a 15 year agreement to acquire capacity on the Optus
C1 satellite. Our share of this commitment is $25 million per annum, increasing
to $30 million per annum over the term.

Due to the joint and several nature of the FOXTEL partnership agreements, we are
also contingently liable to the extent of our FOXTEL partners' share of these
commitments, should FOXTEL and/or the other FOXTEL partners default on their
payment obligations under these agreements.

                                     - 20 -
 

Notes to the Half-Year Financial Statements (continued)

10. United States generally accepted accounting principles disclosures
Reconciliations to financial reports prepared using
USGAAP

Our consolidated financial report is prepared in accordance with accounting 
principles generally accepted in Australia (AGAAP). The principles of AGAAP       
differ in certain respects from accounting principles generally accepted in the 
United States (USGAAP). For an explanation of the significant differences 
between AGAAP and USGAAP, refer to note 30 of the 30 June 2001 financial 
statements. The following tables are provided to supplement those disclosures 
for the half-year ended 31 December 2001.


                                                                                            Half-year ended 31 December
                                                                                                 2001      2000
                                                                                                    $m        $m
     Reconciliation of net income to USGAAP
     AGAAP Net income reported in statement of financial performance                             2,098     2,623
     Adjustments required to agree with USGAAP
     Property, plant and equipment                                                                 (94)      (86)
     Retirement benefit gain/(expense)                                                             161      (416)
     Amortisation of software assets                                                                 -       (25)
     Income tax benefit                                                                             43       409
     Employee compensation expense                                                                 (25)       (9)
     Mobile phone subsidies                                                                         15        72
     Redundancy and restructuring provision - fiscal 2000 reversal                                 (89)     (285)
     Revenue recognition                                                                             -      (115)
     Derivative financial instruments and hedging activities                                       (73)     (121)
     PCCW convertible note                                                                         (34)        -
     Equity accounting adjustment for Reach Ltd                                                     16         -
     Consolidation adjustment for Regional Wireless Company (RWC)                                  (27)        -
     Consolidation adjustment for TelstraClear Limited                                               8         -
     Net income per USGAAP                                                                       1,999     2,047
     Statement of financial performance measured and classified per USGAAP
     Operating revenue                                                                          10,266     9,847
     Operating expenses:
     Labour                                                                                      1,480     1,547
     Direct cost of sales                                                                        1,774     1,624        
     Depreciation and amortisation                                                               1,696     1,516
     Other operating expenses                                                                    2,006     1,694
     Total operating expenses                                                                    6,956     6,381
     Operating income                                                                            3,310     3,466
     Net interest expense                                                                         (398)     (320)
     Dividend income                                                                                 -        10
     Share of net losses of associates and joint venture entities                                  (55)     (140)
     Other income                                                                                   98       296
     Net income before income tax expense and minority interests                                 2,955     3,312
     Income tax expense                                                                            953     1,104
     Net income before minority interests and cumulative effect adjustments                      2,002     2,208
     Minority interests                                                                             (3)        1
     Net income before cumulative effect adjustments                                             1,999     2,209
     Cumulative effect of changes in accounting principles, net of tax                               -      (162)
     Net income per USGAAP                                                                       1,999     2,047

                                            - 21 -      

                                                                                                   
Notes to the Half-Year Financial Statements (continued)

10. United States generally accepted accounting principles disclosures 
(continued) 
Reconciliations to financial reports prepared using

USGAAP (continued)

                                                    Half-year ended 31 December
                                                           2001          2000
                                                            $m            $m

USGAAP Earnings per share

Net income per USGAAP                                       1,999       2,047

                                                               c          c

Basic earnings per share before cumulative effect of 
change in accounting principles                              15.6        17.2
Revenue recognition                                             -        (1.1)
Derivative financial instruments and hedging activities         -        (0.1)

Basic earnings per share per USGAAP (cents)                  15.6        16.0


Dilutive earnings per share before cumulative effect 
of change in accounting principles                           15.6        17.2
Cumulative effect of change in accounting principles 
(net of tax):
Revenue recognition                                             -        (1.1)
Derivative financial instruments and hedging activities         -        (0.1)

Diluted earnings per share per USGAAP (cents)                15.6        16.0


                                                           Number (in millions)
Weighted average number of ordinary shares and common share 
equivalents used for basic earnings per share 
calculations (i)                                           12,780      12,758

Weighed average number of employee share options exercised
during the half-year                                           44          65

Weighted average number of potential ordinary shares and
common share equivalents used for diluted earnings per share 
calculations                                               12,824      12,823

(i) Reconciliation of weighted average number of ordinary 
shares and common share equivalents used for basic 
earnings per share calculations                            Number (in millions)

                            
Number of shares used for AGAAP earnings per share 
calculations                                                12,867     12,867
Adjusted for weighted average TESOP 97 and 99 options 
outstanding during the half-year                               (87)      (109)

Number of shares used for USGAAP basic earnings per 
share calculations                                         12,780      12,758

                                 - 22 -
  
 
Notes to the Half-Year Financial Statements (continued)

10. United States generally accepted accounting principles disclosures 
(continued)
Reconciliations to financial reports prepared using

USGAAP (continued)

                                                                                        As at 31 December
                                                                                       2001          2000
                                                                                         $m            $m

Reconciliation of shareholders' equity to USGAAP

AGAAP shareholders' equity per statement of financial position                       14,527        13,234
Cumulative adjustments required to agree with USGAAP 
Property, plant and equipment                                                           529           729
Listed investments                                                                      112           346
Dividend payable                                                                      1,415         1,029
Retirement benefits                                                                   3,776         3,309
Income tax                                                                           (1,220)       (1,223)
Minority interests                                                                     (531)          (25)
Employee share loans                                                                   (250)         (307)
Mobile phone subsidies                                                                  (15)         (102)
Redundancy and restructuring provision - fiscal 2000                                      5           201
Revenue recognition                                                                       -          (115)
Derivative financial instruments and hedging activities                                (199)         (161)
PCCW convertible note                                                                  (251)            - 
Sale of Global Wholesale Business to Reach Ltd                                         (882)            -
Equity accounting adjustment for Reach Ltd                                               33             -
Consolidation adjustment for Regional Wireless Company                                1,092             -   
Consolidation adjustment for TelstraClear Limited                                       (38)            -

Shareholders' equity per USGAAP                                                      18,103        16,915   

                                                                                     

Statement of financial position measured and classified per USGAAP
Current assets
Cash                                                                                    652           941
Accounts receivable, net                                                              3,903         3,876
Inventories                                                                             286           379
Deferred tax asset                                                                      221           260
Other assets                                                                            641           434

Total current assets                                                                  5,703         5,890

Non current assets
Receivables                                                                           1,339           592
Inventories                                                                              22            35
Investments - accounted for using the equity method                                     265           401
Investments - other non current                                                       1,509           604
Property, plant and equipment                                                        43,505        41,353
Accumulated depreciation                                                            (19,282)      (18,080)
Intangible assets, net                                                                4,066           509
Prepaid pension assets                                                                3,776         3,309
Other assets                                                                          2,171         1,938

Total non current assets                                                             37,371        30,661

Total assets                                                                         43,074        36,551


                                   - 23 -

 

Notes to the Half-Year Financial Statements (continued)

10. United States generally accepted accounting principles disclosures 
(continued)

Reconciliations to financial reports prepared using

USGAAP (continued)

                                                                                      As at 31 December
                                                                                       2001        2000
                                                                                        $m         $m

Statement of financial position measured and classified per USGAAP (continued)

Current Liabilities
Payables                                                                               2,525        2,281
Borrowings - short term debt                                                           2,424        3,462
Borrowings - long term debt due within one year                                        1,085          196
Income tax payable                                                                       476          618
Provisions                                                                               446          594
Revenue received in advance                                                              859          720

Total current liabilities                                                              7,815        7,871


Non current liabilities
Payables                                                                                 164          339
Borrowings - long term debt                                                           11,865        7,081
Income tax payable                                                                        45          137
Deferred tax liability                                                                 3,226        2,722
Provisions                                                                               858          839
Revenue received in advance                                                              462          622

Total non current liabilities                                                         16,620       11,740

Total liabilities                                                                      24,435      19,611


Minority interests                                                                        536          25

Shareholders' equity
Contributed equity                                                                      6,433       6,433
Share loan to employees                                                                  (250)       (307)
Additional paid in capital from employee share plans                                      317         292

Total share capital                                                                     6,500       6,418

Accumulated other comprehensive income (reserves)                                         205         200
Retained earnings                                                                      11,398      10,297

Total shareholders'equity                                                              18,103      16,915

Total liabilities and shareholders' equity                                             43,074      36,551

                                   - 24 -
 
 
Notes to the Half-Year Financial Statements (continued)

10. United States generally accepted accounting principles disclosures 
(continued)

Reconciliations to financial reports prepared using

USGAAP (continued)

                                                    Half-year ended 31 December
                                                            2001      2000
                                                            $m         $m

Total comprehensive income disclosure

Total comprehensive income is calculated by adding net income and other 
comprehensive income.

Net income per USGAAP                                     1,999     2,047
USGAAP other comprehensive income                          (327)     (372)
USGAAP Total comprehensive income                         1,672     1,675

                                   - 25 -
 
 
Directors' Declaration

The directors of Telstra Corporation Limited have made a resolution that 
declared:

(a) the financial statements and notes, set out on pages 2 to 25, 
of the Telstra Group:

(i) comply with the Accounting Standards, Corporations Regulations and 
Urgent Issues Group Consensus Views;

(ii) give a true and fair view of the financial position as at 31 December 2001 
and performance, as represented by the results of the operations and cash flows, 
for the half-year ended 31 December 2001; and

(iii) in the directors' opinion, have been made out in accordance with the 
Corporations Act 2001.

(b) at the date of this declaration, in the directors' opinion, there are 
reasonable grounds to believe that Telstra Corporation Limited will be able to
pay its debts as and when they become due and payable.

For and on behalf of the Board


Robert C Mansfield             Ziggy Switkowski
Director                       Chief Executive Officer
                               and Managing Director 
Date: 6 March 2002
Melbourne, Australia

                                     - 26 -

 
Independent Review Report

To the Members of Telstra Corporation Limited

Scope

I have reviewed the financial report of Telstra Corporation Limited (the Telstra
Entity) for the half-year ended 31 December 2001 as set out on pages 2 to 26,
including the Directors' Declaration. The financial report includes the
consolidated financial statements of the consolidated entity comprising the
Telstra Entity and the entities it controlled at the end of the half-year, or
during the half-year (the Telstra Group). The Telstra Entity directors are
responsible for the financial report. I have conducted an independent review of
the financial report in order to state whether, on the basis of the procedures
described, anything has come to my attention that would indicate that the 
financial report is not presented fairly in accordance with Accounting Standard
AASB 1029 'Interim Financial Reporting', and, other mandatory professional
reporting requirements in Australia and statutory requirements so as to present
a view which is consistent with my understanding of the Telstra group financial
position, and performance as represented by the results of its operations and
its cashflows. I have also conducted my independent review in order for the
Telstra Entity to lodge the financial report with the Australian Securities and
Investment Commission.


My review has been conducted in accordance with the Australian National Audit
Office Auditing Standards, which incorporate the Australian Auditing Standards,
applicable to review engagements. The review was limited primarily to inquiries
of the Telstra Group's personnel and conduct of analytical review procedures
applied to the financial data. These review procedures do not provide all the
evidence that would be required in an audit. Thus the level of assurance
provided is less than that given in an audit. Consequently, I have not performed
an audit and, accordingly, I do not express an audit opinion.

I have also reviewed quantification of the major differences between accounting
principles generally accepted in Australia compared to accounting principles
generally accepted in the United States of America, which is presented in note
10 to the financial report. I have reviewed note 10 in order to state whether,
in all material respects, anything has come to my attention that would indicate
that it does not present fairly, the major differences between accounting
principles generally accepted in Australia and accounting principles generally
accepted in the United States of America, in so for as they apply to the Telstra
Group.

Review Statement

As a result of my review, which is not an audit, I have not become aware of any
matter that makes me believe that the half-year financial report of the Telstra
Group is not in accordance with:

(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the Telstra Group's financial position 
as at 31 December 2001 and its performance for the half-year ended 
on that date; and
(ii) complying with Accounting Standard AASB 1029 'Interim Financial Reporting' 
and the Corporations Regulations 2001; and

(b) other mandatory professional reporting requirements in Australia.

                                 - 27 -
 

Independent Review Report (continued)

Review Statement (continued)

Further, as a result of my review, I have not become aware of any matter that
would indicate that note 10 does not present fairly the major differences
between accounting principles generally accepted in Australia and accounting
principles generally accepted in the United States of America, in so for as they
apply to the Telstra Group.

PJ Barrett
Auditor-General

Date: 6 March 2002
Canberra, Australia

                                  - 28 -
 
Directors' report
The directors present their report on the consolidated entity (Telstra or
Telstra Group) consisting of Telstra Corporation Limited (Telstra Entity) and
the entities it controlled at the end of or during the half-year ended 31
December 2001. Financial comparisons used in this report are of results for the
half-year ended 31 December 2001 compared with the half-year ended 31 December
2000.


Results of operations

Telstra's net profit for the half-year was $2,098 million (2000: $2,623
million). This was after:

•  deducting income tax expense of $992 million (2000: $1,420 million); and
•  allowing for net profit attributable to outside equity interests in 
   controlled entities of $3 million (2000: net loss of $1 million).

Review of operations

Our operating result in the half-year ended 31 December 2001 has declined
compared with the corresponding period in the prior year, primarily due to the
inclusion of a number of favourable one off items in the prior corresponding
period. These included the partial sale of our interest in Computershare Limited
($123 million after tax) and the release of our obligations under the Telstra
Additional Contributions agreement to the superannuation fund ($478 million
after tax). We have also experienced modest sales revenue growth during the
current period whilst continuing to focus on cost containment.


Sales revenue increased by $508 million to $10,266 million due to:

•  continued strong growth in mobile services, intercarrier and fixed to
   mobile due to increased call volumes and higher mobile customer numbers.
   Partially offsetting this growth is the decline in data and internet services
   revenue due to general economic downturn particularly in the IT industry;
•  ongoing implementation of our rebalancing initiatives resulting in
   increased basic access revenue and decreases in Local call and national long
   distance revenues; and
•  the inclusion of $577 million in revenues from our 60% owned Asian
   controlled entity, known as the Regional Wireless Company (RWC). This is 
   partly offset by a reduction in sales revenue from our global wholesale 
   business of $407 million following its sale to our 50% owned Asian joint 
   venture Reach Ltd in February 2001.


Operating expenses (before borrowing costs and share of net losses of associates
and joint venture entities) increased $255 million to $7,009 million due to the
following:

•  direct cost of sales increased due to higher volumes of outgoing calls
   terminating on other carriers' networks and an increase in mobile handset 
   sales;
•  depreciation and amortisation increased due to continued capital
   expenditure on our communications plant asset base and ongoing software
   development, together with $142 million of depreciation and amortisation
   relating to our Asian controlled entity RWC;

•   labour expenses decreased due to reduced staff numbers, partly offset by
    higher costs resulting from outsourcing arrangements and employee 
    redundancies; and
•   discretionary spending declined due to strong cost management. 
 
Borrowing costs increased $66 million to $417 million due to a higher level of
net debt following investment in our Asian ventures.


Our share of net losses of associates and joint venture entities decreased to
$93 million (2000: $164 million). This is after taking into account our share of
profits from our Asian joint venture Reach Ltd ($20 million) and our share of
losses, including restructuring provisions and asset write offs recognised as
pre-acquisition costs just prior to gaining control of TelstraClear Limited ($75
million).


Our free cash flow increased 15.9% to $1,373 million after improved cash inflow
from our operating activities and a decrease in outflows for capital
expenditure. Operating capital expenditure declined 16.0% to $1,662 million
following tight control of our capital. expenditure program. Investment
expenditure has remained constant at $100 million with the major component
relating to our additional 8.43% acquisition of a controlling interest in
TeLstraClear Limited ($40 million).


Underlying results from operations


We have taken the reported results and adjusted for the once off items that have
occurred in the half-year ending 31 December 2001 and the corresponding period
in fiscal 2000, so that a like for like comparison of results can be made. On a
normalised basis:


•  our sales revenue has increased by 2.0% to $9,625 million with total
   underlying revenue (excluding borrowing costs) increasing by 2.1%.
•  our underlying operating expenses (before depreciation, amortisation and
   borrowing costs) was contained to 1.2% after continued focus on our ongoing 
   cost reduction programme. Total underlying expenses (before borrowing costs) 
   increased by 2.2%.


This has enabled us to grow our underlying earnings before borrowing costs and
tax by 2.0% to $3,583 million (2000: $3,514 million).


Dividends


The directors have declared an interim dividend of 11 cents per share ($1,415
million) fully franked representing an increase of 3 cents per share from the
equivalent declaration in the prior year. The dividend will have a record date
of 22 March 2002 with the payment to be made on 29 April 2002. The dividend will
be franked at a tax rate of 30%.


Under current legislation, it is expected that Telstra will be able to fully
frank declared ordinary dividends out of fiscal 2002 earnings. While the interim
dividend has been increased to the same level as the prior fiscal year's final
dividend, it should not be assumed that the final dividend in the current year
would be increased. The directors can give no assurance as to the future level
of franking of dividends. This is because these matters depend upon, among other
factors, our earnings, government legislation and announcements, and our tax
position. 
 
Events after balance date


Since 31 December 2001, our 50% owned partnership FOXTEL entered into a number
of agreements as follows:


•  we have entered an agreement with FOXTEL enabling us to reset FOXTEL's
   subscription TV service together with our existing product lines. This in 
   turn enables our customers to bundle subscription TV with telephone and 
   internet services on a single Telstra bill. We will also have the right to 
   set the retail price and offer discounts on any service packages; 
•  subject to certain conditions being met, including appropriate regulatory
   approvals, an agreement was entered with Optus Vision Pty Limited (Optus) to
   resell FOXTEL subscription television channels on the Optus Television cable
   network in return for FOXTEL assuming certain of Optus' minimum subscriber
   guarantee obligations. Subject to the consent of content providers, FOXTEL 
   will also supply some Optus content over existing FOXTEL platforms; 
•  FOXTEL has entered a 15 year agreement to acquire capacity on the Optus Cl
   satellite scheduled to launch in late 2002; and 
•  FOXTEL has entered a perpetual pay television programming agreement for the 
   supply of FoxSports programs with a discount for additional subscribers.


Directors

Retirement of directors
N Ross Adler, Malcolm G Irving and Elizabeth A Nosworthy retired from office at
the annual general meeting held on 16 November 2001. The board wishes to extend
thanks to the directors for their valued contribution during their terms of
office and welcomes the appointment of new directors.


Directors who held office during, and since, the half year

Robert C Mansfield         - chairman and director
John T Ralph               - deputy chairman and director
Zygmunt E Switkowski       - chief executive officer and managing director
N Ross Adler               - director until 16 November 2001
Samuel H Chisholm      
Anthony J Clark
John E Fletcher
Belinda J Hutchinson       - director since 16 November 2001
Malcolm G Irving           - director until 16 November 2001   
Catherine B Livingstone 
Charles Macek              - director since 16 November 2001
Donald G McGauchie
Elizabeth A Nosworthy      - director until 16 November 2001
William A Owens            - director since 16 November 2001
John W Stocker

 
This report is mode in accordance with a resolution of the directors.

Robert C Mansfield
Chairman and Director
6 March 2002


Ziggy Switkowski
Chief Executive Officer and Managing Director
6 March 2002
 

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