TELSTRA GROUP LIMITED — Annual Report 2007

Sep 9, 2007

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10 September 2007

The Manager

Company Announcements Office Australian Stock Exchange 4[th] Floor, 20 Bridge Street SYDNEY NSW 2000

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

Telephone 03 9634 6400 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra presentation to the Merrill Lynch Conference, New York

In accordance with the listing rules, I attach a copy of a presentation by Sol Trujillo, Chief Executive Officer, to the Merrill Lynch Conference, New York, for release to the market.

Yours sincerely

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Claire Elliott Acting Company Secretary

Telstra Corporation Limited ACN 051 775 556 ABN 33 051 775 556

FY 2007 Results

Disclaimer

• These presentations include certain forward-looking statements that are based on information and assumptions known to date and are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Telstra, which may cause actual results to differ materially from those expressed in the statements contained in these presentations. For example, the factors that are likely to affect the results of Telstra include general economic conditions in Australia; exchange rates; competition in the markets in which Telstra will operate; the inherent regulatory risks in the businesses of Telstra; the substantial technological changes taking place in the telecommunications industry; and the continuing growth in the data, internet, mobile and other telecommunications markets where Telstra will operate. A number of these factors are described in Telstra’s 2006 20-F.

• All forward-looking figures in this presentation are unaudited and based on A-IFRS. Certain figures may be subject to rounding differences. All market share information in this presentation is based on management estimates based on internally available information unless otherwise indicated.

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World Class Performance

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PSTN retail line loss Broadband KPIs Mobile Service revenue growth of
national incumbent
0% $60 50%
15%
45%
10%
-4%
$50 40%
5%
35%
-8%
0%
2H05 1H06 2H06 1H07 2H07 $40 30% 1H06 2H06 1H07 2H07
2H05 1H06 2H06 1H07 2H07
Telstra US Avg Europe Avg
Retail Market Share Retail ARPU Telstra Europe Avg US Avg
• Positive retail revenue • World class combination – • Leveraging Next G™
growth May-June growing market share and competitive advantage
• Positive retail churn since ARPUs • Closing the gap on US
October • Superior mobile broadband incumbents
offering – ARPU $100+
•
Improved usability through
personalisation
•
World best practice churn 15%
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Defying global trends
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Delivering on the promise…

• Mobile service revenue growth at 9.8% YoY • 2 million 3GSM customer milestone passed (1m Next G™) • Next G™speed and coverage setting global benchmarks Mobiles • Residential SIO performance +54k yoy • Revenue decline slowed further in H2 to -2.5% • MBM segmentation reducing churn PSTN • Sensis: World class revenue and margin performance • Foxtel: SIOs +13%, ARPU +3%, EBITDA +40% • Telstra online network ranked 3rd in Australia by visitors • SouFun: Expanding into new markets Media-comms • Next G™and Next IP™delivered and ahead of schedule • First IT drop on schedule by end calendar 2007 • FY07 peak spend year – margins to improve Transformation • Broadband momentum continues – revenue growth exceeds cost growth • 2H - ARPU +7.7%, market share +2pp, SIOs +27% • Innovation – Second Life, BigPond TV, I-Pond, BigBlog Broadband …continuing to pressure the competition		2H05 2H06 2H07 2H04 PSTN Revenue -2.5% -7.6%
		2H05 2H06 2H07 Mobile Services Revenue 4.7% 13.0%
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FY2007 Financial Results (Reported)

		$ billions (except margins	& DPS)
			FY06	FY07	%	Guidance
		Sales Revenue	22.7	23.7	4.2	+2.5 to +3.0%
		Operating Expenses	13.5	14.1	4.4
		EBITDA	9.6	9.9	3.0
		EBITDA Margin (%)	42.2	41.7	0.5pp
		EBIT	5.5	5.8	5.1	+3.0% to 5.0%
		PAT1	3.2	3.3	2.9
		Cash Operating Capex	4.3	5.7	32.8	$5.4 to $5.7bn
		Free Cash Flow	4.6	2.9	-36.7
		Ordinary DPS (cents)2	28.0	28.0	-	28 cps

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On or ahead of guidance

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+7.1% Underlying EBIT[3]

(1) Before minority interests

(2) FY06 excludes 6 cent per share special dividend

(3) Excluding Trading Post write-down

Building track record of delivery

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Maintaining competitive advantage Competitors • • 14.4Mbps network speed to 98.8% of 3.6Mbps to only 55% of Wireless � • population – world class � • population Superior depth at 850MHz Inferior depth at 2100MHz • 30Mbps to 1.7m homes in CY07 • 9.9Mbps to 1.4m homes HFC • � 17Mbps to a further 1m homes • Integrated content across media-comms • Content assets 3[rd] party content only and �� � limited integration • Customers Leading market share across all products • Lacking scale in key and services � � products and services • • Distribution 300 shops 150 shops � � Leveraging our truly unique asset portfolio

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Transformation progress – MBM & Productivity

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Outbound sales Contact Volumes: 6m
•
Segmented lists
•
Needs-based product set Strike rates: doubled to 16%
•
Words that work
• Time for day New services: 400k
•
Preferred medium
• Test & learn Incremental revenue: $200m
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Fieldforce

Call centre integrated desktop

Learning Academy

• Technician productivity +17%

• Log in time down 60%

• Revisits down 36%

• Transaction key-in time down 22%

• FOH clearance +12% through •

• new metrics & improved Reduced error rate management

• Real-time sales reporting enabled

• 12,000 people trained in first 11 months

• 5,500 instructor-led training days to be delivered in 2008

• Purpose-built centres in Sydney and Melbourne: 9,300 students per year

Delivering tangible benefits…….more to come

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Transformation progress – IT

Targets & Timing

Achievements

Decommissioning:

Target: Reduce and simplify systems

• Exited 213 systems since Nov 2005 - 132 in FY07

• 80% ‘out of box’ requirements � On track to achieve 80% reduction by FY10

• Aiming to deliver significantly improved customer experience

• Increase cost savings and efficiencies

Capabilities Delivered:

• Service Delivery Platform (TSDP) delivered to support Next G launch

• Integrated Desktop - single login to multiple Front of House systems for

• some contact centres

Timing: On Track:

• Campaign management tool - Sales strike rates doubled

• � 1st release at the end of calendar 2007 • Enterprise Program Management (EPM) - a global, off the shelf database

• � 2nd release in late calendar 2008 product for project and program management

• Introduced 'out of the box' OnePlan Access application for Telstra's

• planners

• Added 4,500 sq metres of additional data processing and storage space

• Installed 100 Sun Fire E25K servers to handle mission critical work

IT transformation: On track, on budget, on time.

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4.2%

Sales Revenue Drivers: $23.7b +$961m 4.2% FY07 Actual ($m) FY07 Movement ($m) 695 5,701 142 1,968 99 568 483 1,213 (88) 796 101 443 444 4,983 251 718 Drivers of Revenue Growth 13.9 7.8 21.1 66.2 (10.0) 29.5 9.8 53.7 FY07 Growth % • Mobiles Handsets Wholesale broadband Specialised data Retail broadband Sensis1 PSTN products IP access • Mobiles Services Total Mobiles 12% 16% 41% 70% 50% 80% 7% 13% +7% +10% -2.5% -5.6% 1H07 / 2H07 Movement (%) (309) 7,190 (4.1) 36% 21% 11% 34% -9% -11%
	Drivers of Revenue Growth 1H07 / 2H07 Movement (%)	FY07 Actual ($m) FY07 Movement ($m) FY07 Growth %
	• Mobiles Handsets Wholesale broadband Specialised data Retail broadband Sensis1 PSTN products IP access • Mobiles Services Total Mobiles 12% 16% 41% 70% 50% 80% 7% 13% +7% +10% -2.5% -5.6% 36% 21% 11% 34% -9% -11%	695 5,701 142 1,968 99 568 483 1,213 (88) 796 101 443 444 4,983 251 718 13.9 7.8 21.1 66.2 (10.0) 29.5 9.8 53.7 (309) 7,190 (4.1)

= 1H07 movement = 2H07 movement (1) Adjusted for the deferral of the Melbourne Yellow Book from 1H to 2H

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Continued growth in key markets…strong second half momentum

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4.4%
+$600m
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Operating Expenses: $14.1b

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FY07 Change
+4.4%
Labour $4.0bn -8.0%
4.7% 0.8% -2.1% 1.1% $14,092m Salary $3.42 +0.3%
Redundancy $0.15 -72%
$13,492m
Goods and Services $5.2bn +9.6%
Network payments $1.80bn -10%
COGS $1.23bn +35%
FY06 Mobiles Aqn / Div Transf. BAU FY07 Handset Subsidies $0.80bn +58%
Other Expenses $4.9bn +11.2%
•
Blended SARCs +34% YoY – investing in Service contracts & other agreements $2.18bn +19%
subscriber growth
• General & Admin $0.95 +20%
Full year of acquisitions
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• Trading Post write down

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Cost growth focused on high revenue growth areas

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32.8%
Cash Capital Expenditure: $5.7b +$1.4b
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•
IT infrastructure •
IP enablement of
• Other (YoY +$464m) network
Move from leases to
Switching (+$504m)
•
purchase of hardware Next G™& Next IP™
launch
•
Network infrastructure
$867m
Specialised $956m • Increased broadband
to support next network
generation network functions demand
(+$58m) $295m
Transmission (+$131)
$557m
$995m
Capitalised
software (+$439m) $629m
Customer
access (-$171m)
$1,036m
$317m
• IT investment in • Further investment to
transformation International expand Next G™footprint
assets (-$21m)
• Mobile and capacity
Sensis product
telecommunications
•
development networks (-$7m) Investment in Hutch JV
Peak capex spend year behind us – benefits to flow in coming years…
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Cash Flow and Financial Parameters

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Free Cash Flow
-36.7% • FY07 peak spend year
-$33m-$33m
-$1,397m-$1,397m • FCF down $1.7 billion driven
-$250m-$250m
$4,579m$4,579m by launch of Next G™and
Next IP™networks
$2,899m$2,899m
Total Operating Investing Net Total
Reported Acquisitions/ Reported
FY06 Divestments FY07
FY07 FY06
Financial Current $m $m
Target
Parameters FY07
Net Debt 14,586 13,022
Debt Servicing 1.7 – 2.1 1.5
Total Assets 37,875 36,224
Gearing
55% - 75% 53.7%
–
net debt
Interest cover >7 times 9.1 times
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Financial ratios remain strong…need to retain flexibility

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FY08 Guidance

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Guidance on Reported Numbers
Revenue In the range of 2.0% to 3.0%
First half EBITDA
EBITDA In the range of 2.0% to 3.0% to decline slightly
due to:
1. Transformation spend
EBIT In the range of 3.0% to 5.0% profile
2. FY07 MTA adjustment
3. FY07 AAS sale
Depreciation & Around $4bn
Amortisation
Range $4.6bn to $4.9bn
Accrued capex
Subject to normal board
Dividend
considerations
Assumes organic growth, no FTTN and no provisions
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Prudent guidance given regulator-driven wholesale price changes and government subsidisation of competition

Long Term Management Objectives*

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Revenue Growth 2.0% to 2.5% pa to FY10

New product revenue In excess of 30% sales revenue FY10 Cost growth 2.0% to 3.0%pa to FY10 EBITDA ($) 2.0% to 2.5%pa growth to FY10 EBITDA margin 46% to 48%pa by FY10

Workforce Down 12,000 by FY10

Capex 10% to 12% of revenue by FY10

Free cash flow $6b to $7b by FY10 * Based off FY05 results Long term management objectives remain unchanged

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Summary

• Transformation

• World-class performance Media-comms/integration • Mobile growth • BigPond • Broadband ARPU • Foxtel • PSTN lines • Sensis • NextG™/NextIP™integration

• TODAY TOMORROW Shareholder value

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