TELSTRA GROUP LIMITED - Annual Report 2012

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9 August 2012

The Manager

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

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

General Enquiries 08 8308 1721 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Letter to Shareholders and Telstra Shareholder Update 2012

In accordance with the Listing Rules, I enclose the following letter to Shareholders and Telstra Shareholder Update, for release to the market.

Yours faithfully

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Damien Coleman Company Secretary

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

9 August 2012

Dear Shareholder

We are writing to provide you with an update on Telstra’s results for fiscal year 2012 which were reported to the market this morning. The results highlighted growth in revenue and profits in line with guidance, as well as the addition of 1.6 million Australian mobile customers. A fully franked 14 cent final dividend was also confirmed, bringing the total dividend to 28 cents per share for the 2012 fiscal year.

We have seen two years of significant customer growth as our strategy continues to bear fruit. This has translated into strong financial results despite tough domestic and international economic conditions. We delivered on our commitments, met guidance and demonstrated greater resilience than other sectors in a challenging market environment.

Key Financial Results

Including an impairment of $130 million associated with the pending sale of TelstraClear, our wholly owned New Zealand subsidiary, reported results for the 12 months to June 2012 were:

Total revenue increased by 1.1% or $275 million to $25,368 million
EBITDA increased by 0.8% or $83 million to $10,234 million
Net Profit After Tax increased by 5.4% or $174 million to $3,424 million
Capex to sales ratio of 14.2%, with capital expenditure of $3,591 million
Free cash flow of $5,197 million

On a guidance basis (before impairments, Government NBN Definitive Agreement receipts and regulated wholesale price changes), results for the financial year were:

Total revenue increased by 1.3%
EBITDA increased by 2.1%
Free cash flow was $5,285 million

Key outcomes for strategic priorities

Customer satisfaction

TIO level 1 complaints relating to Telstra reduced by 26% and consumer call volumes by 21%. Customer service improvements introduced over the last year include a new consumer bill format, making it simpler and clearer for customers to understand charges, the introduction of an application which enables customers to access their account via an Apple iPad® and Facebook and many other operational improvements.

Growth in number of customers

Telstra’s product offers and network investments continued to attract new customers during the year, adding:

1.6 million domestic mobile customers, to a total of 13.8 million;
203,000 retail fixed broadband customers, to a total of 2.6 million;
336,000 customers on bundled plans, to a total of 1.4 million;
475,000 Hong Kong mobile customers, to a total of 3.5 million.
Telstra’s 4G network build accelerated during the year and now covers approximately 40% of Australia’s population. Customers have activated more than 375,000 4G devices since launch.

Telstra’s domestic mobile business generated more than one third of revenue. Telstra has added more than three million new mobile customers over the past two years. Mobile revenue growth of 8.5% was achieved while margins increased by three percentage points to 36%.

Growth in retail broadband partly offset declines in wholesale revenues, which included the impact of regulatory access determinations. Fixed line revenue decline was steady at 6.1%.

Simplification

Telstra’s business improvement programme remained on track and delivered benefits in fiscal 2012 of $1.1 billion, enabling reinvestment in customer service initiatives. These benefits included improvements in labour productivity, reduced customer call volumes and growth in online customer interactions.

Growth opportunities

Network Application and Services (NAS) revenue grew by 10.5% to $1,263 million, with several significant contracts signed providing a strong foundation for 2013. Major customers signed within the NAS portfolio included the Department of Human Services, Australia Post and NAB.

Across the Media portfolio, Foxtel’s acquisition of Austar was an important milestone. Sensis revenue declined by 17.7% as the move to online accelerated. Customer response to Sensis’ digital offers improved in recent months across metro and non-metro regions. Excluding Sensis and advertising, digital media product revenue increased 4.7% over the year.

In the Telstra International Group, which incorporates Telstra’s investments in Asia, revenue grew by 7% driven by growth in the Hong Kong mobile services (CSL) business and global connectivity and international NAS products (Telstra Global), as the company benefited from integrating assets acquired from Reach.

National Broadband Network (NBN)

In March 2012, Telstra finalised the NBN agreements with the Commonwealth and NBN Co, including ACCC acceptance of Telstra’s Structural Separation Undertaking, and commenced providing long term infrastructure access under the Infrastructure Services Agreement (ISA). Telstra recently handed over stage one of the transit network (dark fibre and exchange rack spaces) to NBN Co. The company continues to work collaboratively with NBN Co on the building of its access network. Telstra has also launched retail and wholesale services over the NBN following successful trials in the early release sites.

Financial outlook

Telstra expects growth to continue in fiscal year 2013 and forecasts low single digit total income and EBITDA growth, with free cashflow between $4.75 and $5.25 billion. Telstra expects capital expenditure to be around 15% of sales over the next two years as we plan to invest in our mobile network and in the delivery of infrastructure to NBN Co to bring forward benefits from the NBN agreements.

Guidance assumes wholesale product price stability, no impairments to investments and excludes any proceeds on the sale of businesses and the cost of spectrum purchases. The foreign exchange impairment on TelstraClear expected on completion is also excluded.

As announced in October 2011, it is the company’s intention to maintain a 28 cent fully franked dividend for fiscal 2013. This is subject to the Board’s normal approval process for dividend declaration and there being no unexpected material events.

Retail shareholder information meetings

We understand how important it is to keep our shareholders informed. In September, we are pleased to again host a series of retail shareholder information briefings around the country with Telstra’s Chief Executive Officer David Thodey and Chief Financial Officer Andrew Penn. This year, briefings will be held in Sydney, Melbourne, Adelaide, Brisbane, Perth and Darwin. Further details can be found in the accompanying Telstra Shareholder Update brochure, by calling 1800 131 011 or online at www.telstra.com.au/shareholdermeetings

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Catherine Livingstone AO Chairman

David Thodey Chief Executive Officer

TELSTRA CORPORATION LIMITED ABN 33 051 775 556

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TELSTRA SHAREHOLDER UPDATE 2012

OUR STRATEGIC PRIORITIES ARE DELIVERING

Telstra has continued to invest in the strategic priorities of improving customer satisfaction, profitably growing customer numbers, simplifying the business and finding new growth opportunities. Our strategy continued to deliver benefits for customers and shareholders, with an increased focus on customer service leading to higher customer retention and acquisition in the 12 months to 30 June 2012.

REPORTED FINANCIAL RESULTS

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Full-year Ended YoY
30 Jun 2012 change
$m
Total revenue 25,368 1.1%
EBITDA 10,234 0.8%
Net Profit After Tax 3,424 5.4%
Accrued capital
3,591 5.3%
expenditure
Free cashflow 5,197 -5.1%
Dividend per share (cents) 28.0 -
Earnings per share (cents) 27.5 5.4%
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FINANCIAL RESULTS

On a reported basis total revenue increased by 1.1% to $25.4 billion and EBITDA grew by 0.8% to $10.2 billion. On a guidance basis (before impairments, Government NBN Definitive Agreement receipts and wholesale price changes), total revenue grew by 1.3% and EBITDA increased by 2.1%.

Telstra also confirmed a fully franked final dividend of 14 cents per share bringing the total dividend to 28 cents per share for the 2012 fiscal year, returning $3.4 billion to shareholders. Shares will trade excluding entitlement to the dividend on 20 August 2012 with payment on 21 September 2012.

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IT’S HOW WE CONNECT

RESULTS ON GUIDANCE BASIS[1]

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Fiscal 2012 Guidance Outcome
Total revenue Low single digit growth +1.3%
EBITDA Low single digit growth +2.1%
Capex/Sales Around 14% 14.2%
Free cashflow $4.5 - 5.0 billion $5.3 billion
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1 Adjusted for impairments, Government NBN Definitive Agreement receipts and regulated wholesale price changes. The guidance basis has been reviewed by our auditors.

28 CENTS DIVIDEND PER SHARE

POSITIVE MOMENTUM TO CONTINUE

KEY PRODUCT REVENUE

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FY 2012 YoY
$m change
Mobile 8,668 8.5%
Fixed 7,488 -6.1%
Data and IP 3,122 -0.8%
Network Applications
1,263 10.5%
& Services (NAS)
Media 2,377 -9.6%
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2 Guidance assumes wholesale product price stability, no impairments to investments and excludes any proceeds on the sale of businesses and the cost of spectrum purchases. The foreign exchange impairment on TelstraClear expected on completion is also excluded.

10.5%

NAS REVENUE GROWTH

FY12 PRODUCT SALES REVENUE BREAKDOWN

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Other 4%
PSTN
International
19%
6%
Fixed
Media
9% Broadband
8%
Other
NAS 5% 3% Fixed
Revenue
12%
IP &
Data
34%
Mobile
MOBILE
FIX
E
H D
T
W
O
R
G
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We recorded one of our best ever years in mobile with 1.6 million domestic mobile customers added and revenue growing by 8.5% to $8.7 billion.

Over the past two years, we have acquired over three million mobile customers by providing better value plans, improving our customer service, focusing our brand and product marketing and continuing to invest in network superiority.

We now have 13.8 million domestic mobile customers, including 6.6 million postpaid handheld and 3.1 million mobile broadband customers.

NEW MOBILE CUSTOMERS > 3 MILLION IN PAST 2 YEARS

Fixed line revenue declined by 6.1% to $7,488 million. Within the fixed portfolio, fixed retail broadband revenue grew by 8.5% to $1,608 million as a result of the popularity of our competitive and broad range of bundled offers. The increased availability of content over the T-Box[®] and T-Hub[®] devices saw sales of these products more than double in fiscal 2012 with many customers taking up these products as part of our bundled plans.

The decline of PSTN continues to be a challenge that is being faced across the telecommunications sector. In fiscal year 2012 we experienced a 10% decline in PSTN revenue, which now comprises less than 20% of total revenue.

CUSTOMERS ON A BUNDLED PLAN

1.4 MILLION

NAS revenue increased by 10.5% to $1,263 million with several important long-term contracts won during the year.

Focusing on Asia, Telstra International revenue grew by 7.0% to $1,496 million. This portfolio comprises the Hong Kong mobile services (CSL) business, the Telstra Global business and a number of digital media businesses in China.

In Media, Foxtel’s acquisition of Austar was an important milestone. Sensis revenue declined 17.7% as the move to online accelerated. Digital media revenue, excluding the Sensis and advertising products, increased by 4.7% to $864 million. This was the result of revenue growth across TV, content and cable products.

375,000

4G DEVICES SOLD

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INNOVATION

In September 2011, Telstra was the first Australian company to launch a commercial 4G LTE mobile network. Customers have activated more than 375,000 4G devices since launch and the 4G network now covers approximately 40% of Australia’s population.

Telstra recently launched the new T-Hub 2, a unique combination of home phone and tablet that will keep the family connected, organised and entertained.

T-Hub 2 caters to what modern households need in a home phone, offering a smarter way to make calls, manage contacts and access handy internet services like live weather updates and social networking sites.

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THIS YEAR WE’VE LAUNCHED ONLINE SERVICES AVAILABLE TO CUSTOMERS 24 HOURS A DAY, TM SEVEN DAYS A WEEK 24 x 7

WEBSITE REDESIGN

Our online environment has been upgraded and redesigned to provide a far better experience. Based on customer feedback, the enhancements cover our online shop, consumer and business customers, as well as the account management portal ‘My Account’. This is an ongoing process to ensure we remain ahead of the game in the digital arena.

FACEBOOK

We have collaborated with Facebook to build an industry leading presence on the social media network’s platform. Customers can now interact with our online support team by posting on the Facebook wall where we aim to respond to all posts within the hour, or by initiating a Live Chat session. Customers can also securely access their Telstra account details via a Facebook application directly from their Facebook account.

www.facebook.com/Telstra24x7

APPS

We have developed a Telstra 24x7 App that allows our customers to manage their Telstra accounts and services via their mobile devices. Available on iPhone[®] , iPad[®] , Android smartphones and Facebook, the app lets customers track their call and data usage, pay their bills, recharge pre-paid services and customise account settings on the go, day and night. Previously this was a service only available through a desktop computer. www.telstra.com/apps

CROWD SUPPORT

We have launched CrowdSupport – an online community forum aimed at extending our range of customer service options. Accessible from telstra.com, it’s a place where consumer and business customers can assist each other with information about Telstra’s products and services, share tips and experiences, or discuss new and upcoming releases. The site has gained in popularity since launch with close to 200,000 hits per month.

http://crowdsupport.telstra.com.au

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® Apple, iPhone and iPad are trademarks of Apple Inc., registered in the US and other countries

TELSTRA RETAIL SHAREHOLDER INFORMATION MEETINGS

WITH THE CEO AND CFO

2PM - HILTON HOTEL, 488 GEORGE STREET, SYDNEY MON 17 SEP

9.30AM - CROWNE PLAZA HOTEL, 32 MITCHELL STREET, DARWIN WED 19 SEP 10AM - HYATT REGENCY HOTEL, 99 ADELAIDE TERRACE, PERTH

THU 20 SEP 10AM - CROWNE PLAZA HOTEL, 16 HINDMARSH SQUARE, ADELAIDE FRI 21 SEP 10AM - HOTEL SOFITEL, 25 COLLINS STREET, MELBOURNE 10.30AM - HILTON HOTEL, 190 ELIZABETH STREET, BRISBANE WED 26 SEP

Please register at your location: Dial 1800 131 011 and follow the prompts or Email: [email protected]

Visit our website: www.telstra.com.au/shareholdermeetings

This is strictly a retail shareholder information session and an opportunity for shareholders to ask questions of management. It is not open to the media. We expect the sessions to last approximately two hours.

Indicative Financial Calendar*

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Ex-dividend share trading commences Mon 20 Aug 2012
Final dividend paid Fri 21 Sep 2012
Annual General Meeting Tue 16 Oct 2012
Half Year Results announcement Thu 7 Feb 2013
Ex-dividend share trading commences Mon 18 Feb 2013
Interim dividend paid Fri 22 Mar 2013
Annual Results announcement Thu 8 Aug 2013
Ex-dividend share trading commences Mon 19 Aug 2013
Final dividend paid Fri 20 Sep 2013
Annual General Meeting Tue 15 Oct 2013
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Contact Details

Registered Office

Level 41, 242 Exhibition Street Melbourne Victoria 3000 Australia Damien Coleman Company Secretary email: [email protected] General Enquiries - Registered Office Australia: 1300 368 387 All Other: +61(8) 8308 1721 Shareholder Enquiries Australian Share Register Australia: 1300 88 66 77 All Other: +61(2) 8280 7756 Fax: +61(2) 9287 0303 email: [email protected] website: www.linkmarketservices.com.au/telstra Link Market Services Limited PO Box A942 Sydney South NSW 1234 Australia

New Zealand - Share Register: New Zealand: 0800 835 7872 All Other: +64 (3) 308 8887

Fax: +64 (3) 308 1311 email: [email protected] website: www.linkmarketservices.co.nz

Link Market Services Limited PO Box 384 Ashburton 7740 New Zealand

Investor Relations

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

Telstra Corporation Limited

ABN 33 051 775 556 Incorporated in the Australian Capital Territory Telstra is listed on securities exchanges in Australia and in New Zealand (Wellington)

Website

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

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