TELSTRA GROUP LIMITED — Call Transcript 2006

Aug 31, 2006

01 September 2006

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

Transcript from Telstra's teleconference - acquisition of 51% of SouFun Holdings Ltd and divestment of Australian Administration Services Ptu Ltd

In accordance with the listing rules, I attach a copy of the transcript from yesterday's teleconference for release to the market.

Yours sincerely

North Graham

Douglas Gration Company Secretary

TELSTRA CORPORATION LIMITED

TELECONFERENCE 31 AUGUST 2006

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DAVID ANDERSON: Good afternoon, ladies and gentlemen. I do thank you for your patience in waiting for this call to start and the short notice for it. We have just been waiting for information to be lodged with the ASX and all that information has now been lodged and so we are ready to start this call.

The conference call is about the acquisition by Telstra of 51 per cent of SouFun and the divestment of Australian Administration Services. $Mv$ name is David Anderson. I am the General Manager Investor Relations at Telstra. With me on the call today is Sol Trujillo, our Chief Executive Officer: David Thodey, the Group Managing Director Telstra Enterprise and Government: our CFO, John Stanhope; and the CEO of Sensis, Bruce Akhurst. We will lead off with a presentation on the transactions from the team. We will then have a question and answer session with analysts and investors and then the media. If I could ask if questioners could as one question at a time, please.

Just before we start in the slide pack that we lodged for the conference call there are a number of forward looking statements in that package so I refer you to the disclaimer on slide 2 of the pack we have lodged with the ASX. With that, I will hand over to Sol.

SOL TRUJILLO: Thank you, David. I would like to welcome everybody. We are going to cover two announcements made today which are aligned to what I would call our growth strategy. We are divesting a non-core asset and taking the cash and redeploying it to one of our growth platforms for the future. We have entered into a binding agreement to divest Australian Administrative Services, a non-core part of KAZ, for proceeds of \$215 million. We are redirecting the funds to assist us in acquiring control of SouFun, China's largest and most popular real estate website.

This investment of \$342 million, which includes transaction costs, is made essentially in a country that is growing inordinately. It is made in a business that has been growing at near triple digits, in a sector that is growing as fast as any other in China, in a business that is profitable already and it is in a business that is cashflow positive already and it is in a business that is already solidified by real revenues for online listed services. The business model of SouFun is the same model that Sensis has in both print and online businesses. Therefore, these transactions are strategically sound and, as I said earlier, they involve the redeployment of non-core resources to core creating value resources along with essentially

being now another growth platform for us at Telstra through our Sensis business.

But, before we get into conversations about SouFun, I do want to ask David Thodey to take us through the divestment of the Australian Administration Services and then we will return to talk about the acquisition.

DAVID THODEY: Thank you, Sol. As a part of the ongoing strategic review we have been going through. KAZ has considered a number of options for its superannuation administration business AAS and as part of that we included the possibility of a potential sale. Following this review a decision was made that AAS was really not a core asset to KAZ and Telstra and we decided to divest this business. So, what we have decided, and we agreed today, is the sale via a public tender process that we have been going through. We have entered into a binding contract and we will receive \$215 million profit on sale of \$56 million. \$35.5 million of cash is taken out of AAS by Telstra.

By way of background, the reason AAS was considered non-core is that the risk profile of AAS is outside the standard risk exposure with which we operate the ICT managed services business. AAS's risk profile placed reputational and financial risk on Telstra, really in two key areas: Firstly, there were several contracts with unlimited liability and consequential loss provisions as public offer funds. This is a requirement regulated by APRA and, secondly, operating a financial services outsourcing business is outside our core capabilities and skill set.

To maintain and grow the business in order to be competitive in the consolidating superannuation and financial services administration market, there was an ongoing requirement for further investment, both organic and via acquisition, to diversify the AAS business horizontally and vertically. However, such a growth strategy would have further intensified the risk profile which I just outlined. So, it was obvious that that is what we should do. This transaction will now allow KAZ to focus on its core services, which includes consulting, managed and outsourced services and applications management and systems integration around our core network. KAZ is not for sale and continues to be a crucial part of Telstra's ICT strategy in service delivery. Importantly, KAZ will continue to supply IT services to AAS on an ongoing basis.

So, with that background let me now pass back to Sol, who will take you through how we are going to utilise the proceeds from this divestment.

SOL TRUJILLO: Thanks, David, and again I just want to emphasise what David covered regarding KAZ. KAZ is important to us and this transaction allows us to focus even further in the ways that our strategy calls for. But, as we are here today to talk specifically about this acquisition, I am pleased again to note to all of you we have acquired a 51 per cent

shareholding in China's largest and most popular real estate website, soufun.com.

Soufun.com presents an exciting opportunity for Telstra and our advertising business, Sensis. With this one acquisition we have established ourselves as the undisputed market leader in the high-growth Chinese online real estate market. We have gained access to an online growth engine of international standing. The company is earning and cashflow positive. It is delivering near triple digit revenue growth and is forecast to contribute A\$52 million in net revenue to Telstra in the fiscal vear 2007.

We have created an opportunity to accelerate growth by leveraging Sensis' long-standing capabilities in areas such as sales effectiveness, directory advertising and content management and data collection. With home ownership and incomes rising in China, we have opened the gateway to the racing Chinese online advertising market through an experienced. capable and highly respected management team who are committed to working with Telstra to continue to deliver accelerating growth. As we have secured this exciting business at a very good price, our acquisition price is based on a valuation of 22 times the 2007 calendar vear EBITDA. a valuation that sits very well against world benchmarks for high growth online market leaders. SouFun will be cashflow positive from day one and EPS accretive in year three.

I wanted to briefly revisit the Sensis growth strategy outlined by Bruce at our strategy briefing in November last year. Specifically, I want to draw vour attention to the commitment Sensis made back in November to expanding geographically as a key strategic driver of long-term growth. Since making that commitment to you, Sensis and Telstra have been considering a range of high growth, value-adding M & A opportunities and clearly we are still focused in Telstra on our Australian markets, as you heard me say over and over again, as a priority (indistinct), but this is an opportunity where we could effectively use our cash to create more growth in the Sensis field.

Now, as I have said before, our goal has been to find major players in high growth but immature online markets. Companies with a strong strategic fit with Sensis that could benefit from our core directories and advertising capabilities and that's essentially where we are at today. It has led to us China and ultimately to soufun.com.

Soufun.com is a global online success story with what I call real advertising and real revenues. In just seven years soufun.com has grown to become one of China's top 10 and the world's top 100 websites. It has captured an online audience of over 40 million users per month and an advertiser base of over 4,000 sellers and developers. This extensive community is linked by one thing: The desire to buy and sell real estate.

Underlying SouFun's growth story are the booming Chinese real estate and online advertising markets. Chinese real estate sales already represent 7 per cent of the country's GDP in 2005. The real estate market is forecast to grow by 21 per cent CAGR with a compound average growth rate to be worth, in US dollars, \$438 billion by 2010 and the online advertising market has now well and truly emerged and will quadruple from US\$800 million in revenues this year to over US\$3.2 billion in 2010. It is not surprising, therefore, that the online real estate advertising market is well and truly breaking out. It was worth US\$85 million in 2005 and it is expected to grow at a high CAGR of 66 per cent to deliver over US\$1 billion in revenue in 2010. Through soufun.com Telstra and Sensis are now perfectly poised to become a major part of this exciting future growth story.

What I would like to do now is to introduce Bruce Akhurst, the CEO of Sensis, to talk about how we are going to go get it done.

BRUCE AKHURST: Thanks very much, Sol. This is a really exciting announcement for Sensis. It is our first overseas acquisition in the advertising space and it provides not only a powerhouse of growth, but a gateway into the lucrative Chinese online advertising market. SouFun stands for "house search" and it was established in 1999 by Mr Vincent Mo. Vincent and his management team have built SouFun from a small four city operation in the year 2000 to be China's largest and most popular real estate portal.

SouFun services cover four key areas: The first is new homes with coverage in 40 cities today; the second is resale and listings which has coverage in 10 cities; the third is home furnishings and home improvements in 10 cities; and property research services is the final in eight cities. The business today employs approximately 1,100 people. Seventy-five per cent of these work in sales, marketing, editorial and design.

The quality of the SouFun management team in the workforce was a critical consideration in our buying decision. This is a group of people who have created a true online success story and we are delighted to confirm that the management team have committed to stay with the company.

SouFun is an online growth engine on a scale that's really uncommon in Australia, but let's just take a moment now to put the business into perspective. Sol mentioned 40 million unique users a month. Now, that's on a par with amazon.com's total US audience. This audience accesses a staggering 600 million page views a month of listings, advice and community content. Critically, this is a real advertiser audience. These people aren't visiting SouFun to watch videos or search for photos of their relatives. They go to SouFun because they want to buy real estate and home furnishings. The size and quality of this audience gives SouFun an

$-4-$

advertiser value proposition that is absolutely unbeatable in the Chinese market.

SouFun is generating high levels of advertiser lovalty, particularly from developers. This has resulted in inventory levels that are well ahead of its competitors. But what really makes this acquisition exciting is the fact that SouFun is only just hitting its straps. In the last calendar year, SouFun has entered 25 new cities to its portfolio with minimal upfront investment. It now covers 40 cities and that's three or four times its competitors and it has plans to expand this to 100 cities, each with a population in excess of 1 million by the end of 2008.

As a result, SouFun is perfectly placed to maintain triple digit revenue and EBITDA growth with rapidly expanding EBITDA margins driven by economies of scale. As you can see, the organic upside in this business is really significant.

I will turn now to talk about SouFun's growth strategies. In the medium term we are going to look to expand SouFun's online real estate offerings to all major Chinese mainland cities, while also expanding the number of new home listings. Soufun has a well-known and trusted brand and reputation in the Chinese market and will look to further capitalise on this position which will ultimately lead to increased advertisers and user numbers.

Sou Fun has a highly desirable user base and we will continue to leverage opportunities to provide offerings into adjacent businesses such as home furnishings and home improvements. The opportunity exists to further enhance and develop the quality and functionality of the communityorientated services, to increase loyalty and build up the core group of soufun.com users. And we will continue to invest in new technologies and improved features for soufun.com.

For example, a search-based or pay for performance revenue model is just one example of the types of future opportunities we are going to explore and at the same time we are exploring a series of ways in which we can not only support SouFun but help Vincent and his team further accelerate growth.

It is very important to understand here that Sensis and SouFun operate under similar business models with a series of shared capabilities. We both offer free advertising listings, together with listing content and priority enhancements to drive revenue growth. We both have strong capabilities on banner and contextual advertising sales and production. This is a core business of our Sensis MediaSmart division. We are both strong consumer marketers that enjoy high levels of brand recognition and we are both technology-driven businesses with core capabilities in managing content-rich digital advertising platforms.

But there are differences in our businesses as well and we see these as strong potential drivers of value. For example, two-thirds of SouFun's revenue comes from website display advertising. Less than 25 per cent of revenue is derived from listings, which is the traditional source of real estate vertical growth. Sensis can offer SouFun world-class capabilities in directory and listing management with a view to substantially growing the power and revenue potential of SouFun listings. Sensis can also leverage the strength of a mature advertising business in several other specific These include advertising revenue models, such as pay for areas. performance, pay for priority and bundling, sales effectiveness, advertising monetization and content multi-channel publishing and syndication. And while this is happening. Sou Fun can support Sensis growth, not only through revenue performance but by providing expertise in key areas such as advanced software development capabilities and strong community tools and offerings.

To achieve all this, we have put in place a series of steps to ensure the clean integration of Sensis and SouFun. Firstly, clearly SouFun is performing exceptionally well, growing at a rapid rate under the leadership of Vincent Mo, the founder and CEO of SouFun, and SouFun's wellestablished and high-performing local management team. While there will not be any immediate changes to SouFun operations as a result of the acquisition, SouFun will have direct accountability and a reporting line to myself as CEO of Sensis and the SouFun board of directors.

But, very importantly, to ensure Sensis and SouFun leverage our skills and expertise, I am intending to place senior representatives from Sensis in the business management team. This will assist in the transfer of knowledge while supporting the development and growth of the two businesses in the ways I have just been explaining.

Secondly, our priority over the coming weeks and months is to work closely with SouFun to identify mutually exclusive business benefits to be leveraged between the two organisations. It is very important that this investment will yield relationships and experience in China from which we envisage further opportunities to emerge.

At this point I would like to introduce John Stanhope to talk about the financial imperatives of the deal.

JOHN STANHOPE: Thank you, Bruce, and good afternoon everyone. For those of you who are lucky enough to have been able to pop up on your screens our disclosure, I am talking to slides 18 and 19 if you are wondering where we are up to.

For us this is a good transaction and it is aligned to our overall growth strategy, as Sol talked about and that we announced on November 15, and it is an investment or a transaction that's well within our financial capacity, especially when you link it to the divestment we have also

announced today. SouFun is delivering accelerating growth, which is being driven by the geographic expansion that Bruce touched on, rapid user and advertiser uptake through the outstanding fundamentals that exist in the Chinese online real estate market.

To date the company has grown to cover 40 cities, with soufun.com attracting 40 million monthly users and 4,500 advertisers. This has delivered exceptional revenue growth of 99 per cent in 2005 calendar vear and this trend is not only continuing but accelerating with 107 per cent year-on-year net revenue growth result for the half year to June 2006. Clearly, Vincent Mo and the current SouFun management team have extensive industry experience and proven ability to expand in new areas. SouFun aims to expand operations to 100 cities across China by the end of calendar vear 2008.

Let's just turn a little more to the financials. Telstra has taken a 51 per cent shareholding in soufun.com for a consideration of US\$254 million or A\$342 million, which does include a small transaction cost. $O₁₁r$ investment will be cashflow positive from day one and EPS accretive in year 3 and a return on invested capital will exceed Telstra's weighted average cost to capital in year 4. Now, all this assumes, of course, that it is debt funded at around about 7 per cent and, as you have heard, we have already decided to use proceeds of a divestment to be channeled toward this acquisition.

The company will deliver near triple digit growth and contribute net revenue of \$52 million and an EBITDA of around \$18 million to Telstra, so into Telstra's consolidated accounts in fiscal year 2007. This values soufun.com at 22 times the calendar year '07 EBITDA and, as Sol said in his opening comments, this stacks up very well against valuations for similar high-quality online companies, leading companies around the world.

More importantly, there is substantial headroom for future growth due to the underlying economic strength, the ongoing organic growth in user and advertiser uptake and of course the expansion that I have mentioned into the new cities.

As a result of these two transactions, so the sale of AAS and this acquisition, the net cash outflow for the company will be around \$90 million and I guess that's why I have said it's easily within the financial capacity of the company while we continue on with our transformation spending. It is small in the context of the investment overall and also in terms of our net debt portfolio and our financial parameters that we continue to follow. We expect this business to be self-funding as it grows, so we believe this company has the capacity to generate the cash that it will require to continue its growth pattern.

So, having said that, I will hand you back now to Sol to summarise our

announcement today.

SOL TRUJILLO: Thanks, John. I am just going to recap a few thoughts here for everybody in terms of the call here. Obviously the size of the transaction is not huge in a classic M & A sense. This is the second transaction that we have done as a management team here in the last year, the first one being the New World CSL transaction and in this case we are obviously again divesting a non-core asset in AAS, taking the cash and redeploying it to one of our growth platforms for the future, resulting in a net cash outflow of \$91.5 million.

Telstra's purchase of a majority shareholding of SouFun Holdings Limited means that, through SouFun, Telstra and Sensis are now perfectly poised to play a major part in China's high-growth online advertising and real estate markets. The power that you have seen with Sensis and BigPond in terms of the online digital platforms business now will be able to be leveraged as we think about the context of SouFun here in China and, as you heard from Bruce, clearly Vincent and his team, as they were looking for a partner, they wanted somebody that had major volume, major scale and some of the sophistication that's required with rapid growth into a large business.

Now, this acquisition therefore provides the opportunity for Sensis's core strength to be leveraged into a larger, faster-growing and less mature market than Australia, with high-quality local management and I do have to say that Vincent and his team are truly impressive and they have done a wonderful job up to this point and obviously we are looking to make things even better. An associated benefit of this investment is that it will undoubtedly vield relationships, experience and credibility in China from which further opportunities hopefully can emerge, again emphasizing the fact that we have CSL in Hong Kong and we have our Reach business in Hong Kong, so we are not new players in the region.

Importantly, as Bruce identified earlier on, the similarities between SouFun and the Sensis core business models will result in a series of shared capabilities which we will look to leverage over the coming months. But, by expanding the Sensis business further, we are not only able to take our extensive experience offshore and become a leading Australian exporter of IT, we are also going to be able to consolidate SouFun's world best practices and apply them to Sensis's existing business operations here to further stimulate growth.

So all in all, I think is another wise deal on the part of our team looking to be as cash effective and cash efficient as we can be, while continuing to find new ways to grow the business. So with that, David, I will hand it back to you and we will open it up for Q and A.

DAVID ANDERSON: We will now take questions firstly from analysts and investors and then from the media. We would appreciate if you ask one

question at a time.

OUESTION: (Tim Smeallie, Citigroup.) Just re the SouFun acquisition, can you clarify is there any earn-out protection for Telstra shareholders on the transaction?

BRUCE AKHURST: No, there's not, Tim. It's just a straight cash deal where we acquire 51 per cent on the basis that we pay the fee that Sol's mentioned.

QUESTION: A question for David. Is there anything left of KAZ now after selling the Administration Services?

DAVID THODEY: Tim, in terms of revenue it only represents 20 per cent of our revenue stream.

OUESTION: In enterprise?

DAVID THODEY: In the enterprise market. No, no; of KAZ. The revenue of AAS was just over \$100 million.

OUESTION: (Andrew Hines, Morgan Stanley.) You mentioned that SouFun is the largest of the real estate online businesses. Can you give us a bit of a sense for what other businesses there are around, and what is the market share of SouFun? How competitive is the market there and is there any competitive threats from other businesses that can grow as fast?

BRUCE AKHURST: SouFun is by far the leader in the market. As I mentioned, it already has a business in 40 cities. It has probably over 20 per cent of the market. There is no other real estate site that really does the specific job here in terms of real estate that SouFun does. It is a specialised real estate portal. There is other general information and search engine-type portals, but it is clearly the market leader, it is in a geography that is probably four times what its competitors are: the competitors are quite a long way behind. We have got quite an aggressive plan as we talked about in terms of where the business is going to roll out over the next few years, adding up from 40 cities to 100 cities by 2008. There is a real acceleration plan under way there and we expect SouFun to remain and continue to build on its market leadership.

SOL TRUJILLO: Andrew, just to add a little bit to Bruce's response there. The operating model is so similar to that of our directories business, both print and online, in the sense that the key for a business like this is having what I call feet on the street and, if you look at what Bruce had covered earlier of the 1100 people or so that already are out building the business today, that is a significant competitive advantage, in particular given the geographic presence and also the extendability of the footprint, given the prototype that's already been built in terms of how to canvass the market, how to develop the ads and then how to digitally deliver them

in the marketplace. And that's again part of the attractiveness in addition to what Bruce just said, that not only do they have market leadership, but they have essentially the business model down that's very similar to what we already do, but also will continue to expand and continue to gain even more scale.

JOHN STANHOPE: If I might add something. SouFun is a fairly very unique business. Its nearest competitors, Andrew, are two companies called Sohu and Sina, but they are really national general information portals and not specifically focused like SouFun are.

BRUCE AKHURST: They are more into news and other services, other (indistinct) services.

OUESTION: (Christian Guerra, Goldman Sachs.) Good afternoon. Thank you for your time. I just have a couple of questions. First, SouFun looks like a reasonable deal. I just wanted to know firstly what the management lockup period is with Mr Mo and, secondly, I think John you mentioned that it was basically going to be self-funding so can we assume there basically no further investment required from Telstra over the next few vears? Secondly, just on Sensis, I think it's probably the first time you have actually gone through the growth strategy in some detail and I notice Just wondering if you could you talked about geographic growth. comment on which regions you are looking at in particular and clearly with all the talk about New Zealand, I just want your thoughts on that business. Thank you.

SOL TRUJILLO: Bruce, do you want to go ahead and then maybe I will just wrap it with my thoughts there.

BRUCE AKHURST: Sure. Vincent is committed for three years. He will continue as a significant shareholder of course in SouFun and I should say that Vincent and his CFO, Li-Lan Cheng, have worked around the world, have very impressive academic credentials and business experience in a number of jurisdictions and Vincent has been back in China building this business for the last seven years. The management team there is really committed to this plan that we are talking about, this 100 city Chinese plan, extending the business into adiacent areas like home furnishings and so on and we are looking with a lot of anticipation and excitement to working closely with that team over the next several years.

SOL TRUJILLO: Christian, in terms of the last part of your question, again the focus in terms of regions or geography is we already have a significant presence in the Asia-Pac region and that's why this made sense because even further down the line there's opportunities as CSL looks at loading online data and information and taking advantage of the vast database that exists with SouFun. But, beyond that, obviously Australia and New Zealand are core areas where we have made investments in terms of the business. Relative to speculation on New Zealand and all of that, all

I can say is that we are monitoring it but we have no specific comments or care to comment on any of the speculation that is out there.

JOHN STANHOPE: Chris, to answer your funding question, it is already cashflow positive and we see that there would be no further need for Telstra investment (?). This will be able to self fund the growth path that it's on.

QUESTION: (Richard Eary, UBS.) Afternoon, gentlemen. A couple of questions, please. First of all, looking at the deal, is this going to be a precursor to sort of like other deals within China and, given obviously WO changes next year, is this deal a precursor to obviously changes in shareholder structures in China moving forward? That would be the first point. The second is, John, in terms of obviously the ROIC versus WACC argument in year 4, is there any sort of further forecast parameters you can give us just to give us a better feel for the direction of that business longer term? Thanks.

JOHN STANHOPE: What we have told you today is basically what we look at, Richard, for our investment criteria. I mean, it is a business, a startup business I guess. It's been around for a while, but you would say it's certainly still in the very high growth phase and ROIC will exceed the WACC in year 4, it will be earning accretive in year 3. What I was trying to point out as well, that the EPS accretion, it isn't accretive until year 3 because we have made the assumption that it's totally debt funded, but I was making the point that of course we are redirecting some funds.

We have talked about sort of size growth. I mean we are looking for sort of very high double digit CAGR revenue growth over the next five years or so and similar EBITDA growth over the next five years, so they are the sort of parameters built into our financial assessment.

SOL TRUJILLO: Richard, in terms of the first part of your question, is this a precursor, the answer is essentially no because we don't have other things mapped out in terms of other deals per se. I just take you back to the CSL New World merger as one deal that we have done recently and this being essentially the second one and in each case we felt very strong about our ability to deliver under the disclosed benefits. In one case it's about the merger benefits; common platforms, consolidation in the market. In this case it's about leveraging the capabilities that we have built through our Sensis business and complementing what Vincent and his team have built within SouFun in an extremely fast-growing environment. But we view these as what I would call very guided, very cautious and from our perspective what we might call high probability of execution kinds of deals. We are not overly speculative, everything has to be pretty tangible in our screens as we look at these transactions. That's why we have not done a whole lot of them.

(Justin Cameron, Credit Suisse.) I am just trying to OUESTION:

understand a little bit about the history of SouFun, I suppose particularly from a shareholding perspective and obviously going forward. Can vou just please outline what the shareholding structure will be? Obviously there was comments that the management team will have equity in the business going forward. Was Telstra's shareholding bought from existing management and I suppose where will that move going forward and also I suppose I'm trying to understand why was Telstra given the opportunity to participate in the transaction and was there bidding tension at the time of the asset?

BRUCE AKHURST: The business has had Vincent Mo as the major shareholder historically, so we are buying shares from Vincent but he is remaining, as we have disclosed, as a major shareholder. We have also had IDG, a Chinese venture capitalist organisation, as a major shareholder, so it's selling down as well and there are senior management within the company who have a relatively small in terms, of single digit in aggregate, shareholding in the company. These are key individuals who we very much want to retain. They by and large have been working with Vincent as a team for the last five or six years, from the beginning in some cases, so it's very important that they continue on as well.

There was also a 15 per cent shareholding by a company called the Trader Group, which is exiting the register as part of this transaction, so essentially we are coming on as the major shareholder, with Vincent selling some of his shares to us and IDG, the venture capitalist firm, selling down some of its shares and the Trader Group exiting altogether.

Why us? I think for the reasons that Sol has articulated, there's obviously an understanding and appreciation of what Sensis is and the benefits that we can bring to the business that Vincent is running there. We do have a track record, we do have a similar business model, we do understand advertising revenue models such as pay for performance, pay for priority, contextual advertising, where I guess SouFun has more limited experience in these areas.

We have got very detailed and long-standing expertise around sales effectiveness and what we mean by that is that, like SouFun, we have 1,000-odd people out on the road approaching businesses face-to-face all over Australia and the way that you manage that sales force on a day-today basis effectively and profitably are (indistinct) skills and we can obviously bring some of those learnings and expertise to the business. We also have a great deal of information about and knowledge about how advertising space can be monetized in different ways, in additional ways to how SouFun is doing it and also moving into adjacent areas such as home furnishings and so on is something that we are both very interested in.

So, when you look at it, we have a whole range of skills and expertise that Vincent and the team are keen to utilise. We think that they have got a wonderful market, a wonderful track record as well and that together this

business is going to be an enormous success.

OUESTION: (Patrick Russel, Merrill Lynch.) Good afternoon. Just a couple of quickies. Firstly, what's the EBIT giveup or EBITDA giveup on the asset you have sold and then, secondly. I guess the issue with an acquisition of this size, because of its very small contribution to NPAT, the multiple that you have paid will just get blended into your average multiple and therefore you won't get any market cap growth in your enterprise until this becomes a lot bigger and that might take five or six vears before it has a meaningful contribution. Given that, would you consider sort of expediting an IPO of the business so you can get a little more transparency in terms of the value back to Telstra?

JOHN STANHOPE: Certainly the AAS EBIT give up is in the single digits. Patrick, so quite small. Sorry, what was the second part of your question, Patrick?

The second part of the question was relative to the SOL TRUJILLO: multiple that's being paid in the near term given the high growth that we have and it won't get reflected, I mean the comment was it won't get reflected in our multiple for a few years out, so have we considered essentially an option of an IPO.

I guess, Patrick, the simple answer is with this transaction we have lots of options, but the key is to continue to find growth opportunities for the business in the longer term, but could an IPO be an option down the road? The answer is yes.

QUESTION: (Tim Smeallie, Citigroup.) Just looking at the burnout, you have no claw-back on this arrangement?

BRUCE AKHURST: I think I mentioned on a previous question, Tim, it's just a (indistinct) sale and purchase arrangement.

QUESTION: (Malcolm Maiden, The Age.) Hi, guys. When Trader bought in they announced a 15 per cent holding and also said that they would be putting about US\$200 million into the business. I think Trader was there for about a vear or so, maybe a little bit more. During that time was their significant investments made to the group's expansion accelerate during that time and why has Trader sold out so quickly?

BRUCE AKHURST: They were there for a period, Malcolm, that's true. The guy who owns Trader, a fellow called John McBain, has decided to sell all of his businesses and he established a philanthropic charity or foundation tasked with improving health and education for the world's most needy, particularly African children, so this is really a question of the owner of Trader coming to a point in his life where he has decided to sell all of his businesses, not just this particular one, and he is creating a fund of I think under US\$1 billion for that purpose, so we were fortunate to be

able to step in when he had come to that point. But the business has been growing organically, Malcolm, without contributions from the shareholders.

QUESTION: (Laurent Horrut, JP Morgan.) Just a question, if you look at the calendar year '07 and number, they will imply at best on the multiple you are actually paying, they would imply an EBITDA margin of about 25 per cent and then I am looking at FY07 and the EBITDA margin based on those numbers would be more like 35 per cent. I am just wondering if you could reconcile that for me.

JOHN STANHOPE: Certainly the '07 - taking it from Telstra's perspective because we have a 30 June close here, your calculation of the 30 June '07 EBITDA margin around 35 per cent is certainly correct and we do expect margins to grow slightly over the next five years, so stay around the same for the next year and then grow a little bit more after that, but back in '04 the margins were around 20 per cent - this is now calendar year - around '05 they were around about 30 per cent, so you can see there's been good steady growth in margins. December '06 they were close to 35, so over the last couple of years the business itself has been getting economies of scale, building up margins to what you have accurately assessed to be around 35 in the '07 year.

QUESTION: Then, John, why in calendar year '07, I hear what you are saying, so in fact margins should improve rather than come back down and I'm looking at your EBITDA multiple is 22 times. That would imply calendar year '07 EBITDA of 30 million in Australian dollars.

JOHN STANHOPE: The multiple, the 22 times multiple, runs off the December '07 EBITDA.

OUESTION: That's right.

QUESTION: (Raphael Minder, Financial Times.) Good afternoon. I just wanted to confirm this is your first acquisition in mainland China, is that correct?

SOL TRUJILLO: That is correct.

QUESTION: I also wanted to know whether you had been scouting other markets such as India or Africa before going ahead with this (indistinct).

SOL TRUJILLO: I can't comment historically prior to last July, but this has been our focus along with the CSL transaction, New World transaction that we did last six, seven months ago, whenever we first initiated that. So our focus has been in this Asia-Pac region and beyond that we haven't had much other conversations.

QUESTION: (Louise Weihart, Merger Markets.) I was just wondering if

you would be contemplating further offshore acquisitions and in particular I was thinking of the New Zealand Yellow Pages business.

SOL TRUJILLO: The question was asked before.

QUESTION: Sorry, I had a really bad line. If you don't mind repeating, please.

SOL TRUJILLO: My comments earlier were around a question about our areas of focus and clearly we have asset ownership in the Asia Pacific region and obviously Australia being our number one, two and three priority and we do have presence in New Zealand with our Telstra Clear business. In terms of the speculation that's going on in the media given some of the things that Telecom New Zealand is doing, my comment was essentially we are monitoring but beyond that we don't have much comment.

QUESTION: Thank you.

QUESTION: (John Durie, Financial Review.) Just looking at the Trader announcement, if my maths is right they bought a 15 per cent stake for US\$22.5 million with options to increase their stake up to between 45 and 100 per cent, so that equates to sort of, let's call it \$51 million for 51 per cent. What explains the price differential there?

BRUCE AKHURST: I can't recall the price that Trader paid.

QUESTION: I am just reading out their press release there, Bruce. It says they paid US\$22.5 million for an initial 15 per cent stake. This is with a series of call options over the next two years.

BRUCE AKHURST: Essentially, John, this has been the subject of a commercial negotiation where our M & A teams advise us, look, that's the value of the business, put it through the Telstra screening processes and so on, and we have had a negotiation over price and that's the process we went through.

QUESTION: Could you tell us who your advisers are, please?

BRUCE AKHURST: No.

QUESTION: Okay. Thank you.

QUESTION: (Tony Boyd, Financial Review.) Thanks very much. I was just wondering, Bruce, whether you would now be upgrading your forecasts, you know, those long-term ones you issued in November which said you would get to \$3 billion revenue by 2010 or end of 2011, so on 6 October, in other words, with the rate of growth of this company which seems to be doubling every 12 months revenue, would you have to

upgrade those numbers?

JOHN STANHOPE: I'm not making any changes to our forecasts, Tony. We did talk about doubling to 2011 and, as Sol indicated in his presentation there, part of that was about geographic expansion and part of the discussion back at the analysts' day was including M & A activity, of which this is obviously one. I think that, as I have said all the way along, I think the core business is performing extremely well. We have had, as everyone knows, an extremely good year, four strong years in a row now, as it continues to power along. This just adds to our business, it is consistent with our strategy and we feel very, very confident about the future of the business.

OUESTION: Sol, do you think the Board would be considering now getting some person on the board who is either Asian or Mandarin speaking or experienced in the Chinese business environment?

SOL TRUJILLO: Tony. I won't comment on board composition and management. Clearly we have Board members that have global experience and that's probably appropriate, at least for now.

Let me just wrap up this call with a couple of quick comments. John Drury's question: Just as a business matures, obviously when you have continued triple digit growth, the valuation of a business will continue to The good news about this transaction is that it still has huge grow. amounts of growth ahead of it and we are able to buy into this business at this stage, so that we can not only take advantage of that, but also take advantage of some of our skills in terms of scaling up business.

The second thing that I would say is obviously we have given notice to everyone that on 6 October we will have our investor day update. so that we can talk in a little bit more detail about some of our online strategies with both Sensis and BigPond and even what we are looking at across all of our business and so all of you will have a chance to hear more as we continue to execute on the strategies for growth that we have at Telstra, in addition to the discussions that we have had about cost takeout and efficiency and redeploying old networks into new networks and all the other things that we have talked about starting last November, so we will provide some more insight and you will see the continuation of the Telstra story unfolding. So, thank you all for joining us.

DAVID ANDERSON: Thank you. That's all we have time for and we do apologise for the delay in starting and for the short notice, but thank you for your attention.

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