Financial, Social And Environmental Performance Analysis Of Telstra Corporation Limited

Overview of Telstra Corporation Limited

Dsicuss about the Information Technology Strategy and Management.

The present report is developed for carrying out an analysis of the financial/economic, social and environmental performance of an ASX listed entity. The evaluation of the selected organizational performance is carried out by examination of its financial and sustainability reports. The analysis is specially meant for proving suggestion to an investor seeking to invest in a business entity that is carrying out its operations in a socially and environmentally responsible manner. The company selected in this context is Telstra Corporation Limited, a telecommunication giant within Australia listed on the stock exchange.

Telstra Corporation Limited is known to be the largest telecommunication company of Australia. It has long history within Australia and is regarded to be originated together with the Australia Post as Postmaster-General Department. Australia post is a public company involved in providing postal services and the Postmaster-General Department that is a government owned department involving in providing telegraphic and postal services. The company at preset has become fully privatized and become more customer oriented under its CEO of David Thodey. The changes incurred within the nature of the company as per the National Broadband Network. Under the leadership of David Thodey, the company has made significant progress towards its digitals services, retail store operations and health business unit (Telstra Corporation Limited, 2017).

The company is known to realize largest revenue across the telecommunication sector of Australia. It has about 150 subsidiaries and is known to provide employment to about 37,000 people across the world. The company is known to provide wide type of telecommunication products and services such as mobile telephones, internet, data services, network services and entertainment products and services. The area served by the company includes Australia and at international level.

The company vision is to become a world class technology company for empowering people to connect and improve their quality of life. The company aims to achieve its vision by development and expansion of its technology skills through developing the necessary capabilities required for development of success business. The mission of the company is to achieve its vision by acquiring and sustaining its competitiveness in the telecommunication sector by developing positive customer, suppliers and employee engagement (Telstra Corporation Limited, 2017).

The total income of the company has increased by about 4.3% million in the year 2017 and provided $5.2 billion to its shareholders. The net profit after tax has increased up to 1.1 % in the year 2017. The growth in the financial performance of the company in the year 2017 has enabled it to pay about 15.5 per cents share dividend to its shareholders. The company has also implemented a change in its dividend policy and reducing the payout ratio to 70-90 per cent of its underlying earnings. The strong financial performance of the company is supported by the continued growth in the customer segments in retail mobile, broadband and voice services (Telstra Corporation: Annual Report, 2017).

Financial Strength of Telstra Corporation Limited

The company is strongly committed to become a globally recognized brand by carrying out its activities in a sustainable manner. It has adopted the use of technology for developing environment solutions and helping its suppliers, customer and communities for addressing the climate change (Telstra Sustainability Report, 2017).

In order to evaluate the financial or economical impact of Telstra Corporation it is important to give through overview of the company’s financial strength by analyzing its profitability, market strength, position of assets and liabilities and any other significant factors that impact the financial performance of the company (Joseph, 2013). In this section financial strength of the Telstra for year 2017 and year 2016 has been evaluated and for this purpose following financial information has been extracted from the annual report of Telstra.

(Telstra Corporation: Annual Report, 2017)

Telstra is one of biggest telecommunication company in Australia and it derived main revenue from its four major business segments namely Telstra Retail, Global enterprise and services, Telstra Wholesale and Telstra Operations. According to Stephen Letts, reporter at one of reputed news agency, the profits of the Telstra has been low and does not meet the expectation of the market. However, Telstra has tried to pay dividend out of the pocket to 31 cents but still it does meet the demand of the market. It is stated in the report that directors of Telstra has decided to reduce the dividend payout by 30% in next financial year that clearly indicates reduction in profitability position in future years (Letts, 2017).

In order provide exact profitability position of Telstra and its competitor TPG Telecom it has been decided to calculate the profitability ratios of both the companies for last two years using the information provided in annual reports of both the company.

(TPG Telecom: Annual Report, 2017) (Telstra: Annual Report, 2016) & (Telstra: Annual Report, 2017)

In order to report on profitability position of Telstra Corporation it is important to make use of ratio analysis as it helps in making the comparison on financial performance of one company with performance of another company. Here profitability position of Telstra Corporation has been compared with the profitability position of TPG Telecom for last two years.

Operating Profit ratio: Operating margin ratio provides percentage of earnings before interest and tax to total revenue earned during a period. This ratio is crucial for company who belong to service industry as they are not involved in manufacturing of goods. It can be seen from the above table that operating profit ratio of Telstra has been reduced from 23.33% in year 2016 to 22.12 % in year 2017, whereas operating profit ratio of TPG Telecom has been increased from 16.11% in year 2016 to 16.69% in year 2017. The decreased operating profit margin and lower operating ratio of Telstra Corporation as compared to competitor shows that poor profitability position and decreased in market share in year 2017 as compared to year 2016 (Needles and Powers, 2010).

Comparison of Telstra Corporation Limited’s Profitability with TPG Telecom

Net Profit ratio: Net profit margin ratio is the most significant ratio as it shows percentage of after tax net profit of the company from continuing operations as well as discontinued operations. It can be seen from the above table that net profit margin has been decreased by considerable percentage in the current year as compared to previous year. The net profit ratio of Telstra Corporation was 21.62% in year 2016 and it was reduced to 13.74% in year 2017. On the other hand, net profit of TPG Telecom was 16.11% in year 2016 and 16.69% in year 2017. It shows Telstra Corporation has poor profitability position as compared its main competitor TPG Telecom. It can said so because in current year net profit ratio of TPG Telecom has been increased while same was reduced in case of Telstra Corporation. It clearly signifies that financial performance of the Telstra Corporation was not as per the expectation and it was also below its competitor benchmark (Mohana, 2011).

Return on Assets: The return on assets signifies how assets have been used by the company to earn the sales revenue. It has been seen that return on assets of Telstra Corporation has been reduced from 13.51 % in year 2016 to 9.19% in year 2017. On the other hand return on assets of TPG Telecom has increased from 10.20% in year 2016 to 10.63% in year 2017. It means Telstra Corporation has failed utilized its assets in current year (Taparia, 2004).

Return on Equity: The return on equity means percentage of net profit earned using the shareholder equity of the company. This ratio is crucial as it provides investor’s total return. Despite of decrease in percentage of return on equity in case of Telstra Corporation it has been greater than TPG Telecom. That means Telstra Corporation has been using its equity more efficiently as compare to its main competitor TPG Telecom (Davies and Crawford, 2011).

The financial performance of Telstra Corporation Limited can also be adequately explained with the use of cash flow position and balance sheet. As analyzed from the cash flow position, the net cash provided by the operational activities has reduced by 4.4 per cent while there is a net increase in the inviting activities that depicts the rise in capital expenditure for the significant period of the financial year 2017. The company has also invested $750 million for expanding its networks in the digital sector in order to drive improvement in the customer experience in the financial year 2018. Also, a significant proportion of capital investment has been incurred in its mobile network for further expanding its mobile 4G networks. The cash flow generated from operating and investing activities has reduced by $2,430 million in the year 2017 as compared to the previous year. The increase in the net cash in the financing activities by about $1.5 billion has reflected a share buyback program. (Telstra: Annual Report, 2017). The cash flow position of the company can be illustrated with the following figure:

Ratio Analysis of Financial Performance

The balance sheet of the company has reflected its strong financial performance having net assets of about $14,560 million. However, the current asset base of the company has decreased significantly in the year 2017 due to reduction in its cash equivalents with large investment incurred in the capital expenditure. There is a slight increase in the non-current assets supported by its large-scale investment in expanding its mobile networks. There is a decrease in its current liabilities position in the year 2017 as compared to the year 2016 by about 0.3 per cent. This is due to decrease in its short-term borrowings amount and also declining its derivative financial liabilities due to maturity of its derivatives during the significant period. The non-current liabilities have increased from 1.2 per cent due to increase in its long-term borrowings by about $161 million in the year 2017 as compared to the year 2016 (Telstra: Annual Report, 2017). The statement of financial position in the year 2017 of the company can be illustrated as follows:

Social performance is an important attribute of idea of corporate social responsibility that depicts the ways adopted by corporations to realize social goals and objectives. It provides an assessment of the ability of a company to attract and retain its human capital and promoting customer welfare. Corporate social responsibility measures can be stated to be specific actions adopted by corporations for effective management of their overall business processes to produce a positive impact on the environment and society. The business corporations need to conduct their overall activities in a socially responsible manner for ensuring their long-term growth and development (Paladino, 2011). In this context, Telstra Corporation Limited sustainability strategy is to develop a brilliant future for its consumers by carrying out its activities in a responsible manner. This is in accordance with the mission and vision of the company as per which it aims to become a sustainable globally trusted brand in the telecommunication market at a global level. The social performance of the company can be analyzed with examining the specific strategies undertaken by it to develop human potential and creation of wealth for society as follows:

Telstra is strongly committed for developing a better workplace for the employees by the use of sustainable engagement strategies. It is placing larger emphasis on improving its talent and recruitment programs for attracting and retaining the best talent in the world to realize its vision of achieving the position of world class Technology Company. This incorporates the use of screening survey and talent workshops for ensuring that the people hired matches the performance standards and expectations of the company. It has adopted a rather decentralized organizational structure enabling the employees and leaders to work in coordination for realizing the company’s mission and objectives. The human resource department of the company is also focused on implementing the use of core capabilities development programs for promoting employees skills and expertise as per the standard expectations. It has incurred an investment of about $45 million in learning and development for improving employee’s and leaders capabilities (Telstra Sustainability Report, 2017).

Assessment of Social and Environmental Responsibility

The company also provides large encouragement to the employees for involving its sustainability programs to promote the development of communities in which they live and interact. Also, it promotes diversity and inclusions across all its management level for ensuring the presence of employees with varying skills and expertise to meet the customer expectations adequately. The strong efforts of the company towards attaining gender equality have lead to an increase in the female representation in its Bard and key management personnel. Telstra has also shown its strong dedication towards developing a workplace environment that is free from injury and diseases. As such, it has developed and implemented a care health and safety management system for improving the health and safety across all levels of management. The program, is specifically meant for conducting health and safety audits, carrying out surveys and awareness sessions and adopting the use of an online incident notification for providing hazard notification to the people working in the company (Telstra Sustainability Report, 2016).

Telstra recognized a technology giant in Australia is strongly focusing towards promoting the development of communities by creating a digital inclusion program. The digital interconnectivity promotes the social development of communities by providing them the opportunity to interact globally with the access of internet services. The digital literacy programs and imaginarium program of the company is specifically meant for providing the development of society and community. The diversity inclusion strategy of the company is targeting the inclusion of vulnerable customers enabling them to get socially connected and resolve their social issues and concerns. Everyone connected strategy of the company is centered on the attainment of objectives of affordability, accessibility, digital capability and innovation for promoting social growth and development. Also, the sustainability strategy of the company aims at delivering a positive social experiences focuses on promoting customer involvement. In this context, it has launched a check-in-program for sending personalized communications to its customers for facilitating them to select the best plans Telstra Sustainability Report, 2017).

The customer advisor tool and the mobile toolkit app are specifically meant for providing awareness to customers about Telstra products and services. It also actively listens to the customer complaints about its products and services from Telecommunications Industry Ombudsman (TIO) to resolve their issues and achieving customer satisfaction. Also, it has undertaken product responsibility with the use of approaches for protecting data and privacy of its customers. It has implemented privacy controls across its supply chain for ensuring that the vital information of the customer remains protected. The implementation of privacy control business procedures, security and network controls and employees training ensuring that customer data remains protected Telstra Sustainability Report, 2016).

As such, it can be said that Telstra is delivering a positive social experience by adoption of effective measures for promoting the growth of its employees and customers and communities at large. This ensures the long-term growth of the company as provided by the stakeholder theory. The theory has stated that the purpose of a business entity is to create value for its stakeholders such a customers, suppliers, employees and communities by aligning their interests as per the organizational goals and objectives. This exactly has been maintained by Telstra at its workplace as reflected from its social performance (Sustainability at Telstra, 2017).

Telstra is placing large emphasis on protection of environment by adopting the use of sustainable method of carrying out its business operations. The company regularly conducts the environmental audit for reviewing the impact of its business activities on the environment (Nelson, 2016). The environment performance of the company can be analyzed by examining the specific measures adopted for ensuring environment protection, energy and carbon emission concerns and waste production concerns as follows:

The environment strategy developed by the company has provided a framework for addressing its most pertinent environment issues and concerns. This strategy of the company is targeted to minimize the business risks related with its operations across its value chain that can negatively impact the environment growth and development. The environment strategy of the company is developed on the basis of the focus areas of improving customer value proposition, achieving operational efficiency and creation of a sustainable supply chain. The environmental customer value proposition area is specifically meant for providing quantitative information to the customers about the contribution of its products and services for reduction in their environmental impacts. The operational excellence is targeted at reducing the environment impacts on the operational costs. Also, the environment strategy is aimed at reducing the environment impact by developing long-term relations with the suppliers that enables it to procure high quality products having less negative impact on the environment (Telstra Environment Strategy, 2016).

The company is continually focusing towards reducing the consumption of energy in its operational activities. It has adopted energy reduction and efficiency initiatives that aims at enhancing its investment in renewable energy for addressing climate change. It aims to improve its energy efficiency in reducing the consumption of energy across its network development, data centers, offices and ICT equipments. Also, it has established long-term strategies for reducing the emission of greenhouse gases by about 55 per cent from the financial year 2015 to 2017. For this, it is aiming to adopt the use of clear forms of energy such as renewable energy that have low carbon emissions. It is continually seeking investment opportunities for reducing the mission of its greenhouse gases (Telstra Corporation Limited, 2016).

In this context, the company ahs already incurred an investment of about $7.5 million for reduction of energy to save about 33,900 MWh of electricity. The company is calculating the GHG emissions as per the Greenhouse Gas Protocol established by the World Business council. Also, it is continually seeking the investment opportunities for adopting the use of renewable energy as a long-term strategy for reduction in the carbon emission. It has undertaken development across its solar energy by carrying out the development of solar panels in order to ensure its sustainable growth by reducing the negative impact on environment of carbon emissions. The company has developed about 10,200 sites across Australia for installation of its solar panels in order to develop renewable energy (Telstra Sustainability Report, 2017).

As per the United Nations Report, the e-waste disposed by the telecommunication sector has increased from 48 million tons in the year 2012 to about 65 million tons in the year 2017. Also, it has been stated that production of e-waste in Australia is growing by about three times as compared to any other waste stream (Chew, 2009). E-waste is regarded to e items of electric and electronic equipments and their associated parts that are produced as a result of the manufacturing process of telecommunication companies that cannot be re-used. In this context, Telstra is emphasizing on reuse of its electronic waste products through recycling for systematic management of its waste materials. It has also collected an overall 5.549 tones of e-waste with use of its recycling measures and also continually seeks to engage employees in its e-waste collection campaign. Also, it has been successes in reducing its total waste generation by about 23 pre cents till the year 2016 with the use of effective waste management techniques implemented across its value chain. Also, it is placing strong focus towards reducing its water consumption and paper use for minimizing its waste generation and promoting the company’s sustainable growth over long term (Telstra Sustainability Report, 2017).

Conclusion

The report concludes that Telstra though performing well in social and environment prospects is not delivering good financial outcomes as analyzed from its financial reports over the past years. The company’s profitability position is declining and also it has announced a reduction its divided paid to the shareholders in the future context. As such, the investors need to wait and analyze its financial and economic performance in the long-term before considering its investment decisions. Also, as compared with the financial performance of TPG telecom the company financial outcomes are very weak. Therefore, investors need to analyze its competitor’s position adequately well before considering the financial investment decision.

References

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