Performance Analysis Of BT Group And Vodafone In The Australian Telecommunications Industry

Overview of the Australian Telecommunications Industry

This report will look at the performance of BT Group in recent years and the comparison of company’s performance with the others. The financial performance of the company is shown in the report by using the financial metrics and graphs. The operational analysis of the company’s performance is described by comparing it with competitors.

The BT group plc and Vodafone group operate in the telecommunication industry and their major activity includes network service, professional service, unified communication, IT services and call and & lines services. The telecommunication industry in Australia provides service to facilitate transmission of text, voice, sound, video, through wire, cable, data and wireless and satellite network. The telecommunication infrastructure is not owned by all subdivision participants as many of the telecommunication reseller purchase network capacity and then retails them to the customer.

The telecommunication sector in Australia has changed by providing increased connectivity and telecommunication service usage has increased over the past 5 years which created intense intra-subdivision and intra-industry that lead to the difficult trading environment for many of the firms. As a result of fixed-to-mobile shift, there is expectation of rise in revenue at an annual rate of 0.1% over the next 5 years from 2017-18 to reach $43.3 billion. The profit of the subdivision has a possibility to decrease over the five year through 2017-18 due to current price competition and accumulation of substantial losses from the development of NBN.

The major companies in the telecommunication industry in Australia are Telstra Corporation Limited, Vodafone Hutchison Australia and SingTel Optus Pty Limited with the marketing holding of 40%, 7.4% and 16.9% respectively.   Rest of the 35.7% of the market share is held by other companies which are TPG Telecom Limited, Vocus Communication limited and NBN Co limited.

The number of subdivision enterprise has increased over the past 5 years as small-scale niche player has entered to capitalize on the NBN rollout. The industry has shown a growth in the year 2015-16 but since then performance is declining. Most of the Australian has shifted from wired to mobile service which has led to a strong decline in subdivision employment over the past 5 years.  

BT Group plc is the multinational telecommunication company with the head office in the United Kingdom. Currently, the group operates in more than 180 countries and it is the largest provider of the broadband, fixed line and the mobile services in the European region. In addition to these services, the company also provides information technology and subscription television services (Ogada, et. al., 2016). The group is primary lists in the London stock exchange and secondary listed on the New York stock exchange.

Major Companies in the Australian Telecommunications Industry

Vodafone group is established in the year 1991 in London, England. The company is a multinational telecommunication company which operates in the region of Europe, Asia, Africa and Oceania (Marino, 2017). In the terms of revenue, the company ranked fifth in the telecommunication industry in the world and ranked second in Asia. The company operated the network in more than twenty-six different countries and they have partners in more than fifty other countries. The company has more than 100,000 employees worldwide and it is the eight largest companies listed on the stock exchange of England and it is secondary listed in the NASDAQ. The name Vodafone came from the “voice data phone” which is selected by the company in order to “reflect the provision of voice and data services over mobile phones”.

The group has more than 18 billion customers in Great Britain and it operates a high number of subsidiaries. The major subsidiaries of the company are plus net, EE limited BT global services and open reach. The group acquired EE limited in the year 2015 for £12.5 billion. This was the company acquired by the group in the recent years (Payne and Frow, 2014).

Vodafone invested £19 billion in the spring project in order to achieve the objective of rapid growth and improving the quality of mobile services. In addition to this, the Vodafone is also committed towards high standards of corporate governance which are critical for the integrity of business of the company.

The group powers the information technology and communication service of more than nine lakh companies in Ireland and the United Kingdom. The major businesses of the company are networking, voice solutions, broadband, and the cloud services. The aim of the BT group is deepening and broadening the relationship with them as many customers as possible in order to achieve the ultimate growth goal of the organization.

Vodafone provides a wide range of services including the messaging, voice and fixed network services (Bany-Ariffin, et. al., 2016). The aim of Vodafone is to differentiate themselves from their competitors in the industry by providing the customers a leading network and by levering the advantages of the large scale. The company is investing a huge amount in building high quality of telecommunication networks which can further sustain high revenue generation and which can reward the stakeholders of Vodafone.

Net profit margin is a financial ratio that is used to determine that how much profit is earned on the sales (Heizer, 2016). If the net profit ratio of the company is high then it shows that the company was earning more and the cost of the company decreases. The profitability of the company is determined by this ratio.

• The net profit of BT Group has 18.93% in the financial year 2015 which is increased in the year 2016 but in 2017 it sees a downfall and it comes down to 13.16%.
• While on the other side, the Net profit margin of Vodafone in the year 2015 is 4.28% that decreases in the year 2016 but increases in 2017. The net profit margin of Vodafone in 2017 is 7.82%.
• The net profit margin of BT group is more than in all 3 past years in comparison to the net profit margin of Vodafone (Kraus and Strömsten, 2016).
• The highest decrease comes in the Vodafone in the year 2016 when its net profit margin goes down to 2.65%.

Performance Analysis of BT Group

Return on capital employed is used to determine the return earned on the capital employed in the business. Capital employed is calculated by using the long-term liabilities and shareholder’s funds (Gitman, et. al., 2015). If the return on capital employed by the business is high then the good return is earned on the money invested in the business. Higher ROCE attracts the investor to invest in the company’s shares.

• A good return is earned by the BT Group as there is not much deviation in the ROCE of the company. But it slightly decreases in the recent years.
• In the financial year 2015, the return on capital employed by the company is 9.13% which is decreased in the financial year 2016 and it also decreases in 2017 and comes down to 7.68%.
• The return on capital employed of the Vodafone also decreases and it is very low in comparison to the return on capital employed of the BT Group (Sharma, et. al., 2017).
• There is a downward trend in the ROCE of both the companies. The liabilities of BT Group have increased in recent years which are the reason behind the downward trend of ROCE in BT Group.

(Net profit before interest and Tax/Shareholders funds) *100

Return on shareholders’ equity shows the amount of the profit earned on the money invested by the shareholder.

• The return on equity of BT Group in the financial year 2015 is 17.58% and after that, it starts decreasing and in 2017 it comes to the lowest point that is 10.07%. The reason behind the downfall is the increase in the accumulated losses in the reserves of the company.
• The ROE of Vodafone was 2.21% in 2015 and it declines in next year but after that, it shows a good growth and increased to 5.05% in 2017. The profits of the company in 2017 have increased and that is the main reason behind the increase of return on shareholders’ equity (Titman, et. al., 2017).

To determine the liquidity of the business this ratio is first preference. It is the part of the liquidity ratio and it helps in determining the liquid position of the company. The more the current assets in the business the more is beneficial for the business as they need working capital to run the day to day operations. The company’s performance with the help of current ratio is as follows:

• When the current ratio of the business is 1 or more than 1 then it is treated as an ideal ratio and every company wants to achieve the ideal ratio in their business.
• The current ratio of BT Group remains below to 1 in all three years while the current ratio of Vodafone also remains below to 1 in all three years (Laudon and Laudon, 2016).
• The main reason behind the bad performance is current assets of the company are less than the current liabilities of the business. The current ratio of BT Group has shown a downward trend that means the current assets of BT Group is less than the current liabilities and the current assets of the company also decrease in the financial year 2017.

Acid test ratio is also known as a liquid ratio and it shows that the company is able to pay the debts if the inventory is deducted from the current assets. This ratio is used to determine that whether the company can pay its short-term creditors.

• The acid test ratio of the BT Group in 2015 is 0.95 and in the financial year 2017, it is 0.61 that shows the current assets are decreased and the current liabilities of the business increased.
• The ratio of Vodafone shows the symptoms of liquidity as the liquid position of the Vodafone is good in comparison to the liquid position of the BT Group (Langabeer and Helton, 2015). The acid test ratio of Vodafone in 2015 is 0.62 that increased to 0.88 at the end of the financial year 2017.

Debt-Equity ratio is calculated to know the capacity of the company to pay its debts. The repayment of debts is necessary in order to continue the business (Hill and Hill, 2017). The debt-equity ratio calculated by using the financial leverage is different as in this case long-term liabilities of the business is divided by the issued capital and the reserves available in the business.

• The debt-equity ratio of BT Group in 2015 is very high but after that, it starts decreasing that shows the company has enough funds to repay its long-term debts.
• In comparison to BT Group, the debt-equity ratio of Vodafone is very low and it shows that the repayment capacity of Vodafone is far better than the repayment capacity of BT Group (Payne-Palacio, 2016). The higher the ratio the more problematic for the company and lower the ratio the more beneficial for the company.

This ratio shows that how much sales are made by the company on a given amount of assets. The ratio also shows the performance of the management as there is the main role played by the management in the sales of the company (Olson and Wu, 2015).

• The asset turnover ratio of the BT Group in 2015 is 0.47 that decreases in next year to 0.36 but in 2017 it increases. The asset turnover ratio is 2017 is 0.44
• The asset turnover ratio of the Vodafone in 2015 is 1.27 but after that, it starts decreasing and it decreases in 2016 and in 2017.
• BT Group can improve its asset turnover by reducing its long-term liabilities.

This shows that how fast a business can sell its inventory to the consumer. This ratio also shows the performance of the management.

• BT Group operates in a telecom industry and it does not have a high amount of inventory as its main revenue comes from the services (Elayan, et. al., 2016).
• The inventory turnover ratio of the BT Group in 2017 is 106 times but it declines as in 2015 it is 191 times of the sales of the company.
• The inventory turnover ratio of the Vodafone in 2017 is 82.69 that is less than in comparison to the inventory ratio of the BT Group but in recent years it increases that means the more inventory of the company is turned into the sales.

Conclusion

After reading the report on the performance of the BT Group and its comparison with the competitor it is clear that the performance of the company is good in major areas but in some areas the company has to do improvements. The current ratio of the company is less than the ideal ratio and it is worrying sign for the company and the same can be said for the acid test ratio of the company. The debt-equity ratio of the company is very high. These ratios show the financial performance of the business and if these are not up to the standards then it may create problems for the company.

References

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Elayan, F.A., Li, J., Liu, Z.F., Meyer, T.O. and Felton, S., 2016. Changes in the covalence ethical quote, financial performance, and financial reporting quality. Journal of business ethics, 134(3), pp.369-395.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Heizer, J., 2016. Operations Management, 11/e. Pearson Education India.

Hill, A. and Hill, T., 2017. Essential operations management. Macmillan International Higher Education.

Kraus, K. and Strömsten, T., 2016. Internal/inter-firm control dynamics and power—A case study of the Ericsson-Vodafone relationship. Management Accounting Research, 33, pp.61-72.

Langabeer, J.R. and Helton, J.R., 2015. Health care operations management. Jones & Bartlett Publishers.

Laudon, K.C. and Laudon, J.P., 2016. Management information system. Pearson Education India.

Marino, M.S., 2017. The Problems of the First Mover: The Case of British Telecom. In The Privatisation of European Telecommunications (pp. 127-142). Routledge.

Ogada, A., Njuguna, A.G. and Achoki, G., 2016. Effect of Synergy on Financial Performance of Merged Financial Institutions in Kenya.

Olson, D.L. and Wu, D.D., 2015. Enterprise risk management (Vol. 3). World Scientific Publishing Company.

Payne, A. and Frow, P., 2014. Developing superior value propositions: a strategic marketing imperative. Journal of Service Management, 25(2), pp.213-227.

Payne-Palacio, J., 2016. Foodservice Management: principles and practices. Pearson Education.

Sharma, M.A., Joseph, J. and Kumar, D.S., 2017. The Impact of Mobile Banking on Financial Performance of Banks in India.

Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.

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