Telstra Corporation Annual Report Analysis

This report provides a detailed analysis of Telstra Corporation's annual report, focusing on its financial performance, assets, and corporate social responsibility. It discusses the company's strengths, weaknesses, opportunities, and threats, as well as its major competitors. The report also examines Telstra's financial structure, including its borrowings and net debt. Additionally, it analyzes the company's assets, such as property, plant, and equipment, and intangible assets. Finally, the report explores Telstra's research component and its corporate social responsibility and sustainability efforts.

2019
BUACC5932 Corporate Accounting
Group Assignment

Executive Summary
The annual report helps in providing a strong insight into the functioning of the company. A
proper assessment reveals the financial performance, accounting standards and other corporate
information. The report sheds light on the telecommunication giant Telstra Corporation. The
report analyses the annual report of Telstra and provides a strong insight into the activities of the
company followed by the financial performance. Other important discussion also follows such as
PPE and CSR activities of the company.

Contents
Introduction.................................................................................................................................................4
Assets – PPE and Intangibles.......................................................................................................................9
Research component.................................................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13

Introduction
Telstra Corporation Limited is the leading company in telecommunications and listed on the
Australian exchange. It also operates and builds telecommunications networks and other related
mobile voice and internet products and services. It was founded on 1st July 1975 and today has
become fully privatized and customer focussed. It has become a full range telecommunications
service provider and is leading in all the telecommunications markets. It provides retails services
to 18 million customers, standalone data services to 3.7 million customers and standalone voice
services to 1.7 million customers. Telstra Corporation Limited believes that it can create more
opportunities by getting more connected with people (Telstra Corporation, 2018). The activities
carried out by each segment can be summarized as follows:
TC & SB is the service provider of telecommunication products and services to small business
customers including fixed and mobile broadband and digital content. It is also in charge of the
operation of Telstra shops and Telstra dealership networks providing online service facilities to
its customers. TE manages the services outside Australia including data and internet services,
Network and Application services, unified communications monitoring services of integrated
nature in Australia and globally. It is also responsible for the development of vertical industry
solutions by tapping the networks and connections of Telstra.
TO is responsible for the overall designing and architecture of the networks, including
engineering and construction of the technological solutions. The technology has to be equipped
to enhance the risk management and operational efficiency of the company. It also acts as a
service provider for the network and telecommunications services under the various agreements
entered into by Telstra (Sword, 2018)
Apart from this, the “All Other” category includes the services that do not qualify under any
of the above operating segments on their own.
• Industry Operation, competitor analysis, and performance
Telstra qualifies under the telecom service providers’ category of businesses. Given the rate of
technological advancements, it is an ever growing industry. Its USP is that it is a giant in the

field and has a strong presence. Its strengths include its strong customer base, wide service
portfolio, expanding operating margin and its operational presence in over 230 territories. Its
weaknesses include a limited liquidity position. The opportunities available are the increasing
and rising demand for telecommunication services, the launch of 4G mobile services and
growing technologies in the IT sector. The threats are increasing market competitiveness, rapid
technological changes, and stringent government regulations (Telstra Corporation, 2018).
Telstra has three main competitors namely Singtel, Tata Communications and Planet Tel.
Singtel was founded in 1879 in Singapore and in Telstra’s fierce rival. It competes with Telstra
in almost all areas but generates $12.5 Billion lesser revenue than Telstra. Tata Communications
was founded in 1986 in Mumbai and has an active operation in the telecommunications space. It
generates $24 Billion revenue lesser in comparison to Telstra. Planet Tel is headquartered in
New South Wales and it Telstra’s top competitor. It is operational in the telecommunications
equipment sector and has a revenue generation of 0.18% lesser in comparison to Telstra (Telstra
Corporation, 2018).
The other competitors are Optus, Vodafone, and Virgin mobile, to name a few.
 Financial structure of the company
The company has borrowings of $15,316 million as on 30 June 2018.
Share capital is $4,428 million and retained profits are $10,719 million.
Net debt is worked out as a sum of derivative financial instruments and total interest-bearing
financial liabilities less cash and equivalents of cash. Total capital can be projected as equity
in the statement of financial position (Madura & Fox, 2011). The company follows a healthy
borrowing mechanism to ensure that there are no breaches or defaults in the current or prior
years. Telstra has repaid a term debt of $853 million and cash settlement of derivative
amounted to $9 million (Telstra Corporation, 2018).
 Major highlights of Financial Performance
The Annual report discusses the financial performance of the company. The Total Income
has increased by $837 million in FY 2018 and this is in line with a straight increase over the
past five years in a row. The EBITDA has also increased by $558 million in comparison to

the prior year. The company has not achieved the targeted threshold of EBITDA. The
outcome of free cash flow which was targeted at 20% has surpassed an actual of 34%. The
achieved NPS outcome is 40%, whereas the target was 20% (Telstra Corporation, 2018).
The Net profit has dropped by $328 million and the reasons for the same can be attributed to
the increased expenses that deals with goods and services and operating expenses (Telstra
Corporation, 2018).
The Share Price closing as on 30 June 2018 was valued at $2.62 and the total dividend paid
per share was 26.5 cents.
 Events occurring after the reporting date discussion
An analysis and study of the Annual Report of Telstra for the year 2018 shows that the
company is not aware of any circumstances or matters that have occurred after the reporting
date, 30th June 2018 which in the opinion of the management has a significant impact in the
current or future years on its operations, state of affairs and the results of such operations
(Telstra Corporation, 2018).
An exception to the above is the following item:
The company announced a change in its dividend policy on 17 August 2017 which stated that
from the financial year 2018 onwards, the dividend comprises of both ordinary dividend and
a special dividend (Telstra Corporation, 2018).
 Changes in accounting policies and reflected in the Annual report
Note 7.1 in the Annual Report discuss the changes in the accounting policies. The
amendments in the AS were adopted by the company as below:
• Amendments to AASB 107 – Recognition of Deferred Tax Assets for Unrealized Losses
– Disclosure Initiative
• AASB 2017 – Further annual improvements to the 2014-2016 cycle.
There is no material influence of these amendments.
The amendments in AASB 9 – Financial Instruments have been adopted by the company.
The classification and measurement of the items and its impairment and hedge accounting is
laid down by the Accounting Standard which was adopted by the company from 1 July 2014.

The contract assets arising from the financial assets are also covered by the scope of the
amendment in AASB 15 – Revenue from contracts with customers.
Thus Telstra has a combined effect of both these standards based on which the Expected
Credit Loss is calculated for the impairment of financial assets.
The impact of the adoption of the new AS in the future periods is seen in the identification
of customer contracts, combinations and modifications, identification of obligations in terms
of performance, transaction price determination, and the expected financial impact of the
same is worked out by the company as under: Opening Retained earnings to have a decrease
of $516 million, Total income to decrease by $191 million, operating expenses to decrease by
$300 million, EBITDA to decrease by $109 million, net finance costs to increase by $39
million, profit before Tax to increase by $70 million and net profit after tax to increase by
$51 million for the year ended 30 June 2018 (Telstra Corporation, 2018). The practical
application of the new standard AASB 16 – Leases is also being worked out by the company.

Assets – PPE and Intangibles
• Carrying amount of each class of PPE
An extract from the Annual Report for the year ended 30 June 2018 discloses the carrying
amount of Property, plant & equipment as $22,108 million. (Prior year is $21,350 million).
• Accounting policies relating to PPE
In accordance with the guidelines laid down by AASB 116 on PPE, the initial recognition is
done at cost and further measurement is done at cost less eliminating the depreciation part
from it and amortizations (Laux, 2014). Costs comprises of the price of purchase and all such
other costs that are directly attributable to bring the asset to the necessary working condition
(Telstra Corporation, 2018). The useful lives of significant assets like buildings,
communication assets, and other plant and equipment are decided by the company. Leased
assets are either defined as operating lease or finance lease upon the meeting of the criteria
and depreciation is attracted on a straight line basis over the period of lease (Leo, 2011).
 Intangible assets reported by the company. Composition and relevance
The carrying amount of Intangible assets as on 30 June 2018 is $9,180 million. (Prior year is
$9,558 million).
Goodwill is acquired on business combinations and is measured as the amount that surpasses
the consideration paid over the net FV of the assets acquired (Basu & Park, 2014). It
undergoes impairment on an annual basis. Intangible assets that are generated internally are
usually the costs incurred towards the development and design of a new product or software
that can lead to enhanced business (Bauer & Hann, 2010). The management decides the
capitalization of these development costs depending upon the product feasibility in the
current market scenario and the availability of sufficient resources to support the demand for
the same. It has a useful finite life and is hence amortized on a straight-line basis (Titman,
Martin, Keown & Martin, 2016).
Acquired intangible assets are either at the time of business combinations that are recorded at
FV or through separate acquisitions which are recorded at cost. Assets with a finite life are

amortized on a SLM whereas assets with infinite life are tested for impairment on every
reporting date (Telstra Corporation, 2018). Deferred expenditure includes the costs of
establishment of the customer contract, installation fees and connection fees for new and
existing lines. The amortization is done depending upon the term of the costs (Brown, 2013).
 Accounting policies relating to Intangible Assets adopted by your company.
The guidelines laid down in AASB 138 – Intangible assets are followed by the company. The
FV of the identifiable intangible assets are decided by the management. Factors considered
are the cash flow estimation and also the timing of these cash flows and the use of a discount
rate that is appropriate (Melville, 2013). Such estimates are worked out based on the current
forecasts extrapolated into the future taking into account the operating costs, annual growth
rates and the expected useful lives of the assets (Francis, Harrast, Mattingly, & Olsen, 2013).
The determination of the amortization period is also a management judgment. The useful
lives are reviewed on a yearly basis.
 Assets impairment and impairment losses
The impairment losses to goodwill have been worked out at $261 million, software assets at
$31 million and other assets at $5 million totalling the impairment losses to $297 million
(Telstra Corporation, 2018).

Research component
The Sustainability Report available on the website of Telstra provides a bigger picture of its
progress and performance (Telstra Corporation, 2018). The key areas to create value for its
stakeholders are aimed to be achieved by focussing on the below topics:
• Environmental solutions
• Responsible business
• Digital Future
• Technology for good
• Everyone connected
• Ethics and Governance
• Culture and capabilities
The media stories and blogs have been pretty positive about Telstra and the reviews are that
Telstra is known to be doing ethical business. Hence it cannot be termed a self-centric company
that will place profits before people.
 Corporate social responsibility and sustainability.
As the resources in the world are limited and the population is ever increasing, the demand for
products and services is also increasing and hence it is vital that the resources are used in the
most efficient manner (Niemi & Sundgren, 2012). Also the industrial and other waste generated
by the company has to be disposed of off in an appropriate manner to ensure that the
environment and habitat are not adversely affected (Telstra corporation, 2018). Hence corporate
social responsibility has become a vital area and sustainable business operation is being largely
focused upon.

Conclusion
From the above report, it can be commented that Telstra has adhered to the compliance and is
operating in an effective manner. Being the largest telecommunication giant, it has created a
niche for itself in the industry. Further, the industry is growing and Telstra has enhanced by dint
of the strong customer base and other portfolios. With a strong capital management policy, the
company is able to cement its position in the industry. The only concern is that of liquidity and
fall in the profits. Further, it looks after the CSR activities that help the society at large. Hence,
overall, Telstra is growing with each passing day.

References
Basu, S & Park, H.U. (2014). Publication Bias in Recent Empirical Accounting Research.
Working paper, Temple University
Bauer, R. and Hann, D. (2010) Corporate environmental management and credit risk. Maastricht
University.
Brown, P. (2013). How can we do better?. Accounting Horizons. 27(4), 855–859
Francis, R. N., Harrast, S., Mattingly, J. and Olsen, L. (2013). The relation between accounting
conservatism and corporate social performance: An empirical investigation. Business and
Society Review, 118 (2), p. 193 - 222. Retrieved from: doi: 10.1111/basr.12008
Laux, B. (2014). Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. 44(4), 380-382. Retrieved from:
Leo, K. J. (2011). Company Accounting (9th ed). Boston:McGraw Hill
Madura, R., & Fox, J. (2011). International financial management (2nd ed.). South Western
Melville, A. (2013). International Financial Reporting – A Practical Guide. 4th edition, Pearson,
Education Limited, UK
Niemi, L., and Sundgren, S. (2012). Are modified audit opinions related to the availability of
credit? Evidence from Finnish SMEs. European Accounting Review. 21(4), 767-796.
Retrieved from:
Sword. (2018). Active Risk Manager (ARM): The Technology Behind Leading Edge Risk
Management, Retrieved from
Telstra corporation. (2018). Telstra corporation annual report & accounts. Retrieved from
Titman, S, Martin, T, Keown, AJ & Martin, JD. (2016). Financial management: principles and
applications, 7th edn, Pearson Australia, Vic.