Operational and Financial Analysis of BT Group and Vodafone in the Telecommunication Industry in Australia

This report analyzes the operational and financial performance of BT Group and Vodafone in the telecommunication industry in Australia. It includes an industry analysis, company overview, business strategy, and evaluation of performance using financial ratios.

Managing operations and finance
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Chapter 1 – Operational Analysis
1.1 Introduction
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.
1.2 Industry Analysis
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.
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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.
Major companies
3

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.
Revenue growth
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.
1.3 Company overview
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.
4

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".
1.4 business strategy
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.
1.5 Operational analysis
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
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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.
Chapter 2 -Evaluation of performance
2.1 Financial Performance
2.1.1 Net Profit Margin (NPM)
(Net profit before interest and Tax (PBIT)/Sales) *100)
2015 2016 2017
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
BT Group
Vodafone
BT Group
Vodafone
6
BT Group (In M) 2015 2016 2017
Sales/Turnover 17968 19012 24062
Net Profit before interest and tax 3402 3613 3167
Net Profit Margin 18.93 19.00 13.16

Vodafone (In M) 2015 2016 2017
Sales/Turnover 48385 49810 47631
Net Profit before interest and tax 2073 1320 3725
Net Profit Margin 4.28 2.65 7.82
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%.
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2.1.2 Return on Capital Employed (ROCE)
(Net profit before interest and Tax/Capital employed) *100
2015 2016 2017
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
BT Group
Vodafone
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
Net Profit before interest and tax 3402 3613 3167
long term liabilities 18671 21203 23112
Shareholders’ funds/net assets 19352 31315 31447
Return on Capital Employed
(ROCE) 8.95 6.88 5.80
8

Vodafone (In M) 2015 2016 2017
Net Profit before interest and tax 2073 1320 3725
long term liabilities 35892 41736 38576
Shareholders’ funds/net assets 93708 85136 73719
Return on Capital Employed
(ROCE) 1.60 1.04 3.32
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.
2.1.3 Return on Equity (ROE)
(Net profit before interest and Tax/Shareholders funds) *100
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2015 2016 2017
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
Net Profit before interest and tax 3402 3613 3167
Shareholders’ funds/net assets 19352 31315 31447
Return on Shareholders’ Equity
(ROE) 17.58 11.54 10.07
Vodafone (In M) 2015 2016 2017
Net Profit before interest and tax 2073 1320 3725
Shareholders’ funds/net assets 93708 85136 73719
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Return on Shareholders’ Equity
(ROE) 2.21 1.55 5.05
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).
2.2 Risk Performance
2.2.1 Current Ratio
(Current Assets/Current Liabilities)
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2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
Current Assets 7838 8548 6875
Current Liabilities 8194 11651 10925
Current Ratio 0.96 0.73 0.63
Vodafone (In M) 2015 2016 2017
Current Assets 25542 31938 27457
Current Liabilities 39979 41797 30595
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Current Ratio 0.64 0.76 0.90
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.
2.2.2 Acid Ratio
((Current assets – Inventory)/Current liabilities)
2015 2016 2017
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
BT Group
Vodafone
13

BT Group (In M) 2015 2016 2017
Current Assets 7838 8548 6875
Current Liabilities 8194 11651 10925
Stock 94 189 227
Acid test ratio (Liquidity Ratio) 0.95 0.72 0.61
Vodafone (In M) 2015 2016 2017
Current Assets 25542 31938 27457
Current Liabilities 39979 41797 30595
Stock 667 716 576
Acid test ratio (Liquidity Ratio) 0.62 0.75 0.88
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.
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 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 (Financial Leverage)
(Long term loans/ (Ordinary share capital + reserves)) *100
2015 2016 2017
0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
long term liabilities 18671 21203 23112
Issued capital 1305 1435 1454
Reserves -624 8677 6881
Debt equity ratio (Financial 2741.7 209.68 277.29
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Leverage/Gearing) 0
Vodafone (In M) 2015 2016 2017
long term liabilities 35892 41736 38576
Issued capital 157300 147713 147994
Reserves -65790 -64388 -75794
Debt equity ratio (Financial
Leverage/Gearing) 39.22 50.09 53.43
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.
Managerial Performance
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Asset Turnover
Turnover/Capital Employed
2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
Sales/Turnover 17968 19012 24062
long term liabilities 18671 21203 23112
Shareholders’ funds 19352 31315 31447
Asset Turnover 0.47 0.36 0.44
Vodafone (In M) 2015 2016 2017
Sales/Turnover 48385 49810 47631
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long term liabilities 18671 21203 23112
Shareholders’ funds 19352 31315 31447
Asset Turnover 1.27 0.95 0.87
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.
Inventory Turnover
Turnover/Inventory
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2015 2016 2017
0.00
50.00
100.00
150.00
200.00
250.00
BT Group
Vodafone
BT Group (In M) 2015 2016 2017
Sales/Turnover 17968 19012 24062
Stock 94 189 227
Inventory Turnover 191.15 100.59 106.00
Vodafone (In M) 2015 2016 2017
Sales/Turnover 48385 49810 47631
Stock 667 716 576
Inventory Turnover 72.54 69.57 82.69
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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.
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Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
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study of the Ericsson-Vodafone relationship. Management Accounting Research, 33, pp.61-
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Bartlett Publishers.
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Payne, A. and Frow, P., 2014. Developing superior value propositions: a strategic marketing
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Appendices
Vodafone
Consolidated income statement of Vodafone for the previous 3 years
23

24

Consolidated financial statement of Vodafone for the previous 3 years
25

26

Consolidated cash flow statement
27

BT Plc
28

29

30

BT Group (In M) 2015 2016 2017
Sales/Turnover 17968 19012 24062
Net Profit before interest and tax 3402 3613 3167
long term liabilities 18671 21203 23112
Shareholders funds/net assets 19352 31315 31447
Return on Shareholders Funds
(ROE) 17.58 11.54 10.07
Return on Captial Employed (ROCE) 8.95 6.88 5.80
Net Profit Margin 18.93 19.00 13.16
31

Vodafone (In M) 2015 2016 2017
Sales/Turnover 48385 49810 47631
Net Profit before interest and tax 2073 1320 3725
long term liabilities 35892 41736 38576
Shareholders funds/net assets 93708 85136 73719
Return on Shareholders Funds
(ROE) 2.21 1.55 5.05
Return on Captial Employed (ROCE) 1.60 1.04 3.32
Net Profit Margin 4.28 2.65 7.82
BT Group (In M) 2015 2016 2017
Current Assets 7838 8548 6875
Current Liabilities 8194 11651 10925
long term liabilities 18671 21203 23112
Shareholders funds 19352 31315 31447
Issued capital 1305 1435 1454
Reserves -624 8677 6881
Stock 94 189 227
Fixed Assets 19708 34418 35497
Total Assets 27546 42966 42372
Current Ratio 0.96 0.73 0.63
Acid test ratio (Liquidity Ratio) 0.95 0.72 0.61
Debt equity ratio (Financial Leverage/Gearing) 2741.70 209.68 277.29
Vodafone (In M) 2015 2016 2017
Current Assets 25542 31938 27457
Current Liabilities 39979 41797 30595
long term liabilities 35892 41736 38576
Shareholders funds 93708 85136 73719
Issued capital 157300 147713 147994
Reserves -65790 -64388 -75794
Stock 667 716 576
Fixed Assets 142122 133512 111947
Total Assets 167664 165450 139404
Current Ratio 0.64 0.76 0.90
Acid test ratio (Liquidity Ratio) 0.62 0.75 0.88
Debt equity ratio (Financial Leverage/Gearing) 39.22 50.09 53.43
BT Group (In M) 2015 2016 2017
32

Sales/Turnover 17968 19012 24062
Stock 94 189 227
long term liabilities 18671 21203 23112
Shareholders funds 19352 31315 31447
Asset turnover 0.47 0.36 0.44
Inventory Turnover 191.15 100.59 106.00
Vodafone (In M) 2015 2016 2017
Sales/Turnover 48385 49810 47631
Stock 667 716 576
long term liabilities 18671 21203 23112
Shareholders funds 19352 31315 31447
Asset turnover 1.27 0.95 0.87
Inventory Turnover 72.54 69.57 82.69
33