HA1022 Principles of Financial Management: TPG Telecom Report

This report provides a comprehensive analysis of TPG Telecom's financial management, addressing key aspects such as industry size, competition, and regulation. It explores TPG Telecom's main sources of business, ownership structure, and its role within the financial system. The report delves into financial instruments, including off-balance-sheet business, and conducts a detailed financial ratio analysis, examining metrics like net profit margin, current ratio, and debt-to-equity ratio. Furthermore, it includes a competitor analysis, focusing on Telstra as a major competitor, and discusses opportunities and threats. The report also touches upon communication between financial players, government intervention, and ethical considerations. Supporting the analysis are financial statements, including a consolidated income statement and balance sheet, providing a complete overview of TPG Telecom's financial standing.

Running head: PRINCIPLES OF FINANCIAL MANAGEMENT
Principles of financial management
Name of the student
Name of the university
Student ID
Author note

1PRINCIPLES OF FINANCIAL MANAGEMENT
Table of Contents
Requirement 1.............................................................................................................................2
(a) Characterization of the industry size and competition level..........................................2
(b) Regulators of the industry and extent of its power.......................................................2
(c) Industry regulator...........................................................................................................2
Requirement 2.............................................................................................................................2
(a) Main source of business................................................................................................2
(b) Ownership structure of TPG Telecom...........................................................................3
(c) Company’s role within financial system.........................................................................3
Requirement 3.............................................................................................................................3
(a) Financial instruments.....................................................................................................3
(b) Off balance sheet business (OBS)................................................................................4
Requirement 4.............................................................................................................................4
Part A: Financial ratio analysis................................................................................................4
(a) Key financial ratios.....................................................................................................4
(b) Calculation of financial ratios.....................................................................................5
(c) Comment on ratios.....................................................................................................5
Part B: Competitor analysis.....................................................................................................5
(a) Main competitor..........................................................................................................5
(b) Basis of competition...................................................................................................5
(c) Opportunity or threat from competitor........................................................................6
Requirement 5.............................................................................................................................6
(a) Communication between financial players....................................................................6
(b) Government intervention...............................................................................................7
(c) Involvement in unethical practice..................................................................................7
Requirement 6.............................................................................................................................7
Reference....................................................................................................................................9
Appendix...................................................................................................................................11
(a) Consolidated income statement..................................................................................11
(b) Consolidated balance sheet........................................................................................12

2PRINCIPLES OF FINANCIAL MANAGEMENT
Requirement 1
(a) Characterization of the industry size and competition level
Increasing demand in the mobile services has taken place at cost of the fixed line
services. Revenue generated from the wireless services have went up and driven by the
increase in the consumption volumes of mobile data and improved the mobile connectivity.
However, the demand for the services of fixed line has been dropped. Overall, the subdivision
revenue is projected to go up at the annualized rate of 0.2% over 5 years through 2018-19 to
$ 37.8 billion (Klein and Jakopin 2014).
Competition in providing the services supplied over National Broadband Network is the
key issue. As per the review of ACCC, Telstra with 48%, TPG that incorporates iiNet with
26%, Optus with 14% and Vocus that incorporates M2 with 6% are main acquirer of the
wholesale NBN access services (Kim 2016).
(b) Regulators of the industry and extent of its power
2 major regulators of Australian telecom industry are ACCC (Australian Competition
and Consumer Commission) for the matters related to completion under Competition and
Consumer Act 2010 and ACMA (Australian Communication and Media Authority) for the
technical as well as other matters including number portability, service, carrier provider for
licensing under the Telecommunications Act 1997 and DOCA (Department of
Communications and the Arts) (Flannery 2018)
The regulatory body mandates that the Australians shall have equitable and
reasonable access to the standard telephone and prescribed carriage services. ACMA issues
license, determine the standard of the industry, collect levies and taxes related to
telecommunication and media. ACCA has particular enforcement and regulatory power
related to completion matters under CCA (Perkins 2014).
(c) Industry regulator
Industry never controlled the telecommunication industry and as per the CEO of
Communication Alliance, John Stanton, they believe that telecommunication industry shall not
be placed under control of industry regulator. Hence, apart from the regulators, no industry
groups help to regulate the behaviors apart from the regulators (Governatori et al. 2016).
Requirement 2
Company description
(a) Main source of business
Main business source of TPG Telecom is providing telecom services to corporate,
wholesale and consumers. It carries on the operation through 3 sectors namely, iiNet, TPG
Consumer and TPG Corporate.
It provides wide range of the communication services to the small and medium
enterprises and residential users and government, wholesale customers and large corporate
enterprises. Products offered by the entity include nationwide ADSL+, Fibre Optic, NBN,
telephony services, Ethernet broadband access, SIM Only mobile services, Internet Protocol
Television and different solutions related to business networking (Tpg.com.au 2019).

3PRINCIPLES OF FINANCIAL MANAGEMENT
(b) Ownership structure of TPG Telecom
It is as follows –
 Institutional ownership – it includes the institutional investors who typically sell and buy
the shares in large magnitudes that can influence the share price significantly.
Institutional ownership in the company is about 9.25%.
 Insider ownership – it includes group of the stakeholders directly involved in key
decision making process. Insiders hold a significant ownership in the company about
35.44%.
 General public ownership – general public holds significant 29.06% of the ownership
 Private company ownership – private companies hold 1.18% of stake (Tpg.com.au
2019).
Management structure of TPG telecom is as follows –
 CEO – David Teoh
 Chief operating officer – Craig Levy
 Chief financial officer – Stephen Banfield
 Manager –Nation Technical and strategy – John Eric Paine
 Chief information officer – Mandie de Ville
 General manager – corporate products and pricing – Wayne Springer
 General manager – Sales, Wholesale, Enterprise – Mark Rafferty (Tpg.com.au 2019)
(c) Company’s role within financial system
Out of total amount of capital, $ 1319 million have been financed through loans and
borrowings and $ 2,784 million financed through equity. Borrowings are raised through
secured and unsecured bank loans (Tpg.com.au 2019).
Requirement 3
(a) Financial instruments
Financial instruments are the assets those can be traded or can also be seen as the
packages for capital that can be traded. Looking into the annual report of TPG Telecom it can
be identified that the company has non-derivative financial instruments and the entity
classifies the same into loans and receivables and the financial assets available for sale.
Loans and receivables under non-financial derivative assets are recognized on the same date
on which the contractual rights to cash flows from assets expire or right of receiving the
contractual cash flows from a transaction is transferred where all the rewards and risks
associated with the ownership of the said financial assets is transferred (Shafei and Tabaa
2016). Financial liabilities and assets are offset and the financial statements report the net
amount. Initially the amount is recognized at fair value including the directly attributable cost,
if any. On the other hand, available for sale financial assets are initially recognized at fair
value including the directly attributable cost, if any. Subsequent to the initial recognition the
same is measured at the fair values without taking into consideration the impairment losses
(McShane, Wilson and Meredyth 2014)

4PRINCIPLES OF FINANCIAL MANAGEMENT
(b) Off balance sheet business (OBS)
OBS includes the items effectively those are liabilities or assets of the entity however
does not report in the balance sheet of the entity (Amin, Khan, Ali and Anwar 2014). Details of
OBS found in case of TPG Telecom are as follows –
 Operating lease – it is considered as OBS as for operating lease the entity only records
the amount of rental expenses that is considerably lower as compared to the total
purchase price and leads to cleaner balance sheet. For the year ended 31st July 2018,
the entity reported $ 136.3 million as non-cancellable operating lease. However, the
purchase price of the assets cannot be derived from the financial statements
(Tpg.com.au 2019).
 Financial obligation of the unconsolidated subsidiaries as it is not owned by parent
entirely. Commitments for capital expenses made majorly for the – (i) IRU agreements
for the internal capacity (ii) building of mobile network and (iii) construction project of
domestic fibre. Total volume of such commitments for the year closed on 31st July 2018
amounted to $ 163.8 million (Tpg.com.au 2019).
Requirement 4
Part A: Financial ratio analysis
(a) Key financial ratios
3 key financial ratios applicable to the entity are as follows –
 Net profit margin – it is the number that indicates the entity’s efficiency and the cost
control. Higher net profit margin indicates that the entity is more efficient in converting
the revenue into actual profit. This can be used for comparing the performance with
competitors as well as with the industry. Shareholders use the net profit margin as it
reveals how good the entity is at converting the revenues into profits that is available
for the shareholders (Sharabati et al. 2016).
 Current ratio – current ratio is the liquidity ratio that estimates the entity’s ability in
context of paying back the short-term obligations. Higher current ratio signifies higher
capability of the entity in paying back the dents. It further indicates the entity’s financial
health and the way in which it can maximize liquidity of its current assets for settlement
of payables and debts. Generally, the current ratio of more than 1 indicates that the
entity has sufficient liquid assets to cover up its short term debts and payables
(Sharabati et al. 2016).
 Debt to equity ratio – debt equity ratio is the quantification of the entity’s financial
leverage that is estimated through dividing total liabilities by total equity. It indicates the
percentage of debt and equity used by the entity to finance the assets. Low debt to
equity ratio signifies that lower amounts are financed through debt as compared to
financing through equities. On the contrary, higher debt to equity ratio signifies that
higher amounts are financed through debt as compared to financing through equities
(Sharabati et al. 2016).

5PRINCIPLES OF FINANCIAL MANAGEMENT
(b) Calculation of financial ratios
(c) Comment on ratios
 Net profit margin – net profit margin for the entity over the last 3 years has not been
changed much. From 16.11% in 2016 it has been reduced to 15.95% in 2018. It
signifies the company’s weakness in enhancing the efficiencies in converting the
revenue into actual profit. Further, the declining net profit signifies different things like
poor sales, inadequate management of expense or poor customer’s experience
(Tpg.com.au 2019).
 Current ratio – current ratio of the entity has been reduced from 0.70 in 2016 to 0.26 in
2018 which is considerably low. It is indicating the weakness of the entity’s ability to
pay off the short term obligation with current assets. Further, the declining current ratio
is indicating that the entity does not have sufficient cash to meet the obligations. As for
all the year under concern the current ratio of the company is significantly lower than 1,
it is signifying the company’s weakness to pay off the obligations (Tpg.com.au 2019).
 Debt to equity ratio – though the debt equity ratio of the entity has been reduced from
1.12 in 2016 to 0.94 in 2018, it is still quite high that signifies that the entity is highly
leveraged. It is indicating the entity’s weakness in raising finance through equity.
However, declining trend of debt to equity ratio is signifying that the entity has
improved its leverage position (Tpg.com.au 2019).
Part B: Competitor analysis
(a) Main competitor
Top competitor of TPG Telecom is Telstra, followed by SingTel Optus, NBN and Vocus
Communication.
(b) Basis of competition
In Australian telecommunication industry, quality or depth of the network coverage
plays major role in context of competition and product differentiation. Though less
differentiation is there in the fixed services, base of the competition is the quality of the
service dimensions including broadband speed taking into consideration the recent guidance

6PRINCIPLES OF FINANCIAL MANAGEMENT
regarding the speed limits (Barry 2018). Further, the temporary pricing strategies are
benefitted the consumers with enabling the better quality broadband with lees level of
congestion during the peak period in evenings. Next to quality, price also plays major role in
increasing the competition. Telecommunication service in Australia is highly concentrated with
4 largest entities account for 70% of the subdivision revenue. Rapid growth of NBN in last 5
years allowed it to become as 4th major player in subdivision. Mobile providers compete on
the price basis through offering the additional value on the capped plans (Nicholls 2016).
(c) Opportunity or threat from competitor
Telstra, one of the major competitors of TPG Telecom is widely recognized as the
reliable provider for high quality services. Further, it provides low rates for the call as well as
different real benefits in terms of value for money that includes untimed calls to any of the
landline allover Australia. Further, it provides higher quality service through providing better
speed and wide network coverage (Telstra.com.au 2019). Hence, it poses the threat to the
TPG Telecom in terms of quality. However, in context of price TPG was the leader in terms of
low cost services and is considered as the fierce competitor in 5G and 4G space if it goes
ahead with its own network. However, due to Huawei ban the entity dropped the idea of
networking on its own. Though Telstra’s management is doing its best for cutting the costs the
business of Telstra is still suffering from low profit and high costs. Hence, it will be opportunity
for TPG Telecom as it is giving high competition to Telstra for reducing its prices (Clarkson
2016).
Requirement 5
Financial market analysis
(a) Communication between financial players
Further, for supporting new relationship among telecommunication industry,
government, key regulators, consumers, dispute resolution and the industry bodies either
were put in the place or enhanced for providing necessary glue and balancing among the
parties under the new environment. Further, the government department is responsible for the
telecommunication interacts with regulatory bodies, local and state government and various
other organizations including the consumer groups for formulating regulations and
legislations. Key points for interaction with telecommunication industry are delivered by 2
bodies (Abbas, Michael and Michael 2014). 1st one is the independent telecommunication
ombudsman that is formed as the public company and is funded by the industry members for
handling consumer’s complaints categorized in the charter with the power of imposing fines
on the members and compensating the consumers under enabling legislation. 2nd one is the
industry body that is formed for providing point of contract, codes for practice, forum, and the
self regulatory initiatives. Further, the Australian telecommunication industry body and the
communications alliance was formed for providing unified voice (Young and Pagliari 2017)
Participation in the telecommunication industry requires voluntary work, voluntary co-
operation and mutual assistance and obligation along with mutual trust and participation.
Further, smooth operations in the telecommunication industry are depended upon accepting
the mutuality of interest and hence, with mutual benefits the chances of success are better.
Therefore, the financial players in telecommunication industry are in mutually beneficial
relationship (Plant 2017)

7PRINCIPLES OF FINANCIAL MANAGEMENT
(b) Government intervention
Intervention of government in telecommunication industry seems to reach its all time
highs that indicate that the re-regulation in telecommunication industry is in the full swing.
Telecommunication industries in Australia are subjected to particular policies those are highly
controversial and are grounded in the neo-liberalism that led to largely discredited conceptual
framework for the policies. Fair, competitive and open telecommunication market is elusive
and is tough to achieve considering the economical, political and social circumstances.
However, the telecommunication market shall provide the opportunity to eliminate the
obstacles to the fair, competitive and open telecommunication market (Dwyer 2014). Hence,
the government introduced regulation and legislation for supporting the formation of the new
telecommunication market that will provide fair, competitive and open landscape where the
new as well as existing companies can invest, grow market share and build networks. As per
the new regulation –
 New restriction will be imposed that will have an impact on limiting the private
investment into market and devaluing the investment those were made lawfully by the
private investors
 Ne taxes will be imposed on the private investment
 New bureaucracy will be applicable for the private investors in grappling with even for
competing (Sorensen and Medina 2016.)
(c) Involvement in unethical practice
As per the chairman of AICD (Australian Institute of Company Directors) top 200
entities are not meeting the 30% target for women on board. As per the prominent business
figure Kevin McCann without the strong gender diversity targets more number of women will
not be appointed to the boards. As on 31st May 2018, TPG Telecom Ltd had no female
directors in their board. Justification provided against this by the management of the entity is
that they determined the skills required by board (Gregory 2018). Where the gender diversity
is sought for an appointment and no appropriate female candidate were available the entity
was not prepared to lower their standard that was required for role and selected male
candidate. Owing to this, the entity is facing tens of millions in penalties and refunds after
Australian Competition and Consumer Commission revealed that the company is facing the
shareholder’s revolt over lack of the women in its board and the potential 2nd strike against the
remuneration report. Further 2 out of total 5 directors of the entity were asked for re-election
and Australian Shareholders' Association, Australian Council of Superannuation Investors
and ISS advised the shareholders to vote against the re-election (McLaren 2018).
Requirement 6
Findings, conclusion and recommendations
From the above discussion it is found that the telecom sector of Australia are broadly
divided into the markets the mobile services and landline services where relevant key
regulatory bodies are DOCA (Department of Communications and the Arts), ACMA
(Australian Communications and Media Authority) and ACCC (Australian Competition and
Consumer Commission). TPG Telecom Limited deals in providing corporate, wholesale and
consumer telecommunication services. Looking into the financial performance of the entity it
can be identified that the net profit margin for the entity over the last 3 years has not been
changed much. From 16.11% in 2016 it has been reduced to 15.95% in 2018. However,
declining net profit signifies many things like poor sales, inadequate management of expense

8PRINCIPLES OF FINANCIAL MANAGEMENT
or poor customer’s experience. Looking into the liquidity position of the entity it can be
identified that current ratio of the entity has been reduced from 0.70 in 2016 to 0.26 in 2018
which is considerably low. As for all the year under concern the current ratio of the company
is significantly lower than 1, it is signifying the company’s weakness to pay off the obligations.
If the leverage ratio of the entity is considered it can be identified that though the debt equity
ratio of the entity has been reduced from 1.12 in 2016 to 0.94 in 2018, it is still quite high that
signifies that the entity is highly leveraged. Hence, if the overall financial position of the entity
is considered it can be stated that the financial position of the entity has been deteriorated
over the years.
Though the business of the entity is carried out ethically that confirms its sustainability
over the long term period it is not meeting the 30% target for women on board. Due to this the
company is facing the shareholder’s revolt over lack of the women in its board and the
potential 2nd strike against the remuneration report. It will have an adverse impact on the
performance of the company. Further, I am agreed with the recommendation of 30% women
on board as without the strong gender diversity targets more number of women will not be
appointed to the boards. Hence, the entity is recommended to re-elect the board members to
comply with the 30% target of women on the board. Further, in financial context the company
is recommended that for improving its liquidity position the entity shall pay off the current
liabilities, improve the current assets through rising the shareholder’s fund and sell-off the
unproductive assets. Moreover, to improve the profitability it is recommended to improve the
quality through increasing the price. The company is known for providing services at cheaper
price, however facing stiff competition from Telstra due to its high quality services. Hence, it is
recommended to improve quality that will attract more customers.

9PRINCIPLES OF FINANCIAL MANAGEMENT
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11PRINCIPLES OF FINANCIAL MANAGEMENT
Appendix
(a) Consolidated income statement

12PRINCIPLES OF FINANCIAL MANAGEMENT
(b) Consolidated balance sheet