Telstra Corporation: A Strategic Analysis of Capital Restructuring

This presentation provides an analysis of Telstra Corporation's capital restructuring, examining aspects such as the debt-to-equity ratio, weighted average cost of capital (WACC), cash conversion cycle, and potential strategies for enhancing the company's value. It assesses Telstra's current capital structure, highlighting areas for improvement, including reducing debt components, optimizing asset utilization, and improving working capital management. The presentation also explores options such as mergers, acquisitions, and dividend policies to determine the best course of action for Telstra to achieve optimal financial performance and shareholder value. The analysis incorporates relevant financial data and industry benchmarks to provide a comprehensive evaluation of Telstra's capital restructuring needs and opportunities.

Telstra
Corporation

Telstra
• Telstra: Largest Australian
based telecommunication
company.
• Founded in: 1975 (Telstra,
2018).
• Key Business: Fixed Line,
• CEO: Andy Penn
• Headquarters: Telstra
Corporate Centre,
Melbourne, Australia
• Revenue: A$29 billion
• Listed on: Australian Stock
Exchange
• New Zealand Stock Exchange
• Serving: Worldwide
• Purpose: To connect a brilliant
future
• EBITDA: $10.1 billion
• Employees and
Subsidiaries:35000, 150

Capital Restructuring
▸ Corporate Operation
▸ Accumulation of Debt and Equity
(Susman, 2017).
▸ Required when changes are
happening
▸ Affects the profitability of the
business
▸ Reasons to use: Dynamic market
conditions
○ Hostile take over bid
○ Bankruptcy

Why capital
Strcuture
To determine efficiency
Adds value to the firm
Risk taking capacity
How much capital is required (O'Keefe, 2017)
Ease in operating with the clients
Right blend is required to meet the competition

“
Forms of capital Restructuring
• Joint ventures
• Sell off or spin off
• Equity carve out
• Employee stock ownership
• Master limited partnerships
• Leveraged buyouts (Ross, Shakow, Graham & Gibson, 2017)
• Acquisition or merger
• Selling of the company

Telstra capital structure
Telstra's capital structure
2016 Weights 2017 Weights 2018 Weights
Debt 14647 48% 14808 50% 15316 50%
Equity 15907 52% 14560 50% 15014 50%
Total 30554 100% 29368 100% 30330 100%

Optimal Capital Structure
▸ Balance of Debt and Equity
▸ To optimize the earnings of the company
▸ Current debt to equity ratio : 1:1
▸ Debt shall no be more than 0.4
▸ High risk and Leverage by Telstra
▸ Investors are the key judge (Kumar &
Yerramilli, 2017).
▸ High debt low cash
▸ High equity, high risk

▸ Reduce the debt
component
▸ It shall be around
42%
▸ Less leverage and
risk
▸ Reduce the
current liabilities
▸ Think like a bank
How to improve the
optimal capitral
structure ?
▸ Develop new
strategies
(Costinot,
Donaldson, Vogel
& Werning, 2015)
▸ Compare with
industry averages
▸ Reduce the
interest cost
▸ Minimise the funds

Assets side of Telstra
▸ High cash :
$3550
▸ Semi Positive
situation
▸ Reduce the
cash in hand
▸ Too much
cash, red flag
to investors
▸ Telstra sold
inventories
▸ Increase in
billing
processes
▸ Funds from
commercial
works (Telstra,
2018).
▸ Sound cash is
necessity
▸ Derivative
financial
assets
increased
▸ Offshore
market
movements
▸ Regular
supervision is
required

Reduction in
working
capital
 Measurement of the liquidity and efficiency
 More capital, stagnant pillar
 Improves earnings and market share
 Current Assets – Current liabilities = ($7077-
$8816)
 -1739
How to improve ?
 Issue of stocks
 Replacement of short term liabilities
 Sell of long term liabilities (Wasiuzzaman, 2015)

Reduction in receivables
▸ Receivables days : 63 days
▸ High time period for Telstra
▸ Lowers down the efficiency and activity
▸ Occurrence of bad debts
▸ High leverage can turn into liquidation
How to improve?
▸ Short term credit lines (Jones, 2018).
▸ Clearing out bills in cash

WACC
 Rate investors
receive
(Krüger,
Landier &
Thesmar,
2015).
 Telstra’s WACC:
6.7%
 ROIC: -2%
 Cost of
Capital :
unmatched
 Destruction in
value due to