ACCT2127: Telstra's Financial, Social, and Environmental Report

This report provides an in-depth analysis of Telstra Corporation's financial, social, and environmental performance, based on its financial and sustainability reports. It covers Telstra's history, structure, mission, and financial trends, including a comparative analysis with TPG Telecom using profitability ratios. The report also examines Telstra's cash flow and balance sheet statements, social performance focusing on human capital and wealth creation, and environmental performance regarding protection, energy emissions, and waste production. The analysis aims to inform investors about Telstra's commitment to sustainable and responsible business practices.

Accounting for Management Decisions

Contents
Introduction.................................................................................................................................................3
Brief introduction of the organization Selected.......................................................................................3
History.................................................................................................................................................3
Structure..............................................................................................................................................3
Mission................................................................................................................................................3
Financial and other Performance Trends.............................................................................................4
Sustainability issues.............................................................................................................................4
Financial /Economic performance of Telstra Corporation...........................................................................4
Discussion on the financial performance of Telstra and its competitor during the last two years..........5
Profitability ratio of the company and its comparison with its competitor TPG Telecom.......................5
Operating Profit ratio:.........................................................................................................................7
Net Profit ratio:....................................................................................................................................7
Return on Assets:.................................................................................................................................7
Return on Equity:.................................................................................................................................7
Analysis of Financial performance with Cash Flow & Balance Sheet Statements....................................8
Social Performance....................................................................................................................................10
Human Capital Potential........................................................................................................................10
Society Wealth Creation Potential.........................................................................................................11
Environmental Performance.....................................................................................................................12
Environment Protection........................................................................................................................12
Energy & Carbon Emission Concerns.....................................................................................................13
Waste Production Concerns..................................................................................................................13
Conclusion.................................................................................................................................................14
References.................................................................................................................................................15

Introduction
The present report is developed for carrying out an analysis of the financial/economic,
social and environmental performance of an ASX listed entity. The evaluation of the selected
organizational performance is carried out by examination of its financial and sustainability
reports. The analysis is specially meant for proving suggestion to an investor seeking to invest in
a business entity that is carrying out its operations in a socially and environmentally responsible
manner. The company selected in this context is Telstra Corporation Limited, a
telecommunication giant within Australia listed on the stock exchange.
Brief introduction of the organization Selected
History
Telstra Corporation Limited is known to be the largest telecommunication company of
Australia. It has long history within Australia and is regarded to be originated together with the
Australia Post as Postmaster-General Department. Australia post is a public company involved in
providing postal services and the Postmaster-General Department that is a government owned
department involving in providing telegraphic and postal services. The company at preset has
become fully privatized and become more customer oriented under its CEO of David Thodey.
The changes incurred within the nature of the company as per the National Broadband Network.
Under the leadership of David Thodey, the company has made significant progress towards its
digitals services, retail store operations and health business unit (Telstra Corporation Limited,
2017).
Structure
The company is known to realize largest revenue across the telecommunication sector of
Australia. It has about 150 subsidiaries and is known to provide employment to about 37,000
people across the world. The company is known to provide wide type of telecommunication
products and services such as mobile telephones, internet, data services, network services and
entertainment products and services. The area served by the company includes Australia and at
international level.

Mission
The company vision is to become a world class technology company for empowering
people to connect and improve their quality of life. The company aims to achieve its vision by
development and expansion of its technology skills through developing the necessary capabilities
required for development of success business. The mission of the company is to achieve its
vision by acquiring and sustaining its competitiveness in the telecommunication sector by
developing positive customer, suppliers and employee engagement (Telstra Corporation Limited,
2017).
Financial and other Performance Trends
The total income of the company has increased by about 4.3% million in the year 2017
and provided $5.2 billion to its shareholders. The net profit after tax has increased up to 1.1 % in
the year 2017. The growth in the financial performance of the company in the year 2017 has
enabled it to pay about 15.5 per cents share dividend to its shareholders. The company has also
implemented a change in its dividend policy and reducing the payout ratio to 70-90 per cent of
its underlying earnings. The strong financial performance of the company is supported by the
continued growth in the customer segments in retail mobile, broadband and voice services
(Telstra Corporation: Annual Report, 2017).
Sustainability issues
The company is strongly committed to become a globally recognized brand by carrying
out its activities in a sustainable manner. It has adopted the use of technology for developing
environment solutions and helping its suppliers, customer and communities for addressing the
climate change (Telstra Sustainability Report, 2017).
Financial /Economic performance of Telstra Corporation
In order to evaluate the financial or economical impact of Telstra Corporation it is
important to give through overview of the company’s financial strength by analyzing its
profitability, market strength, position of assets and liabilities and any other significant factors
that impact the financial performance of the company (Joseph, 2013). In this section financial
strength of the Telstra for year 2017 and year 2016 has been evaluated and for this purpose
following financial information has been extracted from the annual report of Telstra.

General Financial Information 2017 2016
Amount in $ m
A:
Total Assets $ 42,133.00 $ 43,286.00
Total Liabilities $ 27,573.00 $ 27,379.00
Total Owners Equity $ 14,560.00 $ 15,907.00
B:
(Basic) Profit earned- per share (EPS) $ 0.33 $ 0.32
C:
Total Ordinary Shares issued (in millions) 11,968 12,202
D:
Profit received by Shareholders- per share (DPS) $ 0.31 $ 0.31
E:
Net Cash flows from Operating Activities $ 7,775.00 $ 8,133.00
F:
Net Cash flows from Investing Activities $ (4,279.00) $ (2,207.00)
(Telstra Corporation: Annual Report, 2017)
Discussion on the financial performance of Telstra and its competitor during
the last two years
Telstra is one of biggest telecommunication company in Australia and it derived main
revenue from its four major business segments namely Telstra Retail, Global enterprise and
services, Telstra Wholesale and Telstra Operations. According to Stephen Letts, reporter at one
of reputed news agency, the profits of the Telstra has been low and does not meet the expectation
of the market. However, Telstra has tried to pay dividend out of the pocket to 31 cents but still it
does meet the demand of the market. It is stated in the report that directors of Telstra has decided
to reduce the dividend payout by 30% in next financial year that clearly indicates reduction in
profitability position in future years (Letts, 2017).
Profitability ratio of the company and its comparison with its competitor TPG
Telecom

In order provide exact profitability position of Telstra and its competitor TPG Telecom it
has been decided to calculate the profitability ratios of both the companies for last two years
using the information provided in annual reports of both the company.
Financial Information
Items Telstra Corporation TPG Telecom
2016 2017 2016 2017
Net Revenue $ 27,050.00 $ 28,205.00 $ 2,387.80 $ 2,490.70
Operating Profit $ 6,310.00 $ 6,238.00 $ 597.40 $ 646.40
Net Profit $ 5,849.00 $ 3,874.00 $ 384.60 $ 415.70
Total Assets $ 43,286.00 $ 42,133.00 $ 3,771.10 $ 3,911.00
Shareholders’ Equity $ 15,907.00 $ 14,560.00 $ 1,779.20 $ 2,399.30
Ratios Formula Telstra Corporation TPG Telecom
2016 2017 2016 2017
Operating Profit
Ratio
Operating Profit/Net
Revenue 23.33% 22.12% 25.02% 25.95%
Net profit Ratio
Net profit/Net
revenue 21.62% 13.74% 16.11% 16.69%
Return on Assets
Net income /Total
Assets 13.51% 9.19% 10.20% 10.63%
Return on Equity
Net
income/Shareholder'
s Equity 36.77% 26.61% 21.62% 17.33%
(TPG Telecom: Annual Report, 2017) (Telstra: Annual Report, 2016) & (Telstra: Annual Report,
2017)

In order to report on profitability position of Telstra Corporation it is important to make
use of ratio analysis as it helps in making the comparison on financial performance of one
company with performance of another company. Here profitability position of Telstra
Corporation has been compared with the profitability position of TPG Telecom for last two
years.
Operating Profit ratio: Operating margin ratio provides percentage of earnings before interest
and tax to total revenue earned during a period. This ratio is crucial for company who belong to
service industry as they are not involved in manufacturing of goods. It can be seen from the
above table that operating profit ratio of Telstra has been reduced from 23.33% in year 2016 to
22.12 % in year 2017, whereas operating profit ratio of TPG Telecom has been increased from
16.11% in year 2016 to 16.69% in year 2017. The decreased operating profit margin and lower
operating ratio of Telstra Corporation as compared to competitor shows that poor profitability
position and decreased in market share in year 2017 as compared to year 2016 (Needles and
Powers, 2010).
Net Profit ratio: Net profit margin ratio is the most significant ratio as it shows percentage of
after tax net profit of the company from continuing operations as well as discontinued
operations. It can be seen from the above table that net profit margin has been decreased by
considerable percentage in the current year as compared to previous year. The net profit ratio of
Telstra Corporation was 21.62% in year 2016 and it was reduced to 13.74% in year 2017. On the
other hand, net profit of TPG Telecom was 16.11% in year 2016 and 16.69% in year 2017. It
shows Telstra Corporation has poor profitability position as compared its main competitor TPG
Telecom. It can said so because in current year net profit ratio of TPG Telecom has been
increased while same was reduced in case of Telstra Corporation. It clearly signifies that
financial performance of the Telstra Corporation was not as per the expectation and it was also
below its competitor benchmark (Mohana, 2011).
Return on Assets: The return on assets signifies how assets have been used by the company to
earn the sales revenue. It has been seen that return on assets of Telstra Corporation has been
reduced from 13.51 % in year 2016 to 9.19% in year 2017. On the other hand return on assets of
TPG Telecom has increased from 10.20% in year 2016 to 10.63% in year 2017. It means Telstra
Corporation has failed utilized its assets in current year (Taparia, 2004).

Return on Equity: The return on equity means percentage of net profit earned using the
shareholder equity of the company. This ratio is crucial as it provides investor’s total return.
Despite of decrease in percentage of return on equity in case of Telstra Corporation it has been
greater than TPG Telecom. That means Telstra Corporation has been using its equity more
efficiently as compare to its main competitor TPG Telecom (Davies and Crawford, 2011).
Analysis of Financial performance with Cash Flow & Balance Sheet Statements
The financial performance of Telstra Corporation Limited can also be adequately
explained with the use of cash flow position and balance sheet. As analyzed from the cash flow
position, the net cash provided by the operational activities has reduced by 4.4 per cent while
there is a net increase in the inviting activities that depicts the rise in capital expenditure for the
significant period of the financial year 2017. The company has also invested $750 million for
expanding its networks in the digital sector in order to drive improvement in the customer
experience in the financial year 2018. Also, a significant proportion of capital investment has
been incurred in its mobile network for further expanding its mobile 4G networks. The cash flow
generated from operating and investing activities has reduced by $2,430 million in the year 2017
as compared to the previous year. The increase in the net cash in the financing activities by about
$1.5 billion has reflected a share buyback program. (Telstra: Annual Report, 2017). The cash
flow position of the company can be illustrated with the following figure:

(Source: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Annual-Report-
2017.PDF)
The balance sheet of the company has reflected its strong financial performance having
net assets of about $14,560 million. However, the current asset base of the company has
decreased significantly in the year 2017 due to reduction in its cash equivalents with large
investment incurred in the capital expenditure. There is a slight increase in the non-current assets
supported by its large-scale investment in expanding its mobile networks. There is a decrease in
its current liabilities position in the year 2017 as compared to the year 2016 by about 0.3 per
cent. This is due to decrease in its short-term borrowings amount and also declining its derivative
financial liabilities due to maturity of its derivatives during the significant period. The non-
current liabilities have increased from 1.2 per cent due to increase in its long-term borrowings by
about $161 million in the year 2017 as compared to the year 2016 (Telstra: Annual Report,
2017). The statement of financial position in the year 2017 of the company can be illustrated as
follows:
(Source: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Annual-Report-
2017.PDF)

Social Performance
Social performance is an important attribute of idea of corporate social responsibility that
depicts the ways adopted by corporations to realize social goals and objectives. It provides an
assessment of the ability of a company to attract and retain its human capital and promoting
customer welfare. Corporate social responsibility measures can be stated to be specific actions
adopted by corporations for effective management of their overall business processes to produce
a positive impact on the environment and society. The business corporations need to conduct
their overall activities in a socially responsible manner for ensuring their long-term growth and
development (Paladino, 2011). In this context, Telstra Corporation Limited sustainability
strategy is to develop a brilliant future for its consumers by carrying out its activities in a
responsible manner. This is in accordance with the mission and vision of the company as per
which it aims to become a sustainable globally trusted brand in the telecommunication market at
a global level. The social performance of the company can be analyzed with examining the
specific strategies undertaken by it to develop human potential and creation of wealth for society
as follows:
Human Capital Potential
Telstra is strongly committed for developing a better workplace for the employees by the
use of sustainable engagement strategies. It is placing larger emphasis on improving its talent
and recruitment programs for attracting and retaining the best talent in the world to realize its
vision of achieving the position of world class Technology Company. This incorporates the use
of screening survey and talent workshops for ensuring that the people hired matches the
performance standards and expectations of the company. It has adopted a rather decentralized
organizational structure enabling the employees and leaders to work in coordination for realizing
the company’s mission and objectives. The human resource department of the company is also
focused on implementing the use of core capabilities development programs for promoting
employees skills and expertise as per the standard expectations. It has incurred an investment of
about $45 million in learning and development for improving employee’s and leaders
capabilities (Telstra Sustainability Report, 2017).

The company also provides large encouragement to the employees for involving its sustainability
programs to promote the development of communities in which they live and interact. Also, it
promotes diversity and inclusions across all its management level for ensuring the presence of
employees with varying skills and expertise to meet the customer expectations adequately. The
strong efforts of the company towards attaining gender equality have lead to an increase in the
female representation in its Bard and key management personnel. Telstra has also shown its
strong dedication towards developing a workplace environment that is free from injury and
diseases. As such, it has developed and implemented a care health and safety management
system for improving the health and safety across all levels of management. The program, is
specifically meant for conducting health and safety audits, carrying out surveys and awareness
sessions and adopting the use of an online incident notification for providing hazard notification
to the people working in the company (Telstra Sustainability Report, 2016).
Society Wealth Creation Potential
Telstra recognized a technology giant in Australia is strongly focusing towards promoting
the development of communities by creating a digital inclusion program. The digital
interconnectivity promotes the social development of communities by providing them the
opportunity to interact globally with the access of internet services. The digital literacy programs
and imaginarium program of the company is specifically meant for providing the development of
society and community. The diversity inclusion strategy of the company is targeting the
inclusion of vulnerable customers enabling them to get socially connected and resolve their
social issues and concerns. Everyone connected strategy of the company is centered on the
attainment of objectives of affordability, accessibility, digital capability and innovation for
promoting social growth and development. Also, the sustainability strategy of the company aims
at delivering a positive social experiences focuses on promoting customer involvement. In this
context, it has launched a check-in-program for sending personalized communications to its
customers for facilitating them to select the best plans Telstra Sustainability Report, 2017).
The customer advisor tool and the mobile toolkit app are specifically meant for providing
awareness to customers about Telstra products and services. It also actively listens to the
customer complaints about its products and services from Telecommunications Industry
Ombudsman (TIO) to resolve their issues and achieving customer satisfaction. Also, it has

undertaken product responsibility with the use of approaches for protecting data and privacy of
its customers. It has implemented privacy controls across its supply chain for ensuring that the
vital information of the customer remains protected. The implementation of privacy control
business procedures, security and network controls and employees training ensuring that
customer data remains protected Telstra Sustainability Report, 2016).
As such, it can be said that Telstra is delivering a positive social experience by adoption
of effective measures for promoting the growth of its employees and customers and communities
at large. This ensures the long-term growth of the company as provided by the stakeholder
theory. The theory has stated that the purpose of a business entity is to create value for its
stakeholders such a customers, suppliers, employees and communities by aligning their interests
as per the organizational goals and objectives. This exactly has been maintained by Telstra at its
workplace as reflected from its social performance (Sustainability at Telstra, 2017).
Environmental Performance
Telstra is placing large emphasis on protection of environment by adopting the use of
sustainable method of carrying out its business operations. The company regularly conducts the
environmental audit for reviewing the impact of its business activities on the environment
(Nelson, 2016). The environment performance of the company can be analyzed by examining the
specific measures adopted for ensuring environment protection, energy and carbon emission
concerns and waste production concerns as follows:
Environment Protection
The environment strategy developed by the company has provided a framework for
addressing its most pertinent environment issues and concerns. This strategy of the company is
targeted to minimize the business risks related with its operations across its value chain that can
negatively impact the environment growth and development. The environment strategy of the
company is developed on the basis of the focus areas of improving customer value proposition,
achieving operational efficiency and creation of a sustainable supply chain. The environmental
customer value proposition area is specifically meant for providing quantitative information to
the customers about the contribution of its products and services for reduction in their
environmental impacts. The operational excellence is targeted at reducing the environment