Executive Summary
Telstra Corporation Limited operates in the communication services sector and it is the telecom services industry and has its headquarters in Melbourne, Australia. The company has founded in 1903 and after that, it has acquired several firms. However, the acquisition of Ooyola Limited led to a significant loss to the company. Before the final acquisition, Ooyola had acquired Nativ and Videoplaza. The management of Telstra is comprised of the CEO, executive and non-executive directors and committees. The company recorded loss of profitability and revenue after the final acquisition of Ooyola; subsidiary was considered valueless and written-down in 2018. The financial analysis of the firm indicates the declining performance of the firm between 2016 and 2019. Impaired goodwill is written-off in the income statement and unimpaired goodwill is carried in books as intangible assets. Shareholders are interested in the financial performance of the firm and directors have the responsibility of preparing accurate financial statements. Telstar makes several announcements concerning key events of the firm.
Table of Contents
Composition of the Board of Directors and Committee of Telstra. 5
Analysis of Financial Reports. 6
Basic EPS, Sales Revenue and Net Income. 8
Importance of the Financial Information to the Shareholders. 9
Telstra Announcements, Key Events and Listings. 10
Telstra Corporation Limited operates in the communication services sector and it is the telecom services industry and has its headquarters in Melbourne, Australia[1]. The firm provides services relating to information and telecommunication services to residents in Australia and global customers including the government and businesses. The corporation operates in four main segments: Telstra Infraco, Small Business, Telstra Enterprise and Network and IT. Products and services of the firm include mobile broadband, digital content, online self-service abilities, mobile solutions, Pay TV/IPTV, outbound and inbound call centres. Besides, the firm provides industry solutions, cloud services, Internet protocol network and network applications. Further, the company enters in contract with other carrier service providers for the use of their infrastructure assets such as usage of cables and poles. The firm was initially incorporated in 1901 under the name Australian and Overseas Telecommunications Corporation Limited and adopted the current name in April 1993[2]. The firm in an attempt to go globally acquired Ooyala in two steps, a US-based firm; however, the acquisition did not bring any merger benefits and investment was considered fully impaired in 2018[3].
Ooyala was the privately-owned company, which started its operation in 2007 with its headquarters in Silicon Valley Australia. The company chiefly engaged in workflow management systems and video content. The company was in the Media & Entertainment Technology and Service industry. The corporation had world-wide customers and a few numbers of employees. In 2012, Telstra Corporation partially acquired Ooyala by purchasing 5% of the shareholding and completed acquisition two years later by acquiring 98% stake of shareholding[4]. However, in 2014, Loyola of also acquired Videoplaza. The firm management made a strategic decision to acquire Videoplaza before completion of Telstra second acquisition. Besides, Oyoola acquired Nativ in 2015.
Videoplaza was incorporated in 2008 and the Chief Executive Officer was Sorosh Tavakoli. The main investors at the period it was founded included Innovacom, Creandum, Northzone and Qualcomm. The company was one of the leading providers of programmatic solutions, premium videos and delivering ads across multiple devices. The firm main customers were from Europe and Asia Pacific[5].
Nine months later after the purchase of Videoplaza, Ooyola purchased Nativ in 2015. Nativ was the leading company offering services relating to workflow flow software and cloud media logistics. The firm excellence in post-production, media production, MioEverywhere (syndication workflow software) and delivery could have helped Ooyola to solve problems relating to cloud logistics, creation and management of digital content. After Ooyola was acquired by Telstar in 2016; the management bought and sold the investment to Dailet in July 2019[6].
Composition of the Board of Directors and Committee of Telstra
The management team and directors comprise qualified and experienced members. On 1 May 2015, Andy Penn was appointed as the Managing Director and CEO of Tesla. The CEO has the responsibility of directing the organization to a successful future. The board which comprises of non-executive and executive directors is chaired by John P. Mullen, he has been non-executive director from July 2008. The major role of directors is to formulate Telstra strategy, make senior appointments, oversees governance, performance and the management of Telstra[7]. Besides, the board has powers to approve significant capital expenditure such as divestments and acquisition. The board may establish a committee to attain specific objectives to assist the director’s committee. However, they are three permanent committees: People and Remuneration Committee, Nomination Committee and Audit and Risk Committee.
Analysis of Financial Reports
The financial analysis of Telstra has been taken for a period of 30 June 2016 to 30 June 2019; this indicates the financial performance of the company after the acquisition and disposal of Ooyola. The ratios used include profitability, efficiency, liquidity and leverage ratios. Besides, sales revenue, net income and Earnings per Share have been analyzed. The summary of the ratios is as shown below and related financial data in Appendix 1.
| Ratio | Formula | 2019 | 2018 | 2017 | 2016 |
| Liquidity Ratios: | |||||
| Current Ratio | Current Assets/current Liabilities | 0.76 | 0.80 | 0.86 | 1.02 |
| Quick Ratios | (Current Assets -Inventory)/ Current Liabilities | 0.39 | 0.43 | 0.50 | 0.75 |
| Leverage Ratios: | |||||
| Debt-to-Equity ratio | Total Liabilities/Total Equity | 1.93 | 1.85 | 1.90 | 1.73 |
| Interest Coverage Ratios | EBIT/Interest Expense | 2.97 | 5.09 | 5.93 | 7.08 |
| Profitability Ratios: | |||||
| Gross Margin | Gross profit/ Sales Revenue | 63.82% | 66.33% | 70.51% | 72.03% |
| Profit Margin | Net Income/Sales Revenue | 8.53% | 13.70% | 14.96% | 22.31% |
| Efficiency Ratios: | |||||
| Accounts Receivable Turnover | Sales/Accounts Receivable | 8.02 | 8.27 | 7.16 | 7.75 |
| Fixed Asset Turnover | Sales/Net Fixed Assets | 1.13 | 1.18 | 1.22 | 1.26 |
| Basic EPS | Net Income/Basic Number of shares | 0.18 | 0.30 | 0.33 | 0.47 |
| Sales Revenue (000) | 25,259,000 | 26,011,000 | 26,013,000 | 25,911,000 | |
| Net Income (000) | 2,154,000 | 3,563,000 | 3,891,000 | 5,780,000 |
Liquidity Ratios
Quick or acid ratio and current ratio were used to compute liquidity for the firm. These ratios indicate the capability of a firm to pay short-term financial debts. The current ratio declined from 1.02 in 2016 to 0.76 in 2019; it indicates had challenges in paying off financial obligations during the period. Similarly, acid ratio reduced from 0.75 to 0.39 in 2016 and 2019 respectively; it will be interpreted the same way as the current ratio. The preferred industry averages are 2 and 1 for the current ratio and quick ratio respectively; therefore, the corporation underperformed in the industry[8].
Leverage ratios
Debt-to-equity and interest coverage ratios were used to indicate the leverage ratios. The ratios indicate the firm capability to pay debts over one year. A lower debt-to-equity is preferred, while a higher level on interest covers is preferable[9]. The debt-to-equity ratio increased from 1.73 in 2016 to 1.93 in 2019, implying had difficulties in paying long-term financial obligations. The interest coverage ratio from 7.08 in 2016 to 2.97 in 2019, the firm had faced challenges to pay interest expense over the period.
Profitability Ratios
The ratios indicate the capability of a company to make a profit; gross margin and net profit margin were used to determine these ratios. Generally, a higher percentage of these ratios indicate the firm is performing better[10]. Both gross margin and profitability declined from 72.03% and 22.31% in 2016 to 63.82% and 6.53% in 2019 respectively. The ratios indicate the firm profitability declined during the period.
Efficiency Ratios
These ratios indicate the capability of the firm to use resource efficiently and make a profit; accounts receivable ratios and fixed asset turnover were used to determine efficiency ratios[11]. The accounts receivable ratio reduced from 7.75 in 2016 to 8.02 in 2019; it indicates the firm was inefficient in collections of cash from debtors. Fixed asset turnover declined from 1.26 to 1.13 during the same period. The management failed to use fixed assets efficiently to generate revenue.
Basic EPS, Sales Revenue and Net Income
These are other performance indicators that can show the financial performance of the firm. These indicated a declined trend over the period. The EPS declined from $0.47 to 0.18 in 2016 and 2019 respectively. Sales revenue decreased from $25,911 million to $25, 259 million over the period (Appendix 2). Similarly, net income decreased from $5,780 million to $2,154 million in the same period (appendix 3). Generally, financial ratios and other financial indicators indicate a decline in the performance of Telstar from 2016 to 2019[12].
Takeover Details
Telstar acquired Ooyola in multi-stage. On 1 June 2012, Telstar acquired 5% shareholding of Ooyola by paying $35million. Between 2nd June 2012 and October 30th 2014, it added $26 million investments in Oyoola Limited to bring the shareholding to 23%. On 1st November 2014, Telstar made an announcement it had acquired 98% shareholding of Ooyola Limited; the deal was valued at $270 million. For the year ended 30th June 2015, purchase consideration amounted to $364 million and goodwill of $317 million was recognized. Nativ limited were paid $77million as a total consideration to acquire 100% shareholding and its goodwill was $58 million. Videoplaza goodwill was assessed to be $73 million. Telstar in 2016, the management considered Ooyola be impaired by $246 million. Later, in February 2018 the Ooyola was considered to have zero value and impairment loss was $273 million. Besides, write-down of loss exceeding $500 million, management recorded declining revenue and profitability in the subsequent periods[13].
Treatment of Goodwill
On acquisition, goodwill is treated as an intangible asset. Goodwill is calculated as the difference between the fair value of the tangible assets and liabilities. Intangible assets are not included in the determination of goodwill. The management makes an impairment assessment on the value of the goodwill; it involves a comparison of the recoverable amount and the carrying amount. If the carrying amount surpasses the recoverable amount; the asset will be written down to its recoverable amount. A particular proportion of goodwill be deemed impaired at the end of the financial year and impairment loss will be expensed. Besides, management has to consider whether the asset is a cash-generating unit (CGU). A CGU is a business unit which can be able to generate cash independently from the holding company[14]. In such a case, when an impairment loss occurs; it is first written off from intangible assets before apportioning the balance to the remainder of assets according to their proportion[15]. If the management considers the goodwill has some benefits in the future it will be carried in the books as an intangible asset. In 2016, goodwill resulting from the combined acquisition of Ooyola was considered impaired by $246 million and was written. Subsequently, in 2018 Ooyola was considered to be fully impaired and $273 million was taken as an impairment loss.
Importance of the Financial Information to the Shareholders
Shareholders there are investors of the company and their stand to lose in case the firm is liquidated. Investors with lose the future dividend streams and their capital. The CEO and the board are appointed by the investors to run the affairs of the company on their behalf. The management is required to act for the best interest of their investors; however, sometimes they make decisions that lead to loss of investors, while pursuing their own interest[16]. In Telstra the management made acquisition decisions that led to immediate decline to the wealth of shareholders; acquisition of Ooyola Team made investors lose over $500 million. If the management could have been made a wise decision, the loss could have been averted. The acquisition decision not made the loss to the existing shareholders, but also decline in stock prices and deterred potential investors from purchasing shares[17]. Therefore, it is important for management to share timely information with the shareholders. Management should be transparent, accountable and make relevant financial disclosures to provide shareholders with accurate information so that they make informed decision[18].
Telstra Announcements, Key Events and Listings
The firm has made several announcements after the close of the financial year on 30th June 2019. On February 22, 2020, the company made announcements of the launch of digital content T22, which has attracted a greater number of customers to date[19]. Besides, the firm rolled 5G network in Australia. On April 2020, the announced to increase its financial strength plans are underway to issue bond of AUD$500 million and secure a loan of $940 million. Still, on April that firm subsidized cost of some of its services to provide some benefits to consumers due to coronavirus. The firm has been listed in Australia Stock Exchange (ASX) under ticker code TSL[20].
Conclusions
The firm was initially incorporated in 1901 under the name Australian and Overseas Telecommunications Corporation Limited and adopted the current name in April 1993. Telstra Corporation Limited operates in the communication services sector and it is the telecom services industry and has its headquarters in Melbourne, Australia. The completed its partial vertical acquisition of Ooyola Team on November 1, 2014. Ooyola’s Team comprised Videoplaza and Nativ. However, after the acquisition, the benefits were not realized and finally Telstra write-done the value of Ooyola to and the firm made a significant loss. The firm is led by a qualified and experienced team of directors and managers. The financial performance of Telstar declined after the acquisition of Ooyola Team. At the end of goodwill is assessed if it has been impaired; any impaired loss is expensed and unimpaired goodwill is taken as an intangible asset. Management should be transparent, accountable and make relevant financial disclosures to provide shareholders with accurate information so that they make an informed decision. Management makes several announcements regarding their intentions to various stakeholders.
References
Admin, 2012. IAS plus. [online] IAS 36 – Impairment of Assets. Available at: <https://www.iasplus.com/en/standards/ias/ias36> [Accessed 15 May 2020].
Anon, 2018. Efficiency of Financial Ratios Analysis for Evaluating Companies’ Liquidity. International Journal of Social Sciences & Educational Studies, 4(4).
Anon, 2018. OOYALA ACQUIRES MEDIA LOGISTICS SOFTWARE COMPANY NATIV. [online] Ooyala. Available at: <https://ooyala.dalet.com/resources/news/press-releases/ooyala-acquires-media-logistics-software-company-nativ> [Accessed 15 May 2020].
Anon, 2018. Telstra writes off $500 million investment in video streaming business Ooyala to zero. [online] ABC News. Available at: <https://www.abc.net.au/news/2018-02-02/telstra-writes-off-ooyala-investment-to-zero/9387794> [Accessed 15 May 2020].
Anon, 2019. Analysis of Factors Cause to Non-Optimal Management of Follow-up Audit Findings: Case Study on Finance Education and Training Agency, Ministry of Finance. Research Journal of Finance and Accounting.
Anon, 2020. [online] Telstra 2016 Annual Report. Available at: <https://telstra2016ar.interactiveinvestorreports.com/financialreports/> [Accessed 15 May 2020].
Anon, 2020. ACCA FR (F7) Notes: B3de. Cash Generating Units: aCOWtancy Textbook. [online] ACCA FR (F7) Notes: B3de. Cash Generating Units | aCOWtancy Textbook. Available at: <https://www.acowtancy.com/textbook/acca-fr/b3-impairment-of-assets/cash-generating-units/notes> [Accessed 15 May 2020].
Anon, 2020. Home – Australian Securities Exchange. [online] ASX. Available at: <http://www.asx.com.au/> [Accessed 15 May 2020].
Anon, 2020. Past. [online] Telstra. Available at: <https://www.telstra.com.au/aboutus/our-company/past> [Accessed 15 May 2020].
Anon, 2020. TELSTRA CORPORATION LIMITED Company Profile | Melbourne … [online] Available at: <https://www.dnb.com/business-directory/company-profiles.telstra_corporation_limited.cb38b586de5f62dae188136d08140ebb.html> [Accessed 15 May 2020].
Anon, 2020. Videoplaza Company Profile: Acquisition & Investors. [online] PitchBook. Available at: <https://pitchbook.com/profiles/company/53768-89> [Accessed 15 May 2020].
Anon, n.d. Breach of duty by a director. Rights and Duties of Directors 2017/18.
Anon, n.d. Japan: Financial indicators.
Budiharjo, R., 2019. Effect of Profitability, Leverage, Activity ratios, Market Ratios and Environmental Performance to Share Prices. Scholars Bulletin, 05(10), pp.585–592.
Coulon, Y., 2020. Key Liquidity and Solvency Ratios. Rational Investing with Ratios, pp.47–62.
Coulon, Y., 2020. Profitability and Performance Ratios. Rational Investing with Ratios, pp.85–104.
Pawłowski, J., 2019. The Usefulness Of Financial Reporting For Financial Instruments In The Decision-Making Processes Of Individual Investors. Copernican Journal of Finance & Accounting, 7(4), p.99.
Reichert, C., 2018. Telstra2022: Key takeaways from Telstra’s new strategy. [online] ZDNet. Available at: <https://www.zdnet.com/article/telstra2022-key-takeaways-from-telstras-new-strategy/> [Accessed 15 May 2020].
Xin, W., 2015. Telstra Financial Analysis Report Fy2009 – Fy2013. Journal of Finance and Accounting, 3(5), p.150.
Zuhroh, I., 2019. The Effects of Liquidity, Firm Size, and Profitability on the Firm Value with Mediating Leverage. KnE Social Sciences, 3(13), p.203.
Appendix 1
Appendix 2
Appendix 3
[1] Anon, 2020. TELSTRA CORPORATION LIMITED Company Profile | Melbourne … [online] Available at: <https://www.dnb.com/business-directory/company-profiles.telstra_corporation_limited.cb38b586de5f62dae188136d08140ebb.html> [Accessed 15 May 2020].
[2] Anon, 2020. Past. [online] Telstra. Available at: <https://www.telstra.com.au/aboutus/our-company/past> [Accessed 15 May 2020].
[3] Anon, 2018. Telstra writes off $500 million investment in video streaming business Ooyala to zero. [online] ABC News. Available at: <https://www.abc.net.au/news/2018-02-02/telstra-writes-off-ooyala-investment-to-zero/9387794> [Accessed 15 May 2020].
[4] Xin, W., 2015. Telstra Financial Analysis Report Fy2009 – Fy2013. Journal of Finance and Accounting, 3(5), p.150.
[5] Anon, 2020. Videoplaza Company Profile: Acquisition & Investors. [online] PitchBook. Available at: <https://pitchbook.com/profiles/company/53768-89> [Accessed 15 May 2020].
[6] Anon, 2018. OOYALA ACQUIRES MEDIA LOGISTICS SOFTWARE COMPANY NATIV. [online] Ooyala. Available at: <https://ooyala.dalet.com/resources/news/press-releases/ooyala-acquires-media-logistics-software-company-nativ> [Accessed 15 May 2020].
[7] Anon, n.d. Breach of duty by a director. Rights and Duties of Directors 2017/18.
[8] Coulon, Y., 2020. Key Liquidity and Solvency Ratios. Rational Investing with Ratios, pp.47–62.
[9] Budiharjo, R., 2019. Effect of Profitability, Leverage, Activity ratios, Market Ratios and Environmental Performance to Share Prices. Scholars Bulletin, 05(10), pp.585–592.
[10] Coulon, Y., 2020. Profitability and Performance Ratios. Rational Investing with Ratios, pp.85–104.
[11] Anon, 2018. The efficiency of Financial Ratios Analysis for Evaluating Companies’ Liquidity. International Journal of Social Sciences & Educational Studies, 4(4).
[12] Anon, n.d. Japan: Financial indicators.
[13] Anon, 2020. [online] Telstra 2016 Annual Report. Available at: <https://telstra2016ar.interactiveinvestorreports.com/financialreports/> [Accessed 15 May 2020].
[14] Anon, 2020. ACCA FR (F7) Notes: B3de. Cash Generating Units: aCOWtancy Textbook. [online] ACCA FR (F7) Notes: B3de. Cash Generating Units | aCOWtancy Textbook. Available at: <https://www.acowtancy.com/textbook/acca-fr/b3-impairment-of-assets/cash-generating-units/notes> [Accessed 15 May 2020].
[15] Admin, 2012. IAS plus. [online] IAS 36 – Impairment of Assets. Available at: <https://www.iasplus.com/en/standards/ias/ias36> [Accessed 15 May 2020].
[16] Anon, 2019. Analysis of Factors Cause to Non-Optimal Management of Follow-up Audit Findings: Case Study on Finance Education and Training Agency, Ministry of Finance. Research Journal of Finance and Accounting.
[17] Zuhroh, I., 2019. The Effects of Liquidity, Firm Size, and Profitability on the Firm Value with Mediating Leverage. KnE Social Sciences, 3(13), p.203.
[18] Pawłowski, J., 2019. The Usefulness Of Financial Reporting For Financial Instruments In The Decision-Making Processes Of Individual Investors. Copernican Journal of Finance & Accounting, 7(4), p.99.
[19] Reichert, C., 2018. Telstra2022: Key takeaways from Telstra’s new strategy. [online] ZDNet. Available at: <https://www.zdnet.com/article/telstra2022-key-takeaways-from-telstras-new-strategy/> [Accessed 15 May 2020].
[20] Anon, 2020. Home – Australian Securities Exchange. [online] ASX. Available at: <http://www.asx.com.au/> [Accessed 15 May 2020].