1 Basic information A glance at Telstra’s website provides some basic information of the company, namely its ticker symbol is TLS, its primary industry is telecommunications and information services, the current share price is $5.64 with 12,443,074,357 shares in total and the market capitalization is $70,179 billion In addition, data from Yahoo! Finance website reveals the company’s share price target summary, wherein mean target is $5.58, median target is $5.62, high target is $6.20 and low target is $4.70 Acccording to Financial Times, the company’s top holders held 6.08 percent of shares, namely Captial Research & Management Co (1.42%), Vanguard Investments Australia Ltd (0.98%), The Vanguard Group, Inc (0.66%), Schroder Investment Management Australia Ltd (0.64%), BlackRock Fund Advisors (0.56%), Australian Foudation Investment Co Ltd (0.43%), Norges Bank Investment Management (0.39%), Argo Investments Ltd (0.35%), FIL Investment Management (Australia) Ltd (0.33%) and BlackRock Investment Management (Australia) Ltd (0.33%) Investment Summary Telstra is an Australia’s leading telecommunications and information services company, founded in 1901 and based in Melbourne, Australia According to the company’s website, their purpose is “to create a brilliant connected future for everyone” and their core values are “show we care, work better together, trust each other to deliver, make the complex simple and find our courage”, with which they align every they and by which they measure all of their actions Considering significant recent developments of Telstra, according to Analyst Briefing Presentation and Materials 2016, there were several highlights in the company’s results for the half-year ended 31 December 2015 In the presentation, Andrew Penn - CEO said “In the first half of the 2016 financial year we grew fixed broadband, bundle and mobile customer numbers We saw strong income growth with more modest growth in EBITDA and net profit after tax” In particular, by comparison with the first half of 2015 financial year, total income (excluding finance income) for the half year increased 9.1% to $14.2 billion, EBITDA was up 1.7% to $5.4 billion and net profit after tax was up 0.8% to $2.1 billion on a reported basis Additionally, earning per share (EPS) grew 1.8% to 17.2 cents per share and the interim dividend declared by the company’s Board was 15.5 cents per share, up 3% compared with the previous corresponding period Furthermore, in the first half financial year 2016, Telstra added 235,000 domestic retail mobile customer services and 121,000 retail fixed broadband customers; NBN Definitive Agreements revenue increased to $636 million with further major contracts signed; mobile network data climbed 42% and Network Applications and Services revenue was up 37% with further margin improvements compared to the prior year according to Andrew Penn Turning to earning forecast, Yahoo! Finance webstie provided analyst estimate for the company’s earning in June 2016 and June 2017 as the following table: Table 2.2 Earning Estimate Current Year Next Year Earning Estimate Jun 2016 Jun 2017 Average Estimate 0.36 0.37 Number of Analysts 17 17 Low Estimate 0.31 0.31 High Estimate 0.46 0.38 Year Ago EPS 0.35 0.36 (Soure: https://au.finance.yahoo.com) Looking at the table 2.2, it was estimated that the average EPS of financial year 2016 ended in June will increase 2.86% to $0.36 and that of 2017 will increase 2.77% to $0.37 compared with the previous corresponding period Business Description According to Yahoo! Finance website, “Telstra Corporation Limited provides telecommunications and information services to businesses, governments, communities, and individuals in Australia and internationally The company operates through Telstra Retail, Global Enterprise and Services, Telstra Operations, and Telstra Wholesale segments It offers a range of telecommunication products, services, and solutions across mobiles, fixed and mobile broadband, telephony, and pay television; data and Internet protocol networks; network applications and services, such as managed network, unified communications, cloud, industry solutions, and integrated services; and hybrid fiber coaxial cable services The company also provides telecommunication products and services to carriers, carriage service providers, and Internet service providers; and connected health IT ecosystem for the healthcare sector In addition, it offers digital media content services; eHealth solutions for primary care, aged and residential care, hospitals, radiology and pathology, pharmacy, indigenous care, and telemedicine; advertising services; and connectivity solutions, such as managed network services, as well as data, voice, and satellite solutions” Furthermore, according to Telstra website, the company provides 16.9 million mobile services, 7.2 million fixed voice services and 3.3 million retail fixed broadband services It distributes its services through 371 retail stores, 84 business centers, and 137 business and enterprise partners, as well as through 18,700 retail points of presence The company’s key drives of revenues are Fixed, Mobile, Data and IP, and Network Applications and Services (NAS) products Meanwhile, key drives of expenses are labour and goods and services purchased According to the Financial results for the half year ended 31 December 2015 published by Telstra on the company’s website, key product revenues and operating expenses are shown in the following tables: Table 3.1 Key product revenue 1H16 1H15 Change $m $m % Fixed 3,564 3,620 (1.5) Mobile 5,526 5,328 3.7 Data and IP 1,914 1,664 15.0 NAS 1,336 1,007 32.7 (Source: http://www.telstra.com.au) Table 3.2 Operating expenses 1H16 1H15 Change $m $m % Labour 2,751 2,432 13.1 Goods and services purchased 3,920 3,262 20.2 Other expenses 2,108 1,993 5.8 Total operating expenses 8,779 7,687 14,2 (Source: http://www.telstra.com.au) In addition, Telstra has to pay for financial expenses among which interest on borrowings is the largest one In particular, interest on borrowings in financial year 2015 was $875 million, accounting for approximately 96 percent of financial cost according to Telstra annual report 2015 published on the company’s website a Investment Risk (internal and external) Material business risks A glance at Telstra annual report 2015 reveals the company’s material business risks which affect their operating results and therefore affect their shareholders These risks are described as follow according to the annual report provided: • • • • • • • b Business model is the risk that the company cannot respond to techonology and market development in a productive and cost-effective way “due to changing market conditions, including accelerated technology advancements, increasing customer expectations of performance, and competitors with disruptive and simpler business models in both domestic and global markets” Business resilience is the risk of disruption to the services the company provides to its customers “due to factors such as rapidly growing demand and reliance on telecommunications services, greater exposure to complex international networks, and external shocks, such as extreme weather events and natural disasters”, which affects the company’s customers as well as its corporate reputation Data management is the risk of collecting, using or managing customer and corporate data in a way that is inconsistent with the company’s regulatory obligations or doesn’t meet the expectations of its customers This risk can result in “significant reputational, financial and regulatory implications” as well as damage customers’ trust Regulatory environment is the risk that there is the emergence of unfavourable regulatory requirements causing complexity and cost of doing business According to the report, new regulation and enforcement of existing regulation could significantly affect the company’s revenues and costs, pricing and product strategy, or result in an additional compliance burden that hampers its capacity to operate in line with its strategy National broadband network (NBN) is the risk related to transitioning to the NBN which exposes the company to “increased competition from retail service providers and new and powerful ‘over the top competitors’ in the longer term” This risk can cause “a potential loss in market share, increased costs and delivery of a poor customer experience” People capability is the risk that the company does not have the capability to drive value from its core and build new growth business Reputaion and communication is the risk the company does not effectively protect and enhance its reputation with customers and in the communiy, which is one of its most valuable assets If not managed effectively, a reputational issue can result in heightened government or regulatory scrutiny and intervention, act as a disincentive to investors, undermine our performance in achieving customer advocacy, and create employee disruption and engagement issues Furthermore, the annual report 2015 also described specific solutions the company use to mitigate or manage each material business risk in order to achieve its strategic objectives Financial Risk Beside material risks, the company also exposes to a number of financial risks, including market risks (interest rate risk and foreign currency risk), credit risk and liquidity risk According to the annual report 2015, financial risks are discribed as follow: • • • • Interest rate risk exposes the company to changes in market interest rates arising primarily as a result of its debt obligations “Borrowings issued at fixed rates expose the company to fair value interest rate risk Variable rate borrowings give rise to cash flow interest rate risk; this is partially offset by cash and cash equivalents balances held at variable rates” Foreign currency risk is the risk that “the value of a financial commitment, forecast transaction, recognised asset or liability will fluctuate due to changes in foreign exchange rates” According to the annual report, Telstra faced this risk due to borrowings, trade and other creditor balances in foreign currencies; firm commitments or highly probable forecast transactions for receipts and payments settled in foreign currencies and net investment in foreign controlled entities Credit risk is the risk that “a counterparty will default on its contractual obligations and will cause the company to incur a financial loss” For Telstra’s situation, credit risk arises in operating activities (primarily customer credit risk) and financing activities as well as on transactions not included in the statement of financial position, such as when the company provides a guarantee for another party Liquidity risk refers to the risk that the company will be unable to meet its financial obligations as it falls due In the financial year 2015, Telstra establised an overall risk management program to mitigate these risks for the purpose of reducing volatility on the company’s financial performance and supporting the delivery of its financial targets According to the report, financial risk management is carried out centrally by the company’s treasury department, under policies approved by the Board that cover foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and liquidity management By way of conclusion, it is obvious that dealing with a wide range of risks, including both operational and financial risks that Telstra had to face in the financial year 2015, the company made intensive and effective efforts in order to reduce or controll affects of these risks on its performance Refferences Telstra Corporation Limited 2015 Annual report 2015 Available at: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20D/telstraannual-report-2015.pdf Accessed 29/4/2016 Telstra Corporation Limited 2016 Financial report for the half year ended 31 December 2015 Availabe at: https://www.telstra.com.au/content/dam/tcom/aboutus/investors/pdf%20D/Financial-results-for-the-half-year-ended-31-December2015.pdf Accessed 29/4/2016 Telstra Corporation Limited 2016 Analyst briefing presentation and materials Available at https://www.telstra.com.au/content/dam/tcom/about- us/investors/pdf%20D/Analyst-briefing-presentation-and-materials-2016.pdf Accessed 29/4/2016 https://www.telstra.com.au/aboutus/ https://au.finance.yahoo.com/q/ae?s=TLS.AX http://markets.ft.com/research/Markets/Tearsheets/Financials?s=TLS:ASX