Ethical Investments in Qantas Airways, Telstra and Coca Cola Amatil - Case Study Example

CRITICAL ANALYSIS OF THE REAL WORLD: QANTAS AIRWAYS LIMITED, TELSTRA CORPORATION LIMITED AND COCA COLA AMATIL COMPANY LIMITED By (Student’s Name) Professor’s Name Course Name+ City Date of Submission Executive Summary This report analyzes the ethical investments in the Qantas Airways Limited, Coca Cola Amatil Limited and Telstra Corporation Limited companies to determine whether either of them has demonstrated a higher and consistent business performance, good performance in terms of corporate governance and environmentally friendly practices. It is important to realize that the report has analyzed the above three companies based on their financial performance. In its entirety, the report identifies Telstra Corporation Limited as the most viable company to invest with the $500,000. Critical Analysis of the Real World: Qantas Airways Limited, Telstra Corporation Limited and Coca Cola Amatil Company Limited QANTAS AIRWAYS LIMITED Qantas Airways Limited is an Australian’s flag carrier. The airline prides itself as the largest in Australia. It is also the second oldest airline in the world overall. The airline carries 18.7% of the passengers travelling out and within Australia. It has a major hub in Sydney airport and is based in Qantas centre (Goss, Miller & Gross, 2009). Financial Performance In its financial year that ended on the 31 December 2012, the airline posted higher levels of revenue and profits as indicated below: December 2011 December 2012 Revenue plus other incomes 8,040 8,242 Statutory profit after deducting tax 42 111 Profit attributable to members of Qantas 42 111 Underlying profit before deducting tax 201 223 The tangible net asset per ordinary share increased to $2.37 million up from $2.33 million in June 2012. The airline is forecasting on improving its profitability by achieving a 10.5% growth in a challenging market in its underlying profit before tax, have a strong ancillary report and improve on its unit cost. The airline also looks forward to strengthening its financial position by restructuring its fleet delivery profile and ensuring a positive net flow (Goss, Miller & Gross, 2009). Corporate Governance Performance The statement on corporate performance for Qantas outlines distinctive framework established by the airline. The efficiency and effectiveness of the airline’s performance is analyzed out annually together with that of the individual directors and established committees (Bidgoli, 2012). The individual performance of each and every director is assessed and discussed between the chairman of the board and the directors’ representatives. After the conclusion of the review, the board committee’s performance is discussed within the following meeting (Bidgoli, 2012). An expert consultant is engaged by the board and is externally sourced in order to allow for the airline carry out a comprehensive review. The review is conducted according to the terms of the charter on the performances of the directors, on the relevant parties whose actions directly affects the business of the airline and its entire leadership. The performance of the chief executive officer is determined based on the key annual performances and according to the predetermined indicators and objectives (Bateman & Snell, 2012). The review and performance measurement of the most senior employees of the airline is conducted by the chief executive officer and the performance is reviewed on an annual basis by the human resources officer. Whenever there are apparent conflicts of interest between those of the airline and those of the director of the company, then unless the affected director is allowed under critical and specific circumstances, such director is excluded from the meetings discussing such matters. The directors are not limited to the extent of advice that they can get relating to the affairs of the airline, since they purportedly are exposed to enough resources of the airline (Bidgoli 2012). Each individual director has clear roles, duties and responsibilities spelt out during an induction process. Thus, each and every director must go through this induction and training program (Bidgoli, 2012). The airline has set a clear code of conduct that must be observed by its employees. This is in the quest to guard the reputation of the company. Integrity standards have been set in order to safeguard the assets and the finances of the airline. This, in turn, has ensured that there is integrity in the course of reporting to the stakeholders on matters related to finances and asset of the airline thus making sure that the financial statements of the airline are credible. This is in addition to the requirements by the directors to make a declaration that the financial documents and the books of accounts have been prepared and maintained properly as required legally. Consequently, it allows for credibility to the risk management and internal control system of the airline (Cross, Miller & Cross, 2009). There is an annual audit of the functions of the airline company. It should be noted that this function is also reviewed by the risk and audit committee. There is a regular rotation of the lead audit partner in order to maintain the independence of the auditor and mitigating the threat of over familiarity (Bidgoli, 2012). The internal audit function is also very strong and independent in function from the services of the external auditor. The committee on audit and risk reviews the operational effectiveness and performance of the function and follows up to ensure immediate implementation of the issued recommendations from this audit function to the airline. Environmental Performance Credentials The airline being the oldest and second largest in the world overall understands the direct relationship between its effective and efficient management of the business success. Therefore, the airline has devised the means and mechanisms of mitigating the airline’s negative operational impacts on the environment. The airline is working towards achieving environmental regulations in its entire operations across the globe. The company has come up with a well structured and consistent environmental management system that ensures the airline’s operations improves in respect to environmental impacts within in areas of its operations (Bidgoli, 2012). The airline has integrated into its key operations the environmental operations. These have ensured that all the stakeholders of the organization are up to date and that they also comply with the environmental practice and policy. The airline has ensured responsibility in the use of the resource and wastage minimization and work towards the restoration of biodiversity. Contextual Factors The Qantas airline company has been faced with numerous challenges however; in all this, the airline has maintained to counter these challenges in its quest to have a well shaped future characterized by increased growth. With the increased competitors in the airline industry, Qantas has built an entity that serves customers with best quality services at affordable rates. This has allowed the airline a competitive-edge over its competitors (Bidgoli, 2012). COCA COLA AMATIL COMPANY LIMITED Coca Cola Amatil together with its controlled subsidiaries is engaged in the field of marketing and distribution of non-alcohol drinks. The company is established in Australia and has branches in Indonesia, New Zealand, Fiji and Papua. The company also does the processing, marketing and the distribution of the alcoholic drinks and vegetables. The company has its head quarters in Sydney. It was founded in 1904 (Mitchell, 2009). Financial Performance In the financial year that ended in June 2013, Coca Cola Amatil announced its financial performance. The company records the net profit that is attributable to its members having gone down from AUD 246.2 in 2012 to the current AUD 216. This represents a 12% decrease in net profits. The decreased performance is due to the tough conditions in the company’s major outlets and in its grocery stores. In its half year results, there was a huge loss that affected the members of the company. The loss amounted to AUD 9.2 million. The loss was determined after the company had accounted for the mandatory payment of income tax. The income before interest and tax further recorded a fall by 6.8 %. This was down from AUD 387.1 million to AUD 360.7 million (Hershman & Mazero, 2008). The total revenue of Coca Cola Amatil went down to AUD 2.36 million from AUD 2.43. This represented a 3.4% fall in revenue. The company’s earnings per share also recorded a significant fall of 12.7 %. From the operating activities of the company, it is noted that the net cash flow also decreased to AUD 166.7 million as compared to the previous period that recorded a staggering AUD 196.9 million. The company also recorded a huge decrease in the capital expenditure from AUD 1643.9 million to the current AUD 1920 million. The company also recorded a net decline in its earnings before interest and tax of 4%. There was a further decline by 10% in the company’s non- current inventory (Mitchell, 2009). Corporate Performance In regards to the corporate performance of the Coca Cola Amatil, the shareholders of the company are represented by the board of the directors that is entrusted with handling of the company’s significant matters. The strategic direction of the company and the work of budget reviewing and approval are as well handled by the board. It is as well tasked with ensuring that the company is complying with all statutory requirements and that, the adequacy and improvement on areas of risk management and policies, appointing and setting the remuneration of the company’s group managing director and being accountable to the shareholders on running the affairs of the company (Mitchell, 2009). There is greatly emphasized and observed by the independence of the directors. In the situation whereby a director portrays conflicting interests thus overriding interests of the company, then such director is excused from attending any meeting with an agenda touching on related matters. The director’s performance appraisal is conducted once in every two years. The internal system of control performance efficiency and effectiveness is also evaluated by compliance and social responsibility teams. The board is briefed on such matters as audit and risk after every three months by the committee. The company has put in place a risk management policy to ensure oversight control on management and on material business risks (Mitchell, 2009). The company, through its management, issues a written form of declaration to the effect that it has complied with the legal and statutory requirements. In that declaration, the company also declares that the information contained within the books of accounts and financial documents do portray a true and fair view of the company’s performance and state of affairs as prepared and documented and also, that the system of internal control of the company are operational and effective (Goss, Miller & Gross, 2009). Environmental Credentials The company has consistently reported on its amount of carbon emissions, and has always maintained updates on information and knowledge needed in seizing available opportunities on the reduction of carbon emissions since 1999. It is doing this as part of the green house challenge established by the Australian government. It is also a participating member of the project of carbon disclosure. This has seen it earn itself a place within the climate leader’s index. The index is issued as recognition to the industry in the quest to address climatic change issues. The company attained position 25 out of the total 141 participants (Goss, Miller & Gross, 2009). The company is well aware that besides water conservation, there is an increased need to conserve energy and the overall climate generally. It has been quite successful in energy efficiency and the stabilization of the carbon emissions. This has greatly aided in cutting down on unnecessary costs as well as negative environmental impact. Subsequently, it has strategized on increasing the rate of the awareness on saving the energy and implementing such strategies (Goss, Miller & Gross, 2009). In terms of energy savings by the company, Coca Cola Amatil has purchased and installed a pasteurizer that has a capacity of saving up to 50 tons of CO2 hence 807 tons of CO2 by way of project optimization. The newly acquired compressor will save 588 tons of CO2 per annum, the purchase of a green power will offset 411 tons of CO2 and the power correction will save 333 tons of CO2 (Goss, Miller & Gross, 2009). The kings cross sign of the Coca Cola Company was deliberately turned off the Earth’s WWF hour in the year 2007. In solidarity with the WWF Earth hour, this practice has been repeated annually. Contextual Factors There is an increased need to make a choice regarding the future of the liquor industry in Australia. There has been very low confidence recorded within the past 14 years. The economic activities have been characterized with very low pace of activities. Despite of all this, it has resolved not to bunk down. The company, through its management, has noted that they will be judged not by what they say but by what they do. The company has demonstrated this by enlightening its customers on the effects of obesity which has been proved to be a more prevalent disease in those that mostly use soft drink beverages as opposed, to the liquor consumers as alleged. There has been expertise sensitization on the healthcare cost surge as a direct link to the increased cases of obesity. There has been an increased perception that the most cases of child hood obesity is majorly caused by soft drink beverages. This is contrary to the research that shows lowest measurements of fats and carbohydrates in soft drinks in comparison to other dinks like fruit juice and flavored milk. It should be noted that even as this challenge faces the company, the obesity cases continues to rise despite the decline in the consumption of the soft drinks. Following a pro-active approach in the Australian market, there has been a move labels over 400 products as a result of the daily intake guide. There were also threats that Coca Cola Amatil faced to ban soft drinks. The company is now looking into the possibilities of portfolio balance. There is also another perception that beverage packaging is dirtying the environment. The company has responded to this by recycling packaging materials. TELSTRA CORPORATION LIMITED This is a company operating within the media and telecommunications industry and is engaged in the building and operating of the telecommunications, marketing voice internet access, mobile and the services and products of pay television (Goss, Miller & Gross, 2009). Financial Performance During the 2013 financial year, the company posted profits and revenue growth as well as a 1.3% increase in customers dealing in domestic mobile retailing. In the year that ended on 30 June 2013: total income increased from $ 477 million to $580 million. This represented a 1.9 percent increase, the EBITDA increased to $10629, this was a 3.9% increase while the net profit after taxation increased by $ 441 to $ 3,865 million postulating a 12.9 % increase. The earnings per share increased to 30.7; a 11.6 % increase while the dividend payout ratio increased by 91%.The capex to sales ratio was at 14.9%, with the expenditure of capital increasing to $3,792 million. The free cash flow decreased by $ 173 million to $ 5,074. This represented a 3.3% decrease (Goss, Miller & Gross, 2009). The company has continued being the market leader in the growth of mobile with its customers, within the domestic market, increasing to 15.2 million. This led to the increase in the mobile revenue by 6% to $9.2 billion. The company further posted a $ 1.2 billion in the network of the mobile during the year. The 6G was expanded from the previous 4G network. The expansion now covers 85% of its customers. The company also continues to build Network Applications and Services (NAS) portfolio momentum. The revenue generated from NAS increased by 17.7 % (Bertonèche & Knight, 2001). Corporate Governance Telstra Company is the core of conducting business. Such practices and policies are applied in areas of remuneration. On these areas, the company ensures that there is accountability and adequate disclosures. From the apex of the company’s leadership, it is composed of the board of directors. Below the board of directors, the nomination committee, the people policy committee and the committee on compliance and audit risk follows subsequently. Each committee has been tasked with various roles of overriding the goals of serving the organization to achieve its desired goals and objectives (Australia & Australian State of the Environment Committee, 2001). The function of hiring and training of the existing and new directors is the responsibility of the nomination committee. The committee also conducts performance appraisals of the board annually. The committee on compliance and audit risk is tasked with analyzing the means and ways of developing an overall audit strategy and setting up the risk policies and framework. It is also concerned with the setting up of strong systems of internal controls and financial reporting and accounting functions of the company. The human resource strategy and remuneration policy, the development and succession and the organizational health is under the people committee (Bertonèche & Knight, 2001). There is a clear gender awareness program since women forms the larger percentage of the employees. The company is looking forward to balancing its workforce with members of the either genders. The management of Telstra limited, on a regular basis, issues reports to the compliance and audit risk committee on the operating efficiency and effectiveness of the internal control system and the risk management effectiveness (Bertonèche & Knight, 2001). The management of the company has also complied and in every year they declare in a written statement that the books of accounts and financial documents have been kept as required legally and by the state and that they reflect the true and fair view of the state of affairs of the Telstra Company limited (Bertonèche & Knight, 2001). Environmental Protection Credentials Telstra Company Limited has realized the need to protect the environment and influence the supply chain in a more positive way in its quest to become more suitable and efficient by reducing on the amount of carbon emission. Telstra has come up with a strategy on carbon emissions reduction strategy. The company believes that it is a good business sense, thus the reason for the company’s target to reduce the carbon emission by 40%. The company also has a target to use the available water sparingly to conserve and save more. The target is to save more than 300 million liters per annum (Association of Accounting Technicians, 2011) Contextual Factors Due to the increased financial pressure globally, the company has invested on new and better technologies but at cheaper price to ensure affordability to the customers. These will also aid the company in aligning itself to the ever changing trends, locally, regionally and internationally (Bertonèche & Knight, 2001). Recommendations and Conclusion From the three companies considered above, I would recommend Telstra Company as the best company for investment given its financial performance and on the basis of corporate performance and environmental credentials. Telstra Company Limited has tremendously increased in its total income, its earnings per share and as well as the customer base in comparison to the other two companies. Telstra has also demonstrated a good corporate performance hence assuring the stakeholders of its ability to allow them value for their investment. The coca cola Amatil has continuously made losses and has fewer earnings per share than Telstra Company Limited. This disqualifies it from being a viable investment for the investors since it is not placed in better position to guarantee them back a return on their investment. 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