Company A Financial Statement Note: Company A launched it's first mobile

Year 0 Year 1 Year 2 It aims to make premium handsets m

S$ Million
Total Total Total
Income Statement
Operating revenue $ 8,537 $ 9,233 $ 9,670
Operating expenses $ (6,184) $ (6,270) $ (6,416)
EBITDA $ 2,353 $ 2,963 $ 3,255
Net interest expense $ (130) $ (143) $ (148)
Taxation $ 198 $ 201 $ 203
Depreciation & amortisation $ (743) $ (753) $ (759)
Net profit $ 1,678 $ 2,269 $ 2,550

Operating Revenue & Expenses Composition

Mobile Service $ 2,812 $ 3,375 $ 3,690
Others $ 5,725 $ 5,858 $ 5,980
Operating revenue $ 8,537 $ 9,233 $ 9,670

Operating expenses $ 6,184 $ 6,270 $ 6,416

Mobile Subscribers ('000s) 4,085 4,195 4,409

ARPU* 57 67 70
ompany A launched it's first mobile handset leasing plans at the start of Year 1
aims to make premium handsets more affordable to customers
Company B Financial Statement Note: Company B operates in the same m
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 8,784 $ 9,033 $ 9,006
Operating expenses $ (6,153) $ (6,372) $ (6,470)
EBITDA $ 2,631 $ 2,661 $ 2,536
Net interest expense $ (158) $ (194) $ (189)
Taxation $ (356) $ (341) $ (305)
Depreciation & amortisation $ (1,416) $ (1,507) $ (1,469)
Net profit $ 2,117 $ 2,126 $ 2,042

Operating Revenue & Expenses Composition

Mobile Service $ 5,465 $ 5,641 $ 5,764
Others $ 3,371 $ 3,363 $ 3,102
Operating revenue $ 8,784 $ 9,033 $ 9,006

Operating expenses $ 6,153 $ 6,372 $ 6,470

Mobile Subscribers ('000s) 9,106 9,281 9,324

ARPU* 50 51 52
ompany B operates in the same market as Company A, and has not launched leasing plans
Guiding Sheet
What
You areare
tryingthe key
to find thesteps you impact
incremental needoftointroducing
arrive at the answer?
handset leasing. To do this, you
leasing vs do not introduce leasing.
5 steps to solving this task
Step 1. Identify the metrics that are most important
Step 2. To estimate the no leasing case, you apply the industry average growth rates for the relevant metri
Step 3. To estimate the leasing case, you apply Company A growth rates
Step 4. Make logical estimates for all other figures, using historical data
Step 5. Calculate the impact of handset leasing for Company X

Step 1. Identify the metrics that are most important

1a. Net profit
1b. Operating Revenue
1c. ARPU

Step 2. To estimate the no leasing case, you apply the industry average growth rates
2a. Estimate industry average growth rates by combining the data for Company A and Company B for the
2b. Apply the industry average to forecast Company X performance if handset leasing is not introduced

Step 3. To estimate the leasing case, you apply Company A growth rates to Company

Step 4. Make logical estimates for all other figures, using historical data
4a. Some metrics are likely to be a fixed ratio of revenue or profits
4b. For others, the best estimate is just to assume it will remain constant

Step 5. Calculate the impact of handset leasing for Company X

5a. To show the difference in Company X's key metrics with and without handset leasing, you subtract the
g Sheet
he key
to find thesteps you impact
incremental needoftointroducing
arrive at the answer?
handset leasing. To do this, you need to estimate what
not introduce leasing.
solving this task
he metrics that are most important
ate the no leasing case, you apply the industry average growth rates for the relevant metrics for Company X
ate the leasing case, you apply Company A growth rates
ical estimates for all other figures, using historical data
e the impact of handset leasing for Company X

fy the metrics that are most important

Ultimately the most important number, but it is a dependant variable, and hence will need to be calculated
This is the biggest driver of net profit as most other aspects remain constant
As an additional measure of performance

timate the no leasing case, you apply the industry average growth rates for the relevant metri
ustry average growth rates by combining the data for Company A and Company B for the key metrics
ustry average to forecast Company X performance if handset leasing is not introduced

timate the leasing case, you apply Company A growth rates to Company X

logical estimates for all other figures, using historical data

s are likely to be a fixed ratio of revenue or profits
he best estimate is just to assume it will remain constant

late the impact of handset leasing for Company X

difference in Company X's key metrics with and without handset leasing, you subtract the numbers in step (2) from s
Fill in the blanks in Blue
Note: Company X has not launched leasing mobile plans
Forecast the impact of leasing handsets, on the relevant financial statement figures

Company X Financial Statement (handset leasing implemented)

Year 0 Year 1 Year 2 Comments
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2,449 $ 2,542
Operating expenses $ (1,796) $ (1,862) $ (1,933)
EBITDA $ 566 $ 587 $ 609
Net finance expense $ (27) $ (27) $ (27)
Taxation $ (45) $ (45) $ (45)
Depreciation & amortisation $ (294) $ (294) $ (294)
Net profit $ 200 $ 221 $ 243
Average Growth rate is 10.22%,0.07%
Growth Rate 10.38% 10.06%
higher than the industry average

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 1,441 $ 1,534 Assume growth 6.44%
Others $ 1,008 $ 1,008 $ 1,008 Assume constant
Operating revenue $ 2,362 $ 2,449 $ 2,542
Growth Rate 3.69% 3.79%

Operating expenses $ 1,796 $ 1,862 $ 1,933 Assume constant expense ratio

Mobile Subscribers ('000s) 2,341 2,404 2,527 Assume 3.90% growth

ARPU is below industry average of
48 50 51 $56.56,however it reflects positive
ARPU* growth
Company X Financial Statement (handset leasing not implemented)
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2,414 $ 2,468
Operating expenses $ (1,796) $ (1,836) $ (1,877)
EBITDA $ 566 $ 578 $ 591
Net finance expense $ (27) $ (27) $ (27)
Taxation $ (45) $ (45) $ (45)
Depreciation & amortisation $ (294) $ (294) $ (294)
Net profit $ 200 $ 212 $ 225
Growth Rate 6.19% 6.10%

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 1,406 $ 1,460
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,414 $ 2,468
Growth Rate 2.21% 2.24%

Operating expenses $ 1,796 $ 1,836 $ 1,877

Mobile Subscribers ('000s) 2,341 2,389 2,437

48 49 50
ARPU*
 Difference in Company X Financial Statement with and without handset leasing
Comments Year 0
S$ Million
Total
Income Statement
Operating revenue
Operating expenses
EBITDA
Net finance expense
Taxation
Depreciation & amortisation
Net profit
Net profit growth of 6.154 is lower than industry average of
Growth Rate
10.15%

Operating Revenue & Expenses Composition

Assume 3.85% growth Mobile Service
Others
Operating revenue
Growth of 2.22% is 1.53% below industry average of 3.85% Growth Rate

Operating expenses

Mobile Subscribers ('000s) 0

No leasing leads to significantly lower ARPU growth 0

ARPU*
d without handset leasing
Year 1 Year 2
Comments
Total Total

$ 35 $ 74
$ 27 $ (56)
$ 8 $ 18
$ - $ -
$ - $ -
$ - $ -
$ 8 $ 18
4.20% 3.96% Difference of 4.08% growth rate in profits

$ 35 $ 74
$ - $ -
$ 35 $ 74
1.49% 1.55% 1.5% difference in operating revenue with handset leasing

$ 27 $ 56

44 90

0 1 1$ difference by year 2
 Industry Average
Growth (%)
Year 1 Year 2 Average
Mobile Service Revenue 5.46% 2.25% 3.85%
Mobile Subscribers('000) 2.16% 1.91% 2.03%

Company A
Growth (%)
Year 1 Year 2 Average
Mobile Service Revenue 8.15% 4.73% 6.44%
Mobile Subscribers('000) 2.69% 5.10% 3.90%

Growth (%)
Company B
Mobile Service Revenue 2.84% -0.30% 1.27%
Mobile Subscribers('000) 1.92% 0.46% 1.19%
 Industry Average
Comments

Overall industry for mobile subscribers are growing at 2.03

Company A
Comments

Company B
Company B grows 2.58% below average, likely due to no leasing
 Industry Average
Growth (%)
Year 0 Year 1 Average Comments
Operating Revenue Growth 5.46% 2.25% 3.85%
Net Profit Growth 15.79% 4.51% 10.15%
ARPU $ 669.04 $ 688.41 $678.73
*Average Revenue per user

Company A
Growth (%)
Year 0 Year 1 Year 2 Average
Operating Revenue Growth 33.97% 37.43% 39.03% 36.81%
$820.73
ARPU* $688.37 $804.53 $836.92

Company B
Growth (%)
Year 0 Year 1 Year 2 Average
66.16%
Operating Revenue Growth 62.75% 66.90% 68.84%
ARPU* $600.15 $607.80 $618.19 $613.00
 Comments

Higher growth in ARPU than Company

B

Comments
Decrease in market share, perhaps due
to no leasing option
Lower growth of ARPU than Company A