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Problem Statement: Sub-Task 1
Problem Statement: Sub-Task 1
BCG experts from other case teams think that the handset leasing business model h
should be explored further. The Principal, Elisse, wants you to assess the potential i
handset leasing business on the client’s financials by looking at the impact it has ha
markets. One BCG expert sent some financial data. The market he suggested is at a
development to Company X’s home market. There are two main operators who for
duopoly. Company A launched handset leasing 2 years ago, but its competitor, Com
not. This allows us to isolate the impact of handset leasing on profitability.
Elisse hands you a partially completed excel model and some financial statements f
companies, and asks you to complete the analysis.
Within the workbook, Elisse has also added in a guiding sheet for you to follow. If
yourself stuck, you may want to refer to the sheet for guidance on how to complete
is also a list of technical terms that you may find useful in the resources section bel
Sub-Task 1:
Analyse the data from Company A and Company B to determine the impact of leas
financial performance. State and apply your own assumptions, and identify the met
use to perform a financial forecast for Company X.
Sub-Task 2:
Apply the metrics and performance impacts you have identified to forecast the upsi
the key metrics for Company X. To do this, first assume that Company X will grow
average, then assume it will grow at the same rate as Company A, which introduced
Comparing the two forecasts will allow you to calculate the net impact of leasing.
t
Mobile Subscribers ('000s) 2.16% 1.91% 2.03% Overall industry mobile subscribers growing at 2.03% average
Company A
Growth (%)
Year 1 Year 2 Average Remarks
Mobile Service 8.15% 4.73% 6.44%
Company B
Growth (%)
Year 1 Year 2 Average Remarks
Company B grows below industry average, due to absence of
Mobile Service 2.84% -0.30% 1.27%
leasing.
Mobile Subscribers ('000s) 1.92% 0.46% 1.19%
Industry Total
Key Comparables
Year 1 Year 2 Average Remarks
Operating Revenue Growth 5.46% 2.25% 3.85%
Industry average comparables used to
Net Profit Growth 15.79% 4.51% 10.15%
compare Company X's performance.
ARPU $ 55.75 $ 57.37 $ 56.56
* Average Revenue Per User
Company A
Market Share (%)
Year 0 Year 1 Year 2 Remarks
Mobile Service 33.97% 37.43% 39.03%
Company B
Market Share (%)
Year 0 Year 1 Year 2 Decrease in overall
Remarks
& mobile plan
Mobile Service 66.03% 62.57% 60.97% market share, due to absence of
leasing.
ARPU* $ 50 $ 51 $ 52 Lower growth in ARPU than company A
* Average Revenue Per User
Company X has not launched leasing mobile plans
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
Growth 10.38% 10.06%
Company X Financial Statement (handset leasing not implemented)
Year 0
Remarks S$ Million
Total
Operating Revenue & Expenses Composition
Assume 6.44% growth as per comparable Company A. Mobile Service $ 1,354
Others $ 1,008
Operating revenue $ 2,362
Net growth of 3.74% in operating revenues, slightly below industry rate of Growth rate
Assume 3.90% growth as per comparable Company A. Mobile Subscribers ('000s) 2,341
ARPU of X is below industry average of $56.50 but shows
ARPU* 48
positive growth
Income Statement
Operating revenue $ 2,362
Derived from operating figures above
Operating expenses $ (1,796)
EBITDA $ 566
Net finance expense $ (27)
Taxation $ (45)
Depreciation & amortisation $ (294)
Net profit $ 200
10.06% - 10.38% annual growth. Slightly higher than industry average of Growth
implemented) Difference in Company X Financial Statement with and with
Year 1 Year 2
Remarks S$ Million
Total Total
Operating Revenue & Expenses Composition
$ 1,406 $ 1,460 Assume 3.85% growth as per Industry Average. Mobile Service
$ 1,008 $ 1,008 Others
$ 2,414 $ 2,468 Operating revenue
2.21% 2.24% Net growth of 2.22% in operating revenues, significantly belo Growth rate
2,389 2,437 Assume 2.03% growth as per comparable industry average. Mobile Subscribers ('000s)
Without leasing, ARPU grows more slowly than
49 50 ARPU*
with leasing
Income Statement
$ 2,414 $ 2,468 Operating revenue
Derived from operating figures above
$ (1,836) $ (1,877) Operating expenses
$ 578 $ 591 EBITDA
$ (27) $ (27) Net finance expense
$ (45) $ (45) Taxation
$ (294) $ (294) Depreciation & amortisation
$ 213 $ 226 Net profit
6.19% 6.10% 6.10%-6.19% annual growth. Much lower than industry averageGrowth
Statement with and without handset leasing
Year 0 Year 1 Year 2
Remarks
Total Total Total
$ - $ 35 $ 74
$ - $ - $ -
$ - $ 35 $ 74 Difference of 1.5% growth rate in Operating
1.49% 1.55% Revenue with handset leasing
$ - $ 27 $ 56
0 44 90
0 0 1 Difference of $1 by Year 2
$ - $ 35 $ 74
$ - $ (27) $ (56)
$ - $ 8 $ 18
$ - $ - $ -
$ - $ - $ -
$ - $ - $ -
$ - $ 8 $ 18
0.00% 4.20% 3.96% Difference of 4% growth rate in Net Profit