Problem Statement

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
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
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 introduce
Comparing the two forecasts will allow you to calculate the net impact of leasing.
ement
et leasing business model has potential and
you to assess the potential impact of the
oking at the impact it has had in other
market he suggested is at a similar stage of
wo main operators who form an effective
ago, but its competitor, Company B, did not.
n profitability.

some financial statements from the two

g sheet for you to follow. If you find

uidance on how to complete the tasks. There
in the resources section below.

determine the impact of leasing handsets on

ptions, and identify the metrics you would

dentified to forecast the upside in terms of

e that Company X will grow at industry
mpany A, which introduced leasing.
the net impact of leasing.
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
 Industry Average
Growth (%)
Year 1 Year 2 Average Remarks
Mobile Service 5.46% 2.25% 3.85%

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%

Mobile Subscribers ('000s) 2.69% 5.10% 3.90%

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%

ARPU* $ 57 $ 67 $ 70 Higher growth in ARPU than company B

* Average Revenue Per User

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

Company X Financial Statement (handset leasing implemented)

Year 0 Year 1 Year 2
S$ Million
Total Total Total
Operating Revenue & Expenses Composition
Mobile Service $ 1,354 $ 1,441 $ 1,534
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,449 $ 2,542
Growth rate 3.69% 3.79%

Operating expenses $ 1,796 $ 1,862 $ 1,933

Mobile Subscribers ('000s) 2,341 2,432 2,527

ARPU* 48 49 51

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 ofGrowth rate

Assume constant expense ratio Operating expenses $ 1,796

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
mplemented) 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

$ 1,836 $ 1,877 Operating expenses

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