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 need to
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 metrics for Com
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 for the
2a. Estimate industry average growth rates by combining the data for Company A and Company B for the key metric
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 X

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 numbers
eet
yhesteps you impact
incremental needoftointroducing
arrive at the answer?
handset leasing. To do this, you need to estimate what happen
duce leasing.
ng this task
s that are most important
leasing case, you apply the industry average growth rates for the relevant metrics for Company X
asing case, you apply Company A growth rates
ates for all other figures, using historical data
ct of handset leasing for Company X

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

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

he leasing case, you apply Company A growth rates to Company X

estimates for all other figures, using historical data

y to be a fixed ratio of revenue or profits
timate is just to assume it will remain constant

impact of handset leasing for Company X

e in Company X's key metrics with and without handset leasing, you subtract the numbers in step (2) from step (3) an
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
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2449 $ 2,542
Operating expenses $ (1,796) $ 1862 $ 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 Rate 10.38% 10.06%

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
the relevant financial statement figures

Company X Financial Statement (handset leasing not implemented)

Year 0
Comments S$ Million
Total
Income Statement
Operating revenue $ 2,362
Operating expenses $ (1,796)
EBITDA $ 566
Net finance expense $ (27)
Taxation $ (45)
Depreciation & amortisation $ (294)
Net profit $ 200

Average growth rate is 10.22% , 0.07% higher than the indsutry average Growth Rate

Operating Revenue & Expenses Composition

Assume Growth 6.44% Mobile Service $ 1,354
Assume Constant Others $ 1,008
Operating revenue $ 2,362
Growth rate

Assume Constant expense ratio Operating expenses $ 1,796

Assume 3.90% Growth Mobile Subscribers ('000s) 2,341

ARPU is below indsutry average of $ 56.66 however it shows a positive g ARPU* 48
implemented)
Year 1 Year 2 Comments
Total Total

$ 1,406 $ 2,468
$ 1,069 $ 1,877
$ 578 $ 591
$ (27) $ (27)
$ (45) $ (45)
$ (294) $ (294)
$ 212 $ 225

6.1900% 6.100% Net Profit Growth of 6.145% is lower than industry average of 10.15%

$ 1,406 $ 1,460 Assume Growth 3.85%

$ 1,008 $ 1,008 Assume Constant
$ 2,414 $ 2,468
2.21% 2.24% Growth of 2.22% is 1.53% below industry average of 3.85%

$ 1,836 $ 1,877

2,389 2,487
49 49 ARPU is below indsutry average
Difference in Company X Financial Statement with and without handset leasing
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 35 $ 74
Operating expenses $ 27 $ 56
EBITDA $ 8 $ 18
Net finance expense $ - $ -
Taxation $ 0 $ 0
Depreciation & amortisation $ 0 $ 0
Net profit $ 9 $ 18

Growth Rate 4.20% 3.96%

Operating Revenue & Expenses Composition

Mobile Service $ 35 $ 74
Others $ - $ -
Operating revenue $ - $ 35 $ 74

Growth Rate 1.49% 1.55%

Operating expenses $ 1,796 $ 27 $ 56

Mobile Subscribers ('000s) 43 90

ARPU* 0 1
 Comments

Difference of 4.08 % growth rates in profits

1.5% difference in operating revenue with handset leasing

$1 difference by year 2