Financial statement analysis of sing post (part 2)
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Financial statement analysis of SingPost
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Financial statement analysis of sing post (part 2)
- 1. FinancialStatementAnalysis: Presented by: Ng Wen Ying Wang Si Jie (Jessie) Wu Shan Cao Ya Jie
- 2. Singapore Post Limited About SingPost • Commonly abbreviated as SingPost • Subsidiary of Singapore Telecommunications Limited • Singapore’s designated Public Postal Licensee • 3 main businesses Overview of Company and Industry Mail Digital Services •Domestic & International Mail •Philately & Stamps •Hybrid Mail •Digital Services Logistics •Courier: ‘Speedpost’ •E-Fulfilment •Warehousing, Fulfilment & Distribution Freight •Self-Storage Retail & Financial Services e- Commerce •Agency Services •Financial Services •E-Commerce Industry Characteristics • Letter business in decline; Parcel (e-commerce) business growing • Porter’s five analysis shows relatively low rivalry within industry
- 3. Adjustments Operating lease Assumptions: • the discount rate is cost of debt (1.64%). 𝑅 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑑𝑒𝑏𝑡 = interest expense (𝑇𝑜𝑡𝑎𝑙 debt2013+𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡2014)/2 • the payment after 2019 make the full payment at 2020. Adjust for operating lease PV of Operating Leases at Singpost In 2014 Commitments Discounted factor PV of Operating lease 2015 19.3 0.98 18.93 2016 9.4 0.96 9.05 2017 9.4 0.94 8.88 2018 9.4 0.93 8.71 2019 9.4 0.91 8.54 Thereafter 31.3 0.89 27.91 Total 88.20 82.02
- 4. Adjustments Operating lease capitalize the operating Leases of Singpost In 2014 beginning net book value depreciation expense accumulated depreciation ending net book value 2014 82.017 16.403 16.403 65.614 2015 65.614 16.403 32.807 49.210 2016 49.210 16.403 49.210 32.807 2017 32.807 16.403 65.614 16.403 2018 16.403 16.403 82.017 0.000 Assumptions: • Straight-line method • Salvage value = 0 • Estimated useful life = 5yrs
- 5. Adjustments Operating lease Assumptions: operating lease = imputed interest expense + depreciation, FS Adjustment done Final Effect Income Statement • Plus operating lease expense(+18.858) • Minus interest expense(-16.403 ) • Minus depreciation(-2.455) None Balance Sheet Assets • Add capitalized Leases(+82.017) • Minus depreciation(-16.403) • Increase assets (+65.614) • Increase liabilities (+65.614)Liabilities • Add ending book value(+65.614) Equity • No change Statement of Cash Flow • Move principal payments from operating CF to financial CF (17.3 ) Principal Payment= Lease payments - Begin Lease Liability * Interest Rate • Changes in capital Expenditure offsets changes in net debt • OCF decrease (-65.614) • FCF increase (-65.614) • FCFE: no change
- 6. Adjustments Other adjustments • Intangible Assets FS Adjustment done Final Effect Balance Sheet Assets • Minus goodwill(-167.202) • Minus other Intangibles(-16.423) • Decrease assets (-183.625 ) • Decrease liabilities (-183.625 ) Liabilities • No change Equity • Minus goodwill(-167.202) • Minus other Intangibles(-16.423) • Inventory Average cost method • PP&E Useful life is close to industry average
- 7. Income Statement Analysis Revenue and Operating Profit Breakdown Revenue from Mail increases over years, but operating profit from Mail shows no significant change. Revenue from Logistics increased a huge amount, but the operating profit didn’t show a responding increase.
- 8. Income Statement Analysis Segment Operating Profit Margin Mail is much profitable than other two segment.
- 9. Income Statement Analysis Expenses Breakdown
- 10. Income Statement Analysis Profitability analysis
- 11. Income Statement Analysis ROA and ROE trend
- 12. Significant Changes in Accounts Changes in recent years Possible Reasons Cash And Equivalents Increased from S$339M in 2011 to S$695M in 2012 Dropped to f$415M in 2014 Issuing perpetual securities Use cash to repay S$300M long term loan Accounts Payable Increased in 5 years Stretching out payables Long-Term Debt Decreased from S$505M in 2012 to S$220M in 2014 Repay the S$300M long term loan Total Equity Increased significantly in 2012 Issuing perpetual securities of S$346M in 2012 • Cash decreased, but still $S414M at hand • Changing the way of financing: lower the financial leverage and credit risk Balance Sheet Analysis
- 13. (500.0) (400.0) (300.0) (200.0) (100.0) 0 100.0 200.0 300.0 400.0 Mar-31-2009 Mar-31-2010 Mar-31-2011 Mar-31-2012 Mar-31-2013 Mar-31-2014 CashAmount Cash from Operation Cash from Investing Cash from Financing Net Change in Cash • Net changes in cash and changes in financing cash flow were more significant and fluctuant than that of operating cash flow and investing cash flow. Trend of net changes in cash was mainly decided by the changes from financing activities Cash Flow Analysis Changes in Cash Flows
- 14. (200.00) (100.00) - 100.00 200.00 300.00 400.00 500.00 600.00 2009 2010 2011 2012 2013 2014 FCFF FCFE • Significant increase of FCFE in 2010: SingPost issued $S200M loan. • Steep fall of FCFE in 2014: company repaid the debt of S$315M. • Although repayment of debt lowered default risk, negative FCFE indicated the company might have trouble paying shareholder dividend. • FCFF in 2014 is positive, indicating that the firm has the ability to generated enough profit to cover its costs and investment activities. Changes in FCFF & FCFE Reasons behind the changes
- 15. Benchmarks Choice of Comparable Companies Businesses: Mail, Parcel & Logistics Coverage: One of the Largest in UK Clientele: Businesses, e-commerce users Market Cap: £218.8 million Businesses: Mail, Parcel & e-Commerce Coverage: Germany’s only universal provider of postal services Clientele: Individuals, Businesses Market Cap: €30.12 billion
- 16. Ratio Analysis Profitability FY 2014 Singapore Post Limited UK Mail Group Deutsche Post AG Performance Ratio Gross Margin 35.89% 13.40% 11.40% EBIT Margin 22.08% 4.50% 4.00% Net Income Margin 16.86% 3.40% 3.80% Basic EPS $0.08 ₤0.32 € 1.73 Profitability Ratios Return on Assets % 12.163% 10.288% 5.894% Return on Equity % 28.588% 24.205% 20.810% Return on Common Equity % 42.219% 24.205% 21.213% Analysis: - Efficient management of cost of operation. - Ability to withstand downturn is higher versus the comparable. - Drastic difference could be attributed to higher cost of labour in UK and Germany - Leveraged on technology, less capital-intensive structure and better returns Higher ROA
- 17. Ratio Analysis Leverage FY 2014 Singapore Post Limited UK Mail Group Deutsche Post AG Solvency Ratios Total liabilities% of Total Assets 57.45% 57.50% 71.68% Total Debt/Equity Ratio 1.350 1.353 2.531 Long Term Debt/Equity Ratio 0.558 0.158 0.482 Short Term Debt/Equity Ratio 0.686 1.195 1.207 Coverage Ratios EBIT/Interest Exp. 17.6 227 12.5 Debt coverage 0.41 0.29 0.12 Interest coverage 49.85 331.00 42.32 Analysis: - Debt ratio similar to peers, less reliance on short-term funding More stable - Interest coverage ratio within industry standards, bearing in mind its lower reliance on cheaper but less stable short-term funding.
- 18. Ratio Analysis Liquidity As at financial year 2014 Singapore Post Limited UK Mail Group Deutsche Post AG Liquidity Ratios Quick Ratio 1.566 1.003 0.878 Current Ratio 1.580 1.157 1.017 Days Sales Outstanding 53.555 41.058 46.648 Days Inventory Outstanding 3.327 0.166 2.991 Days Payable Outstanding 89.439 35.563 47.436 Cash Conversion Cycle -32.557 5.661 2.203 Analysis: - Sufficient working capital - Negative CCC efficient in collecting receivables and able to establish beneficial credit terms with creditors
- 19. Ratio Analysis Cash Flow Statement Analysis As at financial year 2014 Singapore Post Limited UK Mail Group Deutsche Post AG Performance Ratio Cash flow to revenue 1.81 1.60 1.37 Cash return on assets 0.20 0.16 0.09 Cash return on equity 0.37 0.39 0.33 Cash to income 1.41 1.22 1.24 Analysis: - Cash flow ratios all slightly better than industry - Cash flow position is healthy and liquidity will not be an issue Conclusion: - Healthy financials - Coupled with strategic alliance with strong industry players like Alibaba and a clear direction towards sectors with more potentials (e-commerce, logistics) - Dividend of $0.025/year Stable investment in the long term ($1.7 $1.92) ✓✓✓
- 20. The End Presented by: Ng Wen Ying Wang Si Jie (Jessie) Wu Shan Cao Ya Jie
Notas do Editor
- We make the simple assumption that it merely replaces lease expense with interest expense and depreciation
- Balance Sheet Analysis Some accounts in balance sheet changed significantly in recent years. Firstly, cash and equivalents increased from S$339M in 2011 to S$695M in 2012 due to the fact that Singpost issued the perpetual securities that increased both common equity and asset by S$346M. Then cash and equivalent dropped significantly to S404M in 2014 because of the repayment of S$300M long term loan. Secondly, as a result of repaying the long term loan, the long term debt in balance sheet dropped from S$505M to S$200M in 2014 as well. Moreover, since Singpost issued perpetual securities, the total equity increased by S$346M in 2012. Besides, account payable increased gradually in last five years, which indicated that Singpost might be try to delay the payment and extended the payment period. Although cash and equivalent decreased sharply in 2014, Singpost still held large amount of cash which is enough to cover the current liability. The issuing of equity and the repayment of long term debt in past years lowered the financial leverage and credit risk of singpost.
- Operating Cash Flow Overall, the net income decreased from S$157M to S$131M in past five years due to high operating expenses. Although in terms of operating cash flow, the company seems to operate better than 5 years ago and adjusted cash generated from operations increased from S$217M in 2010 to S$259M in 2014. But after looking through the balance sheet, we found that the account receivable had a significant negative change while the account payable had a positive change in year 2014. So we knew that Singpost was improving its operating cash flow mainly by accelerating receivables and stretching out payables other than by operating more efficiently, which means there was little improving in the company’ s operation and such growth in cash inflow cannot sustain. Investing Cash Flow The investing cash outflow had been decreasing since year 2011. There was almost no cash spent on investment in financial assets before 2011 and the investing cash flow mainly consisted of purchase and sales of PP&E and investment on associates or dividend from associates and joint venture. Since 2011, Singpost began to purchase and hold large amount of financial asset. And in 2013, Singpost received a significant amount of proceeds from maturity of financial assets and used this money to finance acquisition of subsidies. The company didn’t buy much financial assets or acquire any subsidies in 2014, so the investing cash outflow in 2014 was less compared to former years. Financing Cash Flow The changes in financing cash flow from 2009 to 2014 were very fluctuating due to several reasons. Generally, the financing cash flow of Singpost includes debt repaid, debt issued, common stock issued and dividend repaid and usually the financing cash outflow was around S$140M. As we analyzed before, the dividend paid was quite constant and steady during all these years but other items changed frequently. Long-term debt of S$200M was issued in 2010, which we assume to finance the purchase of financial asset, resulting in a significantly positive cash inflow. And a similar large positive amount of cash inflow happened in 2012 due to issuance of S$351M of common stock. In 2014, Singpost repaid S$315M long-term loans by cash, which resulted in S$444M cash outflow.
- In all, although Singpost had S$224M net cash outflow in 2014, but since it was previously hoarding too much cash, it still has S$404M of cash in its balance sheet, which can surely cover the expenses, reinvestment and dividend occurred every year. In fact, S$404M is still a large amount of cash, so Singpost may consider spend some on investment or development. In terms of the operating cash inflow, Singpost is gradually recovering from the industrial structural adjustment in 2012. But the financing cash flow is too fluctuant and unpredictable, which makes cash flow projection more difficult. If we cut out the influence of financing cash flow, the changes in net cash flow showed that Singpost had a healthy cash inflow.